Common trust funds (CTFs) are being used more and more by multinationals operating in Europe who want to bring their pensions assets together in one vehicle.
They are offered mainly by US banks and often go by the name of ‘bank common trust funds’. State Street in the US is a major provider with up to $100bn invested in these funds or Erisa pooled funds.
Its investment arm State Street Global Advisors (SSGA) reckons that in the last few years, it has taken more than $1.5bn from UK companies operating pension plans into CTFs, with an equivalent if not larger amount coming from mainland Europe, particularly from Swiss and Dutch companies. Alan Brown, managing director of SSGA in London, says it has a number of multinationals using these funds to pool their pensions assets in different countries, with a number of others looking at doing this. One advantage is that they are able to benefit from a global pricing arrangement for the combined assets” he says.
The State Street arrangement is structured as a US guarantor trust which can hold a wide range of assets. Most pension funds use the group’s range of funds. For example, in the CTF area, SSGA offers a menu of 44 funds covering 22 developed equity markets on both an active and passive basis, plus a range of fixed interest vehicles and funds actively covering 27 emerging markets. “An individual pension plan in Europe is able to tailor its assets whichever way it wants,” says Brown. “The funds are set up on the basis that there is no bid offer spread and clients only pay for their transaction costs.”
While the CTF is not a perfect answer for cross border pension provision, it can be used for assets coming from a wide range of countries including Ireland, the Netherlands, Switzerland, Scandinavia and the UK. German and Belgian assets cannot be included, however. The tax treaty position does vary from country to country, he says.
SSGA will be running Pooled Fund Pension Vehicles, but, says Brown, “the CTFs will be our mainstay until these come through.”
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