Third party in full swing for Philips
When the Dfl32bn (E15bn) Philips pension fund decided to spin off its in-house investment management arm into the third party arena, it was merely a question of survival.
With the restructuring of Philips in the early 1990s, nobody within the organisation really knew where it was going to stop and how many companies were going to be sold off, so the pension side of the business had to basically start justifying its own existence. Today, the product of those uncertain times, Schootse Poort, is a phoenix risen from the ashes, having turned the situation right on its head.
Schootse Poort is the result of the idea that the same investment team should approach those companies that were sold off and to offer to continue managing their pensions assets, but on a third party basis. Today it manages more than Dfl1.2bn in third party assets; the vast majority of those coming from the pension funds of those companies it had managed in the first place before the whole restructuring process began.
The nature of the Schootse Poort’s conception has not surprisingly shaped the entire mindset of the operation, which is one of being prepared to catch new developments at the point of their inception, as opposed to reworking an existing idea. Schootse Poort does not like the idea of riding on somebody else’s bandwagon. It would rather drive its own.
Its marketing pitch is not so different from any other asset manager looking to break into a market, however.
“We think that we can offer a good quality service at a reasonable price for those parties in the market that are looking for other solutions,” says Dick Snijders, managing director of Schootse Poort in Eindhoven.
The only marked difference is that it is not satisfied with simply investing assets along the lines of a pre-determined mandate.
Schootse Poort has positioned itself as an all-service provider offering its expertise both in terms of asset management and liability advice, becoming involved with all aspects of administration and accounting. It is looking for the whole deal, to manage a third party’s pension fund in its entirety.
The majority of its existing client base, half of which it has obtained via consultants, is managed on this basis. “We don’t start with the ‘give us the money and we’ll take care of it’. The first question we ask is why is the money there? And what is the background of your plan, what do you want to achieve and what is the risk profile that you want to run as a board of trustees? Because then we do the deal with the trustees.”
Philips has recognised the growing acceptance of asset liability modelling (ALM) over the past five years in the Netherlands. And while it may have become an essential tool for Dutch pension schemes in general, for Philips, it is another good selling point to the smaller clients who are realising the need for this and equally realising they can’t do it themselves. Philips provides ALM for all its third party clients. “The ALM thinking in the start is an important element for them.”
This ALM issue has also prompted Philips to position itself as a balanced manager based on the fact that it is simpler to apply to a balanced fund than it is to a variety of specialist portfolios. “We think that the best money, and most of the performance comes from the first decisions in the allocation that is how much in equity, bonds and real estate. Secondly the country issue and 10% to stock picking. Most of our emphasis is on the first two stages of the process.”
On average around 80% of the assets across the board is managed in-house which includes domestic, US and major European assets and 20% is outsourced which mainly encompasses emerging markets. For two of the smaller schemes it manages, the assets invested in country specific portfolios have been pooled together in a common fund structure. The external managers are predominantly Anglo-Saxon and US-based and Snijders sees the contacts Philips has developed with these international managers as a good marketing point for those pension funds who lack the access to those portfolios.
However, the outside expertise is limited, and while Schootse Poort monitors on a continuous basis how its internal team is faring compared with the external managers, to date the asset management industry has not impressed the manager sufficiently to increase these levels of outsourcing. But Snijders admits that relying mainly on an in-house management capability to run third party business is not a strategy carved in stone. “If there is strong proof that the other route is better, then we are not religious in that respect – and we go for other routes. But so far we are satisfied with the way we are doing it.”
While the Dutch pensions market remains the key priority for Schootse Poort, it is now at the early stages of considering the next stage in its development. As a by-product of a multinational’s policy making, Schootse Poort is readying itself again to take its experience and turn it around as a fully fledged service it can offer to multinationals looking to shake up their international pensions requirements.
Snijders explains: “European multinationals have always followed a country by country approach in social policies and also in pension policies and that is not over with, that is still important. And there are many differences between the pension structures that you see, the fiscal treatment, the liberties given to the funds in how they can invest, to actually have funded plans or not, and I think we will see more and more development towards a kind of three tiered structure that we see in the Netherlands. And if that’s the case then there will be more and more opportunities to run international pension schemes.”
Today he admits, even the strongest co-ordinators of policy have difficulties in translating their pensions strategies from market to market, but it is already preparing itself for when it finally happens. “We think that will come from the developments in Europe and also the wishes of the international companies to achieve that. And we hope we can play a role in that.”
Schootse Poort is working on the idea of conducting a vigilante campaign across Europe, educating multinational companies with subsidiaries in the less developed regions of the continent once the funded revolution really takes off. As such, Schootse Poort, has absolutely no interest in the two markets that every other self respecting global asset manager would immediately target – the US and UK.
“We don’t think the developments that we see here are the things that people in the US or in the UK are waiting for,” says Snijders. The manager’s strategy is based on catching a market while it is developing and to help with the education process, rather than enter a market that knows pretty well what it is doing already. To this end, markets that Snijders feel will be most attractive outside of the Netherlands, which currently remains the sole source of income, are the Benelux regions, Switzerland and Austria with the possibility of beginning the campaign in Germany.
In offering its services cross-border, Snijders is a great believer that an efficient international pension fund management operation can be run from a single base. Setting up a network of offices pan-Europe is not something Snijders is really considering. “That would be my second route,” he says. “First would be to do it from a certain base in Europe, not necessarily Eindhoven, but to do it from one centre.”
He adds: “We think we can do that from this base, but that depends to a large degree on the official legislation of the countries and sometimes that may not be possible.”
So far there is no planned marketing effort for Europe and Schootse Poort has more than enough business to contend with at home while it waits for the right developments in the marketplace to enact the second prong of its strategy.
“We have looked at it as a kind of slow organic growth,” he says. “We are now in the position to do it more on a planned basis but then I think looking at what is going on in Holland, our first priority for the time being should be Holland. Our second priority should be hand in hand with multinational development with those multinationals into Europe. And if you only have a limited success in that respect then you could have a huge business.”