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APK calls for ‘scenario testing' over traditional valuation methods

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  • Credit Suisse - Frankfurt

The €4bn APK Pensionskasse needs to move away from traditional valuation methods and focus on scenario testing for its bond portfolio, the chief executive of the Austrian fund said.

Speaking in the June’s IPE On The Record, Christian Böhm, said due to the market intervention from the European Central Bank (ECB) and political turmoil across the euro-zone, valuation methods traditionally used by pension schemes were no longer applicable.

“Due to the intervention of the ECB and the political turmoil caused by the negotiations on Greek debt, valuation methods, particularly for bonds, are no longer very helpful,” Böhm said.

“This is a challenging issue, and to address it we need to think about scenarios rather than rely on traditional methods.”

Böhm said pension schemes could also try to reach their optimal diversification level, in order to offset volatility, and manage uncertainty posed by the ECB actions and geopolitical risks.

“At the same time, we need to assess the sensitivity of each of our assets to each scenario, and dig deeper into asset classes to find the best opportunities,” he added.

Also speaking in On The Record, chief investment officer of Dutch scheme Pensioenfonds TNO, Hans de Ruiter, said he saw the ECB’s actions as having a positive effect on the overall euro-zone economy.

However, he added: “In terms of risks, we see a danger that this aggressive monetary policy creates instability on financial markets, as asset prices become inflated.”

Given potential shocks in the market affecting asset pricing, the European Insurance And Occupational Pensions Authority (EIOPA), launched its own version of asset stress testing, which will run defined benefit (DB) and defined contribution (DC) scheme investments through stress scenarios.

EIOPA said it would judge how resilient pension funds are in tough market situations, whiles also measuring changes to longevity.

Industry representatives from pension funds and consultancies alike criticised EIOPA for pushing ahead with its scenario stress testing, with expectations it would feed results into a report on scheme solvency for the European Commission.

The Commission took solvency requirements for pension schemes off the agenda by removing any potential requirements from the revised IORP Directive, currently sitting in the European Parliament.

To read Carlo Svaluto Moreolo’s interviews with APK, TNO Pensioenfonds and Fondenergia in June’s On The Record, click here

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