Philip Neyt, the head of the Belgian Pension Funds Association (BVPI-ABIP) and driving force behind Belgium legislative changes, foresees a future of open architecture pension funds and increased transnational cooperation.
Neyt, who is one of the 10 nominees for this year's OutstandingIndustry Contribution award at the IPE European Pension Fund Awards in Vienna, told IPE in an interview the key issues for pension funds in the future will be globalisation, outsourcing and short-term solvability with long-term continuity.
“Pension funds will enter globalisation, while following general trends of their industry and their sponsors,” said Neyt, adding although many aspects will remain local, pension funds will be able to attain scale advantages thanks to globalisation.
Moreover, globalisation will drive pension funds to become more transnational, as well as in their communication with other funds, because of an increased need for outsourcing.
“Many of the investment will become much more complex than it already is, you only have to look at the products surrounding credit risk, for instance,” said Neyt.
He sees the pensions industry moving towards an open architecture environment in which pension funds themselves will provide services to other pension funds.
He argues pension funds often have more expertise and are also better equipped to sell complex issues to their trustees than, for instance, consultants.
“If you look beyond the core asset classes, then it often isn't worth building up in-house expertise beyond these areas, it is too expensive,” he said, adding: “Automatically, funds will then turn to external parties, managers of managers, consultants, but the most practical expertise is with other pension funds.”
Neyt observes a current trend in which investment products of inferior quality are being "shoved" onto the pensions industry: “It used to be straight forward when you just bought equities, bonds or real estate, but now that indirect investments are increasing, everything is being packaged and transparency decreases.”
He added: “Institutions push certain risks to the pension funds, because in the end we buy these products, but in the end the risks increase.”
Along these lines, Neyt also observers a trend in which pension fund managers feel pressured to sometimes invest in products that are in fact too complex. “In the Netherlands, for instance, the regulator says funds need to do more matching between active and passive, which has resulted in synthetic or structured products. The only ones who have become rich from this are the intermediaries,” he added.
Neyt concluded alongside globalisation, the biggest challenge for pension funds will be in managing short-term solutions against long-term continuity, as the investment world increasingly focuses on short-term horizons.
“Because of the IFRS, pension funds will get closer to their corporate,” he says. “It will make pension funds more efficient and effective, it will increase communication and it will increase the risk dynamics, the risk management.”
Neyt thinks more multinationals will in the future want to gather their risk at a central level.
Neyt, who is one of the 10 nominees for this year's OutstandingIndustry Contribution award at the IPE European Pension Fund Awards in Vienna, told IPE in an interview the key issues for pension funds in the future will be globalisation, outsourcing and short-term solvability with long-term continuity.
“Pension funds will enter globalisation, while following general trends of their industry and their sponsors,” said Neyt, adding although many aspects will remain local, pension funds will be able to attain scale advantages thanks to globalisation.
Moreover, globalisation will drive pension funds to become more transnational, as well as in their communication with other funds, because of an increased need for outsourcing.
“Many of the investment will become much more complex than it already is, you only have to look at the products surrounding credit risk, for instance,” said Neyt.
He sees the pensions industry moving towards an open architecture environment in which pension funds themselves will provide services to other pension funds.
He argues pension funds often have more expertise and are also better equipped to sell complex issues to their trustees than, for instance, consultants.
“If you look beyond the core asset classes, then it often isn't worth building up in-house expertise beyond these areas, it is too expensive,” he said, adding: “Automatically, funds will then turn to external parties, managers of managers, consultants, but the most practical expertise is with other pension funds.”
Neyt observes a current trend in which investment products of inferior quality are being "shoved" onto the pensions industry: “It used to be straight forward when you just bought equities, bonds or real estate, but now that indirect investments are increasing, everything is being packaged and transparency decreases.”
He added: “Institutions push certain risks to the pension funds, because in the end we buy these products, but in the end the risks increase.”
Along these lines, Neyt also observers a trend in which pension fund managers feel pressured to sometimes invest in products that are in fact too complex. “In the Netherlands, for instance, the regulator says funds need to do more matching between active and passive, which has resulted in synthetic or structured products. The only ones who have become rich from this are the intermediaries,” he added.
Neyt concluded alongside globalisation, the biggest challenge for pension funds will be in managing short-term solutions against long-term continuity, as the investment world increasingly focuses on short-term horizons.
“Because of the IFRS, pension funds will get closer to their corporate,” he says. “It will make pension funds more efficient and effective, it will increase communication and it will increase the risk dynamics, the risk management.”
Neyt thinks more multinationals will in the future want to gather their risk at a central level.