Crisis changed pension funds' attitude toward governance
IPE AWARDS - The financial crisis has changed the attitude of pension funds toward governance and risk management, attendees at the IPE European Pension Fund Awards seminar in Monaco heard.
Karel Stroobants, independent director at the Levi Strauss Pension Fund in Belgium, said: "The main thing that has changed is that pension boards are becoming aware things can go wrong.
"This was not at all the case seven or eight years ago. [The financial crisis] was a big surprise for many pension boards, and now they are trying now trying to find out what the warning signals are to avoid a repeat of this situation."
As a result, governance and risk management have changed among pension funds, with more details now being included in mandates.
David Suetens, head of risk management at ING Investment Management, said: "Mandates have become much more granular - in other words, much more specific on risk parameters.
"Before the crisis, our Dutch clients only discussed risk management with us when the mandate was awarded.
"Now they want frequent interaction throughout the lifecycle of the mandate, not only with the portfolio managers and CIO, but also with the control functions - risk management and compliance - within the asset management group to stay in control of both operational and investment risk matters."
Stroobants added: "I still often see contracts with asset managers of two or three pages. But pension funds need to put down in detail what they want to be done by the asset manager and how they look at risk in that contract and then measure these elements afterward."
Pensioenfonds SNS REAAL changed its mandates to accommodate more rules about the risks its investment management can take two years ago.
Mariëtte Simons, director pensions office at Pensioenfonds SNS REAAL in the Netherlands, said: "It is the pension fund that should set the goals for the way in which the asset should be managed and what kind of information this requires, as too much information is not useful."
Governance and risk management need to be followed up regularly after the initial manager selection, the panel agreed.
It also called for more professionalism of board members.
Stroobants said: "More professionalism in the boards and better control by the authorities [is needed]. Independent custody should also be made compulsory."