ICELAND - Stricter demands on brokers and asset managers and increased involvement in shareholder meetings are among the recommendations for pension funds put forward by an IPFA committee investigating lessons learned from the financial crash.
The committee, formed by the Icelandic Pension Fund Association (IPFA) in May 2009, presented its final report at a meeting of around 80 representatives of Icelandic pension funds,to outline recommendations that include changes to trading practices in the securities market, regulations and the pension fund environment.

In particular, the committee, chaired by Stefan Halldorsson, former chief executive of the Engineers Pension Fund, believes pension schemes need to protect their interests in "more active and varied ways". These include:

Strengthening the covenants of securities and financial instruments to protect the rights and position of the pension funds at the time of purchase; Pushing for immediate listing of securities and more information from the stock exchange on issuers, scale of trading and its nature, and Supporting improved corporate governance in companies and protecting the interest of small investors.

The report -entitled  Lessons that pension funds can learn from the crash 2008-2009 - argued "information dissemination on ownership and financing of large shareholders was deficient and therefore it was impossible for participants like pension funds to fathom the scale of these ownership ties and the risk of a chain reaction crash".

One of the recommendations put forward to address this issue is the appointment of a bondholder agent for each bond issue, as used overseas, to protect their interests.

Meanwhile, the shareholder registry should always clearly state who the largest shareholders in the companies are and how they are associated if the combined holdings of these shareholders exceed 5%, the committee suggested. 

In addition to the regulatory changes, the committee's findings also highlights the need for pension funds to be "more active and vocal in debate and criticism, in public and in annual and shareholder meetings".

To aid this process, it suggests pension funds should increase their cooperation and collective initiatives within the IPFA to "press for improvements in other sectors of the financial market and economic life and present to parliament, ministries, supervisory bodies and stock exchange their proposals for improvements".

Elsewhere, figures from the Central Bank of Iceland showed the value of Icelandic pension funds increased by ISK4.8bn in February to ISK1.802trn (€10.6bn).

This is the highest level recorded so far, after January's net asset value of ISK1.797trn exceeded the previous high of ISK1.795trn recorded in August 2008. This was just before the bank statistics recorded a six-month decline in pension fund assets to reach a low of ISK1.536trn in February 2009.

However the estimated monthly figures - based on a sample of pension funds - attribute the latest rise in asset values to an increase in variable income securities, particularly equity funds, which increased to ISK332bn, and the equity portfolio, which increased to ISK113.7bn.

At the end of February 2010, the figures showed a monthly increase of 0.3%, and a year-on-year improvement of 17%, or ISK266bn. Approximately ISK1.2trn of total assets are invested in Icelandic securities, while the remainder is invested in foreign securities and other assets.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

Topics