EUROPE - Pension funds may be experiencing fewer liquidity problems than other institutions but they must plan ahead in case market conditions worsen, suggests Philip Neyt, chairman of the Belgian Association of Pension Funds and vice president of Public Affairs and Mergers and Acquisitions for Belgacom Group.
Neyt has been nominated for an Outstanding Contribution Award at tonight's IPE European Pension Awards 2008 in Barcelona, for his contribution to the Belgian initiative for developing a pan-European pension frame.
Ahead of the event, he told IPE he believes pension funds are actively "building up their cash reserves" and are not experiencing as many liquidity problems as other institutions like banks because they are long-term investments.
Commenting on whether the financial crisis has made pension funds rethink their strategy, Neyt said: "Most pension funds are holding onto the same strategy because they are well-diversified."
Pension funds are not immune, however, to the effects of the global credit crunch, as he warned: "The corrections that we have seen in the market have been very big. Pension funds' direct exposure is very limited but you can see the effects of these toxic assets."
Neyt warned it could take "years" for market conditions to improve so pension funds must deliberate and plan ahead for the future.
"We should prepare ourselves and ask ourselves the question, ‘What if it takes a long time and continues?' [Pension funds] should be preparing to discuss scenarios with their sponsors."
Pension funds must consult with their Boards and affiliates in order to determine their investment strategy and see whether it needs changing, and should encourage greater transparency in financial institutions, says Neyt.
"We must consider whether to lend out securities. We should probably question all the different rating agencies and also the responsibility of these rating agencies. We should promote even more transparency by all financial institutions. Transparency is in our interest."
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