Britain's Pension Protection Fund returned 13.4% for the year ended March 31, but increased claims resulted in a drop in the funding ratio to 88% from 91% the previous year, according to the fund's annual report.
The £2.9 billion ($4.8 billion) fund benefited from underweight positions in equity and property, and overweight positions in cash and bonds. The asset allocation was split 50% bonds, 20% cash, 12.5% U.K. equities and 7.5% global equities. A global tactical asset allocation strategy accounted for 2.5%, and the remainder was invested in real estate, according to the report.
Fund officials also employed a liability-driven investing portfolio that uses swaps to hedge against interest rates and inflation movements. That portfolio, managed by Insight Investment Management, yielded a return of £318 million for the year ended March 31.
The fund outperformed its target benchmark — which is 1.4 percentage points above the three-month LIBOR, or 6.2% for the year — by 7.2 percentage points, according to the annual report.
However, the fund's deficit increased 132% to £1.2 billion because of an increase in both the number and value of claims made. (The PPF is the U.K.'s equivalent of the PBGC.)
“The lack of big claims and market improvements since March mean we estimate that, by the end of September, our deficit had fallen back below the £1 billion mark and our funding ratio had returned to more than 90%,” Alan Rubenstein, the fund's CEO, said in a news release accompanying the annual report.