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Belgian rules get royal approval

New investment guidelines for Belgian pension funds have finally been granted a royal decree, abolishing the minimum 15% investment level in government bonds, whilst putting the investment accent firmly on prudence, diversification, liquidity and returns.
The update of the old 1985 regulations, now also allows the custody of pension fund assets to be carried out by banks and custodians with bases in the EU, expanding upon the domestically-orientated restrictions previously applicable. And a distinction has been made between pension fund assets covering minimum liability provision and solvency margin (for funds providing death or disability benefits) on an accrued benefit obligation (ABO) basis, and for the re-maining assets, which may cover the projected benefit obligation (PBO) level.
For the first category, the assets may only represent a maximum of 10% in currencies outside Euroland or OECD countries, with non-convertible currencies prohibited. The maximum risk concentration with one issuer has also been set at 5%, with the only exception being bonds issued by or loaned to EU member states, where there are no restrictions.
Mutual funds carry no issuer restriction, but non-guaranteed loans may only hold a level of 1% in any single real estate holding, with the level at 10% on specific asset categories.
For bonds, those issued by countries not belonging to the EU approved A-zone, may only represent 10% of the fund, with equities or bonds not traded on a regulated market treated similarly.
Mutual funds not submitted to EU directives may also only be held to 10%, whilst non-guaranteed loans are limited to 5% overall. If derivatives are used for any other purposes than portfolio protection, these may also only represent 5% of the entire portfolio.
The sole restriction applying to the second portion of pension fund investment is that investment in securities of the sponsoring companies is restricted to 15%.
Xavier Timmermans, head of institutional asset management at Fimagen, believes the legislation will change very little. “The bond and custodian restrictions were already being bent slightly, because some Belgian funds no longer have the 15% minimum, and others are using global custodians via sub-custodians in Belgium.
“If anything, the 10% maximum in equity investment outside the OECD/Emu countries is way higher than any Belgian fund has at present.”
Brian Hill, consultant at Watson Wyatt, adds: “There is a lot in these changes, but not much that will directly impact on pension funds at present. Certainly the widening of custody provision has been long awaited along with the 15% government bond level. But otherwise there are issues of derivative reporting and strategy, alongside maximum stock holding levels, which are not touched here, but are very important.” Hugh Wheelan

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