Today it is quite is quite typical to hear pension funds sponsors saying they dont pay any management fees because they invest in mutual funds, says Karel Stroobants, president of the executive committee of VKG in Brussels. They pay more than we do but they dont see those costs. Stroobants explains how VKG currently uses 11 different managers and spends 60 basis points in total of which 40bps are in management fees. Some colleagues tell me they cant afford that and they dont realise their costs are actually higher than ours and their returns lower.

However, there are fiscal advantages in investing in mutual funds. In my opinion the investment instrument should be the last element of decision and not the first, he says. The most important reason for taking a specific investment strategy should be the liabilities of each scheme, and I dont think investing in mutual funds is the best option for pension funds. Also by investing in mutual funds pension funds do not exercise their voting rights. We are the only pension fund in Belgium that uses its voting rights in investment, and this is really important, Stroobants says. Some people say that they dont want to give a discretionary mandate to a money manager and that they dont want to exercise their voting rights through a service company, but they do invest in mutual funds, which are completely discretionary mandates, and they are giving their voting rights to someone else, he says.

Certainly the use of Sicavs among small pension funds is now common practice. Belgium-based asset managers, both local and foreign, have long been offering and improving these products. Small pension funds are investing a lot in Sicavs and Ucits to diversify risks, and this is fine as long as they are aware of their liabilities, says Yves van Langenhove at Fortis.

We are seeing how the interest for these products is growing, says Benôit Fally at State Street Global Advisors in Brussels. We now have a series of funds that we manage from our Paris office that we offer to our Belgium clients. They are 40 index funds, Sicavs, with Ucits passport, investing in different countries and sectors globally. Fally adds: Investing in this type of funds is very attractive for pension funds because this allows them to create a portfolio using a strategy that will follow a benchmark at a very law cost.

He continues: Pension funds in Belgium are desperately looking for someone who can give them a sector approach within Europe and this type of fund is the best way to approach this field. SSgA has also launched 14 exchange-traded funds (ETFs) and is developing a way to manage sectors in Europe through these products. There is a lot of interest in ETFs because investing in them is very easy and you can really diversify portfolios at a very low cost. He adds: We do think this is really a fantastic new vehicle and will attract more attention from pension funds themselves but especially from managers in charge of pension assets.