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APG's Sluimers: ‘too sombre’

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NETHERLANDS - Dick Sluimers, CEO of the Dutch pension provider APG, has challenged advice that the Dutch pension sector must reduce its return assumptions, reports our Dutch sister publication IPN. Sluimers was responding to the majority advice of the Don Commission on pensions at the end of September.

The point, according to commission members Caspar Van Ewijk of the Central Planning Bureau, Klaas Knot minister of finance, and the chairman, Henk Don, was that equity returns are likely to be considerably more meagre in future. They may have been higher in previous decades but now the party is over.

But pension experts from the ‘field' generally think differently. An over-emphasis of prudence brings nasty risks, they say, and apart from that there are arguments to suggest that good returns are for the taking.

"The climate is too sombre," said Dick Sluimers, CEO of APG, for example, at a pension conference at the Erasmus University in Rotterdam earlier this month, adding that he preferred a more optimistic outlook.

But Sluimers did strike a sombre note himself when referring to the risk tolerance of Dutch society, and he sees its treatment of risk as a matter of concern. "We expect that politicians will run things without risk, that entrepreneurs will do business without risk and soon we, as pension investors, will have to invest without taking risk," he said. Not a happy state of affairs, Sluimers felt, since "there's no such thing as a free lunch".

If Dutch society wants a risk free existence, it will have to pay a price: "Retaining the same pension contract while investing in 100% risk free bond assets would involve a premium hike of 15-30% of salaries," he added.

The tendency to strive for a risk free existence has already resulted in a distorted view of reality, Sluimers noted: "The prudential supervisory regime values assets at market value, causing pension funds to show low coverage ratios." The current average coverage ratio is around 110%. "Whereas the realisable value would amount to between 140-145%, so much higher than the prudential market value," Sluimers added.

In addition to all of this considerable prudence, buffers are maintained "just in case," as Sluimers put it: "And on top of all this, now our return assumptions must be lowered as well." He pointedly adds that the gentlemen from the supervisory agency fail to mention the fact that chances of a recovery are greatest immediately following a crash. He shakes his head at such a level of prudence: the risk of all this caution is that we are left with an unaffordable pension contract at the end of the journey.

Sluimers also shrugged off the accusation - levelled by Loek Sibbing, chairman of the Opf and director of the Unilever pension fund - that blaming legislation and supervision is somewhat conceited. He also dismisses the criticism that APG did not do enough to prevent downside risks: "If it really was so easy to hedge then of course we would have done that a long time ago," Sluimers said.

Everything is a trade-off, he repeated, and risks are part and parcel of that reality. "You have to make decisions in order not to lose. Some of those decisions are bound to be wrong, and sometimes you make a blunder. Things should be allowed to go wrong from time to time."
 

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