PensionSummit 2008: The role of pension funds in the development of new asset classes. 

Risk management is a main theme of pension regulators these days, which pension funds increasingly need to combine with their continuing drive to generate attractive returns. This does not only apply to Dutch pension funds, but also to foreign pension funds with DB pension arrangements. Managing the volatility of the liability cover ratio has become a key item on the agenda of pension funds.

The introduction of the market valuation of the pension liabilities is obviously having its impact on the investment strategy. Not only by matching the interest- and inflation rate sensitivity of assets with the corresponding sensitivity of liabilities, but also by trying to stabilize the returns of the non-fixed income related part of the investment portfolio.

Strategic asset allocation is an important instrument for stabilization of returns. The effectiveness of asset allocation is obviously better when a broader range of investment categories is available. Quantitative techniques (a.o. calculating correlations) are being used to choose the optimal combination of asset categories.

Here pension boards and pension investment managers are being confronted with a dilemma. Correlations can only be calculated when a minimum sample of data is available. Waiting for these data to be produced in the market could result into significant opportunity costs. This does not fill well with a climate with greater emphasis on the operational efficiency and effectiveness of pension funds. On the other hand investing early in these new investment categories brings a temporary “blind spot” on the risk management radar of the portfolio.

The tracing, assessment and management of new investment categories are increasingly found amongst the core activities commercial asset managers and investment banks have been developing in the new millenium. Examples of new investment categories being considered are emission rights, forestry, farm land, life settlements, private equity in emerging markets, infrastructure, commodities, micro financing, CAT Bonds, art, weather derivatives etc. Pension funds seem to be the natural entities for being involved in an early stage in the development of new asset categories. This is the theme of the PensionSummit 2008.

Several pension funds will share their experiences with us about the above mentioned dilemma.  For example the experiences of AP3 from Sweden and TIAA-CREF from New York will be compared with the experiences of Dutch pension operators like ABP and PGGM. The discussion also will take place in the context of the ambitions of Holland Financial Centre in the global pension market.

Also on behalf of the sponsors, I look forward to welcome you at the 7th PensionSummit on 17th April, 2008 in the Grote Kerk of Naarden.

Kind regards,

Jeroen M. Tielman
Founder and Chairman PensionSummit