A number of Danish pension funds and insurers have had a tough time last year. This was an ill wind indeed, but it blew some good the consultants way.
Following the equity slump after 11 September, a number of funds were technically insolvent. “This focused the finds’ trustee boards on areas like risk control, triggering ALM studies from providers and they have been very busy,” says Hasse Nilsson of Alcifor Associates in Copenhagen. “We have been working with our associates Wilshire on these projects, mostly concentrating on the investment side. We have been very much involved in giving a second opinion to the boards of these funds.”
But the wind was blowing the way of consultants anyway, Jesper Kirstein of Kirstein Finans in Copenhagen believes. “We find that funds’ attitudes to consultancy are changing.” In particular, this is true when it comes to the question of manager selection. “More funds are beginning to realise that the business of selecting and evaluating portfolio managers is a specialised subject.”
He finds that increasingly, the boards of pension funds, including the big labour market schemes, call his firm in to discuss issues and provide an alternative view to that of the management of the funds. “The boards want advice perhaps on strategies and recommendation of the fund management, but are not experts in the area.” They are looking for an alternative view and the firm’s involvement is in no way hostile to funds’ managements, Kirstein insists. In the past, some of the labour market schemes may have used Frank Russell for certain projects on occasion, so this is a new departure.
Halcifor’s Nilsson says there has been an upsurge in interest in alternative investments among clients. “We no longer view private equity as alternative, it is part of mainstream equity investment in our view.”
But what is also having an impact is the arrival of Morningstar from the US on to the Danish marketplace, with its system of rating investment funds. “They have now rated Danish funds. Even though this is catering primarily to private individuals, it is focus attention on the area,” says Kirstein. One institutional client has asked the firm to rate some funds they are invested in more thoroughly. “This is a positive trend for us.”
Mercer, with two offices in Denmark, is approaching the local market from a human resources consulting perspective and has built up a 30-strong team, says Hanne Jermiin Johansen. “Pensions is a very significant part of this.” So the key clients for the consultants are the local corporates, and they will be looking after actuarial as well investment consulting issues.
Kirstein believes that Mercer and Aon have become more aggressive in the market, particularly in the area of fund selection. More and more insurance brokers are looking at the pensions arena in Denmark, evaluating unit-linked schemes and using this a springboard to other areas. The accountancy companies have made moves into pensions and investment consultancy, but there are still question marks over the degree of skill and the level of personnel they can offer, in Kirstein’s view.
At Mercer, Johansen says: “Unit linked is quite new in the market and new products are coming out and the market is becoming more complex. So the tendency is for corporates to use consultants and brokers increasingly.” That there are more questions about how secure the pensions industry really is, has also spurred the corporates to seek more advice, she says.