Healthy outlook for growth
Growth prospects for investment managers in the Netherlands look very healthy, according to a survey carried out in the Netherlands by consultants Greenwich Associates.
But investment houses may want to note that while more assets come their way through increased outsourcing – pension schemes appear to be looking for pooled fund solutions to their investment needs.
The results of 97 interviews with Dutch corporate and industry pension funds, treasury funds, insurance companies and foundations show assets predicted to rise to E418bn from their 1998 level of E373bn – an overall rise of 12%.
And the growth is set to come across the board, although the highest asset rises – 25% by 2001 – are predicted by pension funds in the range of E125m to E250m.
In terms of their total Euro-weighted asset mix, the survey records the continuing decline in Dutch institutional appetite for domestic bond portions – set to fall by 13% from 39% of portfolios in 1998 to just over a quarter in 2001.
And the drop will not be offset entirely by foreign paper exposure with non-euro paper rising by 4% overall; domestic European bonds from 10 to 12% and other international bonds from 5 to 7%.
Total bond allocations for Dutch institutions, the survey shows, will fall from 54-45% by next year.
Equities will soak up the remainder of the bond desertion, rising in overall allocation from 36-42% of portfolios. However, the domestic portion is set to remain stable at 14%.
All other equity classes will climb slightly; Non-domestic European equities (10 to 12%), US equities (6 to 9%) and other international equities (5 to 7%).
Cash and short term investments stay flat at 1%, but real estate will bounce back to the levels of a few years ago from 9 to 11%, according to funds.
In terms of allocation changes, Dutch corporate schemes show little marked change in their securities exposure with bonds stabilising at 48% and equities creeping up to 41% from 39%.
The shift for insurance company figures are similarly flat with bonds dropping 4% from 60 to 56% and equities losing a percentage down to a quarter of portfolios.
Both compare strikingly with the more adventurous scenario of public/industry funds where overall bond exposure is to be slashed by 15% with domestic paper more than halved from 39 to 16%.
In equities the industry funds are upping exposure by 12% (34 to 46%) with US allocations doubling to 12% followed closely by other international equities (6 to 9%).
The changes are most marked amongst the larger funds, however, with those holding assets over e2.6bn shaving 10% from bond portfolios (54 to 44%) and adding 6% overall to share exposure (36 to 42%).
And asset managers should take note that while the increase in outsourcing is set to roll on – with internally managed assets by pension funds dropping from 79 to 63%, the bulk of this money will be directed into unitised arrangements.
Figures for pooled funds rise from only 5% of outsource assets in 1998 to 18% by 2001 – the same number as for segregated assets – with the majority coming from industry funds.
Overall, the market looks propitious for investment managers going forward as externally managed assets jump from e80bn to e94bn – a rise of 18% over the three years.
While Holland’s defined benefit (DB) culture remains robust at present – 85% of institutions last year operated a final salary pension scheme – there are signs that defined contribution (DC) pensions will play an increasing role in the future.
Projected figures for 2009 show DB plans falling back slightly to 77% of schemes, while DC ups its market proportion from around 15% today to just under a quarter.
The accent on investment in the Netherlands is also becoming decidedly more specialist, according to the report. Pension funds overall now use almost as many specialist managers (36%) as balanced (44%), although the industry funds are clearly more focused here with 60% investing via a clearly defined specialist manager . The trend is also clearly being driven from the top down. Funds with over e2.5bn in assets claim to no longer use balanced managers at all. Conversely, pension schemes with under e250m in assets are still three quarters invested via mullet-asset managers.
The net result of the specialist shift has certainly benefited the index managers in the Dutch market and the boom is not expected to stop. Just under a quarter of pension funds said they invested passively in 1998, a number which will rise to 36% in three years, managers say. Significantly, almost half the institutions with over e2.5bn in assets say they will be index tracking by then.
Investment managers should be both wary and alert though – as Dutch investors do not appear shy about divesting themselves of unsatisfactory managers and taking their business elsewhere. And 85% of schemes say they have switched managers and notably amongst the larger funds 38% have terminated manager contracts to take the business in-house.
However, according to the report, use of consultants by schemes appears to have reached saturation point. Three fifths of funds say they already seek external advice, but only 2% say they are likely to start using consultants in the future. Hugh Wheelan