Emerging markets drag up ABP’s coverage ratio

A return on investments of 4.5 per cent for the first six months of this year, contributed mostly through emerging markets and commodities, has resulted in the coverage ratio of the €180 billion ($250 billion) ABP increasing from 90 to 98 per cent, well within the 93 per cent by the end of 2009 stipulated in its recovery plan.

The fund’s emerging market element of equity returned more than 30 per cent for the first half of 2009, while commodities returned 9 per cent. Hedge funds and index-linked bonds, both returning 5.6 per cent, were also positive contributors to the six-monthly return.

It is a big turn around for ABP after a calendar year return of-20.2 per cent.

ABP submitted its recovery plan to the supervisory authority, De Nederlandsche Bank (DNB), at the end of March and it was approved in July. It specifies how the pension fund will restore the coverage ratio to above the required minimum level of 105 per cent within five years.

The investment return for the past six months has contributed 50 per cent of the increase in the current coverage ratio, with the increase in the market rate of interest (from 3.6 to 4.0 per cent) also a contributor.

While the pension fund’s financial position is much improved, the ABP board warned against over-optimism, stating the financial markets were still too unsettled.