Gold: Outstanding Industry Contribution 2015 - Theo Kocken, Cardano
Ironing out the bumps
Judge’s comment: “A truly innovative approach to communication and an enrichment to the industry. One of the strongest contributors to the pensions sector with his depth, profile and innovation over the years.”
Since founding the Cardano Group in 2000, Theo Kocken has constantly challenged and helped to reshape the pension sector both in the Netherlands and internationally. With a headquarters in Rotterdam, offices in Amsterdam and London and over 100 staff, Kocken has built Cardano into a market leader in Europe for strategic risk management solutions for pension schemes.
The driving philosophy behind the creation of Cardano is Kocken’s goal to provide pension funds with the tools to cope with uncertainty and volatility in the markets. This involves “understanding we live in an unstable world and therefore we need to not only manage money and risks differently but also redesign the pension system, both in DB and DC,” he has said. “The system is not robust enough to cope with financial markets which can be very volatile. It needs to change to make the pension system work and that is why I set up Cardano.”
According to Kocken, there are three main challenges facing the pensions industry:
- Most European countries struggle with high percentage of future retirees in the second pillar who have not saved enough for and governments who will not be able to pay adequate first pillar pensions
- How to design the means by which members of defined contribution plans can access their savings, with annuities coming under increasing pressure and managing longevity risk becoming more important
- Coping with increased uncertainty and low economic growth.
The first phase in Kocken’s solution is to take a more holistic view of liabilities and investments. He argues that asset-liability modelling has its limitations; pension funds should consider their liabilities from a broader perspective than one focused on asset returns, and should integrate macroeconomic factors and market instability into their approaches.
The next phase concerns the convergence of defined benefit and defined contribution in a much more stable pension system. Kocken already sees this convergence aleady but thinks that a worthwhile and meaningful hybrid design will take at least another decade to achieve. “This is a very fierce but fruitful dialogue that has led to much more insight into what we need to change and what we need to retain from the old system,” he has said.
Kocken’s concerns range beyond financial risk. He also believes that the wants and needs of different generations should be harmonised or at least considered within a pension system: “The best means to avoid conflict between the generations is to build a hybrid pensions solution that combines the best aspects from each type of scheme, such as the risk sharing elements of a defined benefit arrangement and flexibility and transparency individual members enjoy in defined contribution plans.”
This philosophy has led to a number of initiatives both at Cardano and independently that Kocken has spearheaded. In 2001, he organised a seminar entitled Embedded Options in Pension Funds. The event outlined Kocken’s belief that pension fund designs were not up to the challenge of ageing populations and unstable financial markets. His book Curious Contracts, which advocates a redesign of pension structures, was published in 2006. Then in 2013 Kocken set up Cardano Education, which is dedicated to the risks pension funds face from financial uncertainty.
In 2014, he collaborated with Terry Jones of cult British comedy act, Month Python, on releasing a film, called Boom-Bust-Boom, which considers the notion and impact of financial booms and busts and how young people and the pensions world can avoid the fall-out from future financial catastrophes. As well as being CEO at Cardano, Kocken is also professor of risk management at the VU University in Amsterdam and it was chiefly in this academic capacity that he made the documentary. The film is a unique look at why crashes keep happening, combining expert insight, animation, puppetry and song to explain economics to all. “Boom Bust Boom proposes a simple idea - let’s adapt economics to human nature,” Kocken has explained.
- Founder and CEO of the Cardano Group
- Professor of risk mManagement for institutional iInvestors at the VU University in Amsterdam
- Previously head of market risk at both ING and Rabobank International
- Co-author of numerous books and articles on risk management and pension funds
- Holds a bachelor’s degree in Business Administration and a master’s degree and PhD in econometrics
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