Pension funds spread their wings into wider servic
Pension funds are expanding their services by moving from being internal providers to external players or, in some cases, offering optional services.
In the UK, Hermes, the investment management arm of the BT pension scheme, which also manages most of the Post Office pension plan, has been offering services externally since 1997 when, in collaboration with fund manager Liberty, it began to provide products to outside clients, focusing on the DC market. Soon after, a partnership with Lens Asset Managers resulted in the launch of the activist Hermes UK Focus Fund. The fund’s target are underperforming companies.
Tony Watson, chief investment officer at Hermes Pension Management in London, says the Focus fund is performing quite well even though “the market has been very volatile”.
He adds: “By definition, these are underperforming companies with a lot of value buried in them.” The UK Focus fund applies ‘relational activism techniques’ on behalf of long-term shareholders to realise the value gap and generate above-market returns.”
Watson says: “We are concentrating on selling index-matching products in association with Liberty.” These include seven investment funds sold to UK pension funds, mostly local authority schemes. Watson says: “We have five equity funds investing in the US, the UK, Japan, Pacific Asia and Europe, and two bond funds – one conventional and the other index-linked.
“We have plans to market new products later this year. These plans will include more investment in small companies, emerging markets , and cash products. But this is not well advanced yet.”
He adds: “We also think there are going to be opportunities in European companies, so we could have continental and UK clients investing in a European version of the Focus fund.” Hermes has more than £45bn (e72bn) under management, half of which is invested in UK equities.
Meanwhile, other pensions funds are adopting a different approach, offering products via their own insurance companies. In the Netherlands, PGGM, the pension scheme for health workers, will provide, through its insurance company PGGM Verzekeringen, an optional, complementary life insurance on top of the collective pension scheme. This personal pension plan is a ‘mirror fund’ that follows the returns of the pension scheme.
PGGM is also developing a life insurance plan based on the universal life/universal link. Both products are expected to be introduced next year.
In Germany, through its Munich-based KAG, Siemens is also providing investment products to employees, offering them an optional private retirement saving scheme. Through an open-ended mutual fund programme, Siemens’ employees can invest in European blue-chip equities and bonds using the company’s intranet connections.
Siemens KAG also assists and advises corporate pension managers in developing schemes, including company- sponsored programmes for retirement planning.
In the US, GE Investment Management and its affiliates have been managing money for more than 70 years. Tim Benedict, spokesman for GE Asset Management Services in Connecticut, says they have their roots in institutional money management. “GE started managing the GE pension trust in 1927. For more than a decade now we have been offering its institutional expertise to outside clients,” he says.
In the late 1980s GE started offering defined benefit plan investments to US clients moving to defined contribution plans in the early 1990s. “As a money manager we have more than $100bn in assets, and approximately 20% of them are external assets,” says Benedict.
GE is now expanding globally, developing its business in Canada and Japan and studying the European market. Barbara Regan, director of global marketing and product development for GE Asset Management Services says: “Our clients are extremely large US multinationals and smaller companies in the US and Japan. In terms of investment management we apply different strategies, trying to meet our clients’ needs, offering products and services for both defined contribution and defined benefit plans,” she says.
GE’s institutional approach has been very successful in Japan. “Our institutional clients are very happy and our relationships are growing,” says Regan. “We have about $90m in the first mutual fund we are offering over there and we are planning to launch several more funds for individuals.”
She adds: “We are very satisfied with how we have been able to expand. Our targets are very aggressive. And, once we have made a decision, we move very quickly.”
GE is studying the European scene to find the best strategy to enter the market. “We have extensive relationships in Europe and we are talking to our contacts there to find out how we might be able to meet their needs,” says Regan.