Koen de Ryck, perhaps the primal model of a continental European consultant, is getting himself into the thick of things again – this time it is the issue of ‘Dynamic minimum funding’.
This surfaced as a part of his ‘Rebuilding Pensions’, the report that developed unique cross border European pensions road show that took place last year, where European heavyweights and local pensions talent played for invited audiences of national scene opinion formers in Brussels, Frankfurt, London, Paris, Rome and Stockholm. This was very much a warm-up act to have two-way information flows between the EC and the main centres of influence in Europe, prior to the arrival of EC proposals for a pensions directive towards the end of the year.
Though dynamic funding did not make it to the directive proposals, de Ryck says: “The Commission could be a bit more courageous here”. “The UK want to change, the Netherlands are discussing it, in Belgium they are prepared to look at it and in Finland parts of the market are eager to change to it, and someone in Switzerland told me ‘This is what we want to do’.” He describes it simply as a way of looking at a pension fund or an insurance company as a going concern, taking into account the overall risk and financial position of the organisation, but without having to adjust the contribution rate each year, as is the case with some systems currently in Europe.
But it does have the drawback of not having “a fixed standard by law or decree”, a concept that sends tremors of anxiety through some pensions and insurance supervisors, and indeed some pension scheme managers. With characteristic aplomb he adds: “It certainly would make their jobs more difficult, but also more interesting at the same time.”
More recently, he has found himself again at the thick of things regarding the setting up of demographic reserve funds in Europe, such as being undertaken in Norway, Ireland, Belgium and elsewhere. He was back on the podium with a range of high level politicians, arguing for the externalisation and diversification of these, preferring a market solution on the investment side and suspicious of any hints of backdoor socialisation and covert government funding. Yet he strongly supports the benefits that solidarity can bring to retirement provision.
De Ryck believes these reserve funds need to be brought into some form that is related to Maastricht objectives. “This is not so much about recognising the huge liabilities involved, which would jeopardise the whole project, but for the reserves to have a European objective standards, particularly to keep it out of day-to-day politics.” This is an idea he wants to help carry forward. If there is a recession in a few years’ time, how long will they left alone if they are not completely ring fenced.
He has probably never veered from an interesting challenge himself in his career and has been rewarded as consequence.
But his career started conventionally enough in asset management, with the Banque Bruxelles Lambert in Brussels, which has recently been acquired by ING. “We really put the group on the asset management scene in the 1970s, which was a difficult time for investment, being in fact a disastrous period for performance.” Though with just a small team, de Ryck built BBL into the major manager for pension funds in Belgium, perhaps to the point of market saturation. “We had 40% plus market share and were gaining smaller and smaller clients only for bigger and bigger efforts.”
Typical for the time, the bank was dominated by its lending side and did not put sufficient resources into the investment operations, so he decided to make a move. In the end, it was quite a dramatic one, as he became the president of Nikko Capital Management in New York. “There again, in the second half of the 1980s, I was trying to convince the US institutions, mainly pension funds, about the benefits of global asset management, as the market there was quite provincial then” But he was also making the case for Japan, which was at the top of its might at the time. He adds that was two-way challenge, as he was trying to convince the Japanese to diversify into the US. Looking back, he comments that the issue then as now was one of running a global team.
He was closely involved with the Nikko move into indexation, when it bought the stake in the Wells Fargo business. “I also got involved with benchmarking and the other techniques coming in and we worked closely with Barra, which Nikko had a relationship with. So I learned a lot there.”
For family considerations, he decided to move back to Europe. “But I decided that I did not want to go back to a large institution, but rather to try it on my own. There were two choices, the first to develop a money management boutique. The thinking was then that after the good performance of the 1980s, the 1990s would not be so good. In retrospect, I think my ideas would have succeeded beautifully, but there would have been big commitments in respect of capital and people.” So he opted for consulting.
“One thing I learned in the US was to think of Europe as a whole, and to work on a pan-European basis.” So from the start in 1989, he developed a client base in the Netherlands, Denmark, Switzerland and the UK, as well as his home base in Belgium. “We also decided not to join a bigger group of consultants, but to be regarded as a niche firm, which we still are.” The aim was to help initially pension funds and later other institutional investors, including insurance companies, mutual funds and the money managers to do a better job on the asset consulting side, whether the investments were being run internally or externally. But manager selection has been a key area for Pragma and it is were the consultancy has devoted a lot of efforts to following the managers. This is where the firm can add value and has built up the staff with background to do this, says de Ryck.
Having Brussels as a base was a good move from a pan-European perspective.” This has developed in stages in the different markets.” So with a good client base across the continent, the advent of the euro had little impact on the firm’s activities, he adds. “But the euro has meant undoubtedly more work as clients manage the transition.”
As a small group, survival is in offering quality at a high level, he maintains. But it is also in putting a lot back into the business, as de Ryck’s ubiquity across Europe, making presentations, giving speeches, participating in seminars, writing reports and contributing to journals, to an extent well beyond any possible payback to his consultancy. But the high visibility does help business, he acknowledges. “We do not have any marketing people here, as we don’t need this for our size.”
The type of relationship was exemplified in the longstanding role with the European Federation for Retirement Provision, where Pragma acted as the EC contact, ‘the permanent representative’ role, which goes as far back as the year when he started. Here his seminal report in 1996 provided the blueprint for the commission to dig itself out of the political pensions mire it had become bogged down in. “This was the source of inspiration for the pensions green paper eventual.” The commissioner then responsible for the pensions area, Monti liked the approach very much, and de Ryck found himself speaking on different platforms with the Commissioner right across Europe.
“Our role at the EFRP was in working with the Commission and the European Parliament, which is so difficult to get to grips with.” The essential point to be got across that this was not a body of vendors but of buyers, representing significant amounts of ‘social capital’ and who are not-for-profit bodies.” “What we were trying to do is to distinguish pension funds from other financial institutions and educating officials at the European and national levels about the importance of this.” The acceptance of pension funds is stronger than it has ever been with even the politicians talking about the advantages of the second pillar. Ten years ago this was an uphill struggle!”
But looking at such a role from a consultant’s viewpoint, he says that a problem is that while the organisation buys a proportion of your time, inevitably you spend more time than that on their activities.
Later when, when US global custodian, State Street Bank went to the EC to seek backing for a further study that eventually became the ‘Rebuilding Pensions’ initiative, Brussels insisted that the majority of sponsors should be European and suggested the bank contact de Ryck for the project. The series of roadshows and presentations held in the major European cities, certainly made the way smoother for the EC’s launch of its proposals for a pensions directive last year. This project could be ongoing, says de Ryck.
Typical of the way he works at this level was the bringing together of the chairman of the US senate budget committee Pete Domenici and the EC to discuss the pensions liabilities issues, which is something that perhaps could be developed through the auspices of the OECD. “I think Europe can be moved by being pushed by the US on occasion”, he comments. “This has helped us build up a reputation, which means being informed about the different projects.”
Prestigious work helping in reports for bodies such as the EC, World Bank and OECD has followed in recent years. “I was in China with the OECD last year, talking about European pension systems and comparing them with the Asian, ” he says. And what must have been a highly unusual experience for a European consultant was that of giving testimony to the US senate budget committee, which de Ryck did in December 1998 on the effect of Europe’s unfounded pension liabilities on the stability of the euro. “So far, not a lot has come out of this, but it could yet.”
He sums up up his activities. “There could be more of this type of work, but we will only become involved in so far as we can cope with it.” But client work is at the core of his work at Pragma. “We stick very much to our business of asset consulting, looking for better returns, doing manager interviews, defining the objectives, the risk principles, measuring the risk and so on.
He is a crusader believing the role of pensions to be a win-win situation. We perceived early on that PAYG systems would not be sustainable all the time. They were very expensive and one cannot impose very heavy levels of solidarity on future generations. But I have always been moderate on how that should be solved” he says. “Pension funds have their own right of existence as eminent social financial institutions that will grow and grow.”