NETHERLANDS - Rabobank’s €15.5bn pension fund has said that its 14.7% return for 2011 was almost entirely down to its extensive hedging policy against risks on interest, equity, inflation and currency.

The scheme has placed its hedge in a €3.3bn derivatives portfolio.

Returns on investment contributed just 0.1% to its result, falling 0.2 percentage points short of the scheme’s benchmark.

Despite falling long-term interest rates - the criterion for accounting liabilities - the pension fund achieved a coverage ratio of 109.9% at June-end, making it one of the few Dutch pension funds not needing a recovery plan.

Its equity portfolio generated a 6.5% loss, with Robeco Global Equity underperforming considerably, the pension fund said.

By contrast, the asset managers Panagora and AQR exceeded the benchmarks by 2.1% and 1.6%, respectively, with their quantitative processes for selecting investments.

Fixed income investments returned 5.5%, with positive results of 7.3% and 3.1%, respectively, for government bonds and credits.

The Rabobank Pensioenfonds reported a 4.5% return on its property portfolio, adding that it could profit from an overweight position in the Dutch retail sector, which generated 8.4%.

With a combined return of 1.2%, its alternative investments fell far short of the benchmark return of 4.3%.

The pension fund said it had decided to extend a large part of its expiring hybrid hedge - consisting of equity-linked receiver swaptions - of the interest and equity risk, by replacing part of it by common receiver swaptions and equity put options.

Following the development of the coverage ratio, it also decided to convert receiver swaptions into swaps, allowing it to receive the agreed fixed interest and to pay the current - and much lower - market rate.

The Rabobank scheme said it had covered 97% of the risk on the main currency and hedged its inflation risk through 10-years inflation swaps.

The pension fund has 94,320 participants, 43,760 of whom are active and 37,625 are deferred members.

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