Attracting talented managers is not just a money game
People who are good at running money don't come cheap. Investment managers at the big asset houses are among the best paid in the world. Europe's pension funds have a duty to make the most of their members' investments but can they compete when it comes to winning top talent?
Yes, say the funds. After all, they have plenty to offer. And for many good investment professionals, a satisfying work life beats a fat bonus.
In the Netherlands, PGGM has some unique advantages that attract professionals, says Renate van Ommeren, director of human resource management at the €81bn pension fund for the health and social work sector.
"PGGM has a leading position as an innovative institutional investor and offers a lot of room for initiatives and new approaches," she says, adding that this is an important motivator for professional talent.
"PGGM is big enough to be a serious party and small enough to recognize individual contributions," she says. And apart from this, many job candidates find it important to contribute to society by helping secure the old age income of more than two million people, she says.
Although some pension funds site investment offices in financial centres to be geographically close to the market action, many are in the regions. This can give them a recruitment edge.
Germany's industry-wide ChemiePensionsfonds is run in Munich under the umbrella of local banking giant HypoVereinsbank. "We operate here in Munich - not in Frankfurt or London - and so there is less competition," says Norman Gehrke, managing director of the fund, which was set up in 2002.
And Munich, along with Hamburg, is one of the most popular cities in Germany, he says. "The quality of life is better. In Munich we have never had problems finding staff," he says.
Also, because the chemicals industry fund is run as part of the bank, it always has a wide range of trained people on which to draw, he says. "We never recruit from outside, but always from within the group," says Gehrke.
Most pension funds outsource the majority of their investment, This means that even large funds have less than a handful of their own investment staff. But it is still vital that these few at the top are highly skilled.
Switzerland's €12bn Zurich civil servants' pension fund BVK has just two people in its asset management department - the head of asset management, Daniel Gloor, and one assistant. All actively managed portfolios - except for bonds, mortgages and domestic real estate - are outsourced.
From September, though, the real estate department, which is being integrated into the BVK organisation, will bring another three people or so to asset management, says Gloor.
If the fund has to hire a new asset manager, it would not be easy, he says. "It is usually quite difficult to hire personnel since the Canton and BVK cannot offer such high salaries compared with banks, insurance companies, asset management companies and so on, not to mention the possibility of receiving a bonus," he says.
On top of this, the career opportunities are limited, he adds. And now, with the increasing demands of corporate governance issues, managing a pension funds means more paper work and less asset management, which many people do not like, he says.
On the other hand there are advantages to life as a civil servant. "In general there is a high degree of job security, regardless of the economic conditions, flexible working hours, possibility of overtime compensation and less pressure than in a private company to deliver results within a very narrow time frame," he says.
But whether or not they can match private sector salaries, public pension funds must have the same professional attitude to asset management, delivering the same degree and quality of results as any investment company, says Gloor.
In the UK, the practice of investment outsourcing has reduced the number of in-house investment staff at pension funds. And now, outsourcing on the administration side has meant fewer staff on this side too, says Orla Gough, head of finance and business law at the University of Westminster.
"They have been reducing administration numbers because they're outsourcing," she says.
On top of this, the movement away from defined benefit towards defined contribution has added pace to the trend. With defined contribution plans, there is little administration involved for a member once they are in retirement, whereas in defined benefit plans, the members remain on the company's books, says Gough.
Dutch engineering sector scheme PME outsources much, but not all, of its investment. Chief investment officer Roland van den Brink says that including himself, the fund employs five dedicated investment people.
When you outsource, it is essential to have high-calibre investment people leading the way, he says. "You cannot make your point if your intelligence is less strong than, say, a private equity manager's. These people visit pension funds, and if you're not strong, you cannot refuse them," he says.
Competition for good quality candidates has always been high in the pensions field, but has sharpened in the past few years, with several asset managers having set up headquarters in Amsterdam and Brussels, he says.
They often target people with pensions experience for their new pensions groups, he says.
Working for a pension fund gives you more of an overview, says Van den Brink. "A very attractive point is that people [at pension funds] are involved with everything, whereas in the other jobs, you are very specialised," says Van den Brink. "What you learn here in my organisation is a helicopter view," he says.
Similarly, Danish pensions giant ATP has incentives beyond a remuneration figure.
"We don't pay higher wages than the market, but we do offer a more flexible working environment," says Henrik Gade Jepsen, chief investment office for the beta portion of the portfolio. "You are fully connected to home and can work from home when it's appropriate, for instance," he says.
Setting high standards creates a stimulating work atmosphere for finance professionals, he says, and this keeps staff happy to work at the fund. "Good staff like to work with other good people, so if you are able to be highly ambitious in what you do, then this is attractive because it creates a stimulating work environment," he says.
"Also, our staff work in small teams with clear success criteria and decision-making competencies, and my experience is that most people find this very motivating," he says.
ATP has close to 90 people working in-house on the fund management and actuarial sides. This is a rather small number for a pension fund which manages more than €50bn in assets, Gade Jepsen points out. Many of the investment and other functions are outsourced, he says, but even at funds with a high degree of outsourcing, having a robust central team is essential.
"I still think that at the core of the organisation, there are certain things that you need to handle yourself, so you need to retain a core of people who understand this well," he says. This core has to be capable of managing the asset strategy, implementing the board's goals for them, and implementing the liability strategy, Jepsen says.
"If you can't do that to a world-class standard, then you will never be the best," he says.
Although it operates firmly in the pensions sector, Dutch industry-wide pensions provider Cordares faces
the same difficulties in hiring and keeping staff as any other asset manager in the market, says Freek Vergunst, Cordares' deputy managing director.
"Cordares is an independent asset manager and legally independent from the pension fund, so we act in the labour market as any other asset manager," he says. "We are realising that we have to compete with the asset management arms of the commercial banks," he says.
Even so, Vergunst doubts that things would be so different if Cordares were operating as the investment arm of a pension fund.
"Everyone in the asset management world knows there is a market for remuneration, and there are salary surveys available," he says. Pension funds simply have to tell their boards what it takes to compete, he says.
PGGM benchmarks its salaries each year against the market, and the pay it offers is above average, says van Ommeren. "Nevertheless some investment managers pay more," she says, but adds that the pension fund does not aim to compete with every employer.
"We have more to offer than cash," she says. "We are satisfied with the total package of salary and employee benefits we are able to offer."
In the Danish labour market, there is a general shortage of manpower, says Peter Damgaard Jensen, chief executive at PKA, which manages eight professional sector pension funds with joint assets of €14.3bn.
"In some areas the education capacity is much too low. We have seen more companies trying to attract people without a specific insurance background for jobs in the insurance and pension industry, especially for front desk service jobs."
Actuaries, in particular, have in high demand for several years in the pensions and insurance industries of many European countries. "In Denmark a limited number of actuaries graduate every year," says Damgaard Jensen. "It is definitely not enough to feed an industry hungry for skilled staff."
In the scramble for graduates, most pension funds offer jobs with attractive conditions to actuarial students from the very beginning of their study, he says. "In PKA and in Forca we have lately tried to recruit staff with other mathematical backgrounds to some of the actuarial tasks," he says. Forca is a pension services firm which was spun off from PKA.
Van Ommeren says there is a shortage of actuarial staff in the Netherlands too. To counter this, PGGM has two strong selling points to attract actuarial candidates, she says.
"The first is the high level of expertise we have in house and the level of influence we have because of that," she says, adding that this is particularly attractive for experienced
actuarial staff. The second point in PGGM's favour is the training programme it offers less experienced people. "The programme involves training in actuarial knowledge as well as soft skills, such as presentation skills or giving and receiving feedback," says Van Ommeren.
It might not always be possible for pension funds to match salaries from outside the sector but, fortunately, says Damgaard Jensen, salary is not always the decisive factor.
"Inspiring job situation, other working conditions, the challenge of managing a global - and often very big - portfolio are still able to attract excellent staff," he says. And pension funds in Denmark can and do find staff from abroad, he says.
Since keeping good personnel is at least as important as hiring them in the first place, how do pension funds work to retain staff?
Damgaard Jensen says that in the main, doing a good job of managing personnel is the same for pension funds as it is for any other business. Except there is one point that pension funds do have to watch out for, given the highly educated and specialised nature of their staff, he says.
"You have to make sure that they keep perspective and stay far-sighted and goal-orientated. Otherwise you may risk that their focus gets too narrow," he says. "They are specialists, hence they like specified discussions and specialised solutions that sometimes may end up too narrow."
As in any other type of organisation, if a pension fund is to manage high level professionals well, it has to give them space to act and the opportunity to develop, says van Ommeren.
"Professionals need freedom to ‘do their thing'," she says. "At the same time they want to be able to continually improve their own knowledge and skills. PGGM pays special attention to professional development; that makes all the difference," she says.
Keeping pensions professionals properly trained and up to date with the latest developments in the industry and its regulation is important at any pension scheme and HR department.
The Westminster Business School runs a diploma in personnel management, and has achieved the status of a Chartered Institute of Personnel and Development Centre of Excellence, says Gough. Companies can facilitate their HR managers' pensions training by putting them through this course, she says.
Training receives a boost from the Act
raining the trustees of pension funds has become big business in the UK in the wake of the Pensions Act 2004. The Act made it a legal requirement for trustees to be well-informed, but training programmes were available for asset guardians before that.
"We did run trustee training courses before the law," says Chris Green, partner at Lane, Clark & Peacock (LCP), who heads the firm's trustee training services. "But now the Pensions Act says blatantly that there is a requirement for trustees to have a good understanding. Because it's written down, it has concentrated trustees' minds," he says.
Most major consultancies now offer trustee training. Green says LCP has different types of course, ranging from one-to-one sessions for trustees - particularly member-nominated trustees - to courses, workshops and specialist training courses to guide investment sub-committees through specialist areas they encounter.
"Maybe as part of an actuarial valuation they know
they need to assess the strength of the sponsor covenant, for example," he says.
The pensions regulator has interpreted the 2004 act by drawing up a set of guidelines on what pension trustees should know. They must know about pensions law, investment, scheme funding, and also be conversant with their scheme's own documentation, including its statement of investment principles, Green says.
LCP also arranges training where it takes the trustees of a particular scheme though their documents, explaining them in layman's terms, he says.
Trustee education has become a crowded space over the last five years, says Andrew Dyson, managing director of investment manager BlackRock. The firm has just launched its new ‘Trustee Masterclass' programme.
"Yet trustee education programmes in general have failed to evolve in line with the changing needs of trustees," says Dyson. He claims that the masterclasses drill down to the real issues facing trustees and provide the right information in an accessible format, bringing trustee education up to date.
What UK regulator wants trustees to know
he regulator says trustees should know and understand enough, so they can:
o increase their own confidence in their ability to carry out their roles;
o know about their powers as well as their duties and responsibilities;
o understand their own schemes, how they work and, in the case of defined benefit schemes, the importance of the employer covenant;
o understand the advice they are given, enter into discussion with their advisers and participate fully in decision making;
o be able to question or even challenge advice when the need arises;
o recognise when they need to consult their own or other advisers for particular specialist advice or when they need to consider re-selection;
o recognise conflicts of interest and be able to deal with them and recognise the need for policies and procedures for dealing with them;
o have a working knowledge of the most important parts of the documentation which sets out the rules governing their schemes and other scheme policies; and
o select a learning regime which is delivered with the precise needs of the individual trustee in mind and making full use of recent educational developments and/or specific training skills.
Source: the pensions regulator