UK - The £2.4bn (US$3.9bn) Lothian Pension Fund is set to implement a revised investment strategy after losing 17% over the fiscal year to March 31.
According to its annual report and accounts for 2008-2009, the scheme also undertook an actuarial valuation which showed a funding level of 85%, with a deficit of £524m.
The new strategy will see 35% allocated to alternatives (up from 24%), 60% allocated to equities (reduced from 66%) and 5% allocated to bonds (down from 10%).
The investment strategy was reviewed this year to reflect the results of the actuarial valuation.
It concluded the fund had to "continue to invest a substantial amount of the fund in relatively volatile assets, which have higher long-term return expectations".
The report also said the transition to the new investment strategy would be a gradual process, which would be dependent on market performance and on identifying appropriate alternative investments.
In a statement introducing the report, City of Edinburgh Council director of finance Donald McGougan said: "The current economic situation impacted on the fund and the actuarial valuations showed increasing pressure on employer contribution rates."
He added the valuation results highlighted the need for "urgent action in relation to the development of cost-sharing arrangements between employers and employees" and raised questions about "the longer term affordability and sustainability" of the scheme.
The report said the average employer contribution rate increased from 19% as at March 31, 2005 to 22.5% as March 31, 2008.
However, the report added the actuary did not recommend any changes to employer contributions as a result of the continuing economic downturn.
Losses on equities - into which the fund is heavily invested - and corporate bonds were the main causes for the value of assets to decline. These losses were partially offset by a 10.3% gain on fixed interest gilts.
The fund also posted losses on its property allocation, which the report attributed to the illiquidity of this asset class and its dependence on bank financing.
The fund portfolio outperformed its investment benchmark set at -24.4% by 9.8%.
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