As many other schemes all across Europe, 2001 has been a tough year for the Portuguese pension fund industry. With most companies undergoing cost reductions and profit pressures, many have decided to delay plans of creating of new pension plans for their employees.
So even though consultants have not seeing much demand from companies setting up new plans, those already running pension schemes have been seeking their advice to overcome bad investment results.
“Several plan sponsors have contacted us in order to replace their asset managers on the basis of absolute negative returns,” says Carlos Ravara, senior consultant at Watson Wyatt in Portugal. “This created a two-fold window opportunity. Firstly it represented a golden chance to explain to plan sponsors the importance of a long-term investment strategy, through the implementation of asset liability studies and the resulting liability driven benchmarks and setting of clear relative performance targets.”
He continues: “Secondly, as the offer of Portuguese asset managers is narrow, we have highlighted to our clients the increasing importance of international diversification and risk budgeting concepts.”
At William M Mercer in Lisbon, investment consultant Rui Guerra agrees: “When the results of the market are negative and people see the impact on their pension funds they want to know more about what is happening. A significant part of sponsors want independent advice.”
He adds: “In practice we have seen more clients wanting to have their pension funds closely monitored and, in some cases they want to define specific benchmarks in order to reflect their specific level of risk.” However he notes that demand for these services have already started a couple of years ago as a consequence of the introduction of the euro.
“We have been working with our clients in terms of analysing all the risks of the pension funds and have been defining long term strategies via sophisticated ALM studies and benchmarking exercises.”
In a market dominated by domestic asset managers, in terms of consultancy these two international firms, Watson Wyatt and Mercer, control the largest portion of the market, and although there are some small local firms, more focused on actuarial work, it is not expected to see significant changes in market share.
“Although we believe that competition does foster a healthier marketplace for us all, I do not foresee any real competitions from the very few local houses. The main reason behind this goes along the fact that Portuguese consultancies are not global and thus cannot compete in a global landscape that is home to investment consulting, “ says Watson Wyatt’s Ravara.
The Portuguese market for consultants is still small compared to that of other European countries but it is clear that it’s growing at the same pace as the still underdeveloped pension fund industry itself.
“Portuguese pension funds are certainly becoming more aware of the added value of our services, and most of them do not regard our fees as expensive,” says Ravara. “Having said that, size does matter, and in a market place where the average fund is less than e5m, it is sometimes difficult for sponsors to justify some consulting costs as our fees are not dependent on assets under management.”
The relationship between managers and consultants seems to be a healthy one.

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