NETHERLANDS - PGGM, the asset manager of the €88bn healthcare pension fund ‘Zorg en Welzijn' (PFZW), will increase its focus on inflation-linked investments in order to stay on top of inflation.

"We will actively aim at inflation-linked bonds to stabilise our asset mix," said Else Bos, head of investments, during the presentation of the scheme's annual figures today.

The inflation-linked bonds' portfolio, which has already been increased to 9%, returned 9.6% in 2007.

In addition, PGGM is also increasing its allocation in commodities from 5% to 7%, while property and infrastructure allocations will increase from 15% to 16% and private equity from 5% to 6%, officials indicated.

The entire investment portfolio of PFZW contributed to its overall returns of 7.1% during 2007. However, returns were negatively reduced by 1.4%, because of a 30% interest hedge of the scheme's liabilities which is actually designed to stabilise the cover ratio.

Following the sharp rise of oil prices, commodities were a significant contributor to the results, as the sector returned 35.6% for the pension fund, while investments in private equity and the portfolio of 16 strategies yielded 28.1% and 11.4% respectively.

PGGM's ALM-driven allocation change will come mainly at the expense of its equity portfolio, as this will be decreased from 40% to 36%, said officials.

The equity portfolio returned 7.4% last year, while fixed income and property yielded 3.1% and 9.8% respectively.

Thanks to the turmoil in the financial markets, PFZW's nominal funding ratio has decreased from 148% at year-end to approximately 140% at present, which is 96% allowing for a consistent future indexation, said Martin van Rijn, executive chairman.

Van Rijn stressed PGGM does not intend to base its daily decisions on the funding ratio, "because that would stymie a solid long-term policy".

"Despite the difficult market conditions, the returns vindicate our pursuit of a long-term investment policy with a highly-diversified asset mix," commented Peter Borgdorff, PFZW's general manager, while adding "the robust cover ratio puts the scheme in a strong position to ride out turbulence on the financial markets."

According to Else Bos, PGGM also allocated €1.7bn to ESG investments at year-end. Though she made clear the scheme's policy of engagement with companies is resulting in change, she does not expect overall effects will ever be measurable.

"Through our investments we aim to push change," Bos said. "For example, we won't invest in hedge funds which tend to seek out the boundaries and become aggressively activist schemes."

PGGM was created by PFZW, the healthcare and social welfare scheme, on January 1 as a separate asset management and administrator division of the scheme, and is tasked with managing the pension fund's capital.

PFZW has over two million participants and 19,400 associated employers, and granted its participants a full indexation of 1.82% over last year, while keeping the contributions at 16% in 2008.

According to PFZW, its costs per participant are €63, which is down from €90 in 2003.