Dutch pensions giant ABP keeps a close eye on costs, and is well aware of the benefits of minimising them. But rather than using services from outside providers for commission recapture and transaction cost analysis, the pension fund takes care of things in-house.
ABP has no commission recapture programme. It does not need one, says spokesman Thijs Steger, because it makes sure it already has the most competitive brokers.
“Our negotiations with brokers are very much focused on price, so we don’t need commission recapture,” he says. The fund would rather pay 10 basis points instead of paying 15 and getting five back afterwards, he says.
The fund does conduct transaction cost analysis, but does this in-house. “The reason for this is that the market doesn’t provide the transaction cost analysis that we need,” says Steger. The fund needs analysis that is very sophisticated and suited to high demand.
“The transaction cost analysis that we can get in the market is simply too slow,” he says. For example, the fund could end up being told in a thick report that it lost a lot of money on a trade that took place three months earlier.
So ABP has designed its own system, called the ‘trade costs analysis value chain’, which is a real-time analysis consisting of six different components that together form trade costs. “It is definitely necessary for pension funds to keep costs down in this way. But in our case, we don’t rely on consultants to do it,” he says.