Well, things didn’t get much better in the markets after our long family drive back from the Italian Riviera to The Hague in August - volatility continued on the markets and it became clear that when it comes to the euro, plan ‘A’ isn’t up to much and plan ‘B’ doesn’t exist.
On the bright side, Wasserdicht Pensioenfonds in the Netherlands sold peripheral European debt in 2009, so now we only hold Dutch, German, Austrian and Finnish government bonds. We just watched spreads rising and decided to get out. No fancy consultant’s advice was needed.
One Monday morning in September we have a conference call with the local pension fund heads. I ask everyone to talk about their sovereign debt holdings and to identify where the risks lie.
Hans from Germany is adamant: ‘Ja, 80% of our holdings are in German debt. Mostly Schuldscheindarlehen to be precise.’ There is general bafflement so I translate: ‘Hans means hold-to-maturity bonds’. ‘Ja,’ he continues’, in German public and high quality corporate debt. And Pfandbriefe. We hold some Austrian debt but only at the margins. But are thinking of buying emerging market debt.’
Roger from the UK is also sure of himself: ‘Our consultants advised us to reduce our weightings to sovereign bonds, so we don’t even hold much government debt at all - not even UK, apart from inflation linkers. We have upped our exposure to corporate and emerging market debt and have diversified our equity holdings towards emerging markets and private equity.’
He continues: ‘We are currently talking to our consultants about what to do next.’ I don’t ask Roger about the bill for all this advice. I can ask that later.
But what about our Spanish and Italian pension funds? Juan at our Madrid subsidiary tells a similar story. ‘We sold Greek, Portuguese and Irish debt in early 2010,’ he tells us. We also don’t hold much Spanish debt and most of our exposure is in corporate bonds.’
Pier-Luigi in Milan tells a comparable story. ‘It’s all about diversification,’ he says. ‘Unfortunately, our rules don’t let us diversify into alternatives but we can vote with our feet. So we have not been buying Italian government debt and are actively reducing our holdings. We stopped buying euro periphery debt also in 2009.’
What a satisfactory situation. At least we can all congratulate ourselves on our foresight. The only problem is that our funding levels are still heading south and we don’t have much of an option to shore them up other than by increasing contributions.
And what about our Greek pension fund? Luckily, we sold the company in 2004, so our Greek pension problems are now history!
Pieter Mullen is investment director at Wasserdicht Pension Funds