Ruulke Bagijn, CIO for private markets, PGGM (Art by Chris Buzelli)Dutch pension manager PGGM has issued a direct challenge
to fund managers and company executives to end excessive bonus payments and better
align their interests with those of their investors.
While state pensions in the US are demanding action from regulators over high fees, PGGM—which runs €186.6 billion ($203.3 billion) for Dutch pension funds—has set out its vision for a “better world scenario” and declared its intention to enforce better standards itself.
A detailed report, available on the group’s website, sets out new remuneration standards that PGGM expects fund managers and company boards—both publicly and privately held—to adhere to in future.
Ruulke Bagijn, CIO for private markets at PGGM, said higher fees were only acceptable “if the pension fund fully benefits” from the returns achieved.
“Asset managers must be transparent regarding their pay and remuneration structures,” Bagijn said. “Performance fees should only apply in the event of above-average performance that is agreed in advance, [and] only basic remuneration should be paid for the costs and pay of the management of the asset manager.”
“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,” Bagijn added. “We will also search for cooperation with like-minded people in the pensions world to act collectively against unacceptable practices.”
“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.” —Ruulke Bagijn, PGGMIn the report, PGGM said current practices in areas such as private equity “do not support our desired practice of paying remuneration for creating long-term absolute returns and sustainable value”.
“We believe that such practices are aligned only with management’s interests and contribute to excessive and complicated remuneration systems that are not at all linked to long-term value creation and/or the interests of a broader stakeholder group,” PGGM said
The pension manager argued that bonuses should only be awarded when managers or executives have achieved performance “which meets or exceeds challenging levels”. At the moment, PGGM argued, many companies see bonuses as additional fixed salaries with low performance benchmarks.
PGGM admitted that achieving these demanding new standards “will take an extended period of time” but promised to be pragmatic in its approach to dealing with companies in different jurisdictions where payment cultures vary from those in the Netherlands and Europe.
Bagijn added that PGGM would continue to grow its internal team to reduce its reliance on third-party providers.
Related: Higher Fees Are Fruitless for Pension Funds, Think Tank Says & Stop. Do You Know What You’re Signing?