GERMANY - Short-term regulatory demands are leading pension funds into damaging cyclical behaviour, according to Peter Hadasch, head of the €780.6m corporate Pensionskasse for Nestlé Germany.
Talk about tighter investment caps for risk assets like equities and alternatives in the wake of the financial crisis led to vociferous opposition among German institutional investors.
But Hadasch thinks those critics were on the wrong track.
"Those who are whining are not even using the maximum allocations currently allowed - what should really be discussed is the review period," Hadasch told IPE.
In fact, stress tests imposed by the financial regulator BaFin make Pensionskassen suffer, he said, as they force them to adopt cyclical behaviour.
He added that funds should really be given "more opportunity to invest anti-cyclically".
"For example," he said, "if German pension funds had been allowed by the financial supervisory authority to invest more in equities in spring 2009, they would be very well off right now."
The Nestlé Pensionskasse reported a 10% net return for 2009 after replenishing its reserves following returns of -5% in 2008 and 6% in 2007.
This year, the fund is planning more international exposure, including a stronger focus on emerging markets, to diversify from Europe and the US, Hadasch added.
The fund will stick with its 5% allocation to fund of hedge funds despite the fact it turned out to be "more correlated to other asset classes than assumed".
Over the long term, Nestlé is hoping to simplify its occupational pension operations in Germany by winding up all its vehicles apart from the Pensionskasse, and the Pensionsfonds that was created last year.
In the Pensionsfonds, the company has combined assets from its CTA (€100m) and its Rückdeckungskasse, a counter-indemnity fund (€160m).
Around €40m will remain in the Rückdeckungskasse until it can be closed some time within the next 10 years, Hadasch said.