Executives at European pension funds regret they didn't get into long-term assets sooner after the global financial crisis, delegates heard at the World Pensions Council's annual conference in Paris on Thursday.
Speaking about the motivations behind increasing long-term investing in a low-interest-rate environment, panelists said they missed out because they were mandated to invest procyclically by regulators after the crisis. In Europe, many countries require asset owners to meet return thresholds and are bound by investment limits, including on illiquid assets.
However, asset owners believe long-term assets including real estate, infrastructure and private equity stabilize portfolios in addition to offering diversification and an illiquidity premium.
One French pension fund executive, who did not want to be named, said during a panel discussion that after the financial crisis in 2009, "we decided to reduce the risk and it was wrong."
"We have been compelled by the regulators to pile into the wrong assets (goverment bonds)," he said.
By comparison in the Netherlands, the regulators have allowed pension funds to take on more risk if they had 105% coverage ratio, said Gert Dijkstra, senior managing director at APG Asset Management, the manager of the €405 billion ($497.6 billion) pension fund ABP, Heerlen, Netherlands. "But the Dutch market does not have inflation-linked bonds," he added.
Pension fund executives agreed it all comes down to the individual plan's investment objectives because it is hard to build a large long-term assets portfolio, especially a private equity portfolio, due to fees.
Andrien Meyers, head of treasury and pensions at the London Borough of Lambeth's £1.1 billion ($1.5 billion) pension fund, said "if you focus on cash flow, you're better off focusing on property and private equity, and when you focus on inflation it is better to do property or infrastructure."
