In the Netherlands, fiduciary management for pension funds has become common. According to a recent survey by the advisory firm KPMG, of the 80% of schemes with fully contracted out asset management, one third has a fiduciary manager.

But funds that have already appointed a fiduciary manager may also appoint others to run different functions. In February, Pensioenfonds OPG, the pension fund of Dutch pharmaceuticals distribution company OPG Group, chose BNY Mellon Asset Management Servicing to provide services including global custody, investment accounting and regulatory reporting.

Johan van der Veen, the fund’s managing director, said the fund relied heavily on outsourcing because it was relatively small. The OPG fund had already hired fiduciary manager Blue Sky Group.

In 2006, Goldman Sachs Asset Management took on the largest fiduciary deal of its kind among Dutch pension funds when it was appointed as fiduciary manager for Pensioenfonds Vervoer’s €6.4bn assets.

But there are also some signs of hesitancy by funds on the issue of fiduciary management. KPMG said the subject of appointing a fiduciary manager is high on next year’s agenda at only 20% of pension funds in the Netherlands. Many schemes had doubts about whether the way fiduciary management links with pension funds is seamless and flexible enough, it said.

It found that boards wanted more consistency on the clarity and depth of reporting, as well as more transparency on the application of their own products by fiduciary managers.

“When a pension fund buys in fiduciary management, the pension fund is still in charge,” says Johan Cras (pictured above), managing director EMEA of institutional investment services at Russell Investments. “The pension fund board decides how much risk it wants to take, and after that, the fiduciary manager takes over - the advisory and implementation stage begins,” says Cras. “This does create a question - how are we going to keep control? We advise pension funds still to engage an external adviser.”

“One of the consequences is that more traditional consultants are responding to this need, and becoming the gatekeeper for the pension funds and all the different jobs,” Cras notes, adding that a large part of Russell’s fiduciary work for pension funds is monitored by external advisers.

“Between 70% and 90% of our business in the UK is related to a client who has a different consultant,” he points out. “Monitoring is a continuous activity rather than a quarterly act; there seems to be a tendency for pension funds - once they have outsourced - to sit back, but you have to look at it on a daily basis. With outsourcing, there is too much emphasis put on the set-up and selection, and too little time spent on the ongoing monitoring.”

The devil can be in the detail, he warns. “With the strategic investment plan, it’s really in the detail leakages that things can go wrong. How do you ensure the manager in equities doesn’t have a 10% cash position? All these little things can very well make the difference between success and failure.”

Pension fund boards that outsource remain responsible for the overall result, as they were before outsourcing, Erik Van Dijk of Compendeon emphasises.

“They can focus more on strategic, long-term issues,” says Van Dijk. “Larger components of daily management are now taken care of by the parties to which the task is outsourced. It is important that they add to their board, either internally or at the advisory level, someone who co-ordinates and is responsible for the relationships with the fiduciary provider and his selection. Outsourcing should not lead to a total outsourcing of knowledge. One internal, independent specialist does then ensure that communication between the specialists within the fiduciary solution and the plan will lead to an insourcing of knowledge as well.”

But how far can pensions outsourcing be taken? Can functions such as portfolio construction and manager selection indeed be outsourced with comfort?

“The trustees, having taken appropriate advice, must be the ones to make the strategic decisions such as the fund’s asset allocations,” says Andrew Cox of Lane Clark & Peacock. “However, once the statement of investment principles is defined, then who manages the investments can be outsourced. This is typically achieved by engaging with a manager of managers provider.”

Governance and investment are the core issues for pension funds, says Cras. “Most pension funds are more and more focused on two questions: what is an appropriate governance structure - which decisions do I handle myself and which do I hand over to another? And what is an appropriate investment structure?

“It has to fit your own situation,” he continues. “The actual decision making has to be with the pension fund.” The degree to which a pension fund outsources varies, and has a lot to do with the ambition of the fund and its board of directors.

Frits Bosch of Bureau Bosch agrees that outsourcing has its limits. “You can only do so to a certain degree. You should not delegate the strategic policy plan of the pension plan to a fiduciary manager or asset manager, because the fiduciary manager has to execute it - so that should not be under the same umbrella. The pension plan should undertake the ALM study and the strategic asset allocation, going from that to a fiduciary or an unbundled solution.”