Endowment Pension Plans

Do pension funds assume too much? No-one can decide

The latest bout of disagreement has arrived in oddly co-ordinated fashion. Last week, within days of each other, the International Accounting Standards Board (which sets the accounting rules for tens of thousands of companies worldwide) and the Dutch pensions industry (which manages €800bn on behalf of 18m Dutch people) announced they were heading in entirely the opposite directions.

To further complicate the picture, a steadily rising chorus of commentators in the US are increasingly vexed by what their state pension plans are up to.

It is assumption that is at the root of the problem. Pensions accounting involves a large amount of assumption, inevitably, since it is trying to forecast the size of bills that stretch decades into the future. But some people are of the opinion it contains rather more assumption than is necessary - or beneficial.

This is the stall that the IASB set out last week. From henceforth, companies aren't going to be allowed to get away with saying "my pensions deficit is X, but the pension money is invested in equities; equities will return Y over the next 90 years or so, so therefore my pensions deficit is actually X minus Y."

According to the accountants, if your pension deficit is X, your pension deficit is X. Any returns you might get from the assets are an added bonus that you can't count on.

The Dutch, meanwhile, have taken the opposite view. Before last week's reform agreement, Dutch pension plans were obliged to value their liabilities without reference to what they might, or might not, make from their investments. They valued the bill using a so-called "risk free rate".

Now all that's changed. Under the reform proposals - which have been agreed by government representatives, unions and employers, but still need to be approved by Parliament and some union members - pension funds are to factor their investment mix into their solvency calculations.

Riskier investments imply a smaller liability, because you might expect to make more money off them in the long-term - or so the argument goes.

Some Dutch observers aren't happy about this. Theo Kocken, chief executive of the consultancy Cardano, said: "The Dutch proposal by the unions contradicts every accounting rule in the world. But amazingly enough also every solvency rule. More risk taking usually implies more capital requirement.

SEC tightens reins on hedge funds | Events of 2011 – Calender year ...

The SEC was acting at the behest of Congress and President Obama, who last year demanded greater oversight in legislation responding to the financial crisis.

The new requirements “will fill a key gap in the regulatory landscape,” SEC Chairman Mary Schapiro said.

The funds won’t have to bare their innermost secrets. But they will have to publicly disclose general information about their size and ownership, and who is auditing their books, among other matters.

To spotlight practices that might harm investors, the SEC said, the funds will have to reveal potential conflicts of interest, such as whether they pay anyone to send them clients.

Hedge funds, which often employ exotic strategies that can yield outsized profits , invest money for wealthy individuals and institutions such as endowments and pension plans.

As of early 2009, they managed $1.5 trillion, according to data cited by the Managed Funds Association, an industry group.

Managers or “advisers” of these private funds have been able to avoid registering with the SEC under a rule that exempts advisers with fewer than 15 clients, because each fund counted as a single client, even if it had scores of investors.

Many funds are already making voluntary disclosures to the SEC.

The legislation the SEC was carrying out, known as the Dodd-Frank Act, extends the expanded oversight to private equity funds, too.

The SEC split 3 to 2 on the key vote Wednesday, with two Republican commissioners opposing the measure.

They argued that the SEC went farther than it should have by requiring some disclosures from fund managers that, under the law, it could have exempted from the new requirements.

The law exempted managers of venture capital funds, managers of private equity and hedge funds that manage less than $150 million in the United States, and foreign fund advisers with no offices in this country.

The SEC extended some of the requirements to venture capital and private equity funds. For example, they must report whether they or their employees have significant disciplinary histories.

“Every dollar that is spent by a venture capital fund to satisfy the commission’s newly imposed regulatory requirements is a dollar that cannot be invested in the next Google, Apple, or Amazon,” Republican Commissioner Kathleen L. Casey said in a statement.

It remains unclear how much the SEC will be able to do with its new regulatory authority. Agency leaders have said the SEC’s budget has not kept pace with its growing responsibilities.

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