Dutch public sector pension fund ABP said it backs plans by PFZW, the care and welfare sector pension fund, to see "punishments" built into contracts with asset managers, to trigger a fall in fee levels if the managers underperform.
Europe’s largest pension fund said that it supported the idea that compensation to external managers outside APG should be "balanced". Its statement follows remarks from PFZW’s director Peter Borgdorff, that sustained underperformance of mandates should have financial consequences. "We recognise that there are risks to enforcing such a punishment regime", the fund added, however. For example, asset managers might not want to work with you any more, or being strict on the downside could mean asset managers will want to earn more on the upside.
Such considerations were already taken into account
in existing contracts agreed between ABP and outside managers, it said. "The contracts provide for performance fees to cover returns over a period of years, so years of bad performance should be compensated before a manager is eligible for a performance fee", the fund added.
ABP questioned whether penalties were the best potential solution to the problem: "Punishing managers is not necessarily the best way to strike a balance – good alignment might be better." To ensure an alignment of interests between ABP and its external managers, general partners were expected to invest their own money alongside the pension fund, resulting in losses for the GP if investments underperformed, the scheme said. "We are smarter investors than some people would like to portray us, and we are aware of all dynamics in dealing with external managers", the fund said. "There are many factors to take into consideration."
Full article (registration)
© IPE International Publishers Ltd.
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article