Pensioenfonds Zorg en Welzijn (PFZW) is the pension fund for the care and welfare sector in the Netherlands. Formally known as PGGM, the policy-making and administration sides of the fund were split into two legally separate organisations in 2008, leading to the creation of PFZW. Pension Funds Insider recently caught up with Peter Borgdorff (pictured), managing director of one of the country's largest pension schemes.

Pension Funds Insider (PFI): PFZW has been immensely successful in the last couple of months and at the end of Q1 you had just over €100bn in assets under management – to what would you attribute this success?

Peter Borgdorff (PB): In 2008 we separated the pension scheme and the pension provider, PGGM, they are successful with the strategy that we tell them to follow. It is a clear structure, they listen to what they need to do, carry it out successfully and we pay them for the results they deliver. At the moment they are outperforming so it is a win-win situation for both parties.

Our strategy is that we have an incredibly wide spread, geographically but also when it comes to the various asset classes. We believe that a largely passive investment strategy works, with both bonds and equity investing. After all, it isn't easy to beat the markets. For every winner there is a loser and we do not want to take the risk of being that loser.

We also have a broad exposure to alternatives. I always say we invest in everything apart from music copyrights, that we leave to ABP. The only limitations we have are in the areas of sustainability and responsible investing; controversial weapons, human rights and pollution. Generally we are very effective and our costs are low, at 0.5%. The passive strategy helps with this as does our size.

PFI: How successful has the re-structuring of PFZW and PGGM been?

PB: If you look at the relation between the scheme and the provider then there are a couple of things that stand out. First of all, our governance has become better. We stick to our side of the agreement and focus on our own role, our own risks and we do not have to worry any longer with the running of such a huge company. At the same time we have become more 'business minded' towards each other. We now make strict service level agreements in which we outline points on what PGGM has to do for us and the level of quality we expect, against what level of costs. These agreements are far less flexible than what they used to be.

You can say governance and negotiations are better and clearer. However, at the same time we also work in the same sector and are PGGM's biggest domain and that is why we also need to work together.

What is exciting about a relationship like ours is that you have the business-minded discussions on the one side, and the partnership discussions on the other side. One moment we are heavily negotiating and the next we are looking at how we can better service the market as a team. We definitely do not regret the decision to split up, for the pension scheme is it certainly an improvement.

PFI: Can you explain how the firm is now structured?

PB: We have a joint committee of six employee representatives and six employer representatives which is led by an independent chairman. This committee basically runs the scheme. For the day-to-day running they receive help from a 14 strong executive committee who take care of the countervailing duties. As PFZW we check the deliverablesof PGGM, we offer our opinion and talk to the board about it. We really believe in this structure; pensions are an employee right and it therefore should be the social partners that run it.

PFI: What would you so say you do well as a scheme?

PB: We deem low costs very important. Not only when it comes to the investment side of things but also when we are talking about administration and policy. We currently calculate our costs at €80 per member per year, which we think is more than acceptable but it would be nice if we managed to drop it a little further. Responsible investments and transparency are also necessary is. What we do needs to be right. We also aim for good long-term returns. We currently have an 8.1% return on average over 40 years.

And another strength of ours is member communication. Up to now we have a good reputation when it comes to communication but we would also like to create a dialogue, to let members speak. Currently I have a blog on which people comment, we have meetings all over the country, use social media and visit people with our 'pensions bus'. You get a chance to hear the things people have to tell you and we think we need to make more time for this, we can learn a lot from our members.

PFI: In the recent debate about misinformation and lack of transparency with regards to costs of pension schemes you issued a statement that PFZW's costs were extremely low. However, you urged other pension funds to cooperate with PFZW in setting up a uniform reporting system for external advisor costs – how is this progressing?

PB: We asked the Dutch Pension Fund Federation to help us with our goal and they have recently announcedthat they will indeed do this. We see that different schemes report different things about their costs and the definition of 'cost transparency' offers problems. For example, we talk about the costs of the fund behind the fund, we have it all mapped out. I would say we know 95% of our costs straight up. But if, as a trustee, you say 'all the costs I don't see are not ours', then you have another definition in mind. And that's where it goes wrong.

It is obviously also easier for us being a big fund, but to members it should not make a difference whether their fund is big or small. Investments costs, administration costs, they should all be clear straightaway. We tell people, be clear, members are owned this and we need to be uniform in our reporting so that it is clear and comparable. We need to share information on this as well, show each other best practice.

PFI: How important is transparency to PFZW and what do you do to ensure maximum transparency?

PB: I would say it is very important and we currently have almost a maximum level of transparency. Everyone trusts their money to us so that we can give them a pension and then it is only fair that they know how we invest their money and to which costs. To give you an example, my wage is mentioned in the annual accounts although we do not need to do that. But it is only fair people know where their money goes and helps to prevent misunderstandings.

PFI: You have been very successful with responsible investments in 2010 and you recently announced to make further improvements in 2011 – what can we expect to see from PFZW?

PB: We think it is important to adhere to certain standards when it comes to this and the statistics
show we are doing a good job. In all the ratings we are within the top three (of responsible investors in the Netherlands).

Will we do a better job in 2011? It is difficult to say. At this point in time we vote at 99% of all shareholders meetings, that means that we vote (or vote by proxy) at almost all of the 3000 companies in which we are involved. We also have dozens of projects going on with regards to engagement. We ensure they all adhere to our codes of conduct with regards to human rights and the controversialweapons industry – an excluded field for us. If they do not adhere and are not willing to talk about improvements then they are out. One example is our former investment in PetroChina. They do a lot of work in Sudan and they did not agree with our terms when it came to human rights. We pulled back the investment after we found out PetroChina's intention to improve local conditions was nonexistent.

It is important to us to have special instruments to make responsible investing possible but most important to us is that we test every investment individually and see if it adheres to our policies. We are also signees to the UN's PRI. Else Bos, deputy chair of the executive committee at PGGM, is a board member there for us.

PFI: You've already mentioned your passive investment strategy. Can you provide some more details on where you invest? Do you stay close to home or like to venture further afield?

PB: We invest 6% of our money in the Netherlands and the rest goes across the border. With that we invest more in the Netherlands than the fair share of the economy. We don't feel that it is a problem to invest here but we do not want to invest in our homeland just for the sake of it, it has to provide us with a decent return and fit in our portfolio. We have a good all over the world. I cannot think of a country not covered by us, aside from obscure countries as Burma or North Korea.

PFI: PFZW is known to be quite innovative – where could we see this innovation take your investment strategies in the coming years?

PB: We hugely benefit from being a relatively young fund. We have a stream of young people coming in which guarantees us a supply of income now and in the future, plus we are a big scheme. Because of all this, when we see a product that we think might be a good investment for us we can experiment with it. The spread is so intense that it is a possibility; test first then make a final decision.

PFI: What do you see as the scheme's biggest challenge in the upcoming years?

PB: There are three elements. The first is the restoration of trust. As an industry we have been hit hard by recent events and members have no faith in their pension providers anymore. This won't return easily, you need to build that up.

The second challenge is the implementation of a new Pension Act with which we can start when there finally is a consensus.

And the third challenge that can be identified is communication. Really engaging with our members and starting a dialogue. If we can achieve all this and we keep the costs low so that we can offer a high pension, then we can't complain.

First published 10.06.2011

azeevalkink@wilmington.co.uk