Van Bergen: head of Benelux
With Fidelity taking a back seat in the Netherlands’ pension schemes arena and F&C losing funds following a restructure at the E13bn PME metalworkers’ plan, Barclays Global Investors (BGI) has been crowned king of the foreign players in the Dutch institutional market.
BGI’s main targets for new business in Europe have included Scandinavia, Ireland, Germany, France and Italy. But it is the Netherlands, Europe’s most mature pensions market, where resources have been concentrated, in ultra-modern new offices on the south side of Amsterdam.
BGI has won mandates from giant civil service pension fund ABP, healthcare and social workers’ scheme PGGM and Blue Sky, the retirement fund for air carrier KLM. While other, more marginal, markets can be sourced from London, this model is insufficient for the Netherlands, where corporate clients demand a local service.
The move has clearly paid off, with BGI now running $45bn (E37bn) for Dutch clients.
The Amsterdam operation is overseen by Marko Van Bergen, head of Benelux institutional business, and Sjef Pieters, responsible for intermediated products and exchange-traded funds (ETFs).
After Boston Consulting spent six months camped out in BGI’s London headquarters in the middle of 2003, it was recommended that the two European sales channels – intermediary and institutional – be merged.
This happened at the end of last year in an efficiency drive corresponding with a corporate restructure.
European chief Lindsay Tomlinson moved to an ambassadorial role and was replaced by Andrew Skirton. Managing director Miles O’Connor left for Schroders after the European client services and project management teams were slimmed down in a E110m global cost-cutting exercise.
European intermediary and institutional businesses were combined under Nigel Williams.
“One problem was that the two teams were talking to the same clients trying to sell different products,” said a BGI insider. “The institutional guys were trying to sell a market neutral fund and the intermediary guys were marketing a fund of hedge funds to exactly the same people.”
Now Mr Pieters and Mr Van Bergen have to be well versed in all strategies, reflecting the office’s flat structure. This may have led to some friction in the UK, where responsibilities are still not clear, but it is a challenge relished by the Dutch team.
“It makes our jobs broader as we are focusing on the same clients and products,” said Mr Pieters. “But we are also faced with a greater challenge: how can we adapt intermediated products such as ETFs, international long-only mutual funds and hedge funds to be used by pension schemes?
“This market is increasingly interested in the whole concept of ETFs, which is rather new in Continental Europe, though more players have entered the market over the last two or three years.”
BGI, under the guise of its iShares franchise, doubled European ETF assets to E4bn last September, when it took over management of two ETFs previously handled by Merrill Lynch, and is now the world’s largest player.
“Corporates are a growing market for us in the liquidity funds business,” said Mr Pieters, whose team is keen to punt the high-profile iBoxx and LQD fixed income versions around Europe.
“We are targeting corporates in Luxembourg and the Netherlands with these products. They are difficult to track, as these funds are traded on an exchange. We don’t necessarily know who is buying them, but clients approach us looking for information or liquidity, so we get some feedback.”
For more traditional institutional-style strategies, it is a case of persuading restructuring schemes to pause slightly and change tack, and talking to minor clients with small allocations to double up.
“Often we have done this as a by-product of changing the emphasis in a client’s portfolio from pure to enchanced indexing,” said Mr Pieters.
“The solvency ratio is an important thing for pension funds,” he added. “Surplus levels have decreased significantly over time. Currently, they are just above water.”
This means that new strategies with higher returns, but in a fairly safe environment, must be marketed to the schemes. It is a delicate game which the likes of BGI must play with institutional clients constrained by a highly unionised Dutch workforce.
“The solutions are simple; don’t give people any pensions anymore, liabilities go down to zero and you are overfunded. But when packages are skimmed down, you are walking into highly sensitive territory, as those entitled to pensions will get less.”
The second way for state schemes to solve the liability conundrum is to scale down their index-linking commitments. “Those who have a pension are used to being compensated for price inflation, but that is no longer the case,” said Mr Pieters.
“Third, they can raise the premiums for existing members to an absurd level and the sponsor can take some of the premiums. Many Dutch pension funds have done this.”
The fourth option is a shift in investment strategy.
“This involves taking a higher risk on the assets for higher returns, but this could also mean negative returns. If you do all of these things and increase the risk on portfolios, people can say: ‘what the hell are you doing with our money?’ So there is a big cloud surrounding the whole issue.”
BGI believes it now shares the responsibilities with clients for finding solutions.
“With market leadership comes involvement and commitment,” said Mr Pieters. “We are being asked to change product solutions. This amounts to very good business for us. What it means is that you will get less one-size-fits-all solutions, which attract a much lower margin, and a move to a tailored solution for a particular customer.
“There is change among institutions, but we have to change with them,” added Mr Pieters. Typical mandates are the award from PGGM, for whom BGI has been managing a E200m US and sterling active inflation-linked bond portfolio since 2002.
“One of the key trends is a closer link of assets with liabilities. Asset compensation vis-á-vis liabilities is leading to a shift away from equity investing into fixed income, inflation-linked products and alternative asset classes including hedge funds, commodities, private equity and property. We see a continued interest in non-traditional assets.”
With nearly E5bn invested in hedge funds, BGI is trying to dispel its index-hugging image. The prize is greater fee income. BGI runs £130bn (E193bn) from its London HQ, making it Europe’s largest investment house.
