Reflections on reaching half a century
Who is or was your mentor in pensions and investments and why?
My father. He was born in 1902 and stopped working at 55. He was sales representative of Caran d’Ache, the famous Swiss pencil manufacturer. He met the French nobleman Baron Bich, who showed him the Bic ballpoint. My father made up his mind and sold his business in 1957 for a fixed fee per week of around €2,500 in current money. Maybe one reason was that I was born that year. It seemed a great deal, but due to inflation and a lower stock market, he died in 1975 with a very ordinary income and few possessions.
I realised that over time the environment can change dramatically. The first step on the moon, the oil crises, the events at the Munich Olympics in 1974 and the introduction of the hand-held calculator HP-45 by Hewlett-Packard are moments you never forget. The positive thing is that I was young when I was introduced to the world of investing, a little-known subject by the end of the 1970s due to the very disappointing performance of equity markets. Bond yields and, in Europe, currencies were far more attractive.
Who do you most admire in the industry and why?
I admire simple people, those with faith who do not need to reason why. I once met a Dutch pension director who stated that we know nothing about investment and returns come from equities. To idolise people is not my cup of tea, but I remember in 1995 when I was in Geneva at a conference and Woody Brock predicted a period of five years of above-expectation profit growth followed by a period of disappointments. Impressively correct, I think. There are other well-known names - from Peter Drucker, author of ‘The Unseen Revolution’, to Alan Pickering. Now it is often not a person but the culture that counts. I still admire the team spirit and way of working I experienced at the Shell pension fund around 1986-1988, at Mn Services around 1997-2000, and the team spirit in implementing PME’s own board office around 2002 when we took control of investments.
Which investment writers’ or economists’ books have influenced you the most?
When I started at Shell Pension Fund, almost all investments were
fixed income, so I identified easily with John Meriwether, the Salomon Brothers trader in Liar’s Poker. Then I was fascinated by the House of Nomura because it showed me the typical Anglo-Saxon cultural issues on financial power were also embedded in Japanese culture. Later, with responsibilities for the whole pension fund, I loved (and still do) the approach of Keith Ambachtsheer and Don Ezra. Last but not least, I like Rudyard Kipling’s poem ‘If’ very much. With the help of Hugh Wheelan, then an IPE reporter, we reworked it for the pension environment.
What event, good or bad, has influenced how you approach your present role?
As a widow my mother lived very remotely, so she decided to sell her house and move to a small town. For her pension, she bought 720 shares in Dordtsche Petroleum, the holding company of Royal Dutch, at 62.70 guilders. It’s now up 30 times in real value. So stocks matter and can rise more than one can imagine. The 1987 crash taught me about market liquidity. On the Friday and the following Monday I saw that no broker picked up the phone, so liquidity was zero, which means that prices can go anywhere. Today I use this example again and again to convince our broker to offer PME liquidity at difficult times.
The next event was the feeling of being master of the universe. At Mn Services we timed the interest rate rise of 1994 almost perfectly. In 1997 we had a strong feeling the equity markets were way off and put a collar around
our holdings. Unfortunately, markets can exaggerate more than we envisage; in 1999 the position was closed with great losses. Timing is everything. Look at my father when he sold his business. Today interest cover is the big debate. Is it a good idea? Is a scenario with lower rates possible? Time will tell.
What is your investment philosophy?
Given my mathematical training and experience, I abide by the following tenets: First, risk. Prices can and will move beyond imagination, so always ask yourself questions about the 3+ standard deviation events. Actually, chaos theory predicts fat tails in a stable environment. So when markets move more or less linearly as recently I’m more alert.
I have seen many investment plans and the reasoning behind them. But I always keep in mind that timing is everything. In the long run stocks are great but implementation around 2000 was not a good idea from a valuation point of view. I consider economic information as mostly noise, but financial - and especially monetary-related - information is useful. Last but not least, our business is all about good people, hard work and some luck helps.
What are the most important challenges facing the industry?
The Machiavellian behaviour of politicians. The fact that in Geneva world leaders spoke about the
influence of pension money on wealth makes me shiver. I notice the poisonous trend where politicians increasingly find their way to use pension money to implement their own policies and fulfil their own ambitions.
There is an enormous pressure arising from ethical issues, currently being shifted from direct legislation onto our agenda. Child labour, clean water, green energy, hospital care, housing for the elderly, but also abnormal remuneration issues are being addressed via the influence of pension fund capital. Political leaders’ inability to solve these issues is hidden behind the façade of publicly forcing pension funds in these directions.
Pension funds differ greatly from country to country while the opposite is true for hamburger chains, franchise retailers, internet cafés and factories. This indicates there is no competition among funds. A related question is how to measure pension fund results, because as they say, “what gets measured properly, gets managed properly”.
Within the industry, via stock markets, management is increasingly monitored and corrected. Within the pension fund community this does not work. The consequences are relatively lower-paid, less competent staff and management with (potentially) other interests than those of the fund. The danger is an inexorable shift to commercial providers which can attract the best people. This development would be devastating in the long run because without proficient in-house staff, who will evaluate these providers properly?