PGGM, the Zeist based NLG110bn (e50bn) Dutch superfund has publicly criticised aspects of the country’s Z-score system for testing the performance of industry-wide pension schemes, claiming that at worst it could lead to the disappearance of industry plans in Holland within thirty years.
Jan Baars, issue manager, ALM, at PGGM, who worked jointly on a series of articles that have appeared in the Dutch press, says one of the major problems comes in finding market based indices against which to test performance.
“For example, in the case of PGGM we have a large portfolio in private equity and it is very difficult to find market indices for that portfolio. We have a problem and there will always be a difference between the interest indices we have to choose and private equity as an asset class.”
He notes that a similar problem can apply to real estate investment.
“Up until now this lack of indices has worked for us and we have performed very well, but we realise that this flaw could very easily work against us.”
Under Holland’s STAR Regulation, an industry pension fund describes its strategic investment following an ALM study and this is then reflected in a set of market indices against which the fund is measured.
The total result is then compared against the strategic result that would have come from those market indices.
Baars adds that the system of testing – repeated every year from 2002 on a rolling five-year basis – could also be problematic.
“There is a ten percent chance you fail the test and the test is repeated every year. You can imagine that when you look over a period of thirty years there will be no pension funds left - at least if all the statistical conditions are met.”
He also point to the herding effect encouraged under STAR
“Also a lot of investors just follow the index and this test encourages this behaviour.
“We already see this as a problem. When everyone tries to follow the index markets become more volatile and the funds that are in the index become overvalued.”
With 2002 the first potential opt-out year for firms within mandatory industry structures, PGGM says it is trying to stoke up debate.
“ We advise to not just blindly follow the test but to create an institution that will look with a quantitative but also a qualitative view at the way the test result has been achieved. This would work as a second filter,” says Baars.

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