Petrofina refines investment strategies
In 1996, Belgian oil and gas group Petrofina set up a filial organisation Fina Investment solely to look after pension fund assets.
Marianne Spelte, investment manager at Fina Investment, explains the offshoot is not a pension fund in itself, but a legal vehicle allowing the company to develop a comprehensive in-house investment approach to retirement provision.
“Fina Investment is a typically Belgian structure, adhering to domestic banking and financial controls. We look after the portfolios of three companies of the group. Fina Life, in charge of the extra legal group insurance policy and two other industrial insurance companies in the group.
“All the asset management is outsourced, except for a small part of the insurance contract, allowing us a hands-on insight into the market.”
The Petrofina fund has around Bfr10bn (E250m) in assets, solely for the Belgian group, and Spelte explains there is no European centralisation for retirement funding at present.
“The system in the UK, for example, has nothing to do with us, and is run as a funded scheme with trustees etc, and we have little contact with any of our autonomous operations overseas.
“We also look after Bfr2bn and $200m for the other industrial insurance companies. The investment approach matches the location, so, for Belgium the money is outsourced to Belgian asset managers, presently BBL, KBC and Fortis/Generale, with one international manager – Credit Suisse.”
Spelte explains that investment strategy for these discretionary mandates is left to the manager, but benchmarked in conjunction with the company, which has laid down credit rating guidelines for investment .
“We have also been working for three years with a US consultant on our asset liabilities, and the euro arrival was firmly on the agenda for last year’s study. Consequently, some of our portfolios are strategically composed of mix-ed equity and fixed income, and some are entirely one or the other.
“Equity portions have increased steadily as well over the last two years, and notably, we have been exploring how far we can go in equity allocations without losing sight of our liabilities.
“I think we are quite in line with most Belgian pension funds on this, if not slightly more dynamic, in that ALMs have brought us to a 50–50 split on shares and fixed income, which is quite progressive, even for a Belgian scheme.
“We are shifting steadily towards European equities – both in and out strategies with appropriate benchmarks, so we only have around 7% in Belgian shares at present.”
Another result of the ALM study was to lengthen the duration of the bonds portfolios and to diversify to European bonds.
Pensions in the Belgian plan, she says, are calculated on a defined benefit (DB) basis, and there are no plans at present for any defined contribution (DC) switch in the future.
However, the company’s merger with Total is still a bit of an un-known quantity in terms of how it may affect pension arrangements: “We know nothing yet, but in principle the consolidation shouldn’t change much of the Belgian system, which is already tightly managed,” she declares.
The real development at Petrofina Belgium though, has come through the group’s aim to incorporate as many suitable investment management operations in-house.
“We carried out such complex ALMs, with hypotheses made on returns and volatility, and tests run on equity levels, but we also looked at commodity, property and hedge funds at the same time, to see what else might suit our objectives,” Spelte says.
“Only investment in emerging markets and long and short strategies turned out to be appropriate on risk/return factors.
“Also from January 1 1999 we decided to develop internally a tool to follow the risk/return ratio and performances for the funds using the experience developed with Ferrell Consultants in the US.
“We are using the system now, although it will probably take a few months before we start to feel its full benefit.
“What is clear though is that the product is clear and accessible, and this is essential as we are looking to have a system where pensions and investment data can be given to our employees, and easily comprehended,” Spelte explains.
The system’s administration back office will be in Brussels, but performance analysis will be carried out by the Bank of New York, who will also do the investment reporting.
“ We are also seeking to do the asset liability studies in-house, and as a result will be testing different equity strategies when and if we feel this is necessary for the funds,” she says.
“One of the principal reasons for this is that we have all the technical support and expertise of the Petrofina financial department behind us. What it boils down to is a constant desire at Petrofina to get the correct investments for our employee pension liabilities, within the best possible cost-effective system, which is what retirement provision is all about.” Hugh Wheelan