The greying of the boundaries between consultants and asset managers has meant that in some European markets investment banks are putting significant resources into the ‘advisory’ side of their work.
An interesting case in point is the Finnish pensions market.
With the advent of the euro in Finland and the ensuing internationalisation of investment by Finnish institutions, many predicted the consultancy market would follow the Anglo-Saxon lead, with greater use of external advisers.
To date, though, demand for external consultants has fallen short of expectations. The external advisory domain is still dominated by actuarial work, with ALM studies proving to be more peripheral than mainstream employment for consultants.
Conversely, the traditional relationship between pension institution and asset manager holds firm – a bond that Finnish asset managers are keen to retain.
One area where asset managers are lending a helping hand to institutions is in dealing with the strategic allocation/risk management issues that are stretching Finnish pension foundations at present because of regulatory constraints.
Timo Leskinen, chief investment officer at Opstock Asset Management, which manages around e5.5bn of Finnish institutional money, says one of the biggest problems for pension foundations in Finland at the moment is matching their assets with their liabilities.
“As a result there has been quite a lot of restructuring of mandates with a view to their cost-effectiveness and we have been deeply involved in this process.”
Significantly, it is the asset managers that are providing the bulk of this value-added advisory work. In a market where asset management fees have traditionally been tight, all the investment managers in the field are pushing their advisory capabilities as an area where they can add value and, no doubt, generate fees. According to many in Finland, the consultants have yet to make a significant impact in this area.
One reason could be the diminutive size of the corporate pension foundations. The bulk of Finland’s pensions money is still run through the giant TEL insurance companies such as Varma Sampo and Ilmarinen, which run their assets in-house.
As a result, asset managers are left to fight it out for the pension foundation assets. Bundling up advisory services, investment management and custody remains the most logical marketing approach.
Furthermore, with most investment houses in Helsinki today acting in part as intermediaries for a range of third-party mutual funds to complement their own domestic and European capabilities, the boundaries between management and investment advice have blurred somewhat.
Mauri Lavikainen, managing director at Carnegie Fund Management, sees no conflict with the adviser/manager role: “We have developed a pensions consulting business using internal expertise to consult with pension funds on risk and asset liability issues and find out what the needs of the fund are. We think it is perfectly OK to be an objective consultant and an asset manager at the same time.”
In a further twist to the tale, asset managers have also been honing their advisory skills through the management of in-house pension plans. To this end, two years ago Evli Asset Management set up its own pension scheme covering all its employees – one of the first new pension funds to be set up for some time in Finland.
Timo Hovi, head of institutional sales at Evli, explains: “The expertise we have brought together for the pension fund can be transferred into external consultancy services as well.”
Timo Penttilä, head of quantitative research at Evli adds: “As a former consultant, I was hired to carry out activities such as ALM, manager searches, screening and strategic planning – the things that traditional consultants would do.”
Penttilä believes, however, that there is some interest today in external consulting: “A couple of years ago it was almost nil, but it’s coming up. I see a number of different groups doing the consulting work for pension funds though: service providers, actuaries, traditional investment consultants for manager searches, but I would also expect a number of asset managers to still do this independent work.
“One major issue is that you have to have local knowledge, particularly of the regulatory environment. It’s difficult for an international consultant to pick up this knowledge in a short time and there has to be some other business to support the consulting.”
One reason for the possible increase in the use of external consultants is the mooted liberalisation of the pensions market between the TEL companies and the pension foundations, which is under government discussion. This could allow corporations to move money away from the TEL giants in the event of poor performance or servicing. At the moment there are restrictions on the capital that they can withdraw in such a scenario.
While most industry observers in Finland are unsure what the outcome of the legislation will be, it appears that companies will be able to transfer a portion of the risk capital to a new pension plan if the TEL companies have been negligent in the management of their assets. This would shake up the market quite a bit. If new corporate pension foundations are set up as a result, then more money would flow into the market and there would be more competition for mandates. Expectations are that these foundations would outsource actuarial services and most of the asset management and administration on the lines of the Anglo- Saxon pensions model. As a result, for different types of consultants and asset managers there would be more opportunities in Finland.
Kjell Sundström, senior consultant with Swedish consultant Wassum, which opened an office in Helsinki last year, shares this view.
“There are signs that the use of more external consultants is coming. I was expecting it to come a bit earlier, hand in hand maybe with the internalisation of portfolios. It has started though and I think it will continue.”
Significantly though, Sundström believes that more of the ALM work in Finland is being done by specialist boutiques than the asset managers in Finland let on.
“There are a couple of firms that have cornered the market pretty efficiently in my opinion such as Porasto, which is pretty much the leading provider. Certainly they do a lot of actuarial work, but also a certain amount of ALM work.
“I don’t believe that asset managers really offer that kind of service, they come in more on the asset side.”
Sundström says that Wassum is starting to see some interest coming from Finland: “It’s starting out from traditional services that we would offer such as manager selection, which is the obvious starting point, and then perhaps digging a bit deeper into the strategy side.
“I see openings in Finland and we are starting from the top end – the top-tier clients.”
He also believes that any change in pensions legislation could have an impact should there be more foundations that eventually come onto the market: “You tend to be more open to using outside help if you are in start-up phase. In many respects I think that will happen, but there may not be a rush in this direction depending on the way that the legislation is drafted.”
Summing up, Sundström says he believes that there will be more work in the future for external consultants in Finland. He ends with some professional advice: “I just hope that the clients out there can keep a straight focus on what is consulting and what is advice coming from asset managers.”

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