Go global or go local?
With pensions funding now top of the agenda for sponsors as well as trustees, many multinationals are keen to understand more about the schemes they back. Using a large international consultancy to get an overview can help them do this, and some companies are going down that route.
But at pension fund level, managers are still selecting consultants on the basis of their local skills rather than the cross-border network they belong to.
The pension fund of pharmaceuticals multinational AstraZeneca says it takes a case-by-case approach to selecting advisers. Nicki Mortimer, director, global pensions, says: “We have global relationships with a couple of consultants, but if in a local market another firm is a better fit then we will use the local one.”
Chris Mayo, senior international consultant at Watson Wyatt says many multinationals are now seeing the point of getting a clearer picture of all the pensions arrangements they run in other countries.
“There has been a trend over the last five or six years of companies wanting to get a better understanding of the benefit arrangements outside their home country,” he says. “Increasingly, there has been a desire to use an international
consultancy to help support that exercise.”
But in moving towards this understanding, helped by the use of an international consultancy, companies are also keen not to disturb relationships with local consultants that subsidiary pension schemes may have, he says. It is more a case of using an international firm at the centre in addition to the local consultants.
However, some may want to use a single consultancy for various reasons, including economy of service and ease of service, he says. “You get attention to service by using a single firm… the whole organisation is focused on the client.
“One of the real benefits for companies is governance,” says Mayo, “because they have a second communication channel between the local branch to international consultant to HQ.” While normal communication would be between local client and local consultant, the real advantage of using the same consultancy is that there is communication between the local and international consultancy too.
“So even if the communication between local and headquarters is weak, there is this second link,” he says.
But it would be wrong to say that every organisation wants to go down the route of hiring a single international consultancy for everything. “There may be cultural reasons why they don’t,” he says. “It is better to let the local subsidiary be comfortable with the relationship it has.”
Then there is the middle-ground solution where an international consultancy does some of the work, for example, financial reporting, but local consultants take care of other needs. It depends on the structure of the multinational in part, whether its subsidiaries are closely bound to the group, and it also depends on the particular issues that call for advice.
For example, when the question is one of plan design change, there are quite a lot of organisations that cannot do that locally, says Mayo
German pensions consultancy Alpha Portfolio Advisors has pension fund clients that are part of multinationals, among them Volkswagen Pension Trust and as well as Airbus/EADS.
Jochen Kleeberg, managing partner at Alpha Portfolio Advisors says he believes US multinationals, at least, are more likely to use global advisory firms, because they are on home turf. “In Germany the focus is more on local expertise.”
One of the advantages in choosing a local firm is that they will know the needs of the local market exactly, says Kleeberg. Apart from this, when a local consultancy is engaged, the client will have direct contact with the people who are actually running the project for them.
“Not as it often happens at global consultants that somebody is doing the research elsewhere in the world, and the client relation people communicate the results,” he says.
With a local consultancy, the client also has the benefit of their in-depth knowledge of the relevant managers, he says.
“At our firm, for instance, we focus solely on those managers who are able to advise in the German-specific Master KAG framework. So beside 50 local managers we intensively monitor 80 international managers - all the others are not relevant to a German client - these are the names you really need to know when you give advice to German clients.”
Are there advantages for a multinational is using a single consultancy for many of its pension needs - and corporate needs - or is it better to use different ones that are specialists in certain areas? “It depends on the size of the fund,” says Kleeberg. “The larger the pension fund the better the specialisation in using many specialised consultants.”
In the UK, Rexam does have a preferred provider of services, and this is Mercer. But this is not the only consultancy firm it uses, says Terry Faulkner, group pensions & benefits manager of the Rexam Pension Fund. “Internationally, it’s a mixture,” he says. “There are some geographies that use local firms… we have a preferred provider, but not a sole provider.”
The approach a multinational takes to this depends on whether it is a centralised corporation or whether it is decentralised, and what kind of autonomy it gives to local operations, says Faulkner.
The pension fund of Belgian multinational Suez-Tractebel says subsidiaries are generally free to work with which ever consultant they feel is suitable for the task in hand. Veronique Vander Steen, international benefits adviser at the fund, says that in her experience, there is a local choice for subsidiaries to work with the consultant they have a relationship with.
“We have a parent company with a consultant in each country,” she says. If the local pensions operation asks which firm of advisers is the usual contact for that area, they will be told, but are not obliged to use that same firm, she says.
“When we have particular problems which have a legal aspect, or a survey, or are on the subject of a benchmark,” then the pension scheme will use the best consultant for that particular field, she says.
Frank de Waardt, head of the pension foundation at Heineken in the Netherlands, says his primary concern when engaging a consultant is not whether they are part of a global network. “If I want a consultant, then I hire a Dutch consultant, although they might operate in international surroundings,” he says.
For subsidiaries, a local firm is clearly what is needed there, he says. “When our Irish or African company or pension fund has a problem, of course it has to do with the situation where they are… I don’t think a pensions consultant (here) is able to say something about the situation in Nigeria,” he says.
At Nestlé in Switzerland, the pension fund does not use international consultants, because it has its own firm providing investment and actuarial services, says Jean-Pierre Steiner, chief executive officer of the fund. The firm was recently set up in the UK as ‘Nestlé Capital Advisers’, although it builds on a business that already existed.
“We have set up a company that regroups all our resources in fund management, liability and asset management,” Steiner says. It serves as a one-stop shop, he adds.
The question has sometimes come up, says Steiner, as to whether it would be advantageous for the group to have just one consultancy firm for all its needs. But the geographical spread of the group is such that it would be necessary to have at least two or maybe three consultants for full coverage, he says.
In theory, one of the advantages of using a single consultancy across a large international organisation ought to be lower fees for bulk use. But in practice, it does not necessarily work out that way.
Nestlé does have contacts with all the major international consultants, says Steiner. “We try to use the strength of the group to negotiate, but it doesn’t work as well as it does for asset managers,” he says.