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Pension funds seen as 'collateral damage' of ECB policy

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The European Central Bank’s (ECB) policy of buying corporate debt is “destroying” the debt market, with funded pension systems being considered “collateral damage”, according to Peter Eichler, a member of the board at Austrian insurer Uniqa.

Speaking at an institutional investor summit in Vienna, Eichler said the “wipe-out of funded systems [seemed] to be an accepted risk” of the central bank’s amended quantitative-easing programme.

Eichler’s company Uniqa owns a stake in the Austrian Pensionskasse Valida.

Also speaking at the summit, Olaf Keese, managing director at the S-Pensionskasse, the German pension fund for savings banks (Sparkassen), said the ECB was “distorting that market” for European corporate debt.

The S-Pensionskasse has in recent years set up a Masterfonds, with the vehicle investing in international government bonds through a credit overlay.

The Masterfonds covers 8% of the Pensionskassen’s €4bn in assets.

Keese said his fund could invest in longer-duration bonds of 15 years of maturity or more, thereby increasing duration, but he acknowledged that the approach would increase risk without improving risk-adjusted return.

He said the overlay strategy had been chosen “especially due to a higher degree of liquidity and granularity”.

“At the moment,” he added, “this approach is especially favourable since corporates are getting less liquid and more expensive.”

Incentivising infrastructure

Criticism for European policies also came from Martin Bruckner, managing director at Allianz Austria, who pointed to “inconsistencies” in institutional plans to increase investment in infrastructure.

“Politicians say we should invest billions into infrastructure, but the supervisors seem to have different ideas – they should find a consensus on this important topic,” he said.

Bruckner also argued that regulations were making it increasingly difficult for banks to grant long-term loans.

“We as institutional investors therefore have to step into this private-debt segment,” he said. 

For Christian Böhm, chief executive at Austria’s €4.2bn APK Pensionskasse, one of the problems stemming from European regulation and supervisory framework is its view of certain asset classes.

“All the stress tests are based on [value-at-risk] models and are always backward-looking, which means, for example, government bonds are extremely overvalued.”

He argued that the backward-looking view emphasising government bonds was “not helping us in the least at the moment”, adding that he hoped for “a change in valuation views through a European dialogue”.

But Böhm also stressed the responsibility borne by pension funds in the current environment.

“Pensions are not risk-free, and we have to manage the assets so that we have enough risks on the books to generate sufficient returns,” he said. 

“If we do not achieve this over a rolling multiple-year period, we are obsolete as institutions for retirement provision.” 

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