Diary of an Investor: At the high table
Recently, I was invited to join a network of financial academics as a ‘practice adviser’, which means I speak to them regularly about the challenges our pension fund faces and what we are doing in the investment portfolio.
About once a year, I am supposed to meet academics in Amsterdam for a ‘high table’ dinner to exchange ideas. So one sunny evening, four of us sat outside to discuss low and negative interest rates, equity markets and the growth of populist political parties.
Over dinner, we also talked about the health of the global financial system and, closer to home, the future of the Dutch retirement system. I am pleased that the academics seem to have a good grasp of the real problems that we pension fund CIOs face, and some interesting – if politically unpalatable – ideas about how to fix the retirement system.
‘We should move over to a Dutch DC system as soon as possible,’ says Floris, who looks close to retirement. ‘There’s no justification for the current set-up. Younger generations in particular make a disproportionate contribution but face an uncertain outcome.’
Michel, a 40-something professor and a specialist in retirement, takes a middle-of-the-road view. ‘There’s nothing inherently wrong with the current system,’ he says. ‘We can continue in the best traditions of the good old Dutch polder model with a high level of solidarity if we make some sensible adjustments.’
Sonja, a young post doctoral researcher, wants to return to a pay-as-you-go system. ‘With pension assets near to 180% of GDP, the Netherlands is structurally over-saving in unproductive assets. By increasing the unfunded component of the system we can decrease contributions and stimulate demand.’
Klaas, the chair of the group, then puts me in the spotlight, and I give the academics a run-down of the latest at Wasserdicht. I explain how we are diversifying, our collaboration with PensionKøbenhavn in Denmark in areas like real assets and how we are seeking to relocate to Belgium to escape the Dutch regulatory regime.
Michel does not like this, describing the planned move as ‘lacking in solidarity’. On the other hand, Floris thinks it admirable.
Klaas asks some interesting questions about negative yields and how investors are diversifying their exposure as they seek yield. He discusses an interesting project he is working on to improve illiquid credit risk modelling.
Floris, who has recently completed a book on DC pension systems, is excited about reverse mortgages and a forthcoming revolution in pensions as financial innovation is used to benefit pension savings.
But as we wrap up, Sonja has the last word: ‘A tiny percentage of us spend most of our working hours and even a lot of our free time thinking about pensions. Don’t forget that 99% of people hardly ever think about pensions and when they do they don’t understand it. This is all Greek to most people.’
Pieter Mullen is investment director at Wasserdicht Pension Funds