PME has immediately reaped the benefits of last year’s transition of its pension administration from MN to TKP. Costs per member fell to €100 last year, the lowest level since 2015.
“After the transition to TKP, costs fell to a level of other comparable funds,” PME said in its annual report that was published on Tuesday. The pension fund added that “regular costs” for pension administration fell by more than €6m to €31m in 2022.
PME largely attributed the cost drop of €137 per member to €100 per member to the transfer of its pension administration to TKP.
Management costs are likely to rise slightly again over the next few years due to the transition to the new defined contribution (DC)-based pension system.
PME wants to move to a new DC arrangement in 2026, after which it expects a “structural decrease in costs because of a simplification of the arrangement and less need for actuarial advice,” a spokesperson told IPE.
He added: “However, communication and customer service costs may increase due to new requirements for communication.” In the new pension system, the investment policy of pension funds is supposed to be based on the collective risk appetite of members.
Lower asset management costs
PME’s asset management costs also fell, from 0.57% of assets under management to 0.49% including transaction costs, the same level as in 2020. The decrease was entirely due to a reduction in performance fee payments to private equity managers. PME spent €115m less on this than in 2021.
Overall, asset management costs fell by just €90m because of an increase in transaction costs and fixed management fees paid to the fund’s asset manager MN.
PME also expects an increase in asset management costs in the coming years because the share of expensive illiquid investments in its portfolio will increase.
The pension fund is increasing its allocation to unlisted real estate to 10% of the portfolio, and is in the process of building a portfolio of investments in infrastructure and forestry, which should eventually account for 5% of assets.
Private equity performance fees: a necessity
PME reflects in its annual report on the “social and political debate about the exceptionally high performance fees in private equity”.
Despite being “not in favour of performance fees”, it said it chooses to pay them anyway because investing in private equity leads to a better total return. “The costs of private equity are in proportion to the expected additional returns,” according to PME.
Even after accounting for the drop in performance fee payments, PME’s expense ratio for private equity is still relatively high at 3.1%. By comparison, civil service fund ABP, only paid 1.3% in fees.
According to a PME spokesperson, the management costs for private equity remained relatively high last year because asset manager MN had not yet adjusted the valuations of the investments downwards.
As a result, some performance fees continued to be paid. “These revaluations have now been accounted for. This will be reflected in the figures for 2023,” the spokesperson said.
This article appeared originally in Pensioen Pro, IPE’s Dutch sister publication.
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