NETHERLANDS - The three KLM pension funds, with combined assets of €12.7bn, have started to invest in local currency emerging markets debt, in order to diversify their fixed income portfolios.
The KLM general pension fund and the schemes for cabin crews and flying staff said in their respective annual reports: "This will reduce the number of bonds [held] in US dollars. Moreover, the quality of government debt in many emerging markets has clearly improved."
The three schemes - serviced by pensions provider and asset manager Blue Sky Group - have also decreased their allocation to European equity in favour of equity investments in Canada and the Pacific Rim, excluding Japan, they made clear.
In addition, the KLM pension funds have increased their allocation to inflation-linked bonds at the expense of their equity portfolios.
The scheme for cabin crews also said it has raised its strategic allocation to fixed income by 5%, at the expense of its equity investments and has subsequently shifted the accent on long-term European government bonds to global inflation-linked bonds.
Both the €4.9bn Stichting Algemeen Pensioenfonds KLM and the €1.3bn Stichting Pensioenfonds Cabinepersoneel reported returns of 3.4%, while the €5.5bn Pensioenfonds Vliegend Personeel announced an overall yield of 1.8%.
Their nominal cover ratios were 181%, 192% and 171% respectively at year-end.
The property investments of the KLM schemes generated negative returns of between -11.5% and -12.4%, as European public real estate and US indirect property delivered negative yields of no less than -28% and -18% respectively, the reports also revealed.
Returns on the schemes' equity portfolio was just over 6.5%, with emerging markets - mainly thanks to growth in China - and the Pacific Rim, excluding Japan, yielding 33% and 21% respectively.
The fixed income portfolios returned between 2.5% and 2.7%, with emerging market debt the best performing part, according to the schemes.
Both KLM's general scheme and the pension fund for cabin crew have invested approximately 8% of their assets in property. Their investments in equity and fixed income are in the mid forties.
However, the flying staff's scheme's investments in property and equity are 12.1% and 29.6% respectively. Its fixed income portfolio counts for 56% of its assets.
The three KLM schemes have fully hedged the exposure of the main currencies against the euro and will now continue an ALM study into the interest and inflation risks this year, according to the latest report.
The general pension fund and the schemes for cabin crews and flying staff have 32,980, 11,505 and 5,035 participants respectively.
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