NETHERLANDS - Spectacular yields of 37.3% on commodities and 31.9% on timber, US life insurances and Chinese equity contributed to the 5.2% overall returns in 2007 of the €22bn metal pension fund PME.
But the €35bn industry-wide PMT pension fund for the metalworking and mechanical engineering sector pension reported even better returns of just under 6% and an increase to its funding ratio from 138% to 153%.
PME's returns were negatively affected by 3.1%, due to the effect of the rising bond rates on the interest hedging, the industry-wide scheme for the metal and electro-technical engineering industry said, in its annual report.
On the other hand, the rising interest rates caused the scheme coverage ratio to increase from 128% to 133%, it made clear.
According to PME, it has hedged 75% of its liabilities against interest rates movements. In addition, it has also hedged it currency risk.
PME's investments in equity and property returned 9.3% and 9.1% respectively. Mainly thanks to the risen interest rates and the unrest on the financial markets in the US, fixed income returned no more than 1.7%, it said.
PME has allocated 6% of its assets to commodities and 7% to special projects. Fixed income, equity and property count for 41%, 39% and 8% of its investments respectively.
The scheme has decided to grant its active participants and pensioners a total indexation of 5.54% and 2.29% respectively, including a compensation for a shortfall during previous years. In addition, it will also lower the contribution by 1%.
After having factored-in a levy for increased life expectancy, the effect of the indexation and transitional measures for workers who were born since 1950, PME's coverage ratio is down to 127%, it pointed out.
PMT's returns on emerging countries equity, private equity, commodities and international direct real estate were the main drivers behind the overall result 5.95%, it said, adding that the full hedging of the dollar risk also led to extra returns.
However, mainly international indirect real estate, but also equity and high-yield bonds showed negative returns during the last quarter, PMT reported. Its hedging of its interest risk had a negative effect of -0.5% during 2007.
During the last quarter, the scheme - increased its asset allocation to alternatives by 4% to 14%, at the expense of equity investments which decreased to 33%.
PMT expects the next quarter to be characterised by volatility and revaluation of assets as well as a re-pricing of risks.
"New defaults or improved insight in the real risks of financial products, can lead to extra write-offs. Improved transparency, tightened regulation as well as improved risk management and ‘cleaning' of balances,will restore confidence over time," it commented.
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