Iceland’s pension funds should be forced to be more transparent over how they manage their ownership stakes in the country’s businesses, according to a working group appointed by the country’s government.
The task force – chaired by Gunnar Baldvinsson, chief executive of the Almenni Pension Fund – has published a report recommending a series of measures to address the economic and competitive risks resulting from pension funds’ now wide-scale ownership of domestic companies.
Iceland’s pension fund assets amount to around 150% of the country’s GDP — making its pension system one of the largest in the world relative to the size of its economy.
Since the severe financial and economic crisis which hit the country in 2008, Iceland’s pension funds have increased their ownership of businesses in various sectors of the economy. This was partly due to the collapse of major banks but also because of foreign capital controls imposed by the government. The controls were only fully lifted last year, and had forced pension funds to invest their comparatively large asset bases domestically.
Baldvinsson’s group has advised that pension funds should increase their target allocations to foreign assets in their long-term investment policies in order to reduce risk.
Funds should also be required to establish policies outlining their roles as owners of enterprises, the group said.
It went on to recommend that pension funds be obliged to publish a report at least once a year with information about their communication with companies in which they invest, including information on how they vote at shareholder meetings.
The group also urged the government to consult on allowing a portion of an individual’s pension contributions to be allocated to housing savings.
Baldvinnson told IPE the working group did not consider it necessary to propose any changes to Iceland’s Companies Act, but “rules should be imposed that require pension funds to establish a formal strategy about ownership policy”.
Such a strategy should include articles about corporate governance for pension funds as shareholders; articles about competition issues and what pension funds intend to do to ensure competition in the market; and articles on communication with companies and participation in decisions at shareholders’ meetings, he said.
Last June, Iceland’s then prime minister Bjarni Benediktsson appointed the working group, in consultation with the Council of Ministers for Economic Affairs, to examine the role of pension funds in the structure of the economy.
Apart from examining the economic and competitive risks in pension funds’ high level of corporate ownership, the group was to say whether rules should be put in place or legislative changes made to corporate ownership and the involvement of pension funds in the management of commercial enterprises in order to reduce the funds’ stakes and ensure market competition.