NETHERLANDS - Direct property was the best returning asset class ofthe €2.4bn pension fund for public transport SPOV in 2007, generating areturn of 11.4%.

That said, the scheme's overall returns of 3.8% fell 0.4% short of its benchmark, because of underperformance of part of its externally-managed equity, as well as underperformance of fixed income portfolios, the scheme reported.

SPOV's equity portfolio yielded 5.7%, while government bonds returned 3%.

The scheme had already raised its strategic fixed income allocation - acting as an interest risk hedge - to 10% last year, ahead of a planned increase of the strategic fixed income allocation to 20%, but the very same portfolio returned minus 3.7% in 2007 because of an interest rate rise.

Emerging markets debt yielded 3.4% and the pension fund has raised its allocation of emerging market debt to 2%, as part of its plan to further increase the portfolio to 5% of its assets, it indicated.

SPOV reported positive returns on its strategic equity portfolio (0.9%), private equity (4%) and derivatives (4%). However, company bonds, mortgages and indirect property showed negative yields of -0.4%, -3.3% and 0.7% respectively.

The scheme began to build up an unlisted property portfolio, which must grow to 2.5% of its assets, last year, officials say.

According to SPOV, it has improved its risk management by appointing its audit committee as the link between its board and its pension provider SPF Beheer. "This way, risk management can be more efficiently embedded in the planning and control cycle," it explained.

The risk management model is based on the integral approach of pension regulator De Nederlandsche Bank as it categorises risks and connects the risk control framework with the Financial Institutions Risk Analysis Method (FIRM), the scheme added.

During last year, the pension fund increased its currency hedge from 80% to 100%, excluding investments in emerging markets equity, and this led to to extra returns of €49m, in part thanks to the drop in the US dollar.

In order to improve the balance of its European equity portfolio between managers, SPOV also transferred part of the SPF-managed portfolio to external managers, according to the end of year report which stated SPOV's coverage ratio at the end of 2007 was 153%.

The public transport pension fund has 11,000 active participants, 7,000 deferred members and 7,700 pensioners, linked to 24 affiliated companies.

It granted its active workers an indexation of 3% last year, while the other participants received 1.43%. The scheme maintained the 2008 contributions at 16.4% of workers' salaries.