As the first anniversary of the credit crunch passes, several studies have already documented the strategic shifts pension funds have started to make in their approach to risk.

A review by the US investment bank Lehman Brothers showed that UK pension funds saw the steepest decline in solvency ratios in the first half of 2008 compared with their Dutch and German counterparts thanks to falling asset values. Even the Dutch pension funds, generally known for their good health, suffered negative returns in the first six months of this year as equity markets continues their drag on results.

ABP, PFZW, PMT and PME, the four largest Dutch funds, posted losses of €16bn in the first half, with ABP admitting being hardest hit, with a first-half return of -5.1%.

In July, Mercer gauged that one out of every three Dutch pension funds had a long-term reserve shortage, as negative returns caused cover ratios of many Dutch funds to drop below 125%.

According to official figures from the DNB, in the first quarter of this year - no updated figures are available yet - seven schemes had a cover ratio below 105%, requiring them to draft a recovery plan to eliminate the shortfall within three years. Just under 200 of the total 700 Dutch schemes had a ratio between 105-130%. The FTK financial assessment framework prescribes a 15-year recovery plan if the ratio drops below 125%.

The figures prompted Nout Wellink, the chairman of the DNB, to warn that in the short term the value of assets would suffer from "inflation shock" as pension funds try to index as much as possible while returns on shareholdings fall.

Since the credit crunch started, some Dutch funds have responded by adjusting their asset allocation.

Reporting a drop in its funding level to 132%, the TNT postal fund said at the end of the second half
that it had doubled its allocation to inflation-linked bonds at the expense of EMU government paper. To further decrease its inflation risks, the fund has also raise exposure to actively managed bonds from 40-50%.

PMA, the €1.1bn pension fund for pharmacies' staff, which managed to maintain a cover ratio of around 185% at the end of June, said it applied a dynamic asset allocation, instead of a long-term strategic portfolio. "In the case of rising interest rates, we raise the hedge through government bonds," Marcellino Korpman, chief executive of PMA, said in July.

According to Dennis van Ek, an Amsterdam-based consultant with Mercer, funds of all sizes have suffered from the effects of the credit crunch, although in his observation, smaller funds tend to apply more interest rate risk hedging and tend to allocate less to equity-type investments. "As a large fund, you can take on complex solutions and illiquid investments more easily, but this can also turn against you should credit become more scarce," he said.

Indeed, all pension funds seem to have opted to decrease their equity holdings. This move was kick-started by Progress, the €4bn Dutch pension fund of food and home care product manufacturer Unilever, which initiated a risk-reduction strategy last year. The fund divested from equities in favour of fixed income on emerging markets, euro credits and very long-term bonds.

A spokesman confirmed the fund made its first foray - of 2% of its portfolio- into commodities earlier this year, adding that Progress would allocate another 2% in the second half.

Other funds have followed suit, paying increased attention to alternatives. Elco Brinkman, ABP's exiting chairman, said when commenting on his fund's results earlier this year that the fund could have been hit worse had it not been for the increased investments in alternatives such as commodities, hedge funds, private equity and infrastructure.

That said, TNT decided to raise its equity allocation to emerging markets at the expense of European shareholdings. The scheme's strategic portfolio remained almost unchanged.

The €5.2bn pension fund for medical consultants SPMS, returning -4.9% in the first half, decided to gradually alter its 42% allocation to fixed income by shifting much of its investment from Europe to the US. "Because of the uncertainty in the financial markets, US fixed income investments gained from the ‘flight to quality'," the fund said.

The €500m pension fund of publisher Elsevier decided to better prepare for the present market conditions by not only introducing a commodities portfolio and decreasing its equity portfolio from 60% to 37.5%, and raising fixed income from 35% to 47.5%, but also by doubling its real estate allocation to 10%.

It is clear that the anniversary of the credit crunch has funds on their toes, prompting a rethink of what a sophisticated portfolio means to long-term investment returns, particularly in a market that prides itself on having a solid pension system.