DNB pension fund to investigate its own possible conflict of interest
The board of the €1.6bn pension fund of Dutch regulator De Nederlandsche Bank (DNB) has said it will look into a potential conflict of interest respecting its use of BlackRock as both fiduciary manager and asset manager for some of its investment funds.
The board’s statement came in response to a critical report compiled by the supervisory board (RvT), which recommended reducing the scheme’s “dependency” on BlackRock, which it deemed a “concentration risk and a cost risk”.
Floris Schilthuis, independent chairman of the board, said: “We take the RvT’s recommendations seriously and will take steps to improve checks and balances if necessary.”
However, he also argued that potential risks to the fund had lessened after the board switched to a “predominantly passive” investment style, which includes passive fixed income funds managed by BlackRock.
The RvT also recommended the pension fund increase its independence from pensions manager TKP Pensioen, which provides administration, as well as board support and advice.
Schilthuis said the board would address the issue by demanding separate reporting on pensions administration and advice.
Recently, the DNB suggested in a survey that Dutch pension funds should do more to tackle so-called “integrity risks”, including conflicts of interest, corruption and fraud.
Its own pension fund had been among the 25 schemes covered in the survey.
The board said its own evaluation of the pension fund’s performance and governance had shown that the time required to run the scheme, the availability of expert board members and relatively high implementation costs had created “bottlenecks”.
It said it dealt with the problem by increasing board support from its internal advisers.
Meanwhile, according to its annual report, the DNB scheme returned 29.3% in 2014 due largely to its 93% interest hedge through fixed income investments, as well as interest swaps.
Its sizeable allocation to European government bonds returned 21.7%, with holdings in long-duration bonds returning 31.4%.
Equity and property returned 10.9% and 1.5%, respectively.
The board said it would increase the scheme’s risk profile to improve its indexation potential by raising its equity allocation from 17.5% to 25%, while lifting its property allocation from 3% to 5%.
It said the adjustments would come at the expense of exposure to long-duration government paper.
Following its decision to switch to passive investment, the pension fund reduced the number of equity managers from three to one, who would invest against a “broad and diversified global index”.
It said a passive strategy would also be applied for its real estate portfolio through global exposure to real estate investment trusts.
The Stichting Pensioenfonds DNB has 1,990 active participants, 1,300 pensioners and 1,510 deferred members.
Its current policy funding stands at 117.3%.