A letter from a group of prominent Dutch pension funds and asset managers has warned the European Parliament proposed alternative investment fund regulations could cost the country’s pensions €1.5 billion in annual losses.
The letter is the latest volley in a long and drawn out battle over the European Directive on Alternative Investment Fund Managers.
The directive, if passed, would require managers to provide detailed information on their funds’ activity, governance, internal risk management, valuation, asset safe-keeping arrangements and audit arrangements. Fund managers would also be required to hold and retain a minimum level of capital of €125,000.
Last month, the UK House of Lords wrote a letter to the Financial Services Secretary about the negative impacts of the directive on both foreign and EU alternative funds, as well as fears it could diminish returns for pension funds, charities and other institutional investors in such vehicles.
The group of Dutch pension providers – which includes APG, Blue Sky Group, Unilever Pensionfund Progress and the Dutch Association of Industry wide Pension Funds – first wrote to European internal market commissioner Charlie McGreevy last September, warning the regulations would 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 the group anticipated losses of €1.5 billion based on Dutch pension contributions of €23.5 billion. To meet that shortfall, the group said pension contributions would have to rise by at least 6 percent.
They also say the directive – which could be passed this year – ould 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 called for pension fund asset managers to be excluded from the scope of the directive and for the directive to be more transparent about which investments would be caught out by the regulations.
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”.