The story of Belgium’s VKG/CPM pension fund is in some ways a microcosm of the European pensions story, thus making it a worthy winner. Operating as an underfunded pay-as-you-go system, it some years ago realised the writing was on the wall and that it would not be able to meet the expectations of its members.
In the mid-1990s, it bit the bullet and undertook reforms with the goal of being fully funded by the end of the decade, in time for the new millennium. It was a radical overhaul done with due recourse to asset liability management. The resulting portfolio allocation meant a dramatic shift away from where the portfolio was overburdened with Belgian bonds to the tune of 80%, not an extraordinary story from a European perspective. And what equities there were were domestic, exposing the fund to all the dangers of the stock specific risks of a small equity market. These were in balanced mandates, managed in-house.
The model chosen was remarkably prescient, particularly for a small fund relative to others and even now is only e520m, with a portfolio that went for international diversification and a heavy ramping up of the equity quotient – to over 60% of the assets, with 30% in fixed income and 8% in real estate. This was controlled through what the fund refers to as a specialist multi-manager investment programme and, what was remarkable for its day, all done under the aegis of a global custodian, a feature that may not have been legal under Belgian law at the time.
But it incorporated number of other features that were avant garde at the time VKG/CPM undertook them, even though they are now being slowly adopted as best practice in the rest of the industry, in that it instituted a currency management programme with two specialist overlay managers, a securities lending programme, and now undertakes commission redirection. In addition, it has a custom-built standardised reporting system for compliance and performance attribution. Who says that these activities are the preserve of the bigger funds?
Risk control, related to the amount of risk the fund perceives that its members are willing to accept and measured using a variety of sophisticated techniques, ensures that the asset mix and the amount of risk taken are in line.
On the investment side and benefiting from the buoyant market conditions of the late 1990s, the fund produced a six-year average net annual return of 16.1% up to 2000, making it one of the best performing pension funds in Belgium. In addition, the fund points out this high return was accomplished at lower risk than previously, a good indication that value was being added for 17,000 members.
The scheme adopted the statement of investment principles similar to those in other countries, such as the UK. This was just one of the innovations attributable to the drive of chief executive Karel Stroobants, who was behind the changes in investment policies and a believer in adopting the best practices from elsewhere.
Transarency to members is a key principle, with full disclosures to members in reports and on the website. But it goes wider than that with investment information being disclosed to the general public on the fund’s website.
But it has not stopped there. Recently the fund transferred the assets into an investment fund type operation, as part of its drive to capitalise on its success by undertaking pensions business for other parts of the community.

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