Belgacom, the largest pension fund in Belgium, had e3.3bn in pension assets at the end of 2002. Structured as a DB fund for 31,621 employees, it promises its members 75% of final salary with benefits linked to inflation.
The benefits covered include social security pensions, a special early retirement programme (PTS), disability pension and, from the beginning of October this year, a survival pension for active statutory staff.
By the end of 2001, the scheme was 71% funded, compared to 22% in 1995, when it was a PAYG plan, which Belgacom puts down to an accelerated funding plan as well as favourable investment returns. Funding is based on dynamic financing methods and not on a static basis. If you were to take Belgacom’s funded status on a static basis at the end 2001 it would amount to 156%.
In terms of investment process, the fund looks at four main areas, mission and governance, investment strategy, manager selection and portfolio monitoring.
For mission and governance the fund outlines two main responsibilities. The first is to meet the beneficiaries’ liabilities going forward – the fiduciary objective. The second is the plan sponsor responsibility – to minimise pension expense and its volatility – the funding objective. The fund notes that a 1% annualised return on a long-term period represents 3% of total EBITDA of the company.
Regarding investment strategy, Belgacom conducts regular dynamic asset liability modelling studies, which are updated every two years, combined with a continuous integration of risks on a corporate level (value at risk, downside risk). Performance stress testing is employed to measure the sensitivity of the assumptions used.
The long-term objective of the funding plan is to be fully funded (at PBO level) in 2010. The funding level in 1995 was 22%. Belgacom is also seeking a real return that will reduce the long-term pension expense and its volatility for the sponsor.
The investment strategy is set out in a formal ‘Statement of Investment Principles’, which is approved by the board of directors and governing ministers.
Belgacom’s transformation from PAYG plan to funded scheme has seen it go through a number of stages in investment development. Today, the fund has an asset allocation that breaks down at 57.8% in bonds, 41.6% in equities and 0.6% in cash.
The exposure is arranged on a core–satellite approach for both equities and bonds, with 46% of bonds managed passively. Half of the fund’s equity exposure is indexed. Of the bond allocation, 87.5% is in European government bonds, 6.1% is in world ex-Europe investment grades, 5.7% in European investment grades, and 0.7% in world ex-Europe government bonds.
Equity allocation comes out at 48.1% in European equities, 41.6% in World ex-Europe shares, 6.7% in European real estate and 3.6% in emerging markets.
For manager selection, the Belgacom fund is obliged to follow European public tender procedures when awarding new mandates. This provides high levels of transparency and openness to the procedure. Managers can also receive feedback if they have not been selected for the mandates.
The fund places particular emphasis on due diligence in manager selection by carrying out a thorough visit to the manager’s premises for a whole day.
Final manager recommendations also have to be made by a minimum of three persons from the pension fund.
For portfolio monitoring, the fund has a tactical policy of using specific prudent man rule investment constraints, including a maximum of 2% of assets in one issuer – except for government bonds.
The fund also measures manager diversification and consistency of managers to their mandate and monitors its total equity portfolio to ensure a neutral style approach.
At the operational level there is a clear separation between custody and asset management and the current straight through processing (STP) level for the fund is 92%.
A compliance and risk officer is responsible for risk management, implementation of procedures and board decisions as well as reconciliation between custodian and managers.
Compliance monitoring for investment guidelines and manager agreements are performed externally by the fund’s custodian as well as internally.
On top of that, a compliance manual setting out internal procedures and a code of conduct will be implemented before the end of 2002.

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