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PGGM investment chief wary of hedge funds

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NETHERLANDS – Roderick Munsters, managing director of investments at the 49.7 billion-euro Dutch healthcare scheme PGGM, says the fund does not regard hedge funds as an asset class.

“Hedge funds we do not as an asset class at PGGM,” Munsters said this week. He said that if you have the skills – and the scale - you could set up your own ‘hedge fund’ internally. “Looking at hedge funds as a holy grail or a black box is not a very good idea.”

Munsters, speaking at the presentation of the Universities Superannuation Scheme’s long-term mandate award in London this week, said PGGM very much focuses on its own performance over the long-term.

“We have to look at ourselves,” he said. When the fund releases its quarterly returns, it makes a point of stating its long-term performance since inception. “These are the numbers that matter.”

PGGM’s current long-term average return since 1970 is 8.6%, the fund said this week. Its return in the third quarter of 2003 was 2.5%, which it said “was largely due to the continuing recovery of the equity markets”. PGGM’s return for the first nine months of 2003 is 8.5%.

It saw a return of 4.6% on equities in the period, which played an important role in the overall return. And it said it was able to limit the losses on its fixed-income portfolio to -0.1%, due to investments in high-yield, emerging market and inflation-linked bonds. Equities and bonds account for 46.9% and 30.8% of its portfolio respectively.

Munsters also said that pension funds face a three-fold challenge: short-termism, accounting rules and regulators. He saw accounting rules adding volatility to corporate balance sheets and regulators who were “very short-term oriented”.

His remarks were echoed by PGGM’s chairman, Dick de Beus, at the PensMart conference in Frankfurt this week. "Regulations with good intentions drive out good schemes," he said, commenting on the tight regulations recently imposed by industry regulator, the PVK. De Beus said the concern is that employers may feel the need to switch to defined contribution from defined benefit as a result.

He called for regulations to be changed so that schemes could be allowed to be underfunded temporarily, and also allowed more time to recover from underfunding. "We need a more logical and less aggressive schedule for additional reserves, and a longer timeframe," he said.

The PVK’s demand for higher reserves in line with equity investments will also lead to a bias towards bond-investing, said de Beus, adding that the macro-economic implications of the regulations had not sufficiently been considered. However, the planned merger of PVK and the Dutch central bank by 2005 could re-address this issue. A spokesman for the PVK said today that the merger could take place as early as April 2004.

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