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    Fiduciary Management – Goldman Sachs Asset Management Fiduciary Management – Goldman Sachs Asset Management Document Transcript

    • Fiduciary Management – Goldman Sachs Asset Management Responsible pension fund management is very demanding in terms of time and expertise. To help manage your returns, it is important to find a partner whose interests are aligned with yours. At Goldman Sachs Asset Management, we tailor our fiduciary capabilities to match your fund’s specific needs. We bring you our knowledge of the global investment markets and our market leading risk management systems to help you achieve your investment aims. We give strategic investment advice, select and monitor external portfolio managers and provide customised integrated reports to help deliver you peace of mind. We believe that where there is accountability, there is trust. For further information please contact Ruud Hendricks on +44 (0) 20 7774 1354 or Pepijn Heins on +44 (0) 20 7051 1890 This material has been communicated in the United Kingdom by Goldman Sachs Asset Management International which is authorized and regulated by the Financial Services Authority (FSA). Copyright © 2008, Goldman, Sachs & Co. All rights reserved.
    • June 2008 Fiduciary Management A new way forward for Europe?
    • FIDUCIARY MANAGEMENT Fiduciary management – a model for Europe? T he rise of fiduciary management in the Netherlands since 2002 has also coincided with the move of consultants to offer what is termed implemented consulting. And since the fiduciary management concept rests on best- of-breed outsourcing to external providers, it has been easy to make a comparison with multi management and implemented consulting models. The models are to some degree an answer to similar questions: pension funds frequently do not have the resources in house to implement their strategic asset allocation, to select and monitor the right managers, and to comply with increasingly onerous regulation. But, as is argued in this supplement, fiduciary management in its purest form is a distinct approach, and more comprehensive than either implemented consulting or multi management. The simplest way to look at fiduciary management is to see it as an investor-led approach. It is not a product, and cannot be replicated in any standardised or pooled form since it entails extensive tailoring of investment services to clients’ needs. Or, as it is described in this supplement, it is a ‘solution pull’ and not a ‘product push’. The intensity of the relationship between investor and provider in the fiduciary management model means that capacity is a key factor. Not all providers may be able to offer the level of service that the fiduciary model demands, and this is now a key area of due diligence for Dutch pension funds and their advisers when assessing the market. Adopting the fiduciary management approach does not entail less work for the board members or trustees of a pension fund. It still requires these fiduciaries to set the strategic goals of the pension fund and the strategic asset allocation. They can expect a close on-going relationship with the fiduciary manager. The case studies in this supplement (pages 7-8) show that fiduciary managers can also offer a faster route to tactical exposure to asset classes that are considered undervalued – such as financials following the recent credit crisis. Such exposure can be implemented more quickly than would often be the case in the traditional pension fund model, where the investment committee and the main board would probably both be involved in the due diligence and the ratification of the decision. Dutch fiduciary managers now have assets under management in excess of €100bn, and may be approaching a natural plateau of demand in the Netherlands. But the approach has attracted interest in other countries. The UK National Association of Pension Funds discussed the fiduciary approach at one of its recent conferences. Two firms, Mn Services and Goldman Sachs Asset Management (GSAM), both presented the concept at an event in Sweden recently. At the same time, Mn Services is looking to offer a fiduciary management concept in the UK, and Cardano has been in London for a year now. GSAM has recently been awarded two German pension fund mandates. Likely adaptations of the fiduciary management model may be partial outsourcing models, whereby alternatives could be outsourced in a dedicated alternatives portfolio. BlackRock has implemented one such mandate in the UK for Cumbria County Council. Terminology is sometimes the enemy of clear communication. The term fiduciary management has been useful for a wide array of Dutch providers in describing their somewhat similar services. But given that wide range of approaches, and the use of the term ‘fiduciary’ in UK and Irish law, it is unlikely that it will catch on in those markets, or indeed in other markets. This probably has very little bearing on the adoption of the concept in practice, however. The governance constraints of increasing regulatory and investment complexity have been a key factor behind the growth of the fiduciary management model in the Netherlands. Given the fact that these conditions also apply elsewhere in Europe, it is our view that there will be some demand for fiduciary-type services in other countries. Aside from the issue of terminology, it is also unclear who will be the successful providers of this new type of investment service. We already see Dutch providers entering the UK market and looking at other countries with interest. Perhaps the most successful providers will be the ones with the resources to explain the concept to pension funds and the wider market. Healthy competition will also assist them in getting their message across. Liam Kennedy, editor, IPE CONTENTS How the fiduciary model works in practice .................................................................... 2 Guest view: Anton van Nunen ........................................................................................ 5 Case study: Pensioenfonds Vervoer ................................................................................ 7 Overview of fiduciary mandates ..................................................................................... 7 Case study: Pensioenfonds MITT .................................................................................... 8 Table of fiduciary managers and services ....................................................................... 9 Outlook report: Germany and the Nordic region ........................................................ 10 IPE Portfolio Management Functions survey ................................................................ 12 Illustration of governance, investment process and fiduciary management .............. 15 Illustration of fiduciary management classifications .................................................... 16 Fiduciary Management is published as a supplement to the June 2008 issue of Investment & Pensions Europe Editor: Liam Kennedy; Contributors: Pirkko Juntunen, Anton van Nunen, Carolyn Bandel, Jucelia Pilatti Cover illustration: Andy Potts IPE International Publishers Ltd, 320 Great Guildford House, 30 Great Guildford St, London SE 0HS, UK. Tel: +44(0)20 726 0666, Fax: +44(0)20 7928 3332, Web site: www.ipe.com, ISSN 369-3727 Investment & Pensions Europe is published monthly by IPE International Publishers Ltd. No part of this publication may be reproduced in any form without the prior permission of the publishers. INVESTMENT & PENSIONS EUROPE Printed by Hastings Printing Company, Drury Lane, St Leonards-on-Sea, East Sussex TN38 9BJ. IPE JUNE 2008 
    • FIDUCIARY MANAGEMENT How the fiduciary model last 10 years. So where a €500m or €1bn pension fund previously may only have invested in local fixed income and equity, works in practice exposure to local currency debt, global real estate, hedge funds and private equity are now normal. Larger pension funds are With assets in excess of €100bn and a track record that stretches seeking exposure to commodities alpha, forestry and music back six years, fiduciary management has sparked considerable rights in portfolios of exotic beta investments. The focus interest and debate both in the Netherlands and further afield. on pension fund governance in conjunction with increasing Liam Kennedy interviewed senior executives at fiduciary investment and regulatory complexity have sparked an management providers for this assessment. ever-widening interest in the concept of fiduciary management, A both among pension funds and t conferences, pension service palette, or have mandates, it is only providers. associations and in pen- rebranded an existing now that they are sion fund boardrooms strategy as fiduciary seeing more smaller Who can be a fiduciary the Netherlands over, management, seasoned funds opting for the manager and how? fiduciary management observers point out concept. There are more than 20 providers of pension assets has been dis- that not all can offer a The science of active in the Netherlands cussed at length in recent years. credible service. pension fund fiduciary management First coined by Goldman Sachs But despite or governance has marketplace – from those with Asset Management (GSAM), the US because of the developed over a pure play multi-management asset manager also widely credited fiduciary label, the last few years, background, such as SEI, to US with its popularisation, the term discussion of fiduciary propagated by such players such as BlackRock or has come to describe what is in fact management has luminaries as Keith GSAM, local asset managers a wide-ranging set of services that quickly turned into Ambachtsheer and such as ING/AZL, local players would usually be undertaken by action on the part of Don Ezra in their with an insurance background, pension funds themselves. institutional investors Molenkamp: ‘align 1998 book Pension such as Syntrus, and other local The term was quickly and and pension funds. interests’ Fund Excellence: players that have grown from the widely adopted by a range A steady stream of Creating Value for in-house operations of pension of asset managers – domestic mandates has been Stakeholders. funds, such as Mn Services or asset managers, pension funds awarded since GSAM One reason for the Cordares. and administration specialists, took the first one adoption of fiduciary As the range of backgrounds US-based investment houses in April 2002 when management in the of the different providers would and multi-managers alike. So health insurer VGZ Netherlands has suggest, each comes to the market by about 2005, more than 20 chose the fiduciary probably been a with a different business model different providers had adopted route for the heightened awareness that emphasises different aspects the fiduciary management label management of its of pension fund of the value chain. “I think asset and were regularly responding to then €1bn. governance, and managers and consultants have tenders. Some asset managers who The April 2005 greater responsibility failed to point out what fiduciary were previously critical of the sale of Philips’ in law for internal management, as we see it in the fiduciary label eventually adopted pension fund pension fund Netherlands, is all about,” notes it – so sticky had it become. asset management governance. Frits Bosch of Bureau Bosch, Providers and advisers agree business to Merrill And in countries describing the thinking behind on the usefulness of the term Lynch Investment outside the a recent report which sought to Hendriks: ‘role of to describe an all-in asset Managers (MLIM, consultants’ Netherlands, there is categorise the various approaches, management solution providing now BlackRock) for an also at least a debate including fiduciary management services along the investment undisclosed sum – and and a heightened “the Dutch way” and US multi- value chain that go beyond multi- the simultaneous awareness of how management approaches. asset, multi-management – from appointment of MLIM pension funds For one, there are different ALM to portfolio construction to run its €12bn in should structure attitudes as to whether a fiduciary to manager selection to risk pension assets on themselves and the manager should only appoint reporting. However, those same a fiduciary basis level of resources external managers or whether providers and advisers also – marked the fiduciary they should commit some assets should be run by the concede that the term has its management route themselves to. Or fiduciary manager where it has a disadvantages. as a clear trend for to put it in terms credible strategy, not least to save First, it is essentially the Dutch pension favoured by Roger on costs. meaningless, including in the industry. Last autumn Urwin of Watson Goldman Sachs’ approach Netherlands, where the fiduciary none other than Wyatt: what their stems from its New York-based duty of pension fund board the pension fund of governance budget private client manager selection members cannot be outsourced the Dutch Central should be. Urwin says capability, and its model is to to a third party. Second, the Bank (DNB) selected pension funds should outsource all asset management label is not helpful or indeed BlackRock for the Bosch: ‘capacity issues’ determine their level to external parties. The likes of appropriate for adoption outside fiduciary management of governance and SEI and Russell, also active in the the Netherlands, even if the of its €1bn in assets. operate accordingly. Netherlands, naturally operate on underlying concept may well May 2006 saw the award of the At the same time, regulatory a multi-asset multi-manager basis. be appropriate for markets such assets of the Dutch transport demands have been increasing, Others, like Mn Services, as the UK, Sweden or Germany, industry fund Vervoer (then especially concerning solvency developed from the in-house where GSAM has already picked €5.4bn) to GSAM, while other levels in the Netherlands, investment capabilities of pension up two mandates. multi-billion euro investors Denmark and Sweden, but funds themselves. Mn Services The range of services offered by like the €3.2bn Merchant Navy also with respect to the manages around 50% of its assets the various managers under the fund also opted for the fiduciary internal governance of pension internally – euro fixed income auspices of fiduciary management route – in this case mandating institutions. and equities, and emerging also differs in details as well as in Mn Services earlier this year. In addition, the range of market bonds. fundamental concepts. Although Interestingly, as fiduciary investments within a typical Jan Bertus Molenkamp, senior more than 20 managers have managers in the Netherlands pension fund portfolio has fiduciary manager at Kempen added a fiduciary offering to their note following these big-ticket increased exponentially in the Capital Management, believes 2 JUNE 2008 IPE
    • FIDUCIARY MANAGEMENT the question of internal or All agree that choosing to offer remain the province of the may have a horizon of 15 years.” external responsibility for pre- fiduciary management puts more pension fund’s board itself. As He continues: “Fiduciary defined functions is not the most onus on asset managers to focus Johan Cras, managing director for management is not meant important issue. “It’s more about on the client to provide a tailored institutional investment services automatically to be a replacement making sure interests are aligned,” range of services to the investor. for Europe at Russell Investments, of your existing organisation. he says. Kempen itself outsources The client focus is extremely puts it, allowing a provider You see a lot of examples where most areas of asset management, important, stresses Molenkamp. to determine strategic asset there are hybrids, where tasks apart from some niche areas “The client’s need for a solution allocation is like asking a lawyer are divided between the pension where it is strong, such as small may be new in a commercial sense to draw up your will. fund and external parties. For cap equities. because it was not commercially If fiduciary management is instance, on the strategic side, you Corestone, the Swiss-based offered before. This is less about about retaining in-house control see large pension funds organising manager selection unit in which product push and more about of strategic policy, rather like overall policymaking themselves Robeco has a financial interest solution pull.” the supervisory board of a while relying on the policy as part of its fiduciary offering, Another challenge is company, then a pension fund and implementation support of emphasises the implementation to achieve the balance needs to consider carefully the fiduciary managers.” aspects of portfolio construction. between customisation and internal structure needed to Mlynár emphasises the “Manager selection and research standardisation: “Fiduciary manage the fiduciary manager importance of management in the context of portfolio management is less about assets – who is responsible for detailed information in the reordered construction is one of the most than about the number of clients investment knowledge and day- board structure. “An annual important issues,” says Martin you serve,” adds Daan van der to-day oversight – on a long-term report is not enough to manage Mlynár, CEO of Corestone. “You Werf, director at Kempen. He basis. a company,” he says. “You can set strategic asset allocation believes a provider can hope to Although some pension need monthly management but if you don’t implement it service a maximum of 25-30 funds with strong internal information and I believe the properly the intended effect fiduciary clients successfully. governance have opted for the communication between the of that in the long run could Others in the market observe fiduciary route, others, like the asset manager, consultant and be jeopardised. What we have the danger of capacity problems Vervoer transport fund, went to the board needs to be similar learned over the last five years if fiduciary managers absorb fiduciary management from a to the communication between is that implementation will assets without the necessary in- total outsourcing model, with the divisional director of a make or break the result for house operations to manage and a pension administrator and a multi-national and a CFO and a the pension fund. What is service the clients: “Fiduciary balanced manager. For Vervoer supervisory board. Management implementation? It is a clear investment policy, manager selection, risk management, and Traditional management Fiduciary management proper monitoring, managing the tactical exposure within the asset Custodian Custodian Client Consultant allocation.” Syntrus Achmea Asset Consolidated Portfolio Management (SAAM), uses Reporting Construction Portfolio Fiduciary the term financial pension Consultant(s ) Manager Manager(s ) Performance Overall Risk management, which it says can Monitoring Management be seen as fiduciary management Client plus. This includes ALM, risk Financial Performance management and advice, and Reporting Measurement External External E xternal balance sheet management. Manager Manager Manager Syntrus Achmea is the largest third party pension fund servicing Overall Risk company in the Netherlands . Management Otto Veldt, director of SAAM, Source: Goldman Sachs Asset Management believes the most important advantages for clients in fiduciary management are broad access management is becoming so this meant building up an internal information is the instrument to knowledge and products, popular that capacity problems management support office. to steer the company, or in this continuity, and purchasing power will occur,” says Bosch. “Clients should see us as their case to steer the pension fund when, strategic advice, balance investment department,” says Van allocation.” sheet management and external What does the client der Werf of Kempen. “The board managers come into question. need to do? members are still responsible in Fees Veldt sees Syntrus’ ability to A fiduciary manager provides the end for the investments so Bureau Bosch recently produced deliver integrated reporting both a greater range of service along they have to monitor us. If you a report that segments the on the asset as well as on the the value chain of institutional choose fiduciary management various approaches to fiduciary liability side and on the condition investment decision making, you only have one point of management. Frits Bosch of of the balance sheet as one of from ALM through to monitoring contact and that is why we see an Bureau Bosch notes that fees his firm’s key advantages. “A lot and reporting. However, in the important role for consultants as for fiduciary management are of managers and consultants Netherlands, but also in countries adviser to the board or sitting on trending upwards: “But if you provide reports on one or more like the UK, fiduciary duty the investment committee.” have alternatives in the portfolio, components but we have moved cannot be outsourced, so ultimate There is little consensus on how this makes it difficult to compare towards integrated risk and responsibility still rests with the to judge the performance of the the various modes,” he concedes. balance sheet reports,” he says. pension fund’s board. fiduciary manager and over what The Bosch report also notes that “It is especially hard for small If an internal investment team timeframe. Since there is also no the average fiduciary portfolio to mid-sized pension funds to is present, the appointment of a standard template for fiduciary costs 34 bps; 11 bps higher than organise this themselves.” fiduciary manager does not make management, Dutch pension the average actively managed Some fiduciary managers have them redundant. On the contrary, funds have paid particular portfolio, which comes at a cost of offered add-on services, such as if the fiduciary model represents attention to service level 23 bps. transition management or global a step forward for an investor agreements. The level of the risk premium tactical asset allocation (GTAA). in introducing investment “You can benchmark manager and the managers’ remuneration is In the case of GSAM, its GTAA diversification that was not selection but ALM, advice and of course the subject of discussion strategy has been less successful. present before, the investor may strategic advice is more difficult,” between client, manager and Ruud Hendriks of GSAM even need to step up its internal notes Veldt. “It is possible to consultant. Molenkamp says emphasises that in the early resources, by appointing internal benchmark components, for actions will be different according days of fiduciary management, staff or external experts, such example, if you use derivatives for to the benchmark that is defined. GSAM was one of the few GTAA as consultants, to sit on the risk management you can measure “Often asset based benchmarks providers with a good track investment committee. the effectiveness of the hedge. But are used to evaluate the fiduciary record, so it seemed to be a logical There is a consensus that you cannot easily benchmark the manager where liabilities plus a idea to include this capability. strategic asset allocation should effectiveness of an ALM, which risk premium provide a better IPE JUNE 2008 3
    • FIDUCIARY MANAGEMENT aligned benchmark. There is Netherlands in the early years of prevent competitive information reasons to suppose that the same potential for huge misalignment the concept – particularly since leaking from manager or fiduciary drivers and impulses will apply in using asset based benchmarks. it came about just at the same manager selection staff to the in markets such as the UK or If, for example, we think time as the likes of Mercer were implemented consulting or multi- Germany. equities are going down we will planning to launch their own manager area. Whether those services are underweight equities, but not to multi-manager services, from the “Another concern is that there branded fiduciary management the same extent as if we have the basis of their own manager search is no transparency,” continues or not is largely immaterial since liabilities of the pension fund as and selection capabilities. Hendriks. “You would find it terminology is not the issue here our benchmark,” he says. But this situation has changed, very difficult to get comparable – it is more the growing awareness Hendriks is concerned about the and fiduciary managers emphasise performance information. I have of the capabilities needed to low level of fees – it is understood that they work closely together never seen the performance manage a modern pension from market participants that one with consultants. “Nowadays you figures of others and there is no fund portfolio in the light both recent mandate was awarded for see more and more consultants objective organisation that can of regulatory and investment 10 basis points all-in. He doubts advising clients about fiduciary provide performance information frameworks that are increasingly that providers offering such low management,” notes Van der for a pension fund considering demanding. fees can provide the necessary Werf. “There are also now a larger hiring a fiduciary manager. A The wide range of services on service: “The only way they can number of investment managers consultant must be well educated offer in the current fiduciary do that is by managing a lot of the offering fiduciary services, so and be able to explain to clients management marketplace only assets passively, by not including consultants are examining more the variables behind the figures, serves to emphasise that there is alternatives, and by putting a lot closely what the pension fund is such as asset allocation or tracking no single overarching definition of funds in the portfolio. This looking for, and which fiduciary error.” of fiduciary management. The worries us,” he says. Consultants, manager is most suitable for them. types of providers of fiduciary or adds Hendriks, have a role to play They will not only analyse the Outlook similar services will also broaden in educating the market about investment side, but also service The clearest way to view fiduciary as consultants and multi-managers the appropriate level of fees for an and the culture.” management is perhaps to look continue to develop and provide appropriate level of service. at it as one of several answers their own products. “As large sums are invested at He also notes potential conflicts to the complex of problems At the same time, successful specific addresses inefficiencies of interest for consultants outlined earlier in this article: providers will evolve to enhance will disappear, and closet indexing where they operate in so-called increasing regulation, governance and refine their offering. And new will be the result at active fees,” implemented consulting, which requirements and investment entrants to the market in the form notes Bosch. This is not in the involves a greater degree of complexity. of PGGM and APG Investments interest of participants.” decision making power for the That trend is likely to continue (formerly ABP Investments) adviser in manager selection both in the Netherlands and else- will add considerable asset Role of consultants and portfolio implementation. where, so even though fiduciary management, manager selection Market observers note that However, consultants have gone management may not see many and risk management skill to the consultants were lukewarm about to lengths to explain the Chinese more years of exponential growth Dutch market and possibly also fiduciary management in the walls that they have in place to in the Netherlands, there are good abroad. Fiduciary management in summary l Fiduciary management does not involve the complete outsourcing of investment responsibility. Rather, it is about a new way of organis- ing and devolving some aspects of fiduciary responsibility. l The board or trustees of a pension fund should in always retain responsibility for setting the strategic investment goals for the port- folio. On an on-going basis, the board should focus on directing and governing the fund relative to these strategic goals. l Institutional investors already outsource some aspects of their fidu- ciary responsibility when they work with external investment manag- ers – an external manager should always act in the fiduciary interest of an institutional investor in any case. l Fiduciary management is not a packaged multi manager solution. It involves a high level of customisation to the individual investor’s needs. l The fiduciary manager works in partnership with the board of the pension fund, and its investment committee or its in-house team, on an on-going basis. The investor should expect a high level of contact with the fiduciary manager. l Some fiduciary managers outsource all investment mandates to third parties on a ‘best of breed’ basis; others will want to manage some assets themselves. Opinions differ as to the various options available in the market and an investor should evaluate the different approaches care- fully to ensure their needs and goals are catered for. l Pension funds and other institutional investors must carefully evalu- ate the service level agreement to ensure that they receive the right mix of active management and service in respect of the fee paid. l Some fiduciary managers can also cater for the partial outsourcing of one part of the portfolio, such as alternatives, where the due diligence and manager selection tasks may be too onerous for the investor. l Consultants are an important party, in the selection and evaluation of fiduciary managers and to advise on an on-going basis. 4 JUNE 2008 IPE
    • FIDUCIARY MANAGEMENT The third phase sponsor; those asset classes, possibly q Constructing an efficient supplemented by active and investment portfolio; dynamic management. The q Selecting asset managers; fiduciary achieves a large degree q Monitoring those managers; of diversification and manages q Reporting on the investment risks using state-of-the-art models Fiduciary management is the next stage process. for dealing with correlations that are different and vary over time. in asset management, says Anton van Advice A fiduciary offers a pension The fiduciary brings expertise to this complicated issue and Nunen. He outlines the concept, reviews fund a combination of expertise a holistic approach, wherein and a commitment to the the plan sponsor can still the Dutch experience and assesses its overall management of the discern its target within the potential for other countries plan, including asset liability studies, balancing risk and detailed calculations. After all, the decision as to what I return considerations. It also asset classes are to be, and to t is occasionally suggested evidence shows, that the question diversifies as much as is efficient what degree, is a decision that that fiduciary management is ‘why?’ has changed into the and generally educates the cannot be delegated, even if not very different from other questions ‘what?’, ‘how?’ and plan’s trustees and the sponsor’s the fund wanted to. To a large models such as multi-man- ‘who?’. Fiduciary management staff about a range of issues extent, these strategic decisions agement and implemented has become accepted as confronting them. The fiduciary determine the outcome of the consulting. However, given the a necessary part of good may not necessarily carry investment process and with that breadth of tasks of a fiduciary, it governance.” out the asset liability studies, the degree of indexation possible, is evident that fiduciary manage- The evolution of institutional although this is a possible service. and the level of contributions ment is more than just multi-man- investing has seen a move However, the manager can needed. agement. from a balanced manager as provide a specialist with critical This is a very important In fiduciary management, the the sole provider of investment market information, evaluate the exercise as, with the introduction construction of an efficient management to employing a study’s outcome and generate of more stringent funding portfolio, producing maximum whole range of asset managers, ideas about its the investment regulations and of IFRS, more returns given the risk budget, is each responsible for a small part side by offering input on asset and more pension funds tend more crucial for future returns of the overall portfolio, in an classes, additional data about to match assets and liabilities. and the risk profile. Multi- attempt to grasp the benefits of correlations between investments, Adherence to regulatory demands management can be part of diversification. and so on. is increasingly preferable the this structure, but is not per se. The first concept is based on More importantly, the fiduciary advantages of diversification and Given a pension fund board’s the fallacy that one manager can can help the fund decide what the prospect of generating higher preferences and given the be the best in all relevant asset exactly to do with the outcome returns. Adequate calculations liabilities and accompanying risk classes, and suffers from a low of the study. The board, which to achieve a combination of budget, a multi-manager portfolio degree of diversification. The in general will have a limited high aspirations and reasonable can be – and most of the time second has the disadvantage that knowledge of and experience risk can avoid sacrificing the will indeed be – the optimal expertise lies with the people in investments, should choose wellbeing of pensioners and ease outcome of the calculations. who have no responsibility a risk budget that is stated of mind of the fund’s decision Implemented consulting may for the whole portfolio, while in terms with which it is makers. be able to approach the fiduciary those with responsibility are not familiar, such as a maximum concept quite closely, but it experts. probability of having a certain Selecting and overseeing should be devised differently That meant investors made amount of underfunding. The Once the strategy has been to the way it is now. The extensive use of consultants. fiduciary should then be able determined, specialist managers consultant should be more or But they too have only a limited to translate this neutral budget have to be selected and mandated less embedded in the fund, not purview. Moreover, overall risk into investment terms, guiding to invest the funds. The fiduciary giving his thoughts and advice management is difficult, not to the choice of asset classes, their should know all the managers on a limited number of days per say absent, as there is no integral benchmarks and the level available for each asset class or year. He should exhibit skills responsibility delegated to these of active policy. investment category, should and experience in different areas consultants. The result was an be able to employ them (while such as the translation of the ineffective organisation lacking Portfolio entry could be difficult or ALM outcome into investment the preparation needed for good construction impossible for the fund itself), terms, portfolio construction, strategic decision making. Once a fund has come and should have the data manager selection and the to grips with the broad necessary to predict interpretation of portfolio results. Introducing the fiduciary issues associated with to a certain degree In short, he should show all the Avoiding the disadvantage of its approach to that the managers characteristics of a good fiduciary having just one manager while investing, it can show skill, except for the responsibility the retaining responsibility for the formulate the and, when fiduciary has in the execution. overall portfolio, of which parts specifics of its the fund has Fiduciary management, were run by specialists, has led to investment decided to therefore, is a management the introduction of the fiduciary approach. use active model in its own right and not manager. A portfolio is managers, a purified form of an existing Fiduciary management no longer an produce excess model. Perhaps the best advocate provides comprehensive risk aggregation returns above of this is Frank Russell’s director management, although a number of discrete, a defined of strategic advice, Don Ezra, of independent specialists run promising benchmark. who in an address to a Russell parts of the investment portfolio. investment Moreover, Investment Conference in It can oversee strategic decision ideas, it is a top- the fiduciary 2006 defined best practices in making and organise effective down construction can suggest pension management in a way governance. The fiduciary of assets among combinations of that makes them identical with manager provides five key a set of asset managers in some fiduciary management. He said: functions: classes, followed fields whereby the “The acceleration of multi- q Advising the board of the plan by sub-allocations combined risk is manager structures is evidence of within some of lower than that fiduciary management of the individual taking hold. Recent
    • FIDUCIARY MANAGEMENT managers involved. These benefits in financial markets and in the mechanisms and a more skilled could be a fit, while the other half of diversification, together with regulatory environment. array of managers should outweigh was not familiar with it. the lower fees the fiduciary is able extra costs. And the fiduciary’s This rather high number bodes to achieve on behalf of the client, Dutch experience purchasing power can reduce well for further success of the should improve the fund’s long- In less than five years, assets management fees to a certain fiduciary concept. Even more term revenue picture. under fiduciary management degree. astonishing was the finding that have increased from zero to more Still, there is the certainty of 70% of the larger pension funds Monitoring than €100bn. Pension funds, higher costs on the one hand, were contemplating fiduciary Once the portfolio is contracted both company and industry- next to the probability of higher management as the successor of and the managers mandated, the wide, insurance companies and returns on the other. This often their management models. One investment process can proceed. endowments have appreciated is an uneasy situation, especially would expect that the concept From day one, it is the task of the the theoretical considerations for Dutch institutions, accustomed would be more tempting for fiduciary to monitor the portfolio and hired Dutch, French and to low management fees. smaller funds that find the gap by measuring risk and return at US fiduciaries to put them into Performance-related fees would between the increasing complexity the level of the managers, the practice. Institutions, ranging seem to be a solution here. Making of the business and in-house (sub) portfolios and the overall from some €100m to €8bn, have the fiduciary fee to a large extent capabilities more problematic than portfolio level. entered the area, indicating that dependent on results makes it the larger ones. But interpretation is as important the concept as such not only easier for funds to pay for services. KPMG, which in the meantime as measuring, and for that enables smaller institutions to Positive experience has been is offering searches for fiduciaries adequate benchmarks are needed. incorporate the best approaches gained by linking fees to the on behalf of institutional The fiduciary’s task is to advise on in the market to investing, but realised information ratio instead clients, concludes that fiduciary benchmarks that extract the best appeals to the larger funds as well. of outperformance. In the former management is here to stay as results from asset managers and Experience shows that this new case, the fiduciary is rewarded it integrates, oversees and co- enable the fund to understand the approach has created important even if the outperformance is ordinates all the fund’s operations. results achieved. Absolute returns changes in several fields. less than it could have been in will enable the plan sponsor Investment policy has changed situations where markets do not Beyond the Netherlands to judge how the investment dramatically: more asset classes, reward risks as they should be It is highly probable that fiduciary process has contributed to the and within them different assets, rewarded. In that case it is good management will take hold set of specified goals. Both are used, and more managers are policy to allocate less risk in in other countries given that absolute and relative returns will employed to diversify further. the markets and the fiduciary financial regulations are becoming make it possible to compare the Discussions with asset liability is not punished for this sound increasingly strict and complex achievements to those of peers experts and asset managers have consideration. in nearly all developed countries, and will show whether or not become more complex, as have the All of these changes have and international financial risks taken have been rewarded. portfolios, especially in the field occurred in the Netherlands and reporting standards are putting The first aspect specifies the more of risk. And in that the fund is may be expected elsewhere. They a strain on funds worldwide. or less urgent need to improve supported by the investment skills hint at an institutional sector that International companies want to results; the second indicates the of the fiduciary. has gained in sophistication. diminish the impact of pension possibilities to do so. As the fiduciary fulfils a funds on their balance sheets and whole range of duties in a more Research by large consultants many want greater separation Reporting diversified portfolio, the age- Erik van Ockenburg, a principal from them. Greater responsibility Control by a pension fund’s board old question arises: who guards at McKinsey, told JP Morgan’s for funds and less interference is not easy without transparent the guardian. Consequently, Annual Dutch Pension Fund by the plan sponsor requires a reporting by the fiduciary. It the investment committee’s Seminar last year that fiduciary stronger governance structure, enables the sponsor to know role is often enhanced to cope management is stimulated both and fiduciary management is exactly what has been achieved in with these more sophisticated by the demand and supply sides. delivering just that. terms of return and risk and how investment policies concerning Demand is pushed by new, stricter And expectations of less these results relate to benchmarks, more assets, combinations of alpha regulations; the need for higher favourable investment possibilities peers and the fund’s goals. and beta products and extended returns than those generated by and future returns in all countries The reporting format should be calculations. The committee traditional investment vehicles are additional stimulating factors. according to the wishes of the should also support the board in and by higher standards in the Should they prove correct there is plan sponsor and also comply its judgment of the fiduciary’s use of risk management tools. additional need for better ways to with regulations. It should be at a value-added. The custodian can Where larger funds have no organise investment management. level that enables management to also play a role here, delivering the problems with regulation, search Therefore, it is probable that the read it and provide more in-depth data to calculate the improvements all markets for higher returns and Dutch example will find many information to allow specialists to in risk and return. use the most sophisticated tools, followers abroad. understand the intricacies of the Compared with the pre-fiduciary smaller funds with ambition find In the meantime some fiduciary results. Both should be based on phase, the custodian already has a solution in the employment of a contracts have been signed in data validated by an independent a more extended role because of fiduciary. Austria, Germany and Switzerland. custodian. the increased complexity of the On the supply side, pension The UK, which is also showing investment portfolio. The reality funds realise they can sell their interest in the concept, is a Education is that in some cases the existing internal management to third special case because of its existing The detailed alternatives offered, custodian has had to be replaced parties, enlarging their scope and phenomenon of fiduciary trustees. often based on complicated because of that. reaping the benefits of economies External advisers perform calculations, may require the plan Communication with the of scale. Asset managers try to additional duties to the more sponsor to receive some training. regulatory authorities is also copy the higher margin of retail familiar consultants as they are A pension fund board must deal different, as the enhanced business by extending service legally responsible for the fund’s with different parties pursuing professionalism of the fund, in to institutional clients. Loyalty, performance. This more extended their own agendas. Employees conjunction with its fiduciary notoriously low at institutions, is position is an extra reason for want secure assets but also higher manager, creates more room thereby increased as well. considering the introduction of benefits. The plan sponsor wants for dialogue instead of one-way In a 2007 survey of some 100 a fiduciary manager. Through low risk in the fund’s balance directives. major Dutch corporate pension his experience and expertise, the sheet but also low contributions. Last there is a change in the level funds, KPMG found that 58% fiduciary manager is well placed Investment managers claim to and structure of costs. A fiduciary saw governance – with its aspects to take over some responsibilities generate high returns and low risk. fee adds an extra layer of costs in of risk management, expertise, that the fiduciaries may be happy Advisers claim to have solutions addition to already existing asset regulation and continuity – as to share. for all kind of problems. management fees. When the fund the most important issue over An inhibiting factor may be the A fiduciary can educate the chooses to employ a large degree the next few years. To cope with name of the concept: a fiduciary relevant executives so that they of active management, these fees requirements in these respects, manager next to a fiduciary is can make the right decisions on all will probably rise too; best-in-class fiduciary management can be an not a very efficient way to define these issues. It can also inform the managers often demand higher alternative to mergers, liquidation responsibilities. board on questions that go beyond remuneration. or seeking shelter in an industry- Anton van Nunen is the author of those of day-to-day business, But increasingly, sophisticated wide scheme. Indeed some 50% of ‘Fiduciary Management: Blueprint such as trends and developments portfolios with diversifying the sample indicated this concept for Pension Fund Excellence’ 6 JUNE 2008 IPE
    • FIDUCIARY MANAGEMENT Case study: Pensioenfonds Vervoer P ensioenfonds Vervoer, wanted to receive an unbiased 2007 as an example. “We with GSAM on an almost daily the €8bn Dutch industry- view,” he says. received a phonecall about basis. “In addition, we receive wide pension fund for “We started the selection the opportunities in the credit monthly and quarterly reports private transport workers, process in a fairly conventional markets, created by the extreme and also visit the managers with was one of the first funds way through IPE-Quest, where we volatility at the time. From GSAM. It is, after all, a people to wholeheartedly adopt the con- posted a list of questions to gauge agreeing the parameters of the business and it is vital to get to cept of fiduciary management in an initial reaction, after which we investments, the mandate was know the people who actually 2006. sent out an RFP.” implemented within one week.” manage our assets,” Groenendijk Patrick Groenendijk, CIO of He says it became apparent On a practical level Groenendijk says. Pensioenfonds Vervoer, explains that many of the companies and his colleague communicate Apart from getting to know the strategic thinking behind responding claimed to be hiring Goldman Sachs Asset able to manage the assets as Management as its fiduciary a fiduciary manager, but few Pensioenfonds Vervoer at a glance manager, rather than remain actually fulfilled the criteria. Full name: Stichting Pensioenfonds Vervoer with a balanced mandate at F&C “In particular, many of the Assets: €8bn Fiduciary manager: Goldman Sachs Asset Management Management: “The decision was balanced managers called Sub funds: PF Freight Transport (long distance freight taken at board level in 2005 for themselves fiduciary managers and mobile crane hire sectors) several reasons,” he says. but they would use their own PF Personal Transport (taxi and bus “The fund was already 100% asset management capabilities, transport sectors) outsourced to an insurer, and and what we wanted was true Early Retirement Fund Freight Transport had no internal organisation manager diversification.” Participants: 155,000 or investment He points out Deferred participants: 370,000 professionals. that in 2005 there Pensioners: 40,000 Secondly, the were around six Employers: 8,600 Dutch regulator, or seven managers Management DNB, changed the who were truly regulatory framework capable of fiduciary so that if you management. outsourced your After a beauty Pension advisory committee Participants’ council pension fund you parade, Vervoer would be required decided on GSAM. to have professional “The degree to which Investment advisory committee Complaints committee monitoring GSAM could offer capabilities in- bespoke or tailor- house, ie an internal made solutions Actuary Accountant organisation. And which were relevant Groenendijk: ‘fiduciary thirdly, performance to our specific fund, natural solution’ was an issue where rather than a one- the assets were managed in a size-fits-all formula, was crucial,” Offices of the directors balanced mandate. Groenendijk says. In addition, Groenendijk says because of he notes, GSAM had already set the size of the fund and the lack up a specific team for the task of of an internal organisation a picking external managers that fit fiduciary management solution Vervoer’s needs. was a natural choice. The in- Vervoer’s board continues to set house investment team was set the strategic investment policy PVF Nederland N.V. Fiduciary investment manager Custodian up in 2005 and now consists on an annual basis with advice of Groenendijk and a colleague from the in-house investment working part-time. team, which is then implemented “At the time we hired an by GSAM. independent consultant, with a Groenendijk says asset stress on independence because allocation is also changed once AM AM AM AM AM we were aware that a lot of a year but there is flexibility investment consultants offer to act more quickly, should Source: Pensioenfonds Vervoer fiduciary-type solutions and we the need arise. He cites August European fiduciary mandates 2002-08 Sponsor Amount Date Winner Selection reasons Previous Consultant SBVD ( Neths ) €125m (1) May 2008 F&C Investments n/s n/s n/s Bertelsmann ( Germany ) €2.7bn (1) April 2008 n/s n/s n/s n/s Bpf PSL ( Neths ) €250 (1) April 2008 Blue Sky Group n/s n/s Watson Wyatt Merchant Navy ( Neths ) €3.2bn (1) March 2008 Mn Services Quality of services/understanding fund’s nature n/s n/s Wheel & Tyre Scheme ( Neths ) €150 (1) February 2008 Mn Services n/s n/s n/s TVM Verzekeringen ( Neths ) €450 (1) February 2008 ING/AZL International exposure n/s KPMG Randstad ( Neths ) €390 (1) December 2007 Kempen Anglo-Saxon quality/Dutch mentality n/s Avida Intl Atradius ( Neths ) €180 (1) December 2007 Fortis Investments LDI funds n/s n/s TNO ( Netherlans ) €2bn (1) September 2007 BlackRock Track record in FI, securities & LDI n/s Avida Intl PME ( Neths ) €21bn (1) May 2007 Mn Services High returns, low admin, flexible services n/s n/s SBZ ( Neths ) €2.3bn (1) February 2007 ABN Amro & Russell n/s n/s Avida Intl KPN ( Neths ) €4.5 (1) January 2007 TKP Professional management consultancy n/s n/s Aon Group ( Neths ) €250 (1) January 2007 TKP Greater flexibility at lower cost n/s n/s Zorgverzekeraar CZ ( Neths ) €700m January 2007 Goldman Sachs AM Good returns within the risk framework n/s n/s Cargil ( Neths ) €261(1) December 2006 Mn Services n/s n/s Mercer Inv Cons Vervoer ( Neths ) (2) n/s September 2006 Mcube AlphaEngine n/s n/s n/s Campina ( Neths ) €1bn (1) August 2006 Goldman Sachs AM Risk budgeting, customer service, long-term policy Interpolis/AZL & Robeco Anton van Nunen Stichting Pensioenfonds OCE ( Neths ) €750m June 2006 Goldman Sachs AM n/s n/s n/s Pensionfonds Vervoer ( Neths ) €5.4bn May 2006 Goldman Sachs AM More diversification F&C Goris & Partners Vopak ( Neths ) €210m February 2006 Mn Services n/s n/s n/s Campina ( Neths ) €350m January 2005 Goldman Sachs AM n/s n/s n/s Zorgverzerkeraar VGZ ( Neths ) €1bn (1) April 2002 Goldman Sachs AM Clients benefits from good management n/s n/s Notes: (1) Fund value. (2) fiduciary oversight; n/s = not stated. Summary data based on information in the public domain. Source: IPE IPE JUNE 2008 7
    • FIDUCIARY MANAGEMENT the investment process and instance, did not deliver what was make the portfolio work more focus on risk. Increased awareness people of the underlying expected in terms of performance. efficiently than it has done so of risk has led us to currency mangers, Groenendijk has “Last year was difficult for many far. “Markets are not exactly hedging and a closer look at the ongoing discussions with GSAM active managers and the same is helping our fund to grow at the fund’s interest rate risk versus about topics such as responsible true for Vervoer.” moment but because our member liabilities. We recognise that we investing, new additional asset On terminating underperform- base is young we do have more are more than just an investment classes and operational issues. ing managers, Groenendijk says contributions than pension manager, and as a pension fund Those criticising the fiduciary this is in the hands of GSAM payments which are going to need to look after our liabilities approach often cite manager because the firm is paid according grow for some time.” and invest in order to meet those reporting as a problem, but to performance. “Of course we Vervoer invests a third in liabilities. Groenendijk disagrees. “We have also have a dialogue with the equities, 47% in fixed income “This has been stimulated by not experienced any problems managers and would discuss and the remainder in alternatives the creation of the new financial with reporting. GSAM has built underperformance in our regular such as real estate, GTAA, assessment framework in the a solid business and the Chinese meetings,” he says. commodities and hedge funds. Netherlands, the FTK, which walls prevent them from using What could work better? The outperformance target is 1% came into force at the beginning the material they get from Groenendijk cites speed: “GSAM per year on a long-term basis, of 2007. We think it is a very external asset managers. If they is a large US entity and it is very with a tracking error budget of positive development that the were even to use this material compliance and legal-driven, 200 bps. implementation of ALM – which once to gain any competitive which can slow things down. Groenendijk says that with was already well known in theory advantage, the reputational risk On the other hand, with the hindsight, “I don’t think we 10 years ago – has now been taken would be so great that that would current regulatory environment would have done things much seriously. wipe out any potential advantage we do need someone with the differently except to take manager “Furthermore, over the last that the information could have compliance and legal capabilities diversification much more decade, our portfolio has become given them,” he says. that GSAM offers,” he notes. seriously and set up the executive less reliant on equity markets He admits that in a project of Overall Groenendijk is happy office earlier. and we have diversified into this size there is always room with the service offered by GSAM, “In addition, today we have a alternatives.” for improvement, and 2007, for noting that the main goal is the much greater awareness of and Pirkko Juntunen Case study: MITT pension fund T he route of the €950m you should not make such a very good relationship with the its investment portfolio and to Dutch industry pension investment choices by yourself Mn Services account manager, achieve a degree of innovation. fund for the fashion, because you do not have enough which he values. The fund has started investing in interior, carpet and tex- expertise in-house,” says commodities, has allocated tile industries (MITT) Hasselman. He argues such Pensioenfonds MITT at a glance 1% to infrastructure, and was relatively uncomplicated. The a lack of expertise does not has moved into high yield new fund inherited the concept apply only to MITT but Full name: Stichting Bedrijfstak- bonds. following its inception in 2006 also to other funds, since pensioenfonds Mode- Most recently, the scheme after the fund for the clothing the management of Dutch Interieur-, Tapijt- en has invested in cheap bank industry, since early 2005 with pension schemes is still split Textielindustrie loans. “As a consequence Mn Services, and the textile fund, between employers’ and Assets: €950m of the sub-prime crisis, Fiduciary Manager: Mn Services at the time with AZL, merged to employees’ representatives. banks have got into Participants: 13,500 form MITT. “These are of course people Deferred participants: 96,000 trouble. The spread on that “The clothing fund had just who have some knowledge of Pensioners: 36,000 sort of loan has increased completed a selection process investments, but they are no Employers: 900 enormously; it has a much in 2004, with a beauty parade investment experts,” he adds. Source: MITT higher yield and you can of five managers and they Instead, the board’s reasonably reduce your eventually chose Mn Services,” primary responsibility, Transparency is also a risk.” This idea was proposed by says Jan Hasselman, board Hasselman finds, is to select consequence of the fund’s own the fiduciary manager, and the member and the chairman of the the right asset manager and involvement, says Hasselman: fund started investing within fund’s investment committee. to supervise the investment “As the investment committee four weeks. “Since the appointment was still management. Hence, there is you are responsible for the Responsible investing is one very new, we decided not to go no in-house investment team, investment results.” All things very distinct area in which the through the process again, and although MITT’s investment being equal, it is the committee’s fund has gone it alone – earlier only had to make a decision commission meets together with job to obtain the information it this year, MITT signed the between Mn and AZL.” Mn Services once every quarter. needs. UN’s Principles of Responsible The fund chose Mn Services, At these meetings Even though the Investing (PRI). “Within the which is larger and has more MITT is assisted by fund is content about textile fund we already had assets under management than Watson Wyatt: “We the co-operation, it ING screening our portfolio AZL, in the belief that the have an investment finds the Mn Services’ for us, and we had strategies manager would be able to deliver consultant so that performance has to make our investments more a broader range of services we have enough sometimes been sustainable. Mn Services did not because of its size. Secondly, expertise to be disappointing. “The have that service, so we decided, MITT was attracted by Mn’s able to give some benchmarks are not with the support of Mn Services, broader range of investment level of resistance,” always beaten. You to sign the PRI.” categories. comments look for an active Overall though, MITT’s The fiduciary manager now Hasselman. investment manager, investment mix has become manages almost all aspects of the MITT is happy and the goal within more refined since the fiduciary fund’s investment management, about the level of a certain bandwidth mandate. The fund currently including strategic and tactical communication of risk is to beat invests around 25% of its assets advice as well as operational with its fiduciary the benchmark. in equities, which are split up in investment decisions. MITT manager: “Once Hasselman: ‘committee That doesn’t always US, Europe, Asia and emerging prefers this outsourcing model every month we responsible for results’ happen.” On the markets. Another 50% is since it finds itself to have greater receive a report of around five other hand, admits Hasselman, invested in fixed income, with a flexibility and agility to make pages, giving us an overview of one should look at such proportion now allocated to high decisions now that there are no what is going on, while every developments over a longer yield and bank loans. Lastly, more consultations with multiple quarter we receive an extensive period of time. there is a 25% allocation to managers. report, which is then discussed.” Despite the underperformance, commodities and real estate. “As a fund’s management, Hasselman adds that he also has MITT has been able to overhaul Carolyn Bandel 8 JUNE 2008 IPE
    • FIDUCIARY MANAGEMENT Providers of fiduciary management and similar services Aegon Altis BlackRock Cardano F&C Fortis Goldman Company name IM Inv Inv (19) Sachs AM Int Total fiduciary management/multi-manage- ment AUM for European institutional clients (€m) 10,552 13,000 17,000 40,000 38,500 32,852 18,000 Preferred term for service offered (F=Fiduciary; M=Multi-manager; F F F (10) F F F Number of European institutional clients 13 11 (9) 70+ 581 88 9 Total F/M AUM for worldwide institutional clients (€m) 13,000 (4) 17,000 (11) 38,500 32,852 30,000 Total group AUM/consulted assets (€m) 374,000 13,000 921,000 250+ 140,997 331,876 NA Services provided (Int=Internally; AC=By an associated company; EC=By an external company): -ALM Int Int Int; AC (12) Int Int (20) Int -Strategic asset allocation Int Int Int Int Int Int Int -Risk budgeting Int Int Int Int Int Int Int -Manager selection Int Int Int Int; AC (13) Int; EC (17) Int (21) Int -Portfolio construction Int Int Int Int Int Int Int -Risk management Int Int Int Int Int Int Int -Portfolio rebalancing/tactical asset allocation Int (1); EC (2) Int Int Int Int Int Int -Performance measurement/monitoring Int Int Int EC (14) Int Int Int -Consolidated reporting Int Int Int Int Int Int Int -Legal and compliance Int EC (5) Int EC (5) Int Int Int -Other (3) (15) (18) (22) (24) Year started fiduciary (or similar) services 1989 2004 2005 2000 1950 1995 (23); F: 2002 1999 Year of first mandate win 1989 2005 2005 2001 1950 1995 (23); F: 2002 1999 Mandates implemented over last five years 3 22 3 50+ ND 88 8 Clients served under fiduciary management: Pension funds: -Company X X X X X X X -Industry-wide/multi-employer/ professional X X X X X X -Public sector X X X X -Other Life insurance X X X X X Foundation/charity/non-profit X X X X Other (6) (25) Total staff in working in F/M 21 17 40+ 65 (16) 800 61 119 ING IM Insight Kempen Mn Robeco Russell SEI State Syntrus Company name Europe IM (Global) CM Services AM Inv Street GA Achmea AM Total fiduciary management/multi-manage- ment AUM for European institutional clients (€m) 19,000 0 3,568 60,000 5,668 121,000 60,000 (35) 262,985 45,000 Preferred term for service offered (F=Fiduciary; M=Multi-manager; F/M F F F F (31) M (7) F Number of European institutional clients 96 0 23 20 12 283 495 692 73 Total F/M AUM for worldwide institutional clients (€m) 64,900 0 3,568 60,000 1,969 718,000 60,000 1,353,625 45,000 Total group AUM/consulted assets (€m) 153,000 148,612 13,200 60,000 139,361 776,000 134,000 1,353,625 85,000 Services provided (Int=Internally; AC=By an associated company; EC=By an external company): -ALM AC (26) Int EC Int EC Int Int; EC (33) NA Int -Strategic asset allocation AC (26) Int Int Int Int Int Int NA Int -Risk budgeting AC (26) Int Int Int Int Int Int NA Int -Manager selection Int; AC (26) Int Int Int Int Int Int NA Int -Portfolio construction Int; AC (26) Int Int Int Int Int Int Int Int -Risk management Int; AC (26) Int Int Int Int Int Int Int Int; AC (8) -Portfolio rebalancing/tactical asset allocation Int; AC (26) Int Int Int Int Int Int Int Int -Performance measurement/monitoring Int; AC (26) Int Int Int Int; EC (30) EC (32) Int Int Int -Consolidated reporting AC (26) Int Int Int Int; EC (30) Int Int Int Int -Legal and compliance Int; AC (26) Int Int Int Int Int Int Int Int -Other Year started fiduciary (or similar) services 2005 2008 2006 2003 1997 1969 1990 1978 2002 Year of first mandate win 2005 (27) 2006 2004 1997 NS 1990 1978 2002 Mandates implemented over last five years 70 0 23 13 12 184 c250 1,801 4 Clients served under fiduciary management: Pension funds: -Company X X X X X X X X X -Industry-wide/multi-employer/ professional X X X X X X X X X -Public sector X X X X -Other Life insurance X X X X X Foundation/charity/non-profit X X X X X X Other (8) (28) (29) (34) Total staff in working in F/M 55 NA 13 135 26 98 322 513 101 Footnotes: (7) Investment manager (13) Team includes Cardano and Altis staff Investments and ABN AMRO Asset Manage- (28) Family offices NA= Not available; NS= Not stated; ND= Not (8) Cardano Risk Management (14) Each client appoints as external, inde- ment (29) Indemnity insurance and funeral insur- disclosed; c= Circa (9) European firmwide institutional segre- pendent performance measurer (20) Coordiante process performed by an ance companies gated clients, 1,230; European institutional (15) Solvency management, derivatives external consultant (30) Custodians (1) Rebalancing fiduciary clients, 3 execution, administration, pricing and col- (21) Open architecture approach (31) Able to provide all three services (2) TAA; external GTAA fund (10) Solvency management, risk manage- lateral management (22) Client care, regulator reporting (32) BNY/Mellon (3) Regulatory reporting ment and investment management (16) Including Altis staff (23) Integrated LDI mutli-asset solutions (33) Provider depends on jurisdiction of (4) Fiduciary, €12bn; multi manager, €1bn (11) Risk management mandates, €40bn; (17) Investment Manager Selection (IMS) (24) Full implementation client (5) Work with a legal adviser on investment investment manangement,€1bn (18) Local relationship management, train- (25) Reinsurance, death insurance (34) Family offices, healthcare management issues (12) Analysis conducted by Cardano and ing and development (26) AZL (35) Global figure (6) Family offices and sovereign wealth fund ORTEC (strategic partner) (19) Response for combined entity of Fortis (27) Not yet awarded any mandates Source: IPE survey IPE JUNE 2008 9
    • FIDUCIARY MANAGEMENT Looking outside the Netherlands Pirkko Juntunen looks at factors that management according to the Dutch definition. might drive demand for fiduciary There are many reasons why fiduciary management has not yet management in Germany and the taken off in Germany in the same way as it has in the Netherlands, Nordic region although these are disputed among market participants. Some pension fund sources believe German companies Germany Deutsche Asset Management has were late in using consultants Germany has caught the eye gone on record to say that the compared with other countries of fiduciary managers recently, concept could represent a logical in Europe, including the especially since Henkel and business step for asset managers Netherlands, which means they Bertelsmann awarded fiduciary with a master KAG – the bundled are in late in using fiduciary mandates, both to Goldman platform for investors with managers. Other pension experts Sachs Asset Management (GSAM). multiple Spezialfonds mandates, say there is still a mistrust of Some others are thought to be which usually includes associated ‘one-stop shops’ because investors pondering the step. reporting and compliance believe it leads to a concentration Hörger: ‘fiduciary potential’ Domestic providers, such as functions, and sometimes of power and a loss of internal Feri Institutional Advisors have associated services such as tactical control. also introduced the concept of asset allocation. Allianz Global However, at the time of adopting risk assessment. This facilitates implemented consulting, which Investors Deutschland and its the fiduciary management managing the portfolio.” includes some aspects of fiduciary life insurance cousin, Allianz concept a Bertelsmann This year the group placed parts management, to the local market. Lebensversicherungs AG, have spokesman said: “Fiduciary of its €2.7bn pension reserves Feri’s implemented consulting also created a bundled pension management offers a co-ordinated – most of them in Germany – in model offers a broad range of solution, a joint subsidiary process: a ‘one-stop shop’ from a contractual trust agreement services such as asset allocation, called Allianz Treuhand, to serve the determination of the strategic (CTA), leaving €1.1bn in ALM, manager selection and corporate pension clients as asset allocation to negotiating the unfunded net pension liabilities. research. Mercer is also active in trustee. However, this is an all- contracts with the asset managers, Henkel’s agreement with GSAM is this area. in solution it is not a fiduciary up to reporting and standardised also through a CTA. The bigger picture: what’s driving European pension funds and their investments? Social structure of economies Scandinavian Stakeholder value Rhineland Anglo-Saxon Shareholder value Pension system: Southern European • funded • insurance • consultants’ position Diversity in EU Optimisation Market differentiation (individualisation) DB Product diversification Pensions at a Pension fund DC (pension & asset management) reasonable price Regulation Hybrid (FTK, IFRS, PFG, API, Pw) Co-ordinator Financial Fiduciary management Traditional unbundled planning (online) Source: Bureau Bosch 10 JUNE 2008 IPE
    • FIDUCIARY MANAGEMENT Axel Hörger, head of GSAM’s Hörger believes there is scope know-how to Scandinavia. GSAM could argue that PKA and others German operations, says that the to grow but admits that is more and Kempen Capital Management which are a conglomerate of fiduciary management concept likely to be two to three mandates held a seminar for investors in several pension funds, cooperating in Germany is likely going to per year rather than 10. Sweden earlier this year. initially on administration, are take a different format than, Dirk Söhnholz, managing However, the term ‘fiduciary’ actually fiduciary managers,” says for instance, in the Netherlands director of FIA, agrees with is not likely catch on. In the IPE one Danish investment consultant because of local preferences as Hörger in that the concept has survey of European pension funds who declined to be named. well as regulations. yet to take hold and probably in this supplement (pages 12-14), The concept of outsourcing in “For sure there is further will have a different format, such where 23% of respondents were the Nordic region is incredibly potential here but I imagine it as international co-operation from the Nordic region, it is clear strong and continues to grow. will be more of an advisory model of different fiduciary-module that the name causes confusion “Where you can see this most where managers will be proposed providers, but still as one stop- and some believed it to be more of clearly is in the separation of by the fiduciary manager and shop in the end, rather than the a back-office outsourcing strategy, production and distribution then approved or rejected by sole-provider solution as in the rather than what the Dutch term among fund providers, particularly the investment commitee of Netherlands. fiduciary management. in Sweden,” Langensjö says. the client,” he says “One reason Söhnholz says that although Some argue that the concept, He says the switch from defined for this is that many investors the fiduciary management is an whatever you call it, is not new benefit to defined contribution want to retain the ultimate attractive concept, the UK model and that the Swedish pension and solutions in is moving the say on investment decisions. of pensions buy-out companies is insurance industry in many ways debate forward and there Furthermore, many companies something that may fit Germany already offer the concept. One are discussions about how to have existing bank relationships, better. “The specific German example is Alecta, which manages organise internal staff and on the often supported by credit lines, environment and the reluctance the pensions for 27,000 companies optimal investment solutions. and thus may want to consider to outsource everything to one in a monopoly-like deal. “Some pension funds are also their core banks as well for party, because no provider has yet Mats Langensjö, head of Nordic discussing the advantages of scale, managing their assets.” proved that they are the best in business development for Pioneer particularly in administration. In addition, he can see resistance breed in every single aspect of the Investment, and who was an Once they move beyond the from chief investment officers outsourcing process, could benefit investment consultant for many size and cost advantages on in treasury departments, which a form of buy-out structure in the years, most recently at Aon, says administration and IT, it is likely view this as stepping on their future,” he says. that for historic and cultural that this may move to other areas toes, or effectively making them He believes that if industrial and reasons, insurance companies and towards the Danish model,” redundant. “At least that is non financial-service companies have taken on the bulk of pension he predicts. perhaps the fear, although not start focusing even more on core management, where the legal He also points out that the necessarily true,” he adds. functions and cost cutting, getting framework and tax regulations drivers for outsourcing, whether Hörger believes that domestic rid of their own asset management have benefited this type of fiduciary management or not, are insurance companies will aim capabilities will make outsourcing arrangement. that in an increasingly complex to get a slice of the fiduciary more attractive. A more recent indication for and competitive investment pie, but perhaps with offering Söhnholz says FIA’s concept the future was the Folksam environment, companies cannot their in-house asset management of implemented consulting is and Swedbank merger last year. afford mediocrity in any areas, capabilities in certain areas, such not identical with fiduciary Folksam, the pension insurer, but particularly not in asset as fixed income and euro stocks. management and predicts that decided to get out of asset management. “Going forward I believe the competition in the field will most management and outsourced its Langensjö also points at concept will change in Germany likely arise from insurers, who capabilities to Swedbank, adding increasing regulatory pressures are to something like a ‘partnering’ will boost their capabilities and SEK170bn (€18bn) to Swedbank’s making it harder for companies solution on a long-term basis with add more services. “Or perhaps AUM, effectively making to maintain the highest level of insurance companies,” he says. some will adopt the Mn Services Swedbank a fiduciary manager. quality in all areas of operations. Another route, Hörger predicts, route and actually start competing The two are co-operating in other He believes the current Swedish is when larger corporates start for business from pension funds, fields as well in order to leverage environment, where pensions pooling their pensions and after having grown their in-house their core capabilities. There were are insured with one provider, is themselves becoming a fiduciary capabilities.” some critical voices in Sweden at set to change because there is so manager. “Of course this is a the time, pointing to the fact that much pressure on performance highly complicated exercise The Nordic region Folksam did not conduct a public and risk management. He says because of the different taxation Fiduciary management, as defined tender to select the best provider the roles of administration, laws, legal frameworks and in the Netherlands, is yet to take in the market. asset management, IT and regulatory environment across hold in Sweden. However, some Elsewhere in the Nordic region, administration are beginning Europe, but it could be done,” he Dutch fiduciary managers have at market observers point to to unbundle, with specialist adds. least considered exporting their Denmark as a frontrunner. “You providers emerging. IPE JUNE 2008 11
    • FIDUCIARY MANAGEMENT IPE Portfolio Management Functions Survey In conjunction with this supplement, IPE conducted a survey of the portfolio management outsourcing practices, and attitudes towards fiduciary management, of 60 European pension funds and institutional investors in 16 countries, with assets totalling €412bn. Pirkko Juntunen gives an overview of the results. 1. Respondents by type Part I: Outsourcing practices of European pension funds Pension fund Company 20 Internal management while 44% said they would diversify Industry-wide 13 and asset allocation their equity portfolio and 46% their Public sector 13 In total, 60 pension funds and fixed income portfolio. Other (utility) 1 institutional investors from 16 Life insurance 1 Decision-making Foundation/charity 6 European countries, with assets Other* 1 of some €412bn, responded to and delegation our survey. The largest group of Of 58 respondents, 46% outsource * Others: asset management company, bank treasury, caisses respondents came from the UK all assets. Of the remaining 54%, de retraite, corporate with pension obligations within balance and Ireland (14) and the Nordic 16% of the total outsource 1–10% sheet, investment bank, social security foundation region (14), with 12 from the Bene- of assets, although 22.25% out- All respondents lux countries – of which most were source over 50%. The decision- from the Netherlands. making structure of the European The Nordic respondents had the funds surveyed appear quite largest asset pool, of over €171bn. uniform in that, out of 58 respond- 2. Respondents by country Of the participants a third came ents, 65% said that the board of from company pension funds and trustees was the highest invest- 43% from public and industry- ment decision-making body while wide schemes. 16% cited a board of directors. Austria 3 Our survey found that out of Over half (56%) of the respond- Benelux 12 France 2 total assets the largest proportion ents delegate certain functions UK/Ireland 15 of respondents (from a sample of internally, with 45% choosing Greece 1 58 that answered this question), asset allocation, the most common Italy 3 54% of funds managed at least function to be delegated. Over a Nordic 14 some of their assets in-house, fifth, 21%, delegate all investment Portugal 2 Spain 1 while 46% of respondents out- functions. Most (66%) delegate to Switzerland 7 sourced all of their assets to exter- is an investment committee. nal providers. Some 91% (of 58 respondents), All respondents The largest number of external the largest proportion, said they managers are used by respond- select managers internally. Other ents in the UK and Ireland, with functions that are also still con- an average of 41.5, although ducted internally for the majority 3. Assets by country this number includes one large are risk budgeting (86%), strategic foundation with more than 200 asset allocation (84%). A total of asset managers. France and the 79% of the respondents conduct Nordic countries follow with 23.5 portfolio rebalancing internally. Austria $0.9bn Benelux $52.6bn and 17.6 respectively, out of 57 On the use of external service France $38.5bn respondents. partners, one third use actuarial UK/Ireland $98.8bn UK and Irish funds had the larg- consultants, mainly for asset/ Greece $0.5bn est equity allocation, at 60%. The liability management and strategic Italy $7.5bn average equity holding among the asset allocation (SAA: 14%). Invest- Nordic $171.3bn Portugal $3.7bn funds was 35%. ment consultants are used for Spain $7.2bn Italian funds were the largest performance measurement (22%), Switzerland $30.7bn investors in real estate with an SAA (21%) and manager selection allocation of 36%, compared with (19%). Custodians are mainly used All respondents the average of 11%, whereas for consolidated reporting (31%) Portuguese funds held 25% in and performance measurement cash, compared with an average and monitoring (28%). of 7%. Hedge funds, private equity, These arrangements seem to 4. Average strategic asset commodities and other alterna- be ingrained in the way pension allocation tives still only make up an average funds work but as competition of 6%. increases among the service pro- Diversification continues to be viders with lines blurring between Equity 35% a topic for funds seeking to boost asset managers, consultants and FI govt/sovereign 24% returns, increasing the complexity other providers, this is likely to FI corporate bonds 11% FI other 6% of managing pensions and at the change slowly, with new entrants Real estate 11% same time ensuring that outsourc- such as investment banks and full- Cash 7% ing, in whatever form, is likely to service providers perhaps also get- Private equity 2% continue. ting a slice of the cake. Hedge funds 2% The survey shows that, of 59 Of 32 respondents who answered Commodities 1% Other alternatives 1% respondents, 56% said they would the question, 66% said the main diversify into other asset classes reason for delegating portfolio All respondents beyond equities and fixed income, management functions was to 12 JUNE 2008 IPE
    • FIDUCIARY MANAGEMENT 6. Investment staff employed Survey highlights ‘It seems that hiring Professionals Support staff l Survey respondents: 60 institutional investors in 16 countries with total external providers on an Austria 4.3 2.3 assets of €412bn Benelux 2.4 1.9 l Mean fund size: €7.3bn advisory basis is more France 7.0 16.5 l In-house investments: 54% of respondents manage money internally UK/Ireland 4.8 2.0 l Staffing: an average of six professional and seven support staff attractive than hiring them Greece 3.0 4.0 l Investment assets: fixed income 41%; equities 35%; others 24% Italy 4.0 31.0 l Diversification: 56% plan to diversify assets on a discretionary basis, Nordic 12.0 11.5 l Delegation: 56% delegate functions to an internal body, eg investment Portugal 3.0 2.0 committee indicating that funds are Spain 14.0 2.0 l Asset manager selection: 91% select asset managers themselves Switzerland 4.0 1.0 l Grounds for outsourcing: improved risk management, financial market keen to keep their control Average 6.0 7.0 complexity and access to new opportunities were the main reasons cited 53 respondents l Grounds for not outsourcing: 56% cited expense; 56% were satisfied as well as develop their with risk management and 47% cited strength of in-house team 7. Number of external l Fiduciary management: 76% said they were familiar with the term internal capabilities’ managers l Choosing fiduciary management: a quarter of respondents said fiduciary Average management will become popular although half offered no opinion and Austria 15.6 most said they are not likely to opt for it Benelux 10.2 l Criteria for choosing a fiduciary manager (where used): service, fees, France 23.5 trust, experience, track record and reputation UK/Ireland 41.5 Greece 6.0 pened for instance ment and monitoring to a cus- Italy 8.0 5. % of assets managed in the Nordic region todian and the same number are Nordic 17.6 internally with the AP funds considering them for consolidated Portugal 13.0 in Sweden and the reporting. Spain 0 Government Pen- Some 10% are considering del- Switzerland 13.6 sion Fund – Global egating risk management to an Average 15 in Norway. investment consultant, the same 57 respondents Looking at staffing number are considering outsourc- Some internal No internal levels across Europe, ing consolidated reporting to such 8. Plans to diversify management management the survey shows parties, with 12% considering 54% 46% that, out of the 53 delegating performance measure- % Yes No that answered the ment to investment consultants as Equities 44 54 question, Nordic well. However, a similar number Fixed income 46 54 funds employ the are considering consolidating this Other 56 32 highest number of in-house, although it is not clear 59 respondents % of 58 respondents professional staff, whether this involves bringing the at 12, compared to activity back in-house following an 9. Highest investment average levels of six outsourcing agreement. decision-making body improve risk management, 59% professionals. However, the high- When asked why they had opted cited the increasing complexity est overall number of staff is in not to outsource, 56% of the 32 Number % of financial markets and 50% said Italy with a total of 35, of whom respondents cited expense as the Trustee board 38 65 they wanted access to new ideas 31 are support staff. Portugal main reason. Half said they were Board of directors 9 16 and opportunities. and Switzerland have the lowest satisfied with the past and present Investment committee 5 9 risk management provision and Management committee 3 5 A quarter said access to external number of staff at five, with three Stiftungsrat 3 5 manager databases, outsourcing and four professional staff respec- 47% cited the strength of their in- 58 respondents to professionals, an easing of the tively. house team. Only a fraction, 3%, workload on specific projects and Respondents stated that, on an said they wanted to keep a strong 10. Delegations to other local law dictated this while inde- advisory basis, between 22% and governance function in-house. pendence of external providers and 25% would consider delegating internal bodies the lack of suitable staff were other ALM, SAA, risk budgeting, manager Conclusion Number % reasons. selection and portfolio construc- A large proportion of the investors Respondents delegating 33 56 The survey also asked about tion to an investment consultant surveyed manage money inter- future outsourcing habits. It seems and 27% would consider outsourc- nally, and the number of in-house Functions delegated that hiring external providers on ing ALM to an actuarial consultant. investment professionals shows Asset allocation 17 45 an advisory basis is more attractive However, a significant proportion, that there are good reasons why All 8 21 than hiring them on a discretion- approximately a third, would not many will seek to continue with Manager selection 7 19 ary basis, indicating that some consider delegating any functions their current investment arrange- Other 616 funds are keen to keep their control to external providers. ments. Most outsource one or as well as develop their internal On a discretionary basis, 16% of other portfolio management func- Name of body or individual Investment committee 23 66 capabilities. 51 respondents would consider tion and a range of providers are Director/CEO 6 17 This is something that has hap- outsourcing portfolio measure- involved. Board 2 6 11. Responsibility for portfolio management function Other 4 11 % of all respondents % Internal Actuarial Investment Custodian Master Multi- Fiduciary Other 12. Reasons for not consultant consultant KAG manager manager outsourcing Asset/liability management 52 33 17 3 – – 2 2 Strategic asset allocation 84 14 21 – – 2 3 2 % Risk budgeting 86 5 16 2 – 2 2 3 Satisfied with returns 44 Manager selection 91 2 19 – 2 – 3 2 Satisfied with risk management 50 Portfolio construction 78 2 17 2 2 9 5 3 Strength of in-house team 47 Implementation 71 – 10 5 2 7 7 5 Doubts re handing over control 41 Risk management 72 – 12 5 2 7 5 5 Potential expense 56 Portfolio rebalancing/TAA 79 – 9 3 2 3 7 5 Legal/regulatory constraints 19 Performance measure/monitor 59 2 22 28 2 2 3 9 No time to consider change 19 Consolidated reporting 62 3 17 31 2 – 3 2 Cost 44 Legal and compliance 78 3 5 17 2 2 3 22 Keep strong governance function 3 % of 58 respondents % of 32 respondents IPE JUNE 2008 13
    • FIDUCIARY MANAGEMENT Part II: Perception of fiduciary 13. Familiar with term 15. Will fiduciary man- ‘fiduciary management’? agement become more management in Europe Number % popular in your country? Our survey shows that the con- ence, track record and reputation Yes 45 76 Number cept of fiduciary management is whereas criteria such as ability to No 14 24 Yes 15 apparently understood by most provide return and ability to match 59 respondents No 15 investors. It is not clear, however, or outperform benchmark also Don’t know 6 that investors are ready to adopt featured. 14. Most often mentioned 56 respondents the approach as it is understood Two respondents said the impact fiduciary management in the Netherlands. Nevertheless, on the workload for the in-house providers 16. Will your institution 76% of respondents said they were teams where a fiduciary manager Number consider fiduciary aware of the concept. Furthermore, was appointed was non-existent some 25% of respondents said they – in line with the general view GSAM 9 management in future? thought fiduciary management among fiduciary managers that the Mn Services 7 Kempen 6 Number would become more popular in model does not represent a reduc- Very likely 0 F&C 5 their country, although half ven- tion in work for in-house staff, Likely 9 BlackRock 3 tured no opinion and a further 25% rather a re-orientation of activi- Unlikely 44 SEI 3 said it would not. ties. Other comments were: “saves 55 respondents The respondents that already use about two hours work a day” and a fiduciary manager, mostly Dutch “easier oversight and helps in deci- of pensions issues. Some stated • will be needed to implement funds, said that the most important sion-making”. a wider problem of first having pooling of assets of the various criteria for selecting a manager are In total, 44 of the respondents to pool all their assets from their European funds; quality of service, fees, trust, experi- said they were unlikely to consider various European funds for fiduci- • we are a local government pen- fiduciary management, nine said ary management to make sense. sion fund and therefore different they were likely to but none told us Another said its role as a public to the private sector; they were very likely to. However, fund made fiduciary management • our fund will still have to bear the ‘Some stated a wider this should be balanced with the problematic compared with funds consequences of investing. We fact that fiduciary managers tell us in the private sector. A further will thus not entirely transfer the problem of first having to that the concept requires time and respondent said that because the competences; and effort to explain to pension funds pension fund professionals are still • this is an ongoing process. pool all their assets from in detail. responsible for the returns they The best-known fiduciary man- Some of the reasons given for not would not outsource all compe- agers mentioned were GSAM, Mn their various European taking the fiduciary management tences. Services, Kempen, F&C Manage- route were that it was perceived to Comments included: ment, BlackRock and SEI. At the funds for fiduciary manage- provide no added value and that • no added value; same time over half, 51%, offered there was a preference for internal • preference for internal fiduciary no opinion on the reputation of the ment to make sense’ fiduciary models to stay on top model to stay on top of things; providers. 14 JUNE 2008 IPE
    • FIDUCIARY MANAGEMENT How fund governance and decision-making processes can be divided Example of a typical investment process How the fiduciary process can work in practice Source: Goldman Sachs Asset Management IPE JUNE 2008 15
    • FIDUCIARY MANAGEMENT Approaches to fiduciary management The consultancy Bureau Bosch has devised these fiduciary management classifications Fiduciary management+ (Ultra light) Fiduciary management++++ (Strong) The services of this type of fiduciary manager are used in an unbundled This type of fiduciary manager mostly offers an all-in solution solution, by insourcing their multi-management and additional services for pension and asset management. Fiduciary asset management on a modular basis. In other cases the fiduciary manager may use as in FM+++. The fiduciary manager additionally offers board internal asset management. The strategic asset mix and evaluation is advisory services, pension administration and day-to-day pension not determined by the fiduciary manager. No brokerage or custody. management. A fiduciary manager+ can insource and co-ordinate other fiduciary management services on a best-in-class basis if that is required. Fiduciary management+++++ (Ultra strong) Fiduciary management the Anglo-Saxon way. Not offered in the Netherlands as yet. The fiduciary manager takes over the role of the Fiduciary management++ (Light) sponsor. The company no longer has the burden of the liabilities Extended multi-management. The strategic asset mix and evaluation is on the corporate balance sheet. The manager takes over the risks at not necessarily to be defined by the fiduciary manager. These managers considerable lower costs compared to a traditional insurance company. agree with the principle that a fiduciary manager should remain The fiduciary manager guarantees the liabilities including price- independent, which also implies no brokerage. These asset managers indexation. The fiduciary manager benefits from possible investment appreciate the presence of consultants to provide an independent surpluses of the portfolio of the plan. The fund is closed to new evaluation. Fiduciary managers will never fire themselves. This type members. But the pension fund is not abolished; its governance of fiduciary manager uses a multi-management model, sometimes in structure remain in tact and the trustees keep control. combination with home made-products. Caveats: 1. This is a classification, not a quality rating and not a ranking For instance: an FM+ manager does a different job than a FM++++, Fiduciary management+++ (Medium) but is certainly not inferior for that reason. A higher score does not Balance sheet management of the pension plan is central in this automatically mean a better fiduciary management. There is no such approach. The strategic asset mix is defined by the fiduciary manager thing as the best type of fiduciary manager; this all depends on the in conjunction with the client. ALM and risk management studies are matching of the profiles of the manager and the pension plan. performed by the fiduciary manager, or are conducted under the close 2. Not all elements have to be fulfilled to qualify for a fiduciary supervision of the fiduciary manager. The asset management mostly management category. That could mean that a manager does fiduciary takes place on a multi manager basis. Sometimes this type of manager management but does not offer pension management. regards consultants as superfluous as the fiduciary managers take can 3. Various fiduciary managers have a modular approach. This could care of all matters and does feel the need for independent evaluation. imply that an FM++++ is also willing to offer FM+ or FM++ or FM+++. Five models of fiduciary and fiduciary-type management FIDUCIARY FIDUCIARY FIDUCIARY FIDUCIARY FIDUCIARY FIDUCIARY MANAGEMENT MANAGEMENT+ MANAGEMENT++ MANAGEMENT+++ MANAGEMENT++++ MANAGEMENT+++++ SERVICES: ultra light light medium strong ultra strong 1. Board advisory services x x 2. Pension administration x x 3. Fiduciary Asset management a. Advisory * ALM x x x * benchmark x x x x x * risk management & budgeting x x x x x * strategic asset allocation x x x x b. Portfolio construction x x x x x c. Asset management * multi-management x x x x x * transparent MM fees x x x * monitoring managers x x x x d. LDI and overlays x x x x x e. Performance measurement x x x x x f. Reporting x x x x x g. Evaluation & feed back. x x x x x 4. Guarantees Liabilites x Notes: (1) Sometimes internal management is also offered in fiduciary medium and strong. (2) A crucial issue is the transparency of sub-manager fees: Which costs are assigned to the pension fund? Which costs are taken by the investor? What are the fees, trading costs? Can the custodian monitor the costs? Which costs are included and which are not? Source: Bureau Bosch 16 JUNE 2008 IPE
    • Fiduciary Management – Goldman Sachs Asset Management Responsible pension fund management is very demanding in terms of time and expertise. To help manage your returns, it is important to find a partner whose interests are aligned with yours. At Goldman Sachs Asset Management, we tailor our fiduciary capabilities to match your fund’s specific needs. We bring you our knowledge of the global investment markets and our market leading risk management systems to help you achieve your investment aims. We give strategic investment advice, select and monitor external portfolio managers and provide customised integrated reports to help deliver you peace of mind. We believe that where there is accountability, there is trust. For further information please contact Ruud Hendricks on +44 (0) 20 7774 1354 or Pepijn Heins on +44 (0) 20 7051 1890 This material has been communicated in the United Kingdom by Goldman Sachs Asset Management International which is authorized and regulated by the Financial Services Authority (FSA). Copyright © 2008, Goldman, Sachs & Co. All rights reserved.