Anne Keogh, Head of trustee secretariat services

• Location: Dublin
• Invested assets: €1.4bn
• Membership: More than 20,000 active
• Occupational pension fund 

The most recent changes to the Construction Workers’ Pension Scheme’s asset allocation have been to illiquidity risk premia as we continue to focus on increasing diversification in members portfolios.

Following a review of funds, we decided to reduce the allocation to sovereign debt for members eligible to take their full savings account as a lump sum, and correspondingly increase the cash-like investments we have in order to match the cash lump sums that are likely to be taken at retirement. We were conscious of the possibility of capital losses from bond-yield rises for those members.

Recent asset allocation changes have been focused on introducing some alternative risk premia into the investment mix. Lately, we have also been considering investments where there is an illiquidity premium, such as property, private debt and infrastructure debt.

Monitoring the performance of our investments and looking at new opportunities to improve returns within our risk budget is something we do on an ongoing basis. As part of this we may consider adding some alternative investments.

We invest in property, having 5% of assets in this asset class, and we’ve made a commitment to invest more via a European property fund. We will also be looking at infrastructure and private equity.

Looking ahead, we are cautious about being invested in bonds other than for the purpose of matching pensions, because bond yields are so low. We are conscious of the possibility of yields remaining low, although at some point they will likely start to drift up and there will then be capital losses.

However, equities are also at pretty lofty valuations, so we think that given both these factors, overall there will be lower returns over the short to medium term than we have experienced in recent years from the more traditional asset classes. 

European property should continue to do well in 2017. We recognise we are a little light on property due to some recent opportunistic sales, but we are in the process of rebuilding our allocation.

In general terms, the trustees of the pension fund and its consultants are always looking for ways to improve member outcomes, and in a low-return environment we are very conscious of the impact of fees on returns. We remain focused on value for money and always look to improve member returns while staying conscious of risk – and that is really our overall investment philosophy.

Philippe Desfossés, CEO 

• Location: Paris
• Invested assets: €20bn
• Membership: 4.5m
• Mandatory pension fund for French civil servants

It took five years before we got the authorisation to invest in real estate, and even longer to convince the authorities to raise the cap on stocks from 25% to 40%. So why don’t we dramatically increase our investment in shares? Because we are still subject to a 32% stress-test using Solvency II assumptions.

This doesn’t make any sense because ERAFP cannot default in just one year. And if the stock market were to be down by 32% in 10 years, we would then be having much bigger issues to deal with than coverage ratios.

Last year we received authorisation to invest up to 6% of our balance sheet in open-ended funds, so we could do this without having to go through the public-tender process.

We are gradually investing in the way we need to, but we have wasted too much time. We have a net positive cash flow of €2bn every year for the next 10 years, so we should be invested much more in real estate and stocks. 

Politicians say we should invest for the long term, and that we lack patient capital, but regulation contradicts that completely. Banks are using short-term money and even creating money to invest in the longer term, when pension funds are doing the opposite – using long-term money to invest in the short term. This transformation in reverse is detrimental to the sound financing of the transition.

There is also a responsibility for the media in all of this. For example, when Japan’s GPIF increased its stock allocation to 50%, the timing was not perfect and the press jumped on the fact that the market value fell by about $50bn (€45bn). But you have to compare this to the fund’s total assets of $1.4trn, and bear in mind that the fund’s CIO recently stressed that the asset-liability management horizon should be 100 years.

The way we are thinking about asset allocation generally ought to be reflected in other pension funds, too. 

We should invest more in anything that

contributes directly to wealth. ERAFP has published a paper* that explains how central banks could enable pension funds to invest in infrastructure, as well as in the productive capital of our economies.

* The paper is available at

Arne Vagn Olsen,CIO 

• Location: Akureyri
• Invested assets: ISK179bn (end 2015)
• Membership: 13,000 active, 8,000 retired
• Occupational pension fund

Having been living under capital controls since 2008, the gradual move away from them is the main item on our agenda. Controls are slowly being lifted for pension funds, to some degree, and we believe this will continue.

Since the end of 2008, we have not been able to add any new investments in foreign currency, and what will happen to the controls from now on is open for discussion. But what the government has been saying is that the lifting – full or gradual – will probably happen during 2017.

The rationale for keeping the controls in place for pension funds is that with the pension fund system so large, at 1.5 times GDP at the moment, the central bank is worried about the effect on the krona if we were able to invest abroad freely.

At close to the average for all Icelandic pension funds, our exposure to foreign assets is about 24%. One of the things we’ll discuss in the upcoming investment policy for 2017 is what our overseas allocation should be in the longer term. 

In Iceland, 40% of our consumer goods are imported, so it makes sense for pension funds to have a 40% exposure to foreign currencies — in order to maintain purchasing power, at least from the currency point of view.

The value of the krona on foreign exchanges will probably be the most decisive factor in terms of what’s going to happen to the domestic economy in 2017, and therefore the domestic financial markets. This is mainly because a key factor for tourism is the krona’s value, and tourism is now the largest export sector in Iceland, having grown at more than 25% a year for the last four or five years.

Right now, 10-year government bonds are yielding 5.25%, and with government debt having been upgraded by Moody’s recently, there is scope for a better bond year next year, with yields moving down to about 5% perhaps, as long as inflation is kept low.

Our foreign portfolio has mostly been invested in public and private equities, and we have been taking more risk compared with the heavy tilt towards bonds we have in our domestic investment.

US stocks are valued fairly highly at the moment. It’s because we have been worried about risk levels that we have been slightly underweight to global equities this year and have instead been investing more in global high-yield, which, having lower beta, might tackle a correction better than equities.

Interviews by Rachel Fixsen