EUROPE – Regulation has certainly had an impact on pension funds' ability to act as long-term investors, but blaming policymakers is way too easy, according to Henrik Gade Jepsen, CIO at the DKK600bn (€80bn) Danish pension fund ATP.
Speaking on a panel on long-term investment at the IPE Awards Seminar in Copenhagen, Gade Jepsen said ATP did not see Solvency II or IORP II as an obstacle.
"Our view has been that you have to embrace the regulation, not to fight it," he added.
"The problem probably lies more with the pension funds themselves than with the regulation. This is something you have to deal with internally.
"The truth is that we probably need to get used to more of regulation because pension funds will go towards more regulation in the future."
Gade Jepsen's comments came after a series of questions addressed to the audience.
In a straw poll, almost three-quarters (71%) of pension funds, consultants and asset managers attending the seminar disagreed with the statement that pension funds already made the most of their potential as long-term investors.
Additionally, 41% said regulation was the main impediment keeping pension funds from fulfilling their roles as long-term investors.
According to the same poll, 24% of seminar participants said the inability of pension funds to act as long-term investors was due to 'short-termism' in the markets, while 18% said pension funds themselves were to blame.
Juan Yermo, head of the private pension unit at the OECD, said it was surprising to see that most of the audience believed policymakers were preventing pension funds from serving as long-term investors.
"Last year, some regulations such as Solvency II were calibrated to allow for a more long-term fundamental approach, so they are making adjustments," he said. "The question is whether those adjustments will be enough."
He also speculated on what impact the shift from defined benefit (DB) to defined contribution (DC) might have on long-term investing.
"We have been collecting data at the OECD on this shift, and it's surprising to see that, in aggregate, DC schemes have much higher equity allocations than DB plans," he said.
"In the case of DC, this has to do with default plans. As a result, the more we have a trend towards DC and the more we have investment strategies driven by default plans, the more we may see risk strategies in line with the life-cycle approach.
"On the other hand, what we might not see is an ability for those DC pension funds to seek illiquid long-term assets [such as infrastructure]."
Stefan Dunatov, CIO at Coal Pension Trustees Investment in the UK, added that the shift towards DC in the UK was likely to have regulatory consequences.
"But the real issue behind this shift is that it drives too much decision-making in some pension funds to be too benchmarked and too-risk adverse," he said.