NETHERLANDS - The €1.8bn pension fund of retailer Ahold saw its cover ratio drop by 68 percentage points to 102% last year, through falling equity markets combined with decreasing long-term interest rates.

The scheme's assets were down almost 20% at year-end, its annual report revealed, following a return on investments of -19.2%.

That said, officials indicated that they prevented a further loss of 3.9% thanks to the combination of a 50% interest rate hedge on its liabilities through interest rate swaps and a 75% cover of currency risks through forward contracts.

As a result of the funding shortfall, the Stichting Pensioenfonds Ahold has decided to raise the contributions to the agreed maximum of 14.7%, and to double the participants' part to 2.8% of the pensionable salary.

Scheme offiicials have also decided not to pay compensation for inflation in 2009, as the scheme paid full indexation of 3.8% last year.

And the sponsoring company has also agreed to make an additional contribution of €50m, based on existing arrangements for a funding shortfall.

The pension fund said it stopped its quarterly rebalancing in October because of its considerably decreased equity allocation as well as the high volatility in the financial markets.

The Ahold scheme's equity portfolio lost 48.3% in 2008 and dropped in value to be worth 33% of the scheme's assets, which is 12% short of its strategic allocation.

Meanwhile, the 40% strategic fixed income portfolio, which yielded 4.6%, grew to 46.2%.

The 10% holding in property lost 20.5%, driven largely by listed real estate which lost a whopping 50.2% in 2008.

Despite the 8.6% loss on investments in infrastructure, private equity funds and mezzanine funds, the scheme's board has decided to almost double its strategic allocation to 5%, adding that is has contracted Credit Suisse to select attractive private equity and venture capital funds.

The pension fund's active investment policy has over the past five years led to a benchmark outperformance of 0.7%, according to officials, while the scheme's average return per annum since 1992 was 7%.

Equity and fixed income investments of Ahold's pension fund are largely managed in-house while its administration has been contracted out to Accounting Plaza.

The Stichting Pensionfonds Ahold has 83,370 participants, of whom 28,800 are active and approximately 9,000 are pensioners and had assets of €2.2bn in 2007.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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