Dutch pensions fear €1.5bn directive cost

A group of prominent Dutch pensions has warned investors could pull out of alternative investing if the EU regulations on alternative funds are approved.

A group of prominent Dutch pension funds has warned the European Parliament that proposed alternative investment fund regulations that could be passed this year would cost the country’s pension industry €1.5 billion in annual losses.

The warning is the latest volley in a long and drawn out battle over the “Directive on Alternative Investment Fund Managers”. The directive would require managers to provide detailed information about their funds, including activity, governance and valuation. Fund managers would also be required to hold and retain a minimum level of capital of €125,000.

UK Mayor Boris Johnson, the UK House of Lords, the financial services authority and the Dutch pension group have all issued warnings about the implications of the directive.

The same group of Dutch pensions – which includes APG, Blue Sky Group, Unilever Pensionfund Progress and the Dutch Association of Industry wide Pension Funds – last year warned European internal market commissioner Charlie McGreevy the regulations would reduce investment opportunities and lead to higher costs and lower returns. The participating investors have approximately €500 billion of assets under management, over 20 percent of which is invested in alternative funds.

In their letter to the European Parliament, the pension group says since Dutch pension contributions amount to €23.5 billion, the anticipated €1.5 billion loss would have to be compensated by increasing pension contributions by at least 6 percent. They also say the directive could cause pensions to take their investments out of all alternative non-UCITS, non-EU assets to more traditional assets such as equities and fixed income.

In addition to raising red flags about the potential costs, the pensions also outlined several ways for the directive to be improved before an eventual vote. Among the suggestions are excluding pension fund service administrators; making the directive more consistent with existing regulations and crafting clear guidelines on whether an investment in a non-EU alternative investment fund would be allowed.

 

These vocal criticisms seem to be having an effect, as an expected vote on the directive by the EU Parliament was pushed from last year to this summer at the earliest. Meanwhile, Sharon Bowles, chair of the European Parliament’s economic and monetary affairs committee, said late last year the proposal needs “lots of changes”.