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Impact Investing

IPE special report May 2018

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Aegon tells schemes to take more risks

NETHERLANDS – Aegon has urged pension funds to take more risk in their portfolios despite regulatory requirements and declining funding ratios.

At present the Dutch pensions landscape is experiencing a paradox: schemes need to take greater risks to meet liabilities, but also feel that the funding ratios and regulations are resulting in too much risk.

Given this need to reduce risk but generate returns, Aegon asked what risks funds were prepared to take.

“We are still in a low return environment. You need to take a more active risk within portfolios,” said Aegon’s investment strategy department manager Roelof Salomons.

Furthermore, the group also urged funds to reduce interest rate risk and take more equity risk.

“Interest rates are low but not too low. Rather reduce interest rate risk enabling you to take more risk where you are compensated to do this. Take equity risk,” said Salomons.

“Taking active risk within portfolios would have the advantages of being able to generate incremental returns and make is easier to meet liabilities.”

He also explained that an obvious negative would be a failure to deliver alpha, which in a low expected return environment, might lead to a possible failure to meet liabilities.

“As such, the importance of active management is clear, but so are the risks. Hence, asset managers with the ability to add value consistently are of crucial importance.”

Salomons stated that global equities are expected to return 3.5% more than global bonds.

Dutch Aegon’s annual outlook – compiled under chief investment officer Henk Eggens – is based on the asset manager’s view of the economy, challenges, and possible future developments.

It is used for its own asset liability management work, and for the running of its own and clients’ portfolios.

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