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ESG: The metrics jigsaw


EFRP vice chairman questions EC directive

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UK- The European Commission’s occupational pensions directive has come under fire from a prominent European pensions professional who claims that it fails to fulfil one of its main objectives, the liberalisation of investment across Europe.

Article 18 of the directive states that member states can impose further restrictions on occupational pension schemes, and industry members are questioning what exactly this will mean for Europe's pensions.

Speaking at a National Association for Pension Funds conference, Jaap Maassen, vice chairman of the European Federation for Retirement Provision and board member of ABP, questioned the wisdom of the ‘prudent man plus’ principle espoused by the directive.

Maarssen said: "any form of restriction will lead to sub optimal results. Forcing pension funds to deal only in liquid markets serves only the interests of commercial banks, stock exchanges stockbrokers."

"It is essential for reasons of risk diversification and return enhancement to deal in private loans, hedge funds and private equity/unlisted stock."

A study conducted by ABP and Harvard University revealed that investment portfolios with an equity/fixed income weighting of 40:60 contained a portfolio risk of 8.2%, and offered an average return of 8%. Those split 40:40:20 between equity, fixed income and alternative investments, however, produced a risk of 8% and a return of 10.5%.

"Article 18 needs to be clarified. Investment restrictions are needed from a control point of view, but more in the case of unprofessional pension funds. It is more fruitful to increase the professionalism of pension funds, as suggested by the Myners report, than to impose restrictions", said Maassen.

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