In America, we have a saying: “Opinions are like backsides – everybody’s got one.” We tend to use more colourful language when we say it, of course, but the sentiment is the same.
In early September, the Dutch pensions regulator (DNB) was thoroughly schooled in this most American of life lessons. Back in 2011, it made the mistake of thinking its opinion was more important than someone else’s – namely SPVG, the pension fund of glass manufacturer Vereenigde Glasfabrieken. At the time, it told SPVG its 13% gold allocation was too high and ordered it to cut it to 3%.
The folks at SPVG didn’t care much for the opinion, particularly as its trustees watched the price of gold go up and up and up. Perhaps not surprisingly, they decided to take the matter to the Rotterdam court, claiming to have lost €9.5m – based on the difference between the price of gold in 2008-09 and the time of divestment.
The DNB, when asked by the judge to explain its reasoning, shuffled its feet and mumbled something about its standard deviation estimate of 33.7% and the prudent person principle, throwing in a few references to the plummeting gold prices of 1980 for good measure.
But the court – apparently persuaded by the scheme’s observation that the gold price had increased steadily over the previous decade, and that the standard deviation between 2000 and 2010 had been no more than 13.1% – was unmoved. The DNB’s opinion, it ruled, had been “unacceptable”.
Naturally, the regulator appealed the decision, an appeal that has just been rejected, allowing SPVG to continue with its claim for €11m in damages. Erik Lutjes, a pensions lawyer at DLA Piper, put it succinctly when he told IPE: “The court has accepted the argument that investment choices are the pension fund’s responsibility, and that the DNB’s task is to check these decisions from a distance.” In other words, look all you want, but keep your opinion to yourself.
Now, I’m not usually one to side with regulatory bodies, but I can’t help but sympathise with the DNB on this one. At what percentage would it have been appropriate to step in? And what if the price of gold had fallen off a cliff? Would the case have even gone to court? One would think its opinion might carry more weight than that of a pension fund, whose job it is to regulate.
But then, that’s just my opinion. And as we all know, those are like backsides – everyone’s got one. Unless you happen to be the judge.