Dutch pensions protest EU directive again

A letter from a group of prominent Dutch pension funds and asset managers has warned the European Parliament that proposed alternative investment fund regulations which could be passed this year would cost the country’s pension industry €1.5 billion in annual losses.

The letter is the latest volley in a long and drawn out battle over the “Directive on Alternative Investment Fund Managers”. Last month the UK House of Lords wrote a letter to the Financial Services Secretary reiterating recent testimony it has heard about the negative impacts the directive will have on both foreign and EU alternative funds, as well as leading to diminishing returns for pension funds, charities and other institutional investors in such vehicles.

The same group of Dutch pension providers – which includes APG, Blue Sky Group, Unilever Pensionfund Progress and the Dutch Association of Industry wide Pension Funds – also wrote to European internal market commissioner Charlie McGreevy last September, warning that the regulations will reduce investment opportunities and lead to higher costs and lower returns. The participating investors have approximately €500 billion of assets under management, over 20 percent of which is invested in alternative funds.

In their most recent letter they say that since Dutch pension contributions amount to €23.5 billion, the anticipated €1.5 billion loss would have to be compensated by increasing pension contributions by at least 6 percent. They also say the directive could cause pensions to take their investments out of all alternative non-UCITS, non-EU assets to more traditional assets such as equities and fixed income.

In addition to raising red flags about the potential costs, the pensions also outlined several ways for the directive to be improved before an eventual vote. Among the suggestions are:

• Pension fund asset managers/service administration companies should be excluded from the scope of the directive. For one, the pensions contend, such companies are effectively extensions of pension funds that are already subject to other regulations. EU member states which opted for a system of fully capitalised retirement provisioning, such as the Netherlands and UK, will also be more negatively impacted by some regulations than other member states. 
• The proposed regulations should be more consistent with existing legislation. For instance, the directive could be simplified by adhering to existing MiFIF and UCITS provisions regarding areas like depository requirements, disclosure obligations and operating conditions. Such consistency with current regulations would also assist in compliance. 
• The directive should contain clear conditions for the management of alternative investment funds in non-EU countries so that is easily known to investors and managers whether an investment in a non-EU fund would be allowed.

In the UK, London Mayor Boris Johnson has traveled to Brussels to warn about the threat the regulations would impose on the city’s reputation as a leading financial centre, while the UK’s Financial Services Authority released a report last year which said the directive could impose billions in compliance costs on managers.

These vocal criticisms seem to be having an effect, as an expected vote on the directive by the EU Parliament was pushed from last year to this summer at the earliest. Meanwhile, Sharon Bowles, chair of the European Parliament’s economic and monetary affairs committee, said late last year that the proposal needs “lots of changes”.