EUROPE – Jaap Winter, who chaired a key corporate governance committee for the European Commission, has said pension funds will need to become more like normal financial institutions.
Calling the current Dutch system “very cosy”, Winter said this means there is increased need for a supervisor. In Winter’s words, the current position of boards of pension funds is no longer feasible.
Boards, set up by employers, employees and other interest parties, were used to solve conflicts between themselves, without outside governance, Winter claimed.
Speaking at a conference organised by the CPO and ABP Winter said that as pension funds are ‘target organisations’ - set up purely to provide for pension schemes, governance was vital.
All parties involved were forcing schemes to counter the current instability of financial markets, the failure of corporate governance worldwide, and to increase active share ownership.
In addition, the Dutch government was looking at splitting up schemes, with executive tasks being outsourced to third parties.
“They are there to make money, nothing else,” Professor John Langbein of Yale Law School told the conference, referring to pension funds.
“The governance system of the Dutch pension system is wrong, due to the fact that interest groups have not the same targets as the pension fund, which is to reap the highest return on investment’.
He acknowledged that to base EU or Dutch pension law on American ideas is not the best practice. “Europeans are rightly suspicious of anything originating in American law.”
Langbein also saw a growing impact of investment in private equity, despite higher risks but possibly higher returns.
DNB director Henk Brouwer said that as pension funds have the possibility of destabilising the financial sector, via changing investment portfolios or increasing premiums, a new role of a supervisor has become a necessity.
As Jean Frijns, outgoing director of asset management at ABP, stated in his introduction: “The question currently to be answered is if supervision is improving overall performance or does it only constrain the reality.”.