In a constantly evolving sector, the decisions facing pension funds are becoming increasingly complex. From the implementation of the new Dutch pension contract (Wtp), assessing investment cases, to evaluating equity or real estate mandates: board members are expected to operate at a high level of expertise. When it comes to investments, pension funds work closely with fiduciary managers, asset managers, consultants, and other service providers. These partnerships are valuable, but only if the board is able to provide sufficient countervailing power.
What is countervailing power?
The term countervailing power was introduced by economist John Kenneth Galbraith. His thesis: every concentration of power requires an opposing force to maintain balance. Whether it’s governments versus corporations, or employers versus unions, power only functions effectively when it is balanced. Without that balance, power structures can become skewed, allowing dominant players to act in their own favour, which may lead to inequality and inefficiency.
What does this mean for pension funds?
In the pension sector, countervailing power refers to the ability of pension funds to stand firm, substantively and independently, in the face of specialised external service providers. Fiduciary managers, asset managers, consultants, and others bring significant knowledge and influence to the table. It is the board’s responsibility to understand their advice, critically assess it, and place it within the appropriate strategic context.
This requires more than commitment. It demands deep knowledge, sharp judgment, and a clearly established role that enables influence. DNB is explicit: pension funds must demonstrably be in control. Only then can they make sound decisions and be accountable in a well-substantiated manner. Countervailing power is not an abstract principle, it is a prerequisite for professional governance.
Beyond control: steering with substance
Countervailing power is sometimes confused with (second-line) risk management. While both are aimed at control, their focus is different. Risk management is about process oversight and compliance. Countervailing power goes further, it’s about meaningful dialogue, fuelled by knowledge and awareness of sector best practices. It means thinking along, challenging ideas, and giving direction as an equal discussion partner.
What happens when countervailing power is lacking?
In practice, countervailing power often falls short when there is a persistent knowledge gap, a strong dependency on external experts, a weak organisational foundation, or a skewed power dynamic with well-resourced fiduciary managers or asset managers.
In such cases, external proposals are adopted too quickly and without critical assessment. Pension funds lose control and struggle to push back. The result: one-sided risk assessments, superficial review of policy proposals, and limited reflection on complex investment structures. If there is no room to question policies or explore alternatives, the fund risks becoming policy-dependent—losing its role as a strategic decision-maker.
What AF Advisors offers in this space
AF Advisors supports pension funds in strengthening their countervailing power, not as a theoretical concept, but as a practical foundation for professional governance. In a landscape where specialist advice is increasingly dominant, we help pension funds maintain a strong, independent position: critical, well-informed, and decisive. Our support includes:
- Strengthening knowledge and decision-making within boards and committees
- Structuring investment policy, including investment cases, manager selection, and mandate design—evaluated for consistency, principles, and interests
- Independent evaluations of investment policy execution, with a focus on feasibility, governance, and alignment with long-term strategy
- Reviews of sustainability policy and implementation, with concrete assessments of ESG integration and impact goals in both policy and practice
- Guidance on developments in legislation and regulation, including regular updates and ad hoc sparring sessions
- Support with operational challenges, including PUO (pension administration) and TOM (target operating model) projects
In doing so, we ensure that pension boards not only ask the right questions, but also confidently steer the direction of their policies.
Case: External opinion on equity mandate evaluation for a Dutch pension fund
A mid-sized Dutch pension fund engaged AF Advisors to deliver an independent opinion on the three-year evaluation of its equity mandate, conducted by the fiduciary manager, who also acts as the asset manager. The aim was to assess the quality and justification of the evaluation and determine whether the fund’s strategic choices align with its long-term strategy.
AF Advisors reviewed the full evaluation process and conducted additional research into strategic principles, operational investment management, and the fund’s sustainable investment approach. Based on our analysis, interviews, and follow-up questions, we delivered an independent report with concrete recommendations.
We identified opportunities for stronger substantiation of strategic choices, such as the balance between active and passive management, and for sharpening the sustainable positioning within the core-satellite portfolio. We also noted areas for better alignment of the investment structure, always with fiduciary independence as a guiding principle.
Our strength lay in combining substantive rigour with an independent, fresh perspective. We brought nuance to the assessment of choices like active management and sustainability ambitions within the portfolio.
This project highlights the importance of adequate countervailing power on the client side—especially when interacting with fiduciary managers. The lessons are widely applicable across the sector, particularly in a context where transparency, sustainability, and the Wtp raise the bar for both policy and accountability.
