Investment consultants have yet to carve our much of a niche in the Spanish pensions market, George Coats finds

Investment consultants have a tough time in Spain. “Consultants have little influence in the Spanish market,” says Guillermo Ezcurra, who is responsible for the employee benefits programme arm at the March UNIPSA group, a subsidiary of Banca March, and a partner at independent consultancy Aserplan. “We have the power to give an opinion but not to lobby.”

A sampling of pension funds bears out his opinion.

“We don’t use consultants,” says Valentin Fernandez, strategy director and responsible for institutional investor relations at Fonditel, the pension fund of Telefonica de España. “Our control commission, consisting of employers’ and employees’ representatives, has a consultant, which provides information, advice and evaluations, but we don’t use them.”

“We use consultants but mostly for actuarial services, not for investment advice because we consider our manager to be our consultant for investments,” says Jaime Sánchez-Cano Torres, director of pensions Endesa. “In fact we have one for the sponsor but not for the plan because we don’t have an investment team. So we get the support of a consultant to enable us to better follow the investment process but not to tell the manager what to do.”

“In many cases when somebody from a private equity, hedge fund or traditional fund offering goes to see a pension fund, the pension fund will refer them to us,” says Sebastián Larraza Sola, a partner responsible for institutional clients at Madrid-based consultancy International Financial Analysts (AFI). “Then they discuss their proposal with us and afterwards we discuss it with the pension fund. It’s not that we decide for them but we help their investment committee to decide because we know the portfolio, we know the risks.”

“We consultants work for both trustees and for the employers - the financial manager or the general manager - in relation to the funding and accounting of pension liabilities,” says Ezcurra.

“But when we work for trustees they tend mainly to be interested in compliance work while we would like to try to put in some added value into this work. We would like them to ask, for example, for added value performance studies of their assets but what they usually want is to ensure that they fulfil the legal obligations, to cover the compliance part and reduce the price of the work as much as possible.”

As a result the role consultancies play in other European countries is not common in Spain. “Consultants have not made much headway in Spain so far,” says Iñigo Bilbao-Goyoaga Sagarduy, country manager at AXA IM. “They have a completely different business compared to what they have in, say, London. Here the pension law gives them an independent advisory role but in practice this role is limited to providing benchmarks, providing ideas and giving advice on the overall pension. What it is not is managing money or giving advice on managing money. There are almost no mandates in all of Spain in the way business is understood in markets like London.”

“I call on the consultants on average once every nine months, both in Madrid and Barcelona, just to keep up the relationship and to make sure I know who has moved and who is still there,” says David Burns, executive director & country head, Spain, at Schroders. “But they admit that in Spain they are not doing anything like what they do elsewhere in Europe. They do a fair amount of actuarial work - salaries and compensations schemes - but the business model where a consultant is between you and the end user hasn’t happened yet. In part this is because banks have a lock on the pension fund business in Spain. All the big mandates are handled by the ‘group of four’ - Santander, BBVA, La Caixa and Caja Madrid. We wish consultants did have a key investment role because then they could break up this cartel and introduce a level playing field.”

“Most control commissions - most trustees - are not analysing the returns/risk and investment management of the pension fund from a professional perspective,” says Ezcurra. “A change in the law some years ago clarified the responsibility of trustees and now they see their role from a compliance perspective. For example, often a performance report will not be from an independent consultant but from the asset managers themselves, and this is by definition no good. The trustees are too relaxed on this issue and I don’t anticipate a strengthening of in this area in the short term.”

“Some pension funds do have a close relationship with their consultants,” says Larraza. “We are working with eight employee pension funds, two of them are quite large with more than €1bn under management. In Spain we have employee pension funds and third pillar individual pension funds that are open to everybody. We offer our services both to [second pillar] employee pension funds and [third pillar] individual pension funds. Employee pension funds have to have an investment board, that acts like a board of control and consists of employee and sponsor representatives, and we address them as independent consultants and independent advisers. In Spain consultants have traditionally been used for other kinds of services. And we also act as financial advisers.”

“From my point of view there are four types of consultants in this country,” says Bilbao-Goyoaga. “There are the local consultants that are usually formed around prestigious university professors, then we have consultants within the Spanish mutual funds platforms, for example the Allfunds Bank and Capital Markets. Third there is the CECA London platform which is a platform dedicated to Spanish saving banks and their insurance affiliates and for various historical reasons is located in London, and fourth is branches of the global consultants.”

In other markets global consultants have acted as a conduit for new ideas and concepts, introduced new styles, products and players, and in so doing have raised the level of diversification and competition in less advanced markets. So is this the pattern seen in Spain?

“Not yet, we are on the way,” says Ezcurra. “But movement is very slow. For example, two years ago a multinational company with a specialised pensions approach run by a 30-strong team in London had a very small company qualified pension plan in Spain. It had its own pension assets and they were run in a very sophisticated way from a Spanish point of view with diversification, specialisation, using more than one pension manager for each asset class, which is not possible here in Spain. We spent something like a year in building, dealing with trustees here in Spain, producing several studies to demonstrate that specialised pension management by asset classes gives better results than generalised assert management. But there is a cultural gap between the specialised people, the consultants or even the managers - there are some good managers too - who try to do interesting things in the general pensions arena.”

“In 2001 investment consultancies had little presence here in Spain,” says Andrés Martín at Mercer in Madrid. “The pension fund arena was mostly controlled by insurance companies and banks so it was hard for consultants to go into schemes asking whether they wanted some financial advice. But for the past three or four years the business has been increasing and we have seen our market share growing every year, albeit from a very low base. Now we monitor more than 56% of the qualified pension plans in Spain, people have started to move towards investment consultancy, they want to have more advice and want to increase their level of financial knowledge and monitor the way their investments
are going.”

He adds: “There’s a long way to go and a lot of things to do, and I think that Mercer is well positioned in the market. There are two or three smaller operations but I doubt they have our international backing.”

The response of another global consultancy to their role in the market would seem to support Martín’s claim. “We have a limited investment consulting capability in Spain,” says a spokesperson. “To a large extent we depend on this support from our offices in the UK.”

“I expect the role for consultants will grow in the near future,” says Manuel Alvarez, head of pensions and personal life insurance plans at Caser, an insurer jointly owned by a number of savings banks. “We are expecting new legislation on the Social Security Reserve Fund which is expected to include some principles and directives on security, returns diversification and social responsibility investing. Perhaps this will mean that the fund will mandate to different money managers, and then it will have to measure the returns and the general performance of these managers. So they will need some kind of advice from consultants.”