NETHERLANDS - Dutch pension funds are still falling short on the quality of investment policy and risk management, according to pension supervisor De Nederlandsche Bank (DNB).

Despite substantial improvements at several pension funds, sector-wide, both disciplines are still below the required level, according to the watchdog after a new and extensive survey in 2010.

In the opinion of DNB, the risk management and expertise available at many pension funds do not match the complexity of investment policy.

The regulator said an example of good practice found in the survey would be the motto "if you don't understand it, don't do it".

Quite a number of pension funds also have insufficient countervailing power on adequate and independent risk management toward asset managers, the DNB said.

It said fiduciary mandates often left external too much leeway on risk-taking.

In addition, some schemes cannot manage or properly value the financial risks of illiquid and innovative investments, the DNB said.

It suggested pension funds only to decide on active management if they are convinced of its added value - and that asset managers can deliver.

The supervisor said it would specifically check the management environment and the valuation of innovative and illiquid investments, as well as the third-party risk of asset management mandates, in 2011.

Topics