PNO Media, the €5.5bn pension fund for the media and creative sectors in the Netherlands, has increased its strategic allocation to Dutch mortgages and US high yield bonds at the expense of liquid assets, European credit, and emerging market debt.In its annual report for 2016, the pension fund said it had stayed within its strategic risk framework and 50% fixed income allocation, due to its its underfunded position.Outside of the strategic allocation to fixed income, PNO Media reduced both its listed and private equity holdings in favour of property and infrastructure.The pension fund reported a result of 8.5% for the year, including a 0.6% gain from its 25% interest hedge, due to declining interest rates. It also credited falling interest rates for the 12.6% return from its euro-denominated government bond holdings. PNO Media’s fixed income portfolio delivered an overall return of 9.2%.Equity generated 7.9%. PNO Media attributed the underperformance of 1.5 percentage points relative to its benchmark chiefly to its large portfolio of active large-cap investments, which have a long-term focus in Europe and the US.The scheme said that its “high-quality” Dutch mortgage holdings yielded 3.9% – an outperformance of 1.6% – adding that it had increased its strategic allocation from 10% to 12%.The media scheme also said that it had made its non-listed property portfolio more defensive through an increased focus on Dutch residential property as well as retail, by reducing the number of funds and decreasing leverage to less than 25%.It increased the strategic allocation to retail property assets from 28% to 38% of its real estate portfolio, while halving its office holdings to 8% and reducing its stake in corporate property from 10% to 8%.PNO Media’s stake in US dollar-denominated emerging market debt (EMD) returned 17.2%, but the scheme’s currency hedging prevented it from benefitting from the appreciation of the dollar, it said.As local currency EMD underperformed with a return of 11.8%, the pension fund said it had decided to divest its holdings.Private equity yielded 9.7%. The pension fund said it expected that for the long term, the asset class would generate 3% extra returns relative to European and US public equity.It has 3% invested in private equity – managed by SPF Beheer – an allocation that has predominantly been invested in the buyout sector in Europe.The pension fund said it had no plans to extend its infrastructure portfolio, after doubling the allocation to 2%. Its investments in non-listed European funds produced 7.7% last year.Away from the investment portfolio, PNO Media said it would focus on cost reduction through growth. Last year, it was joined by the pension funds of consumer organisation Consumentenbond and book logistics provider Centraal Boekhuis, with 750 employees transferring in total. It also welcomed 30 smaller employers, with 150 workers combined.It said that costs per participant had risen €11 to €216, citing higher expenses for security of data, governance and communication, as well as the introduction of new pension arrangements and the acquisition of new clients.The pension fund drove down asset management costs to 0.63% and transaction costs to 0.11%.Last April, its funding stood at 100.7%. It said that indexation was unlikely to be on the cards and that it might have to cut pension rights if its coverage ratio was still short of 104.1% by 2020.