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Virtual debate on challenges

November saw the first-ever
IPe-Symposium, an online
conference for the European
pension industry. The topic for the
free event was “The challenges in
meeting Europe’s occupational pensions
liabilities”.
Some of the most senior figures in
the field participated and some 668
delegates, from 46 countries, registered
to participate - with the total
number of viewings of the six-hours
peaking at 1,530.
The presentations consisted of a
slide show coupled with the
speaker’s live, spoken presentation –
delivered online via delegates’ own
desktop computers. Each presentation
lasted for around 20 minutes,
followed by a 10-minute questionand-
answer session. One of the beauties
of the event was that delegates
could dip in and out of sessions quite
freely – although there was obviously
no networking coffee break!
It was judged a success, due not
only to the quality of the presentations
but also the nature of the symposium.
The format gave the unexpected
impression that you were listening
in to an event taking place in
one venue elsewhere, and not that
the participants were really spread
geographically.
Jean Frijns, the former investment
chief at Dutch civil service fund ABP,
outlined his thoughts on how pension
fund structure should be amended.
Frijns, now chairman of the Tabaksblat
committee on corporate governance,
noted that the risk allocation is
rather “diffuse” in the Dutch system –
that’s to say it was not clear who the
economic owner of a pension fund is,
the sponsor or the member.
He called this a “rather weak point”
in the Dutch approach. “This is all, at
least in the Netherlands, unclear.”
“The structure doesn’t reflect the
economic reality,” he told the symposium.
He argues that since it’s the
participants are the real risk takers
they are therefore the economic
owners.
“But on the balance sheet they
appear as debtors,” he said. “So the
balance sheet doesn’t reflect economic
reality. We should stick with
strategy and fix the structure. “Current
DB models look riskless for participants
but they are not.”
He highlighted the growing tensions
between the generations in the
Netherlands and warned that the situation
could become more tense if
the problems aren’t solved.
Anne Maher, the chief executive of
Ireland’s Pensions Board, suggested
on the symposium that a pan-European
pensions coordinator might be
a good idea. “Some form of EU coordinator
might be a good idea,”
Maher said – although she added she
would not welcome centralised regulation
because the regulatory environment
for European pensions is
“not a green field situation”.
But she said there’s still quite a distance
to go before there’s a pan-
European pensions regulator. European
pensions regulation came in for
a battering from speakers.
Maher said regulators were “not
out there to get pension funds or to
make life awkward for them”. She
said regulators and schemes had
common objectives.
She rejected the idea that the insurance
measure Solvency II should be
applied to pension funds. “I have
strong views that that’s not the way
forward.” She added it could be very
destructive for defined benefit plans
in Europe.
Jan Straatman, chief investment
officer for capital markets at ABP
(before his high-profile move to
Pearl Group), made an illuminating
presentation which posed questions
about the nature of asset ownership
and asset management.
He called on pension managers to
ask who the client really is, i.e. who is
the ultimate asset owner? The investment
model had to take these issues
into consideration. “Are we really
doing this? Are we all promoting a
long-term pensioner centred investment
policy?”
He talked of the “myths of the
investment industry”, which he saw as
extremely structured and rigid with
well-defined asset classes and sub asset
classes in “small and narrow clusters of
activity”. This has led to it being very
difficult to outperform, he argued.
Indeed, the success of hedge funds
suggested this traditional ‘silo’
approach was “suboptimal”.
He explained how the fund was
moving on from the traditional
approach, instead looking more at
strategies. “What are the exposures,
the risks, the correlations?”
“Performance is all about finding
and exploiting market inefficiencies.
Does a manager have skill to exploit
these inefficiencies?” ABP had made
a conscious decision to separate top
down from bottom up.
Robin Ellison, chairman of the
UK’s National Association of Pension
Funds, spoke of the conflict
between the Anglo-Saxon approach
and the traditional continental
approach – with continental schemes
now seeming “rather stronger”.
There was a problem over attitudes
to risk. “People must realise that risk
is necessary for good returns in their
pension funds. The UK pension system
has always accepted that risk is
necessary – include the risk that companies
will go bust.”
He was critical of the pension fund
directive. “One of the tragedies of
the European pension directive is
that it’s been hijacked by various
interest groups,” Ellison said in a
keynote address. He said the total
effect of the directive’s provisions
was “counterproductive”. He reckons
the regulatory framework is now
“so tight that none of us can live
with” it. The problem was that it
reflects attitudes to risk that constrain
pension funds, he said.
The challenge was to revise the
directive to achieve sensible protection
that everybody could live with.
He would watch proceedings with
“interest and anguish”.
It was inevitable that the retirement
age will have to be raised in the UK
and that people will have to work
longer than they expected, said pensions
investment consultant.
William MacDougall, the former
managing director at TRW Investment
Management. Belgian consultant
Karel Stroobants said this would
also be inevitable in other European
countries
Swiss pension adviser Werner
Nussbaum predicted an “avalanche”
in the move from defined benefit to
defined contribution by corporate
schemes in the next three to five
years. “In six years all will have
moved to DC,” he said.
However Stroobants was more
optimistic. He said the DB type of
pension could be saved if it was modified.
He proposed a hybrid DB
scheme, when he termed as “defined
risk” - where the collective risk was
spread between members and sponsors.
The question was would risk be
spread?
Nussbaum said there was a need for
better education and more training
of both pension fund boards and
trustees, and pension fund members.
Peter Kraneveld of PGGM called this
a tough sell: “People are not interested
in pensions and even less interested
in pension funds.” He queried
the assumption that lay people
should be encouraged to become
investment experts. However he
agreed with Nussbaum that the key
requirement was for better transparency.
“People must be able to
understand what we are doing.”
The event was clearly a success and
IPE plans further e-symposia in the
coming year.

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