The Dutch Pensions Federation has shared an update on pension funds' efforts to address concerns around the high performance fees paid to private equity companies, revealing limited success on the push for an international dialogue.

In a letter to Minister for Poverty Policy, Participation and Pensions, Carola Schouten, the federation outlined the sector's reasons to invest in private equity, stressing that investment decisions are up to each individual fund.

"Each pension fund makes its own investment considerations, taking into account, among other things, the preferences of participants," the letter stated.

"This also applies to political wishes that have recently been expressed in the pension sector, such as investing in venture capital, a private equity category. Here too, pension fund boards make their own assessments and explain them."

However, the federation acknowledged that there are political concerns about high performance fees that private equity companies charge for their services, acknowledging that pension funds "must and want" to explain their choices.

In line with this, the federation confirmed that, recently, many pension fund boards and their accountability or stakeholder bodies have explicitly considered the issues surrounding private equity.

Pension fund boards have also paid extra attention to private equity as an investment category in their 2022 annual reports, according to the association.

In particular, a number of pension schemes have opted to highlight examples of the positive impact investing in private equity can have on society and the environment, with many funds sharing examples on their websites, reports and social media.

However, the letter admitted that discussions have focussed more on social considerations than performance fees, emphasising that pension funds "have only limited influence on the economic principles in the market of best-performing private equity companies".

"We therefore think it is important to note that the negotiating position of pension funds in this regard should not be overestimated," the letter stated.

"We certainly negotiate sharply in the interests of the participants. Unilaterally enforcing a drastic reduction in performance fees is not feasible given market conditions.

"Whether the performance fee is acceptable in relation to the performance delivered is mainly up to the pension fund board and it will have to justify this to the accountability or stakeholder body. However, we will take advantage of any attempt to reduce performance fees."

As part of these efforts, the federation confirmed that it has "taken up the challenge" of conducting an international dialogue, confirming that it recently spoke with representatives of the Dutch Association of Participation Companies (NVP), PensionsEurope, UN Principles for Responsible Investment (PRI) and Danish and Finnish pension funds.

However, the group confirmed that there was little interest among most parties to discuss the subject further, with some suggestion that issues around private equity fees are mainly isolated to the Netherlands and the Scandinavian countries.

As a result of this, the group confirmed that it has received "little comparable critical input" from its partner organisations from other countries.

Despite this, the federation confirmed that it is looking to organise a roundtable in the autumn with PRI and other interested international financial parties.

"In the near future, the pension sector will continue to take steps to become even more transparent, communicate better and continue to engage in dialogue about performance fees on the international playing field," the letter stated.

"It is clear that a clear impact on the last point requires patience.”

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