Remuneration in line with interests of capital provider

​Different remuneration structures for external managers should contribute to lower costs for pension funds, thinks Ruulke Bagijn.

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The financial crisis has raised a debate about the extent to which the financial system works in the interests of the pension funds: the capital providers. PGGM takes the side of these pension funds and their participants. Based on their interests, we have set new guidelines for acceptable remuneration of external parties that we engage to manage part of the assets of pension funds.

The ‘PGGM executive guideline for compensation of financial services providers’ states how we want to bring the remuneration of external asset managers in line with the interests of the pension funds. PGGM aims to achieve a number of things over time, such as:

  •  Asset managers must be transparent regarding their pay and remuneration structures;
  •  Performance fees should only apply in the event of above-average performance that is agreed in advance;
  •  Only basic remuneration should be paid for the costs and pay of the management of the asset manager.

Dilemmas

Drafting guidelines such as these was not a simple process. We know what is in the interests of our clients: Good returns that are not at the expense of people or the environment. We have already achieved the necessary results in this respect in recent years.

At the same time, dilemmas remain. Such as, when we are able to realise exceptional returns but have to allow high fees to be paid in exchange for this, for example with private equity. This is only acceptable if the pension fund fully benefits.
 
Let’s be clear: the current market conditions in which PGGM operates are not the same as envisaged by PGGM. We want to move to a situation in which financial services providers charge better rates and use restrained remuneration structures, so that they will act in the interests of our clients. This is not something that can be achieved in the short term, and we realise that we also need this market in the meantime in order to generate returns for a decent pension.
 
So, it is a journey that requires stamina, in which we will focus on undesirable practices and denounce these to the financial services providers and publicly as well. We will also search for cooperation with like-minded people in the pensions world to act collectively against unacceptable practices. We are also expanding our own teams at PGGM to internalize investment management activities and thereby reduce costs.
 
 

Chief Investment Officer Private Markets

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