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Desperately seeking cross-border solutions

As multinational corporations become ever more complex in their employee benefits and investment provisions, so the consultancy and investment management market is following suit in the chase for such coveted business.
Andrew Dyson, current head of William Mercer’s UK pension fund business, soon to head up research on US multinationals from the company’s New York offices, believes the rising level of centralised co-ordination within multinationals for employee benefit provision, has the accent firmly on quality control.
“The definite trend amongst multinationals in recent years is that companies are tending to export education and advice from the central office to subsidiaries.
“Some are going the whole hog and recommending preferred investment providers, but most, when it comes to questions of specialist local mandates are just seeking to get best practice decisions firmly on to the agenda.”
Dyson adds that ALM’s are also very much in demand to ensure optimal, risk conscious pensions financing, but that he feels the ideal of an efficient European or global pooling vehicle is “still a long way off”, so consultants are focusing strongly on asset liability advice for multinationals.
And Paul Morris, principal at Watson Wyatt, believes that to look for the business these days it is essential to be a global operator.
“Consultancy firms are looking to become the preferred provider for multinational advice on a worldwide level, so the competition is principally amongst the big players.
“We are looking at the development of cross border asset vehicles for multinational pension funds with the idea being a single cost effective pooled fund which could be sold to companies and thus save them on management fees, etc, but there has not been much in the way of local tax aid for this sort of initiative.
“Much more relevant at present is the work we are doing to set up golden circles of investment managers, promoting global or preferred European equities managers and then negotiating more economical fees.
“Furthermore, if a company has one pensions vehicle in a country and then creates another elsewhere, we can offer a single fee structure, but more important is the homogenising of manager selections - because you can get better fees and hopefully better returns here.”
Similarly, amongst the asset managers, business is brisk but highly competitive. Kerry Dufrain, head of client services and multinational product engineer at State Street Global Advisors (SSgA), says they now offer an overall ‘multinational’ package because more and more clients are looking to rationalise particular areas of their business, whether it be custody or fund management.
One client, for example, has made SSgA its preferred provider of non-domestic indexing, Dufrain says.
“The reasoning here is that with local investment, multinational subsidiaries have a free hand in investment manager selections, but on the international side what the company would like to do is go with a global name like State Street.
“The advantages are that we can offer a global fee structure through the consolidation of assets, so smaller funds reap the benefits of the larger funds.
“This is a definite trend within custody and reporting as well.”
Dufrain says SSgA is actively marketing this approach to US corporations, believing that investment tends to be driven from company headquarters.
“The future is certainly exciting in cross-border business, particularly because we envisage large development in DC schemes across Europe, due to changing legislation across the board.
“Italy and Spain are moving rapidly, with Spain broaching the possibility of funding book reserves, either over time or in one go. This is definitely interesting because I’m not sure there is anyone around who could provide the administration requirements yet for developments of this size - normally offering one product in such a small market is just not considered.
“This is the way forward though, and at SSgA we are currently working on solving the issue,” she says.
Daniel Sharp, vice president of investment marketing at Northern Trust, says the most important issue for investment managers with multinationals is the approach in addressing this trend towards centralisation.
“Multinationals are moving towards rationalisation, but then again the company will not impose decisions on overseas pension fund trustees. To meet this reality we may come in as a fixed income manager running a segregated account against a global index, to which the various plans could adhere as a kind of central investment account.
“What we can then offer is fee economies, as well as synergies on the custody side or on questions of transition management, which look very attractive to the multinationals.
“In terms of pooling vehicles, we have OEICS running from Dublin and we are looking to expand this range and offer more tailored unit trusts for investment.
“And for segregated accounts we are expanding cash investment, futures/ overlay and fixed-income programmes, whilst expanding our multi-manager fund provision, to tailor our business to multinational needs.”
Sharp believes that realistically this diverse product range within a single management entity is the future for transnational pension funds.
“I don’t believe there is a single investment panacea on the horizon though, because flexibility is the key for multinationals when you consider the anomalies in the range of schemes they are running.”
Mark Chamieh, vice president at Chase Asset management, says the company is touting for multinational pension fund business on the back of its considerable cash management strengths.
“We already manage a lot of cash for transnational companies, and because of our relative limitations and short track record in the management of European pension fund money, we are looking to consolidate the business we already have offering flexible additional long term asset management.
“Some multinationals are looking already at global single manager provision, and others are not thinking this way yet,” he says.

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