NETHERLANDS - Pension funds must act responsibly as private equity investors and should not simply use companies as cash cows and leave them once they are running dry, according to the Dutch Association of Industry-wide Pension Funds (VB).
"Investing in private equity must be done carefully, and pension schemes must take responsibility as a long-term investor," VB said in a statement.
Its comments are part of a national debate on the effects of private equity.
"Private equity plays an important role within a properly diversified investment portfolio of pension funds," VB added. "Investors have shown that they can achieve higher returns than is possible via listed companies. This surplus return should be considered as a reward for the less liquid character of private equity, and the greater efforts put in as a shareholder."
"However, VB's members must be transparent on, for example, whether or not they invest in private equity, their criteria and the total amount of assets invested," VB director Peter Borgdorff told IPE. "In addition, they should make clear that they are not investing just for the returns but that they are also taking issues like the environment and employment at all stakeholders into account."
Nevertheless, pension funds do not need to provide information on concrete investments and funds, Borgdorff says. "This is market-sensitive information, which could lead to loss of opportunity, and there are high costs to informing a scheme's participants."
The VB statement added: "Pension funds must have an insight into the policy and the investments of private equity funds they are investing in. And the governance of the taken-over companies should be of the same high standards as listed companies.
"However, it is up to boards and supervisory boards to keep an eye on the interests of all stakeholders and not to expose their company to irresponsible risks," it stressed.
A similar warning was issued by F&C in the UK, where private equity investments by pension funds doubled over the last year. Pension funds to seek expert advice and use fund of funds when going into private equity rather than "tapping directly into private equity's superior performance", F&C cautioned.
VB's 82 members have combined assets under management of more than €400bn.