Insufficient supervision of loss-making investment funds in teak

The idea is to become rich and help humanity at the same time. Over the years, investment trusts have enticed many consumers to invest money in teak plantations. The economists Laura Spierdijk and Bert Scholtens of the University of Groningen have calculated, however, that these funds are running at a considerable loss. In addition, it has turned out that the supervision of such funds by, for example, the Autoriteit Financiële Markten, AFM (The Netherlands Authority for the Financial Markets), is insufficient.

Teak trusts promise a pot of gold at the end of the rainbow, but real-life practice shows that investment is extremely risky and the alleged yields are not being even remotely achieved. Spierdijk and Scholtens demonstrate that the average value loss of a ‘basket’ of around 20 trusts has amounted to around 50 per cent in a period of four years. Nevertheless, teak investment continues to be extensively promoted, and vulnerable consumers may be faced with considerable losses while bona fide green funds are being confronted with damage to their reputation.

The trusts continue their recruiting activities

Nowadays the Netherlands has more than thirty teak investment trusts, but there is a severe lack of supervision. The Autoriteit Financiële Markten, AFM, has the responsibility to ensure the adequacy of information provision by the teak trusts. While various trusts await the issue of the necessary licences by the AFM, the trusts may simply continue their recruiting activities. Moreover, the trusts are not under the supervision of De Nederlandsche Bank, DNB, which means that there is no control of whether or not the teak trusts can genuinely fulfil their ambitious promises.

Up to the present, political circles have abstained from commenting on this state of affairs, but, according to Spierdijk and Scholtens, such practices actually harm the financial system. The economists plead for a stricter approach, including the appointment of a meta-supervisor whose task it is to control the performance of the two supervisors in this field, AFM and DNB.

Spierdijk and Scholtens

Laura Spierdijk is a Rosalind Franklin Fellow at the Faculty of Economics at the University of Groningen . Bert Scholtens is an Extraordinary Professor for Sustainability and Financial Institutions at the Faculty of Economics at the University of Groningen .