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Diary of an Investor: In the wrong clothes

It has not been a great start to the year at Wasserdicht’s Dutch pension fund. Volatile markets have been worrying our trustees and our coverage ratio has dropped, just like at most Dutch pension funds. Whether the issue is the markets, the economy, oil or terrorism, there isn’t much good news at the moment.

Unfortunately, our international colleagues do not lift the mood. In our monthly video conference, Jim talks about US interest rates, energy and high yield and how he thinks they will affect his portfolio. Clive in London talks about the Brexit referendum and Yoshi talks about China. Bucking the negative trend, Cliff in Toronto is particularly proud of his private equity performance.

Lars and Paul, the management consultants who are looking into integrating the international pensions teams, have been to see Hans in our German office. ‘I am afraid our friends did not get much out of their meeting here in Frankfurt,’ says Hans. ‘I explained the five Durchführungswege that we have here in Germany, the different pensions vehicles. But I am not sure they took it all in.

Later that day, Geert and I are preparing a presentation for the investment committee. Fortunately our 2015 performance was respectable, thanks to a couple of well-timed decisions.

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At the investment committee meeting the following day, the members are keen to cross-question us about the year ahead. Geert has the floor. ‘There is less demand in the global economy and in China in particular,’ he says. ‘The policy-makers have also used all the tools in the toolbox. That makes us more vulnerable to the next crisis.’

‘What does that mean for our investment and hedging policy?’ one of the committee members asks. ‘Well, there is no magic bullet,’ Geert continues, dodging the question somewhat. ‘Fortunately we have benefitted from a decision to allocate more to active equity managers early last year and our credit portfolio is doing well.’

‘We don’t plan or recommend major strategy changes this year,’ I conclude. ‘We will continue our move to illiquid markets, including through our partnership with PensionsKøbenhavn. In the meantime, we will have to ride this market volatility out.’

‘The real issue is that we have outgrown our clothes,’ says Rolf, our chairman of trustees when we speak on the phone later that afternoon. ‘We are still pretending to be a defined benefit pension system with certain outcomes when in reality there are none. We really should accept we need a defined contribution system.’

‘You’re right,’ I tell Rolf. ‘We are living in an uncertain world, and who knows what the politicians or the regulator will want to do next. We’re all living longer and perhaps that’s the main certainty we have nowadays.’ 

Pieter Mullen is investment director at Wasserdicht Pension Funds

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