EUROPE – Long-term investors' negotiations with Brussels and other policy makers over future regulation has been "pathetic" compared with the activities of the sell-side, including hedge funds, which have short-term investment horizons in mind, one think tank has claimed.
Speaking at the IPE Awards Seminar in Copenhagen, Sony Kapoor, managing director of the UK-based think tank Re-Define, called on pension funds to get more involved in talks with the European Commission around new regulations such as Solvency II and IORP II, which he said could hinder long-term investment strategies.
He said: "There are some systemic conundrums, and if we don't address these issues now, we will end up with inappropriate approaches to regulation that are not open for change within the next 10-20 years."
Juan Yermo, head of the private pension unit at the OECD, largely echoed those comments.
"I do not want to point my finger at anybody here, but policymakers should assess the role played by shareholders during the financial crisis," he said.
"To what extent should shareholders have played a role in better assessing their build-up of leverage, of risk and speculation, which led to the crisis?
"Obviously, we had this best example over the past decade where we saw that this kind of disengagement can be disastrous.
"I would have thought that pension funds, which provide benefits for 30 or 40 years down the line, would be much more aware of what the situation is in the financial system as a whole. Honestly, hedge funds are not going to engage for you if you don't do so."
However, for Stefan Dunatov, also a member of the panel on long-term investors, and CIO of the Coal Pension Trustees Investment in the UK, pension funds need to make pensions their priority "within the parameters they are given".
"That's what pension funds are for – nothing else," he said. "At the end of the day, what you have to do is what is best for your pensioners, which means getting returns. So pension funds need to think about their investment strategies."
Henrik Gade Japsen, CIO at Danish pension fund ATP, agreed and argued that pension funds had been "put into the world" to provide a stable cash flow to people when they retire.
"Shall I be worried about missing a small market opportunity or shall I worry about the risk of failing to fulfil the promises we have made to the entire Danish population?" he asked. "Personally, I choose to be on the safe side."
Commenting on Gade Japsen's response, Kapoor concluded the debate by saying there was one flip side with such a strategy.
"This is only possible when the economy is stable," he said. "But when a US pension fund starts saying it expects returns at 7.5% in an economy that is growing at 2.5% only, there is some kind of a problem."
Kapoor referred to the deficits at large US pension funds, which base their expectations on an annual 7.5% return, leading to "false estimations".
"You are the financial system, you are nothing else," he concluded.