Low volumes and lack of liquidity in their domestic stock market have long forced Belgian pensions funds to look abroad for their investments. So current trends towards pan-European equity holdings and globalisation are flowing along lines already marked out in Belgium.
It is not just shares that Belgian pension funds buy abroad. Although domestic asset managers are still in demand, pension funds are increasingly buying services from foreign managers, pensions consultants say.
“Pension fund managers are becoming more global and with the introduction of the euro, they are crossing borders more easily,” says Wilfried van Messem of Buck Consultants. “There is much more openness with regard to foreign investment managers – the euro triggered something,” he adds.
In general, non-Belgian investment houses are gaining importance in the market, he says. Even though many pension fund clients have to use banks and some stockbrokers locally to manage their investments, now an increasing number of foreign investment houses has entered the fray, notably Barclaysglobal investors.
With competition becoming more intense as houses vie for a slice of the pension fund cake, the last few years have seen a wave of mergers in the Belgian asset management sector. Générale Bank has become part of Fortis Asset Management, and BBL has joined ING Bank.
“They all want to position themselves against international players – you can’t be local any more,” says Paul de Smet of consultants Conac. To sharpen their competitive edge, some of the banks are now breaking bonds with their asset management arms. KBC Asset Management, says de Smet, has now been set up as a separate legal entity.
“They have to compete with other asset managers,” he says. “It is not sufficient to say we have a Chinese wall between us and the bank – you have to show you are separate,” he adds.
Koen De Ryck of Pragma Consulting says Belgian pension funds have always been very internationally minded. “Even in the 1970s we had 30% of total assets overseas and with the move to the euro (this has increased),” he says. In the early 1990s, Belgian pension funds had overseas asset allocations of around 50%,” he says.
“This international slant meant that the change brought on by the introduction of the euro was less drastic for Belgian pension fund investment than it was in other euro-zone lands.”
“Before the start of last year, Belgian pension funds had around 18% of their assets invested in Belgian equities, whereas now it is about 9%,” says De Ryck.
Van Messem says foreign asset managers have become more international in their outlook, and many of them have specifically targeted Belgium.
The arrival of the euro has been accompanied by new thinking on investment strategy, with the view gaining currency that globally, investment should be arranged along sectoral rather than geographical lines. In Belgium, Van Messem says this change has hastened the shift towards foreign asset managers, and Barclays and State Street have been the main beneficiaries of this trend.
“But there is another reason behind this change. The Belgian pension funds have been growing and there are many of them which have now reached a critical size – of BFr1bn, or E25m. Funds with between E17m and E25m are now beginning to think they should split their portfolio,” Van Mesem adds.
The current emphasis on foreign and specialised investment has left many Belgian investment managers behind, as they traditionally offer investment services across the range, rather than specialising in one or two investment areas. “But the need for specialist portfolios often leads pension funds to foreign specialist managers,” says Van Messem, citing the London Bond Broking Company as just such a specialist.
But De Ryck says: “Belgian pension funds have always used a combination of both local and foreign asset managers, and still do. I think it has a lot to do with size – this market is very small. There are only a handful of funds. The 20 largest have a lot of international managers and that has continued. I have not seen a different approach.”
“Belgian pension funds have recently come in for public criticism for their low holdings of Belgian equities, attracting blame for the decline of the local stock market. Belgian pension fund investment accounted for just 1.2% of total market capitalisation of Belgian stock market before the euro, and this proportion should now have shrunk to just 0.6 %.”
“Last year was a good one for active managers in Belgium, with practically all outperforming. The exceptions were those managers employing pure value styles.”
Coping with two different national languages as Belgium does, while it may enrich the culture, can cause problems for anyone trying to do business. And consultants say the language split in Belgium used to affect pension funds’ choice of asset manager. But times have changed.
“In the last few years, no one actually cares about it anymore. Most of the reports I get are in English anyway,” says Van Messem. “And many pension funds in Belgium belong to foreign companies and have their reporting to do in English,” he adds.
Paul Beaudin of Gras Savoye Consulting agrees that whether an asset manager is Flemish or French speaking makes no difference when a mandate is up for grabs. “Money has no language,” he says.