For the fifth year in a row, Montreal-based McGill University tasked undergraduate students from around the world with solving pressing global retirement system challenges. This year's winning proposal came from students at Copenhagen Business School, whose advice to Dutch pension funds could help them successfully transition from defined benefit arrangements to collective defined contribution plans and navigate a low-yield future, according to the annual competition's organizers.
The competition, known as the McGill International Portfolio Challenge, seeks solutions to real-life problems the investment industry is facing. In previous years, students tackled issues such as climate-related divestments of assets, Brexit and investing with a focus on equality. This year, the focus was on ongoing Dutch pension reform in an environment of ultra low-yields. A record 114 teams from 26 countries competed this fall to win the main prize of C$25,000 ($19,550) sponsored by the C$227.7 billion Ontario Teachers' Pension Plan, Toronto.
The winning team from Copenhagen Business School, announced on Nov. 5, proposed an investment plan and other recommendations for a hypothetical, newly formed Dutch collective defined contribution plan with €30 billion ($33.9 billion) in assets that resulted from the merger of several DB plans. Their recommendations included reducing the initial high allocation to bonds to 25% from 55% and moving the remaining 30% into infrastructure, real estate and equity investments, noting that younger plan participants would be joining the plan who could bear the extra risk. The students also proposed moving some of the plan's asset management in-house to have better control over ESG issues and reduce costs.
The 54 judges from large institutional funds, including the €266 billion Pensioenfonds Zorg en Welzijn, Zeist, Netherlands, were looking for a pragmatic focus on implementation that could be "sold" to all the stakeholders including pension funds, employers, unions and employees, said Sebastien Betermier, associate professor of finance at McGill, who coordinated the competition.
The winners will be invited to meet with Dutch pension funds in the coming months to present their solution, Mr. Betermier said.