Dutch pension funds are being hit by much tougher reporting re-quirements, which come into operation at the end of this month. The Appeldoorn-based VZK, the supervisory authority for pension funds and insurers, is requiring funds that carry in-vestment risk to submit quarterly in-vestment returns. Gaston Siegelaer of the VZK says that funds will have to report on their investment policies, their actual versus benchmark positions as well as giving details about the actual investment risk exposure of the fund". Quarterly investment performance figures will be required. "If we see that a pension fund is using derivatives, we want to be sure that the planning and control with the fund is completely adequate," he says. "In this report, we do ask the funds to report about their positions in a very precise way." The authority has set a standard for derivatives accounting, which is different from the accountants' 'fair value approach'. "The way we want to have derivatives reported is by using the delta row method." But there can be exceptions for funds using derivatives only to a limited extent. The new system will incorporate an 'early warning' system to highlight things out of the ordinary. "This will enable us to to pick out those pension funds with strange exposures, performance figures or derivatives positions." Warnings will also be given about the amount of leverage a pension fund takes. The VZK will fix "threshold values" that will trigger the system, but declines to indicate what they might be.
The authority felt that its annual re-porting requirements were no longer up to date and it has opted for a fully automated reporting procedure, with funds submitting their details in standard form on diskette. "We will only handle forms manually in exceptional cases," says Siegelaer. "About 700 of the 1,000 funds we supervise will be affected.". Fully insured funds who do not bear any investment risk are not included.
Commenting for the VVB, the association of industry-wide pension funds, Dick Wenting, general manager of the fund for chemists and pharmacists, does not see the new re-porting requirements posing problems for professionally-run schemes. He says that where performance measurement companies, such as WM are used, the information needed is available. "While the report is all about risk control, they do ask questions about performance. In my opinion that is a bit too much, as it is not necessary to talk about performance if you are interested in risk control."
The information required for derivatives can be difficult, where they are used as an instrument to gain performance, rather than as insurance, he says. Fennell Betson"

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