DEPF, the €1.7bn pension fund of coffee producer Douwe Egberts, is considering replacing its government bond holdings with interest swaps to “create space” for better-returning investments.Director Elvin van den Hoek said DEFP would look into the possible strategy change if the pension fund decided to ramp up the investment portfolio’s risk profile, something it is currently considering.Long-term government bonds in a matching portfolio make up 29% of DEPF’s total assets.“The returns on long government bonds is very low at the moment,” Van den Hoek said. “If we could replace them for swaps, we would create space for better-performing investments, which would improve the potential for indexation.”Last year, the pension fund introduced a 4.9% allocation to residential mortgages at the expense of its government bond holdings, according to its 2014 annual report. DEPF reported an investment return of 18.8%, attributing the 0.6% underperformance to fund managers’ “disappointing” execution – both for the matching portfolio and alternative investments.Alternatives returned 7.5%, while equities returned 14.3%.The pension fund’s combined holdings in government bonds, mortgages and interest derivatives returned 25.2%.Over the course of 2014, the Douwe Egberts scheme reduced its interest hedge from 50% to 45% of its liabilities, whilst keeping the level of its strategic cover at 50%.It also kept the strategic currency hedge of the US and Hong Kong dollars, the British pound and the Japanese yen at 66.7%, after losing 1.4% due to the weakening of the euro against other currencies.However, it added that it would look into the possibility of introducing a dynamic currency hedge. The pension fund granted active participants a 2% indexation, while deferred participants and pensioners received an inflation compensation of 0.3%. DEPF said it could reduce the contribution from 26% to 21% due to cost-cutting on pension arrangements.It said it was able to limit transaction costs to 0.08% in 2014 by re-balancing its portfolio annually rather than on a monthly basis, in addition to allocating government-bond returns to its liquidity policy instead of re-investing the proceeds.The pension fund reported administration costs per participant of €150.At April-end, DEPF’s official ‘policy’ funding was 112.5%.The scheme has 2,225 active participants, 3,695 deferred members and 4,320 pensioners.