Ready for the hybrids
Founded in 1919 to manage the Dutch mine workers’ pension fund, the first industry pension fund created in the Netherlands, AZL Beheer started managing funds for other corporate clients in the late 1960s. At present, AZL provides administration services both on the benefit as on the asset side, benefits advice, asset management and insurance products to a growing number of Dutch pension funds and/or employers.
“When the mines closed at the beginning of the 1970s, we started offering services to what we then called third parties other pension plans,” says Wilfred Klaassen, pensions director at AZL in Heerlen.
“Now we provide administration services to around 40 clients and investment management to more than 30,” says Klaassen.
With more than Dfl15bn (E6.8bn) assets under management, the company’s investment philosophy is totally client dependent and is based on the client risk profile and investment requirements.
“We work, when applicable, in collaboration with consultancy firms that help our clients with the design of plans and investment advice,” says Eline Lundgren, (pension) benefit adviser at AZL in Amsterdam. “Sometimes clients have an investment plan and they ask us if we can invest their assets within the guidelines set by an investment committee,” she says. “In other cases they already have an investment strategy in place with other investment managers and they just need help with the administration tasks.”
For the long term strategy, AZL uses ALM. Individual managers have the freedom to construct portfolios which meet the long term investment plans of each client and within the set guidelines.
In the medium term, asset and country allocation decisions are driven by macro-economic factors. “We have seen a very important increase in our exposure to euro equities, which is becoming our domestic market,” says Klaassen.
AZL employed more than 400 people, 70 on the investment side by the end of 1999. Most of them are fund managers, but there are also researchers and client services professionals. All the investment decisions ultimately lie with the investment committee, consisting of the director of investment management and heads of equity, fixed income and research.
Another general issue which is affecting their work, is the move from defined benefit (DB) plans to defined contribution (DC). “This is affecting both the design of plans and the investment strategies. We see big changes and new systems coming up,” he says. “However, in our opinion we don’t move towards pure DC plans but towards hybrid systems. In that way we probably get the best of both worlds.”
All their clients are based in the Netherlands and “right now we are not planning to move outside the Dutch market”, Klaassen says. “We are well known in the Dutch market, and we think we’ll continue focusing in our market,” he says. The expertise that the company has achieved could be exportable to less developed markets in Europe. Commenting on this issue, Klaassen says: “Our strategies might be adequate for other markets. Pension funds here are very mature and many have their own administration. There is still a lot of scope for the growth of our business through outsourcing.”
AZL has had good results during the last few years. “We’ve been successful,” Klaassen says. “In general, I believe all our clients are pleased with our work. But there are still things that could be improved.” He adds: “Our growth also depends on future regulation, both in the Netherlands and the EU.”
Within the European context, the lack of tax harmonisation means important limitations to the mobility of workers and also to the international development of their administration business. “Some of our clients are multinationals and although we are only in charge of the Dutch employees pension plans, we see that employees’ mobility continues to be a problem which needs to be solved,” says Lundgren. “We see that limitation even when we are talking about neighbour countries like Belgium. There is a clear need for more harmonisation but I don’t know when it’ll happen or how.”
Regarding their challenges for the future, Lundgren highlights the need for information and communication. “As pensions funds are beginning to give more choices to their members, they also have to be able to communicate with them,” says Lundgren. “However, I think people are becoming more aware that it’s crucial to understand the implications of changing schemes.”
Klaasseen adds: “It’s also very important that we fully understand our clients. This includes keeping an ongoing dialogue with the fund sponsor.” Paula Garrido