Dutch pension fund ABP said it will cut down on debt investments, which currently make up about 40 percent of its portfolio, and switch to assets that offer a better inflation hedge. A spokesman for ABP, the world’s third biggest state pension fund after those of Japan and Norway with 205 billion euros ($325 billion) in assets, declined to say which assets ABP was looking at or to which percentage it wants to cut debt investments.

ABP, which aims to offer inflation-hedged pensions to more than 2 million civil servants and retirees, reported on Thursday a 5 percent negative return on its investments mainly due to losses on stocks and said it was worried about rising inflation.

The return on investments over the first half of 2008 was -5.1%. As a result, ABP’s assets decreased to € 205 billion. The value of the nominal pension liabilities remained relatively stable at € 155 billion. The coverage ratio at the end of the first half of 2008 was 132%.

In spite of the major shocks experienced by the equities markets, the effect on ABP’s investment portfolio was relatively limited. This was due primarily to the effective diversification within the fund’s investment portfolio and the good results for most of the alternative investment categories.

Reuters / ABP Press Release