Off to talk to the chairman of the pension fund board. ‘Well Pieter, many members are still phoning the administration helpline to ask about investment policy. The recent television programme that criticised the industry for not paying more in premiums means we are still in the firing line.’ ‘But our funding ratio is at 108%.’ ‘The point is we could have had a higher ratio and we are being blamed for a lack of foresight and good policy.’ ‘Oh dear.’  ‘There’s more. The regulator is also asking us why we are not appointing a fiduciary manager. It believes that for a fund of our size and resources this would be appropriate. Will you prepare some answers to both questions?’ I smile because my next meeting is with a fiduciary manager.

I become depressed seeing the representatives of Total Disaster Fund Management. No idea how we ever let them through the door. The marketing person starts: ‘We hear that the recent TV programme continues to make problems.’ ‘Only for the journalists themselves, our fund has weathered worse storms.’ ‘What about 2008?’ ‘Even 2008, as you may have noticed.’

‘Pieter we are here to continue conversations about us becoming your fiduciary manager. We think in this heightened risk-averse environment the regulator needs to see pension funds doing more to help themselves.’ ‘I could not agree more.’ ‘Really?’

‘Yes, I will continue to take all responsibility for returns, and ensure that our investments have the opportunity for producing optimal risk-adjusted performance.’ ‘But does not the regulator want you to take money out of equities and hedge funds? We can certainly help you with acceptable asset allocation.’ ‘Yet Sharpe ratios of the portfolio should include equities and hedge funds, or are you suggesting we avoid these to please the regulator?’
‘Well we would not suggest that approach completely, but we think that a low volatility approach makes most sense.’ ‘I see. This means that your marketing pitch is predicated on a different definition of risk. It means that you think regulatory risk is foremost in my mind, and that the way to minimise this is to appoint you.’ ‘Yes’.

‘But my definition of risk is not being able to meet my future liabilities. I need to make sure I can do this with investment returns.’ ‘We are focused on this too.’ ‘But how can you be when hedge funds can be a natural diversifier and equities an excellent long-term performer, yet both are supposedly out of favour with the regulator whom you are trying to please?’ ‘Yes I see that.’

‘Look, the regulator does not tell us what to do, it guides us. The argument that I need your help to avoid this oversight is as ridiculous as journalists telling me that premiums should have been higher to keep pace with projected liabilities.’ ‘And if we suggest a lower fee premium to pay for our services?’ ‘No, you would then be a liability, and I have enough of those.’

Pieter Mullen is investment director at Wasserdicht Pension Funds