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Dutch pension funds' 'search for yield' cancels out cost-cutting efforts

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Dutch pension funds managed to cut asset management costs in 2014 by 0.3 percentage points to approximately 0.60% of total assets, according to survey by LCP Netherlands in co-operation with the Dutch Pensions Federation.

LCP, which looked at the annual reports of more than 240 schemes, found that actual asset management costs fell from 0.54% to 0.52% over the same period, while transaction costs dropped from 0.09% to 0.08%.

Jeroen Koopmans, a partner at LCP, said cost-cutting had been “limited” and questioned why pension funds, particularly the larger ones, had failed to exploit the benefits of scale, as combined assets under management increased by €115bn last year.

In recent years, many Dutch pension funds have striven to cut costs by streamlining their investment processes,  increasing their focus on passive management or abandoning relatively expensive assets classes such as hedge funds.

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Anne Laning, chair of the Dutch Pensions Federation’s reporting committee, attributed the slowdown in cost-cutting to pension funds’ ongoing “search for yield”.

“Pension funds have increased their investments in asset classes such as infrastructure, mortgages, credit, direct loans and emerging market equities, which require more work and are therefore more expensive,” he said.

Laning, who is also CFO at TKP Investments, said the trend towards sustainable investment could also increase costs.

“If an asset manager must attend all shareholder meetings to monitor sustainability, costs are inevitable,” he added.

According to the survey, pensions administration costs remained at €122 per participant on average. 

The researchers said that, for the third consecutive year, they could not find a correlation between costs and total returns. 

Koopmans suggested that additional cost benefits could be achieved through intensified negotiations – possibly through co-operation with other pension funds – as well as scrutinising contracts.

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