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As a nation, Belgium comes way down the list of private equity investors in Europe. In 2003, the latest year for which figures are available, private equity investments equalled only 0.1% of gross domestic product, according to the European Venture Capital Association. That was less than half the European average of 0.3% and left Belgium in 12th place, behind countries such as Ireland, Spain and Norway.
Even more startling was the total absence of investment in private equity by Belgian pension funds during both 2002 and 2003.
“The total value of pension funds in Belgium is fairly small compared with other countries, because the state pays pensions out of income,” says Peter van den Brande, secretary general of the Belgian Venturing Association.
“There’s never been a capitalisation system as in the Netherlands or the UK. Last year, the total assets of pension funds in Belgium was equal to only 5-6% of GDP, compared with an average of 30% in Europe and 100% in the Netherlands, according to the European Federation for Retirement Provision.”
Even those pension funds which do exist may find their size is a handicap to private equity investing.
“They are unfamiliar with the
asset class and because of their small size, they do not have the dedicated team to look at it,” says Brande. “They do not want to bother with the administtration, which is much greater than that needed for listed stocks.”
Hugo Clemeur, secretary general of the Belgium Association of Pension Institutions, which carries out an annual survey of pension fund investment, says: “Private equity is not a traditional asset class for Belgian pension funds.
“Our survey shows that direct private equity is not significant at all – only a few funds have some private equity in their portfolio, and then only for a very low percentage of assets. There may be some private equity held indirectly through ICBs (mutual funds) but I do not think this is significant either.”
Clemeur considers that part of the problem is that pension fund supervisory authorities encourage investments which guarantee a decent yield, as well as liquidity, so that pension funds prefer investments which are quoted.
“Of the 106 funds included in our performance measurement studies, only two or three invest in private equity,” says Willy Santermans, actuary, Mercer Human Resources Consulting in Brussels.
“Those funds which do invest are the larger ones. However, most Belgian funds are rather sm all, so they don’t have the opportunity.”
Santermans says that the limiting factor is the size of the pension fund, and not any conservative bias in terms of investment strategy.
“Belgian pension funds invest half their portfolios in equities, so they are not that conservative,” he says.
However, Santermans says that the larger funds have experienced a slight trend towards alternative investment such as hedge funds, convertibles and private equity.
“But they invest in other asset classes first, with private equity coming in last,” he says.
Franck De Luycker, institutional relationship manager, AXA Investment Managers Benelux, says there are only about five or six pension funds with assets big enough - e500m and over - to warrant an interest in private equity. The best known is the Suez-Tractebel pension fund, which has 5% of its e1bn-plus portfolio invested in private equity.
According to De Luycker, the favoured route for these pension funds is fund of funds.
“The problem with going directly into a fund is that the total amount will not be called immediately,” he says. “There is normally a commitment period over which the money is invested. But these pension funds want exposure straightaway and do not want to wait two years or so until the commitment period ends.”
De Luycker says that these pension funds invest first of all in quoted fund of funds because it is easier to track them in terms of performance.
Some funds invest in Europe, in the US and globally, although others have strategic asset allocations which ban them from going outside the Euro-zone.
“Big pension funds like Suez-Tractebel and KBC invest in big international buyout funds in Europe, either directly or via fund of funds,” says Brande. “They may also invest in US venture. But they rarely invest in Belgian funds. The Belgian market has mostly been in venture, so it has not been attractive.”
Brande however expects that things will change. Already, he points to the recent change in Belgian legislation which should encourage the growth of pension funds.
“Over time, I would expect the size of pension funds to increase, and to have more capacity available to invest in complex products such as private equity,” he says.
Brande says that pressure on returns forces institutional investors to consider private equity.
“If they want to hit their financial return targets, then they have to go into higher-yielding investments. Over time, I expect them to invest relatively more in private equity than the amount by which their assets grow.”
De Luycker says: “Certainly, people are looking at private equity. It is one of the asset classes, such as hedge funds and absolute return products, which are all linked to low interest rates. But there is some time yet to go before they do much about it.”
But he says there is one more reason to make investing in private equity more likely.
“Future EU rules may make it possible for more funds to look at private equity,” he says. “This is because the ultimate goal should be for pension fund members throughout Europe to build up their own pension pot in one country and transfer it to another. That will mean investment restrictions should be the same in every EU country.”

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