tiï O Q,
Notes to the Consolidated Financial Statements (continued)
Introduction Report of the Executive Board Report of the Supervisory Board
Defined benefit plan assets
In millions of
Corporate bonds -
Corporate bonds -
Properties and real estate
Cash and cash equivalents
Other plan assets
Balance as at 31 December
The HEINEKEN pension funds monitor the mix of debt and equity securities in their investment portfolios
based on market expectations. Material investments within the portfolio are managed on an individual
basis. Through its defined benefit pension plans, HEINEKEN is exposed to a number of risks, the most
significant are detailed below.
Heineken N.V. Annual Report 2018! 90
Risks associated with defined benefit plans
The plan liabilities are calculated using a discount rate set with reference to corporate bond yields. If the
return on the plan assets is less than the return on the liabilities implied by this assumption, this will create a
deficit. Both the Netherlands and the UK plans hold a significant proportion of equities, which are expected
to outperform corporate bonds in the long term, while providing volatility and risk in the short term.
In the Netherlands, an Asset-Liability Matching (ALM) study is performed at least on a triennial basis.
The ALM study is the basis for the strategic investment policies and the (long-term) strategic investment
mix. This resulted in a strategic asset mix comprising 38% equity securities, 40% bonds, 9.5% property and
real estate and 12.5% other investments. The objective is to hedge currency risk on the US dollar, Japanese
yen and British pound for 50% of the equity exposure in the strategic investment mix. The ALM study has
been performed in 2018 and a new strategy mix will be implemented in 2019.
In the UK, an Asset-Liability Matching study is performed at least on a triennial basis. The ALM study is
the basis for the strategic investment policies and the (long-term) strategic investment mix. This resulted
in a strategic asset mix comprising 45% of plan assets in liability driven investments, 18% in absolute
return, 16% in equities (global and emerging markets), 5.5% in alternatives and 15.5% in private markets.
The objective is to hedge 100% of currency risk on developed non-GBP equity market exposures in the
strategic investment mix.
Interest rate risk
A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset
by an increase in the value of the plans' fixed rate instruments holdings.
In the Netherlands, interest rate risk is partly managed through fixed income investments.
These investments match the liabilities for 24.4% (2017: 22.9%). In the UK, interest rate risk is partly
managed through the use of a mixture of fixed income investments and interest rate swap instruments.
These investments and instruments match 34% of the interest rate sensitivity of the total liabilities