Pension funds neglect human capital when setting investment policy, say experts
Pension funds should always take into account human capital, or the career perspective of their members, when determining how much risk they can take with their investments. But they too often fail to do this, according to experts.
The degree of certainty of future labour income affects the risk capacity of pension participants; the more predictable and stable their income, the more risk they can shoulder, argued Thomas Pistorius, a risk manager at Pensioenfonds Vervoer, the €37bn fund for the Dutch transport sector, in a recent article in the VBA Journaal, a Dutch-language journal for professional investors.
Human capital is a neglected factor in the pensions debate, Pistorius told IPE. “The degree of predictability of future labour income impacts the asset allocation of a pension fund. In that sense, human capital is comparable to an investment,” he said.
The human capital of, for example, a teacher, who runs a very low risk of losing their job and whose income is highly predictable, can be compared to a safe bond investment.
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