EUROPE – Three major European pension funds have ruled out the possibility of investing in structured products for now, saying the products are far too complex and lack transparency – with one saying the asset class is a “nightmare”.
Speaking at IPE's annual awards ceremony in Berlin, investment professionals at the pension funds for the European Patent Organisation (EPO) and Airbus Deutschland as well as Denmark's ATP said they had no plans to invest in structured products.
“My motto is always: Don't buy what you don't know. We recognise that there is a possibility for higher returns for say CDO (collateralised debt obligations), but right now we regard them as too complex, kind of like a black box,” said Thomas Stoetzel, head of investments at the pension fund for Airbus Deutschland, a €600m scheme.
Stoetzel also said another hindrance to investment was the fact that the European market for structured products was “still very young”.
“We have bought some mortgage-backed securities in the past, but if we want to go farther with other asset-backed securities, we have to go to the US market and that's difficult for us, because we are European focussed,” he added.
Silvio Vecchi, head of investments at EPO's €2.6bn pension fund, also noted that while accounting for CDOs investments was not a problem, as they simply were part of fixed income, doing so from a risk perspective, “is a nightmare.”
Henrik Gade Jepsen, of the €45bn Danish scheme ATP, agreed with his colleagues that investing in structured products was not possible currently because ATP simply did not understand them.