GLOBAL - Henkel, the Düsseldorf-based personal and consumer goods multinational, has completed what is thought to be the first global restructuring of pension schemes as a notional pooling structure and appointed three firms to manage its plans globally as custodian, fiduciary and risk manager.
Corporate finance executives at the firm have spent two years reworking the existing €2.4bn in funded pension assets from five countries - Germany, Ireland, The Netherlands, The UK and the US - to create what is effectively the first cross-border pensions arrangement, though without actually using a pooled cross-border fund.
BlackRock is fiduciary asset manager for most of Henkel's defined benefit plans, replacing Goldman Sachs as the earlier partial fiduciary manager for €1.5bn in German assets, while State Street will deliver the data reporting as custodian and Royal Bank of Scotland, whose London based pension advisory team conducted the asset and liability study, is global risk manager.
Under the new structure, pension assets and risk management will be managed under a global notional pooling arrangement managed centrally from Düsseldorf, but local plan trustees will ultimately retain their powers to make decisions about the managers appointed, with the assistance of BlackRock, as well as manage local regulatory requirements on all levels and manage the administration of benefits.
Matthew Fletcher, a Düsseldorf-based treasury manager at Henkel with responsibility for global pension assets, said his team conducted three separate searches for a global custodian, a global risk manager or risk adviser, and a global fiduciary manager and implemented a new pensions management plan, with occasional support from local advisers, which avoided the immense complexity of a true cross-border pensions structure.
Henkel's main aim, he said, was to improve the internal corporate governance of pension plans, to achieve an oversight of the risk that individual plans are running and to create a structure that can match that risk with the overall risk appetite of the sponsor.
Benefits for local plans and trustees also include economies of scale and transparency on asset management fees, as well as access to specialist managers and strategies they would have been unable to consider otherwise.
"The impact on fees is a big benefit to the sponsor because even though the local plans pay the asset manager, ultimately Henkel pays the cost," said Fletcher.
He noted the consultation process with individual pension fund trustees was a long one but said it has also improved the overall risk insight and control of the individual local trustee boards.
"We had strong relationships from the get-go with trustees and we offered them consultations, complementary to those of their independent advisers. Part of it was also an education process because in some cases the trustees were not fully aware of all the potential risks they were running," said Fletcher.
The process was a complex one as Henkel had to navigate five sets of pension regulations, while trying to create a structure that was as uniform as possible and at times when, as Fletcher put it "the markets were in a mess".
RBS was a key support in the first stage of the process as global risk adviser, and responsible for the schemes' strategic asset allocation as well as tallying that with the objectives of Henkel as the sponsor. The risk manager is also responsible for monitoring the fiduciary manager.
Plan assets, along with interest rate and inflation swaps implemented globally at corporate level, are now run by BlackRock as a single pool, though the underlying legal entities or segregated accounts have been retained.
"We did look at cross-border pooling, using Luxembourg and Belgium, but we found the cost benefit was not there on our volume of assets. In our view, it would have needed more, and under ERISA trans-Atlantic pooling was still too difficult," said Fletcher.
More information about Henkel's global pensions project will be available in the May edition of IPE.
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