NETHERLANDS - Politicians and supervisors must understand short-term supervisory decisions for pension funds' investment policies could damage the Dutch economy, according to Angelien Kemna, chief investment officer of the €250bn asset manager APG.
Pension funds that have swapped their Greek government bonds for safer Dutch and German bonds have indirectly contributed to the artificially low interest swap rates, she argued during the Rendez-Vous for the pension sector, organised by the €220bn civil service scheme ABP.
Dutch pension funds are suffering from low coverage ratios, as they must discount their liabilities against these swap rates.
Because the market for long-term interest swaps is hardly liquid, Kemna said, pension funds that have bought swaps wholesale to hedge the interest risk on their liabilities have created a bubble that could burst as soon any significant player sells its swaps.
She added: "European interest rates affect the world market, and the Dutch pension schemes already affect the market if they move less than a half a percent of their assets."
Politics and supervisors should also avoid issuing measures that direct pension funds toward a pro-cyclical investment policy, as this will cause the funds to "miss out on necessary returns" and "could deepen crises".
APG's CIO also stressed the importance of taking short-term risks for achieving long-term returns, as "short-term investments not only mean less risk, but also lower returns".
Kemna warned against dividing up the collective pension assets to accommodate the specific interests of the generations of participants.
"This will lead to less risk-diversification and therefore to lower expected returns," she said.
During the Rendez-Vous, Xander den Uyl, ABP's vice-chairman, said regaining trust among its participants - by communicating about "realistic expectations and risks" - would become the scheme's key target.
A recent ABP survey showed 34% of its participants had little faith, or no faith at all, in the pension fund.