KPN Scheme Ups Fixed Income Holdings After Difficult 2018

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The €10.2bn pension fund of Dutch telecoms giant KPN has reduced its strategic allocation to securities by 10 percentage points to 43%, in favour of fixed income.

In its annual report for 2018, the scheme said the change was meant to improve its risk-return profile. At year-end, its funding ratio of 120.1% had exceeded the level required to grant indexation payments to members. Last year, it granted its participants and pensioners inflation compensation of more than 1.1%.

KPN Pensioenfonds said it had lowered its strategic equity allocation from 43% to 34.5%, largely by cutting global equities to 15% of the portfolio. However, it kept its European equity allocation at 5%, switching its holdings into a passively managed best-in-class strategy tilted to ESG themes.

It also diversified across private equity, small cap and long-term investing strategies.

The pension fund increased its strategic fixed income allocation from 47% to 57%, raising its stake in Dutch residential mortgages by 5 percentage points to 20%.

It also increased exposure to credit and German inflation-linked bonds to 13% and 12%, respectively. The KPN scheme said that it had decided to invest 2.5% in green bonds.

Equities and currency hedge behind 2018 loss

KPN

Source: KPN

KPN’s head office in Rotterdam

KPN Pensioenfonds posted an overall loss of 1.7% for 2018. Equity was the worst performing asset class, losing 5.6%, with passively managed assets down 10%. In contrast, private equity delivered a 22% gain.

The pension fund’s 9.3% property allocation had generated a return of 7.6%, largely due to indirectly invested non-listed property in Europe, North America and Asia Pacific, which gained 9.6%.

A passive allocation to listed real estate in developed countries fell by 0.3%, but the scheme’s fixed income holdings gained 1%.

The telecoms scheme incurred a 1.7% loss on its 50% currency hedge of the dollar, sterling and the yen.

Last year, KPN established its own administrative office in order to improve its professionalism and relieve pressure on the board. It is tasked with the implementation of the European pensions directive IORP II as well as strategic projects.

The pension fund attributed an increase in costs – from €209 to €222 per member – to the cost of setting up the office, also citing a higher management fee charged by provider TKP Investments and increasing regulatory pressure. Asset management costs remained at 0.47%.

The KPN Pensioenfonds has 13,280 active participants, 38,505 deferred members and 20,195 pensioners.