EUROPE - Regulators came under strong criticism at a conference in Salzburg earlier this week, when Swiss consultant Felix Kottmann and Dutch fiduciary adviser Anton van Nunen told them to back away from damaging pensions.
"Lawmakers do not understand the market - I am not sure whether this is deliberate or not," asid Kottmann said at a pensionkassen forum organised by quantitative asset manager IQAM and Austrian bank Spängler.
Citing examples where he felt regulators had caused problems, Kottman attacked the decision in Germany allowing institutional investors to place their assets initiallyin single hedge funds instead of fund-of-hedge funds.
He also claimed the home bias which many pension funds have to have in their portfolio "makes funds choose risks which they probably would [not follow] if they were free [to invest]".
"Regulators have created a false security which we believe in," he noted.
Kottmann also criticised pension funds as he argued decision-making processes were too slow.
"Pensionskassen need quick responses to make decisions when they are needed most," continued Kottman.
He urged funds not to rely on consultants too much and not to follow investment trends.
At the same time, Anton Van Nunen urged pension funds to manage risk and even went so far as to say "defined benefit would once again be possible in 80% to 90% of the cases, including indexation, if funds were allowed take the risk".
"When authorities are interfering at the moment they only do it counterproductively - they should only interfere with the first pillar," said Van Nunen.
Kottmann agreed that he believed defined benefit schemes would be better and argued defined contribution-style schemes of individual accounts with individual choice were the wrong way to go to solve pension problems as people do not have the knowledge to make the right investment decisions on their own.
"Defined benefit is the only system that will continue to work but companies would have to be allowed to completely deduct these expenses from tax," suggested the Swiss consultant.