As you would expect from a prudently run pension fund, Wasserdicht’s Dutch fund has a high coverage ratio and made a good return in 2014. But our return was less down to asset allocation and mostly driven by our decision to maintain a high hedge ratio.

This makes me think back to when the new FTK was still under discussion. We Dutch pension funds had to adapt from a fixed 4% discount rate to a market rate based on the euro swap curve. Liability-driven investment became a necessity because of the interest rate risk that was introduced.

And I remember a conversation I had 10 years ago with my friend Ronald, who is now the CEO of Pensioen Vorkhef, the pension fund for forklift truck drivers. ‘Pieter,’ he said over a beer one evening in Utrecht, ‘interest rates are at historic lows. What is the economic case for buying government bonds and hedging interest rate exposure when rates are likely to rise soon?’

Well, we all know what has happened to rates in the last 10 years. Recently I reminded Ronald about that conversation and we started thinking about what lies ahead. ‘Of course I was wrong, but you could have argued that point at any time over the last decade,’ Ronald says. ‘Fortunately we did hedge our liabilities, and of course that makes sense, but it still worries me that so little of our members’ assets are invested in the real economy.’

Ronald is right. Not much seems to make sense these days. ‘Swiss 10-year government bond yields even dipped into negative territory earlier this year,’ I remind him. ‘It’s unthinkable to pay a government to lend them money.’

‘And I heard that in Sweden they have found a way to tax negative interest,’ Ronald replies. 

A week or so later the management team and trustees are listening to a presentation from one of the external consultants we use to help us think about future economic and return scenarios. 

Erik is an engaging speaker with an authoritative style of delivery. His presentation ranges from the oil price to fracking, drone technology, geothermal energy and China. ‘The best way to see the world at the moment is to see how the economy will be driven by disruptive change in many of these areas,’ is the conclusion.

‘Of course, what this does not leave you with is a clear road map for asset allocation for the next 12 months. If you are uncertain then you share your uncertainty with your peers. ’

‘Well I certainly share that general sense of unease,’ says Rolf, our chairman of trustees on the way out of the meeting. ‘The one thing that I take away from this is that there’s no magic bullet. But then there never was.’

The only magic bullet that I can think of is that we all move over to pure DC like our Wasserdicht colleagues in the UK and the US. 

Pieter Mullen is investment director at Wasserdicht Pension Funds