The €4bn pension fund of retailer Ahold returned 24.1% over the course of 2014 but saw its funding increase by less than 1%.

Despite a 0.7% increase in funding to 116.7%, the scheme said it still planned to grant all participants full indexation.

In its annual report, the pension fund cited a steep increase in liabilities due to falling interest rates.

However, because it hedged 55% of its interest risk through swaps, it achieved a positive return of 14.5%.

The scheme also made a €72m profit after exchanging swaps with an expensive coupon for instruments with a cheaper coupon, an adjustment made when the market value of the swaps exceeded 5% of its balance sheet.

However, the Ahold Pensioenfonds lost 4.5% on its 78% currency hedge through forward contracts.

It reported a 12.6% return for its overall equity portfolio, with a 28.3% return on US holdings.

European and emerging market stocks returned 7.3% and 13.1%, respectively.

Fixed income generated 15.3% in total, while euro-denominated government bonds and global credit returned 13.7% and 18.3%, respectively.

Last year, the pension fund put in place a dynamic hedge of 40-60% of the interest risk on its US dollar-denominated corporate bonds through listed interest forward contracts.

However, because US interest rates fell, it incurred a loss of 0.8 percentage points.

According to Erik van den Heuvel, the scheme’s director, the pension fund applied a dynamic investment policy based on a Risk Grid, which linked the ratio between equity and fixed income portfolios to the scheme’s coverage ratio.

As a consequence, equity investments are to be reduced if funding falls below 130%, or if it increases to more than 150%.

The annual report also showed that property investments returned 16.2%, with listed real estate delivering 31.6% and non-listed property 4.3%.

Private equity returned 17%.

The pension fund attributed a 8.3% loss on commodities to falling oil and metal prices.

The scheme spent €70 per participant on administration and 0.37% and 0.12% of its assets under management for asset management and transactions, respectively.

It said it was trying to cut costs by increasing efficiency through merging portfolios, reducing the number of asset managers and increasing passive investments.

“We are also assessing how we can reduce costs by increasing the minimal scale of portfolios, as well as by reducing our diversification,” said Van den Heuvel.

Without the additional costs for increased transparency on its 1.7% private equity holdings and its interest hedge on credit, combined management costs would have dropped by 0.07% percentage points to 43 basis points last year, the pension fund said.

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