Dutch scheme Pensioenfonds VNU halved its stake in government bonds to 12.5% last year in favour of a range of alternative fixed income assets.

In its 2016 annual report the fund said it had moved into mortgages, asset-backed securities (ABS), government-backed bonds and private loans.

VNU raised its strategic stake in residential mortgages to 7.5% and increased its ABS holdings to a similar percentage.

It said it expected the adjustments would generate better returns against an almost unchanged risk profile.

For the same reason, the pension fund took a 7.5% stake in the Aegon Government-Related Investment Fund (GRIF), which invests in government-backed or government-related bonds as well as private loans.

The changes applied to the €174m of pension assets managed by Aegon Investment Management for the Pensioenfonds VNU. The assets cover €57m of liabilities, chiefly for indexation for pensioners and deferred members.

VNU said it would bear the longevity risk for the €57m of assets “as a hedge through longevity swaps would be too expensive and complicated”.

In addition, the scheme has insured €438m of liabilities through a guarantee contract with Aegon, based on assets with a market value of €277m.

The board said it had persuaded Aegon to also invest 15% of the insured liabilities in the insurer’s Government Related Investment Fund, at the expense of investments in Aegon’s Core Government Bond Fund and European Credit Fund.

The pension fund – which reported an overall annual return of 6.7% and had a funding of 123.8% at May-end – said it wanted to remain independent, rather than merge with another scheme.

It argued that a feasibility check had shown that, with its current coverage and investment policy, it would be able to keep on granting inflation-linked increases for a long period.

It also pointed out that, because its pensions were largely insured, supervisor DNB had agreed that it could grant full indexation based on a funding ratio of 113.4%, rather than the usual regulatory minimum of 125%.

The scheme’s US sponsor, marketing research firm The Nielsen Company, showed a preference for defined contribution pension schemes, VNU said. This meant the Dutch defined benefit fund could ultimately face closure to new entrants.

Pensioenfonds VNU has more than 3,000 pensioners and 2,150 deferred members but just 230 workers.

Last year, its administration costs were €323 per participant. It spent 0.3% and 0.03% on asset management and transactions, respectively.

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