mast image

Special Report

ESG: The metrics jigsaw

Sections

Virtual debate on challenges

November saw the first-ever IPe-Symposium, an online conference for the European pension industry. The topic for the free event was “The challenges in meeting Europe’s occupational pensions liabilities”.
Some of the most senior figures in the field participated and some 668 delegates, from 46 countries, registered to participate - with the total number of viewings of the six hours peaking at 1,530.
The presentations consisted of a slide show coupled with the speaker’s live, spoken presentation – delivered online via delegates’ own desktop computers. Each presentation lasted for around 20 minutes, followed by a 10-minute question-and-answer session. One of the beauties of the event was that delegates could dip in and out of sessions quite freely – although there was obviously no networking coffee break!
It was judged a success, due not only to the quality of the presentations but also the nature of the symposium.
The format gave the unexpected impression that you were listening in to an event taking place in one venue elsewhere, and not that the participants were really spread geographically.
Jean Frijns, the former investment chief at Dutch civil service fund ABP, outlined his thoughts on how pension fund structure should be amended.
Frijns, now chairman of the Tabaksblat committee on corporate governance, noted that the risk allocation is rather “diffuse” in the Dutch system – that’s to say it was not clear who the economic owner of a pension fund is, the sponsor or the member.
He called this a “rather weak point” in the Dutch approach. “This is all, at least in the Netherlands, unclear.”
“The structure doesn’t reflect the economic reality,” he told the symposium. He argues that since it’s the participants are the real risk takers they are therefore the economic
owners.
“But on the balance sheet they appear as debtors,” he said. “So the balance sheet doesn’t reflect economic reality. We should stick with strategy and fix the structure. “Current DB models look riskless for participants but they are not.”
He highlighted the growing tensions between the generations in the Netherlands and warned that the situation could become more tense if the problems aren’t solved.
Anne Maher, the chief executive of Ireland’s Pensions Board, suggested on the symposium that a pan-European pensions coordinator might be a good idea. “Some form of EU coordinator might be a good idea,” Maher said – although she added she would not welcome centralised regulation because the regulatory environment for European pensions is “not a green field situation”.
But she said there’s still quite a distance to go before there’s a pan-European pensions regulator. European pensions regulation came in for a battering from speakers. 

Maher said regulators were “not out there to get pension funds or to make life awkward for them”. She said regulators and schemes had common objectives.
She rejected the idea that the insurance measure Solvency II should be applied to pension funds. “I have strong views that that’s not the way forward.” She added it could be very destructive for defined benefit plans in Europe.
Jan Straatman, chief investment officer for capital markets at ABP (before his high-profile move to Pearl Group), made an illuminating presentation which posed questions about the nature of asset ownership and asset management.
He called on pension managers to ask who the client really is, i.e. who is the ultimate asset owner? The investment model had to take these issues into consideration. “Are we really doing this? Are we all promoting a long-term pensioner centred investment policy?”
He talked of the “myths of the investment industry”, which he saw as extremely structured and rigid with well-defined asset classes and sub asset classes in “small and narrow clusters of activity”. This has led to it being very difficult to outperform, he argued.
Indeed, the success of hedge funds suggested this traditional ‘silo’ approach was “suboptimal”.
He explained how the fund was moving on from the traditional approach, instead looking more at strategies. “What are the exposures, the risks, the correlations?”
“Performance is all about finding and exploiting market inefficiencies. Does a manager have skill to exploit these inefficiencies?” ABP had made a conscious decision to separate top down from bottom up.
Robin Ellison, chairman of the UK’s National Association of Pension Funds, spoke of the conflict between the Anglo-Saxon approach and the traditional continental approach – with continental schemes now seeming “rather stronger”.
There was a problem over attitudes to risk. “People must realise that risk is necessary for good returns in their pension funds. The UK pension system has always accepted that risk is necessary – including the risk that companies will go bust.”
He was critical of the pension fund directive. “One of the tragedies of the European pension directive is that it’s been hijacked by various interest groups,” Ellison said in a keynote address. He said the total effect of the directive’s provisions was “counterproductive”. He reckons the regulatory framework is now “so tight that none of us can live with” it. The problem was that it reflects attitudes to risk that constrain pension funds, he said.
The challenge was to revise the directive to achieve sensible protection that everybody could live with. He would watch proceedings with “interest and anguish”.
It was inevitable that the retirement age will have to be raised in the UK and that people will have to work longer than they expected, said pensions investment consultant William MacDougall, the former managing director at TRW Investment Management. Belgian consultant Karel Stroobants said this would also be inevitable in other European countries. 
Swiss pension adviser Werner Nussbaum predicted an “avalanche” in the move from defined benefit to defined contribution by corporate schemes in the next three to five years. “In six years all will have moved to DC,” he said.
However Stroobants was more optimistic. He said the DB type of pension could be saved if it was modified.
He proposed a hybrid DB scheme, when he termed as “defined risk” - where the collective risk was spread between members and sponsors.
The question was would risk be spread?
Nussbaum said there was a need for better education and more training of both pension fund boards and trustees, and pension fund members.
Peter Kraneveld of PGGM called this a tough sell: “People are not interested in pensions and even less interested in pension funds.” He queried the assumption that lay people should be encouraged to become investment experts. However he agreed with Nussbaum that the key requirement was for better transparency.
“People must be able to understand what we are doing.”
The event was clearly a success and IPE plans further e-symposia in the coming year.

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2572

    Asset class: High Yield Bonds.
    Asset region: Global.
    Size: $200m.
    Closing date: 2019-11-27.

  • QN-2573

    Asset class: Real Estate.
    Asset region: Global.
    Size: CHF 150m.
    Closing date: 2019-12-06.

  • QN-2575

    Asset class: Core Real Estate Muli-Manager Separate Managed Account.
    Asset region: Global.
    Size: CHF 150m.
    Closing date: 2019-12-20.

Begin Your Search Here
<