Drawing on charmed circle
The giant Nestlé group believes that finally it is on the right track to efficient delivery of investment services to the pension funds of its operations across the world. “For the last four or five years we have progressively developed our thinking in this area”, says Stephan Chauderna, who is in charge of co-ordinating these activities at the group headquarters in Vevey.
The group believes it has found a pragmatic way forward to achieve its objectives, but only after a hard look at the alternatives. “We looked at the possibility of centralising assets, particularly in Europe. But unfortunately, for fiscal reasons, that is not the optimal approach yet.”
Instead, the co-ordination approach adopted is to develop the Nestlé International Pooling facility. This works through having a group or “golden circle” of preferred providers for investment management or other services. “We are believers in the specialist approach to investment”, says Chauderna and local pension funds are invited to consider these managers when selecting for a mandate.
“Under the structure, in principle, a local manager is retained for each country”. This manager will be granted the domestic portfolio, he explains. “So there will be at most as many domestic managers as we have local pension funds, except for Euroland, where in the end there will be just one domestic / regional manager.” The UK and Swiss pension schemes have their own internal investment management teams.
A preferred manager is chosen through combining corporate pension department and local expertise. Ten specialist managers are expected to be selected, of which four have already been selected, though their names have not been released by Nestlé. “We have not used external consultants in this process.” To become members of the golden circle, managers are required to give their best terms on the basis of all the assets available for management, in their specialist class, from the pension schemes group-wide, says Chauderna.
“Our overall objective is to achieve economies of scale on one hand and on the other, to put in place more efficient asset management and risk control throughout our group funds.” One of the key ideas of such co-ordination is to get sound investment principles and guidelines accepted at the local level, he adds. “We have a mixture of centralised and de-centralised approaches to fund investment, in so far as local trustees' responsabilities have to be respected.” At the local level, most funds realise they do not have this expertise and generally welcome the input, he says.
Having one global custodian turned out to be too ambitious, so Nestlé has resorted to choosing three to five custodians which on agregate can meet their requirements world-wide and consolidate the information. “At present we are analysing responses to our RFP, to select a short list of service providers”, says Chauderna.
Under the present circumstances, the group believes that with this structure it can achieve most of the cost savings available had it been able to pool assets centrally. “By going directly to managers in this way, we can get more or less the same benefits from pooling funds notionally rather than physically in one vehicle”, he says. Fund managers must be able to deliver their product in a format most suitable for individual pension funds.