The annual strategy meeting of the Wasserdicht pension funds is always an interesting affair. We are meeting at a nice hotel in the area of Frankfurt, with a decent golf course. Helmut from our German Pensionskasse is our host and the chairman of the meeting.
Over dinner the night before, we discuss our various national sports. Jim from our Dallas office talks about the US Superbowl. But, apart from Cliff, who runs the Canadian pension fund, no-one else follows American football. We Europeans discuss soccer and Joe from the London office talks about the Olympic Games.
At 8.00 the next day, we are in the meeting room. First up is the global economy. We agree we can no longer talk about ‘risk-free’ assets, and discuss how long the January and early February rally will last. I am relieved that we did not sell out of Italian bonds in the autumn, given the way spreads have come in recently.
Helmut points to his own difficulties in persuading the board members of the Pensionskasse to diversify risk in the bond portfolio.
Cliff from Wasserdicht Canada talks about his global infrastructure portfolio and the importance of long-term investing. ‘Someone has to play the role of the long-term capital allocator amid all this noise,’ he says.
This brings us to accounting rules and regulation. ‘Everyone is becoming short term,’ observes Tokui-San from Wasserdicht Japan. ‘When the regulator is short term, it is time to tell him that if you don’t enter the lion’s cave, you won’t catch the cub’.
‘We are hidebound,’ I say, pointing out how our Dutch National Bank persuaded pension funds to sell out of equities at the bottom of the equity markets in autumn 2008. ‘Luckily our strong sponsor meant we could resist the temptation and so our fund is relatively well funded.’
After lunch, Helmut has asked me to give a presentation on the consequences of the Dutch Pensioen Accord, the new national framework to regulate our pension system. ‘Why all this fuss when the Dutch system always scores well in the international comparisons?’ he asks.
‘We Dutch don’t like to see the positive side, thanks to our Calvinist self criticism,’ I say. ‘The problem is that we need to make the system more conditional unless we are going to make it unaffordable by securing index-linked rights with even higher capital buffers.’
‘What about the FTK?’ asks Jim. ‘The main problem was the market discount rate which pushed us all into interest rate swaps at the same time, depressing the rate and inflating our liabilities at the same time,’ I explain.
‘So what is the solution? asks Helmut. ‘We plan to move to scheme specific discount rates based on expected return,’ I reply.
‘Just like in the good old US of A!’ says Jim. Joe interrupts: ‘It’s just like the Olympic Games.You don’t get gold for re-inventing the 100 metres.’
Pieter Mullen is investment director at Wasserdicht Pension Funds