Foreigners fall for asset allure
US and Dutch managers have posted the greatest increase in assets, followed by French and German players, according to the Dutch Investment Management Survey 2005 from independent consultancy Bosch Bureau. And the Dutch market share is falling, to 64.4% of the €316bn in Dutch institutional assets managed externally from 66.9% in 2003, while 35.6.7% was managed by foreign managers, up from 33.1%.
Indeed the Bosch report identified an asset manager sandwich, with foreign managers Barclays Global Investors and State Street Global Advisors claiming the first and second spots, Dutch managers dominating the remaining top 15 rankings, and foreign managers again having a much stronger representation in the segment below.
“In the 1970s there were hardly any foreign asset managers active on the Dutch institutional market and the big names of the day included a handful of banks and small investment companies,” says Bureau Bosch director Frits Bosch. “But as Dutch pension plans’ assets under management and their equity weighting increased, so did the interest of foreign asset managers.”
Brian Strange, JPMorgan Fleming AM’s Netherlands institutional client adviser, agrees: “It probably wasn’t until 1994-95 that many of the Dutch plans did anything other than buy Dutch government bonds. Then from the mid-1990s we started to see portfolio diversification, moving out of Dutch bonds and equities and starting to look at global markets, and naturally that’s where the international players are going to shine.”
Ranked number 1, Barclays Global Investors is a veteran in the market, celebrating its 20th anniversary in the Netherlands this year. “The market is in a real state of flux at the moment because of the regulatory changes,” says BGI chief of institutional business Benelux Marko van Bergen. “This means that if you are on top in one period you have to work very hard to maintain your position in a different market cycle. Our first 10 years was dedicated to winning market share and establishing credibility and quality with clients, and in the last decade we have shifted the business focus to build solutions for funds away from passive and into enhanced indexing and other products – fixed income, hedge funds, overlays, commodities. If we still had the client offering we had in 1985 we would not still be at the top of the market and we would have lost a considerable amount of market share.”
Changing client demand is driven by evolving market conditions and a dynamic regulatory environment. “There is a shift from benchmarking to traditional benchmark/policy benchmarks to liability benchmarks and with that there is a shift away from traditional thinking to more real return thinking/absolute return thinking,” Van Bergen says.
In a move to liability matching, in April the pension scheme of Dutch food retailer Laurus dropped local asset managers ING and Robeco, which ran balanced bond and equity mandates, replacing them with PIMCO and AllianceBernstein with a fixed income benchmark designed to follow the fund’s pension liabilities. “We have drawn up the investment guidelines in such a manner that it will be possible to respond effectively to future legislation,” said Laurus’ chief financial officer Kenaad Tewarie. “Matching investments to pension liabilities, with greater stability of the solvency rate, is central to this policy.”
The Bosch report highlighted that PIMCO’s growth is assisted by a growth of specialised mandates,
particularly in global real return – worldwide investments in inflation linked bonds – and a significant growth of Eurobond mandates.
“Many domestic managers run balanced mandates and the value was added by mainly taking a beta bet, which is overweight equities versus fixed income,” says Marc van Heel, PIMCO Europe director of business development Benelux. “If you look at the fixed income part of those mandates separately you will see that, after subtraction of costs, they were generating probably below benchmark returns. PIMCO has been focused on fixed income solely and has been able to add about 100 bps a year since the inception of our Eurobond product so we are increasingly substituted, in particular for domestic managers.”
Another strategic switch saw the €300m Bpf AVH agricultural wholesale trade scheme drop Netherlands-based ABN Amro, which had been its sole asset manager pursuing growth management, and replace it with a passive strategy by BGI and State Street. Fund managing director Erik Martens says the change, which was made last November, was triggered by the fund’s negative Z-score, of -0.23%.
“The larger number of Dutch managers are mostly active managers with a growth style so I think that a lot of industry-wide pension funds have decided to look over the borders of Holland for another style of management,” Martens says.
“Dutch asset managers had a growth bias and consequently they underperformed the past couple of years, on equities especially,” says Heico de Boer, head of European sales, Northern Trust Global Investments. “An increasing number of Dutch pension funds are switching to indexing- and enhanced indexing-type strategies and currently those are not being offered by Dutch asset management companies. In addition there is growing demand for innovative-type structures, and here Dutch asset management companies are fighting as they and do offer innovative structures, but obviously non-Dutch asset management companies do too.”
So will the locals be able to claw back the initiative? Bosch says they are pinning their hopes on the confusion arising from introduction of the new regulatory framework (nFTK) and the new international financial reporting standard IAS 19. “Dutch managers believe that this will give them a second chance as they create a complex situation that requires a detailed knowledge of the Dutch situation,” he says. “They believe they can better make more tailor-made solutions than foreign institutions.”
Hans Benenga, head of institutional sales for Deutsche AM in Amsterdam, is doubtful. “There is further room for market penetration by foreign asset managers and the market share of the traditional Dutch players will decline over time,” he says. “There’s fierce competition and it’s easier for larger institutions in the main financial hubs, London, Frankfurt and New York, to attract talented people.”