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ARTICLE · 09 JUNE 2015

Release Pension Funds From Their "Risk-Free" Straitjackets

De Brauw Blackstone Westbroek
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The reality is that any investment that seemed risk-free yesterday may be a systemic risk tomorrow. A pension fund has to invest in accordance with the prudent person rule.

NetherlandsEmployment and HR
René Maatman
René Maatman
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The reality is that any investment that seemed risk-free yesterday may be a systemic risk tomorrow. A pension fund has to invest in accordance with the prudent person rule. This rule is based on the "efficient market hypothesis": investors are rational people. Under the prudent person rule, diversification of investments is key. But the legislator does not consider this diversification necessary in the case of government bonds. These have been declared "risk-free" by decree.

Pension funds and insurance companies are now facing the question whether they should invest in negative interest rate debt. The English call it "burning cash", destruction of money. It is difficult to explain that this is how a rational investor should behave. Is there any reason to maintain that a government bond is 'risk-free'? The government should not decide whether an investment is safe.

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