Innovation gets results
PME Bedrijfstakpensioenfonds Metalektro (PME), which has assets under management of €18bn, attributes its success to a number of clear-cut principles that underpin the organisation and govern the way in which the pension scheme operates. PME has a strong executive board that is responsible for determining basic policy. The task of preparing policy decisions and the responsibility for implementing those decisions are vested in a small but efficient administrative office, which looks after the interests of the pension fund. It has agreed performance targets and is held accountable for achieving them. Its principal task is to find the best and most cost-effective organisations to implement pension fund policy anywhere in the world.
The aims of this approach are two-fold: to achieve excellent returns with minimum risk and to provide maximum customer satisfaction among employers and employees in the sector. The strict segregation of policy and execution ensures total independence vis-à-vis of the service-providing organisations. When it comes to pension administration and asset management, the pension fund operates by outsourcing contracts, which also contain clear-cut and measurable performance targets.
But PME’s returns are not the only proof of how successful its asset management is. PME is one of the first pension funds in the Netherlands to be ready for the advent of the new Financial Assessment Framework (FTK). In fact, the scheme is already operating on the basis of lower interest rates and has hedged half of its interest rate risk. In the past 12 months, falling interest rates have had a substantial impact on the funding ratio (based on market rates under the new FTK rules) but PME has succeeded in minimising the effect by hedging the interest rate risk.
With the FTK looming on the horizon, many pension funds are wondering how to translate pension fund obligations into investable indices. PME has solved this problem by using the Lehman Bellwater swap indices. The fund deliberately steers clear of fashionable investments like hedge funds and private equity and says its investment policy is based on innovation and a long-term view. The contracts for PME’s external mandates involve innovative terms, which allow the pension fund to profit to greatest effect from the specific qualities of asset managers.
Since 2001, when the administrative office was given control of investments, PME has consistently achieved one of the highest returns in the country with minimum risk, largely thanks to diversification. The diversification of the PME portfolio is reflected, for example, in its fixed-income investments, one-third of which are high-yielding. An excellent spread of investments means that the return of these assets has not once been negative in the past 15 months.
Corporate governance and socially responsible investment are important to PME. The pension scheme believes that companies that look after their staff and the environment in a sustainable manner have the best chance of survival in the long term. Ultimately, this translates into the best shareholder value. PME puts this belief into practice by using its vote in shareholders’ meetings to support resolutions that satisfy its criteria of good corporate governance and sustainability. The pension scheme also actively lobbies companies in an attempt to persuade them to adopt responsible policies. These proactive approaches and PME’s voting record are reported in detail every quarter on the fund’s website.
Highlights and achievements
PME describes itself as lean and mean. Its administrative office, which consists of only 12 staff, looks after pension administration, prepares the agenda for the executive board meetings and handles communications with 300,000 members and pensioners as well as 1,300 companies.
The pension scheme takes member participation seriously. The PME Members Council is the most active forum of its kind in the Netherlands. In 2004, the council set up the Members Council Platform. The council receives extensive support from the pension fund, including training, budgeting, meeting facilities and the assistance of office staff. The council is able to voice its own opinions in a bulletin that is published independently of the pension fund.
PME’s policy with regard to contribution levels, pension indexation and investment mix is transparent. For several years, the executive board has been operating a decision-making framework that enables both employers and members to predict for themselves what the levels of premium and pension indexation will be in the forthcoming year with considerable accuracy.
The fund has first-rate management information systems (including PAR, Mcube, NT custody reporting, IMS/ITS PACER), which can be accessed via the web and automatically linked, providing 24-hour monitoring on a global basis.