Peter Kraneveld
38 comments By Peter Kraneveld
Having sworn off international cooperation, PGGM is now getting out of its domestic clients also. It looks pathetic, that a non-profit organisation with a large social element is unable to cooperate with anyone. Economically, it's even worse to see PGGM assume that the world will stop changing, so it doesn't need flexibility.
Writing off 9 million from its building is a good example. Would it not have been logical to rent the empty space to another pension fund and share facilities? Wouldn't there have been any prospects among its clients, notably huisartsen? The two former partners will meet in court instead.
The PFZW - PGGM construction is now superfluous. Why not end it, so that at least former PFZW employees can fill some empty space.It is good to note that according to Financieel Dagblad, the "money laundering" checking is considered as going way too far. However, banks are afraid to complain because of what they call "the long arm of the central bank", which I translate as bureaucratic intimidation and debatable conduct. However, I may be slightly prejudiced by an incident where a bank branch manager told me in my face that, as I lived in France, I couldn't open a savings account for my Dutch children in the Netherlands because I was (fact, not supposition) laundering money and the bank did not wish to help me doing that.
EDHEC misses the point, because it is not economic, but political. The gas and nuclear proposed change is a package deal. For the energy transfer you need at least one as a temporary solution. The former East bloc countries are heavily into gas. France is heavily into nuclear, so the only political solution is to admit both. Leaving both out is impractical, because of climate change.
Blended finance does not mobilise private capital. Private capital is always seeking for new opportunities and is much better at fining them than government officials, if only because there is an excellent financial reward for private capital finding those new opportunities, while officials are not rewarded for fining them.
Blended finance does bring extra cost. The risk of bureaucracy, including the risk that the whole project is called off is higher than usual, as is shown by practical experience. Taking that risk is rewarded by a higher interest rate, paid by the (developing) recipient country to the private party.
So why is blended finance pushed? Because the nationality of the private party is known. Unless the contrary can be shown, blended finance is just another way to subsidise national champions, including those with doubtful competitive power with development aid and not in the interest of developing countries.There is a third option, in-between engagement and divestment: judicial action. The case of Shell has proven that this option is real. In addition, precedents set in such cases may well affect other companies. As a minimum, pension funds should be prepared to prosecute damaging omissions, outright lying and fraud in class action suits. Too bad this option has found no place in this article. My impression is that it is vastly under-used.
Combine "We don't know about the first thing about the new system" with "The new system will result in a lower pension" and you get "We trust neither the government nor the pension funds" leading to the conclusion that the much touted change in the pension system hasn't changed a thing for the end users; it just made them feel worse off. Combine that with "the eventual pension result is what counts for them" and it is clear that the latest reforms are and will remain a negative for the end users. Since that's not what the negotiating parties want to hear, they will not act on what they ought to know and the reforms will be counterproductive. On to the next "reform".
Much of what is reported in this article is relevant to central banks and supervisors. Pension funds have different worries. That is worrisome by itself.
On the investment side, equity managers are asked to bet on whether we are in an equity bubble and whether governments should own so much in private equity and debt, bond managers wish they knew when the market is liquid enough to resume a life of its own, real estate managers feel the ground moving under them as Zoom has changed their world and everyone is hopping up and down over climate change, SDG, ESG, support packages and their withdrawal.
On the pension disbursement side, we have no clue how much damage 2020 did to the retired population or life expectancy, let alone what the newly used anti-virus technologies mean for e.g, cancer research.
Central bankers and supervisors job may be to watch systemic risk, but is that really the most efficient use of their time in this situation?“Nothing should cut across schemes’ fiduciary duty and freedom to invest in members’ best interests – and this will vary scheme by scheme. - Joe Dabrowski
"Nothing" apparently includes a mix of freak weather events and high water levels that will cause major loss of life - in particular among the youngest children and the elderly - at a minimum. Preventing this is not in the most basic interest of pension fund beneficiaries, their children and their grandchildren?
A review of priorities is in order, Mr. Dabrowski. Your punishment shall be having to read the Wikipedia lemma on Soft Climate Change Denial aloud in front of a mirror.Kudos to ABP for agreeing to do what is minimally needed in 2050. Great to hear they are putting real money into renewables and research! That means carbon will not just shift 100% from their portfolio into the portfolios of deniers, opportunists and ignoramuses. This is real leadership. If all big pension funds would take these rational steps, our children and grandchildren would have a better chance.
Meanwhile, what is lacking is mention of a programme of active ownership, aimed against those who actively increase long-term risk in the companies ABP invests in by blocking climate change action. Voting them out should be a priority.Thank you for remembering Nick Greenwood. We often met at IPE events. He struck me as open, friendly and capable, especially in the technical field. I knew it would be unlikely that I would see him again after he left Berkshire, but did not expect closure so soon.
First, the key problem is industrial property. There is no connection between industrial property and tariffs.
Second, China is pushed into a corner where its colonial period - referred to as "unequal treaties", not just prevents it from giving in, but builds support within China for the communist party and its inflexible stance. The harder you push, the less you will achieve. Poor negotiating.
Third it is not true that upon entering the WTO, China was seen as a poor country. I was a very minor player in that game, but it gave me access to the negotiating stances. In fact, some countries wanted China to accede as a developed country. There was little support for that, but China got a more stringent deal than developing countries. In fact, while China is a large economy, it is still not a developed economy.The analysis is quite understandable. I have seen similar analysis and conclusions when Deng took over (yes, I am that old!), when China applied for WTO membership, in-between and afterwards. It has also turned out quite wrong in the past.
The first fallacy is to believe that China having a larger economy than the US is significant. In terms of economic power, what is important is per capita GNP, not the absolute level of GNP. Second, the analysis relies on extrapolation. Things will develop in the future as they have developed in the past. That's odd for a politically unstable dictatorship with huge income inequalities and sizeable minorities. The third fallacy is that it sees a more even distribution of economic power as negative. In decades past, we have been told over and over again that a few rich countries had a disproportionate share of wealth. That distribution is now flattening and that's also bad?
Let's not be carried away by fear of the "yellow danger", like previous generations. Let's see US power being curtailed as a natural thing to happen in the long run to all hegemons. History has not stopped surprising us yet.Excellent reporting!
I would just like to point out that taking legalisation as guidance is far from watertight. Politicians tend to run behind the fact, as is shown most clearly in the area of ESG. "The United Nations Conventions on Drug control today classify cannabis as one of the narcotic drugs that requires the strongest control" is not an argument but an illustration of how outdated politics get it wrong. Rather than leave the decision to others, pension funds ought to make a reasoned decision themselves on whether or not to exclude cannabis from their portfolios, as they already do in the case of tobacco.One of the principal functions of the government is to achieve social goals (social goods, moral behaviour), in particular those that cannot be achieved efficiently by society itself and have important external effects.
If a government feels that society should achieve ESG goals, it is not appropriate for CFA and their clients to second guess that conclusion. They can only give expert advice on the efficiency of the (proposed) rule. Otherwise, It is a business between politicians and voters only. Rules on ESG are no different from rules on e.g. inside information.While it is not just a good idea, but also a fiduciary duty to prepare for possible risks, as the Swedish supervisor urges, it is nothing less than scaremongering to posit a hard Brexit as a fact, as the Dutch supervisor does.
First, such negotiations are usually finished only around midnight of the deadline day, so uncertainty will remain until the very end and the present situation is no guide for the future. Second, they may not be likely, but there are scenarios in which Brexit is blown off. It is not within the remit of supervisors to foist their political opinion upon pension funds.It looks like a second pillar study (Melbourne Mercer Global Pension Index) was compared with a DC only study. That is a very basic error. Since pensions in the Netherlands are quite dominantly DB, the only valid conclusion is that those who have a DC pension envy those who have a DB pension. Rightly so, of course, but that completely upsets the Trumpian conclusions about US pensions.
The slowdown in growth of longevity took demographers by surprise. That means they can't predict the future. That's no surprise. The future is far too complicated to be foretold. Ask any meteorologist, or economist for that matter.
So why does Mr. Vaupel think he's the only exception? Does he really know about medical progress? Did he predict AIDS or heart transplants? Does he know when we'll find a cure for cancer or even whether we can cure Alzheimer? Can he predict the next animal disease that finds a way to kill humans? Has he ever thought about the influence of climate change on longevity?Rather than "explode into space", as Steppenwolf once sang, it is useful to read what PLSA says. They don't say "let's not do ESG". They say "the wording is too directive". It's not about the policy or its direction, it's about word-smithing.
I don't know if PLSA has a point or not, but I do know ClientEarth is grossly over-reacting. In an age where screaming and shouting, idiotic handshakes, perfidious influencing by internet and blatant lies pass for negotiating, we need to make a stand against this sort of counterproductive approaches and goad people back to mutual respect, listening and being able to make simple and small concessions to make others happy.
I am calling on ClientEarth to apologise.It is self-evident that pension funds should avoid acting on or even creating conflicts of interest.
That said, how do you decide a tender? Competition wonks would say that in principle, the cheapest offer wins. However, a fiduciary tender cannot simply be decided on cost. Fees are only a fraction of net return. A tender cannot be decided on return either, because that would invite undue risk taking. Tenders can also not be decided on return within a specified risk framework, because those are promises that may or may not be fulfilled. Trust is yet another decisive element.
In short, trustees must decide on a tender by a complicated non-standard equation that includes risk, return, cost and confidence. Many a trustee will feel unable to do so and use ... their consultant. And so we have made full circle. You gain nothing but needless fees by insisting on tenders. What is really needed is a second, independent consultant who does not offer fiduciary services. How do you explain that to a competition wonk?Susanna Rust is quite right. Managing any risk is not the same as doing something about it. Most risks are actually a given. They don't go away. You can just shove them in someone else's lap, sell them or do what you can to mitigate the risk. In the case of ESG something can be done about the risk. However, while that is a good, positive by-product of management, it is emphatically not the job of pension funds to protect or even change the environment. Their job is to make pensions. At best, there is an investment case for acting on bad governance or it least divesting from badly led enterprises.
The only scenario I can think of (but it is realistic and compelling) that would spur a pension fund into ESG action without a financial reward is one where its beneficiaries want their pension fund to be active with their money on their behalf. Acting on their wishes will reinforce trust. Trust is what any financial institution needs to survive.
Since pension funds' beneficiaries are not a random population, their interests will vary wildly. Doctors and nurses will hate tobacco and motorcycles but like medicine and children. The religiously motivated will like the environment at large, but not alcohol and guns. Soldiers will like landmines, guns and anything that keeps the peace.
Commented on: 25 May 2022
PGGM to focus asset management services on PFZW