Keeping global provision simple
Hugh Wheelan looks at the multinationals' approach to using consultants and the changing advisory needs of Europe's pension funds.
As Europe's multinationals become ever more adept at managing and assessing their own employee benefits provision and pension fund assets, so their relationship with the consultancy domain has undergone metamorphasis.
Stockholm-based Swedish telecommunications multinational Ericsson has been looking particularly closely at its consultancy in-volvement, keeping economies of scale and operational simplicity at the core of its investigation.
Hans Eklund, corporate benefits manager, says the principle is to guide the group down the 'preferr-ed provider' path without being too heavy handed. The idea is that we would like to select two main consultants to work with on a global basis in a bid to cut down on the use of brokers and to ease investment reporting, which is currently too costly and time consuming.
"However, we do not want to im-pose anything on any local operators, so if a consultant does not op-erate in a certain region then there will be a further shortlist to select from. Alternatively, if the argument is sound then a locally preferred advisor can be used. The system will be very flexible and entirely voluntary."
Eklund is examining closely the current consultancy field and monitoring the mergers taking place, although he is unsure whether greater size means greater benefit: "Consolidation is inevitable in the industry today, but the important issue for us is to have the right personal relationship with someone - it's not just about cost."
Ericsson is also engaged in on-going research with PricewaterhouseCoopers on benefits for ex-patriate workers, which he says is gradually filtering down information about the way the company may provide for its employees in the future.
"This is a longer term project on benefits and will take a while to be completed, considered and perhaps implemented. But we expect the preferred consultants to be announced by autumn this year." UK-based pharmaceutical multinational Glaxo Wellcome, however, is an exception to the recent trend of cross-border companies seeking to consolidate their consultancy operations.
Richard Gregory, finance manager at the London base of Glaxo Wellcome's UK operations, ex-plains: "We have no centralised consultancy imposition on pensions and investments to any of our overseas branches, and each company under the Glaxo Wellcome umbrella does things on its own basis. It's perhaps a legacy of the diversity of the companies we have in the group.
"This is not to say though that we don't review the situation on a regular basis with our UK consultants Watson Wyatt, because our brief is to ensure that our pensions and in-vestment strategy is sensible. There are issues of economies of scale and fees which we are currently looking at, so we may well see changes in the coming years - particularly when the euro be-comes a concrete currency reality."
He adds that at present Glaxo Wellcome UK uses Watson Wyatt in manager and custodian searches, asset allocation decisions and market research.
On the flip side, UK pharmaceutical multinational Zeneca uses Watson Wyatt as sole pensions and investment consultant across Europe and worldwide, principally for asset liability studies, allocation and manager searches.
"We have always used Watson Wyatt in various forms as a preferred provider consultant selecting preferred managers on a country by country basis, operating out of their UK offices in Reigate," says Ray Martin, head of group retirement benefits.
Conversely, Lyn Ellis, vice president and deputy of the pension fund at Anglo-Norwegian group Kvaerner, says they use a variety of consultants worldwide depending on the needs of the firm in a particular region.
"We have to match our consultant to the relevant expertise existing at Kvaerner in a given country. So, for example we use Mercer in Australia and Towers Perrin in Canada where our investment ex-pertise is limited, and they will carry out asset liability studies, offer allocation advice and generally work across the investment board."
She continues: "On the other hand, in the UK, Norway and the US where our technical knowledge is much stronger we will dip in and out of independent consultancy advice, principally using Frank Russell in the US and William M Mercer in Europe."
Ellis adds that there are no current plans to introduce any kind of centralised consultancy approach at Kvaerner, but that the company is looking at global custody provision for the very near future."
Vevey-based Swiss multinational Nestlé, also operates with consultants on a similar level, according to investment adviser Stephan Chauderna. "Principally, here in Switzerland and in most of Europe we only really use consultants for asset liability modelling. Group pension funds as a whole are also generally advised locally on actuarial issues and may also call on some investment side expertise. We are aiming to have one or two designated preferred consultancy providers, although it is difficult to find one for all geographical areas."
Chauderna adds though that the trend could be to reduce consultant advice, as in-house competence and resources in such matters are being developed substantially. "On the performance attribution side for instance, our Swiss custodian has developed its skills and service reducing the need for reliance on consultants." Hugh Wheelan"