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Impact Investing

IPE special report May 2018

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SFB aims to build with other funds

The Dutch pensions scene has to change, maintains Joep Schouten who heads the SFB Group, responsible for the asset and liability management of the Dutch building industry pension funds with assets of around E16bn. “In the Netherlands, there are over 1,000 pension funds for both company and industry-based pension funds. The pressures are now on for consolidation.”
Smaller funds have problems regarding their asset management, the cost of IT, the growing burden of governmental regulation and so on, in his view. The future could be to merge with a group like the builders funds, in his view.
But Schouten does not see consolidation being limited to smaller operations. Funds need to join forces, management companies merge or use shared resources and run shared service centres. As shown by his own group’s well publicised moves towards the management company working for the fund looking after the metalworkers in the Netherlands (BPMT), another industry-wide giant. “We believe there is a real possibility of this happening, which would create a new force in Dutch pensions.”
He points out: “They are similar to ourselves, not just in size, but also in shape of the industry they serve, with a large number of employers with mobile workforces.”
The breakdown for the building industry and those sectors aligned with it are dramatic. The scheme looks after some 220,000 active members, plus another 750,000, including pensioners and ‘sleepers’, those with deferred pensions having worked for a period within the industry and accrued a pension entitlement.
The number of employers comes to around 25,000 firms. “Most of the businesses are small, with an average of less than 10 employees per company.” But it is not just the numbers. “We have a range of schemes for the different sectors in the industry, so the painters and roofing sub-sectors, for example, will have their own scheme.” The main scheme for the industry has an additional an early retirement scheme, and for white collar workers, there is a different arrangement.
“Some building companies have their own corporate schemes, however they can use our administration or asset management services if they choose to,” he notes. “Very often the differences between the schemes are not very pronounced, but each difference can bring its own problems.” He adds: “The building industry is not an easy one. So if we can handle its needs, we can handle anything.”
It is this 50 years of experience that gives him the belief that they can attract other funds to come and do business with SFB.
On the asset management side, Schouten thinks the group has a number of propositions of interest to other pension funds, with its heavy exposure to real assets, comprising 21% in equities and 28% in real estate. Both the short term and the long term performance of SFB asset management shows an outperformance of the WMC-benchmark, especially as a result of the asset mix. Consequently, the funds SFB Group looks after do not have under-funding problems.
“Until recently, the asset management focus of pension funds was on the Dutch market, particularly on the equity side. But nowadays we have a European equity market, and the overweighting of the home market is no longer possible. We have built up and continue to build up resources to handle European portfolios. In addition, we are managing other managers all over the world, whether active or passive, so we know how to handle them, how to control and how to replace them.”
He also points to the fund’s experience in real estate investing, both direct and indirect. “In the domestic market we are very often the preferred partner for development projects by local authorities because they see the fund as a trustworthy partner, with not just commercial interests at heart.”
In January, SFB launched a new IT system for pensions administration, which cost E30m to develop. “These systems no longer last for 20 years, as things are changing faster nowadays, perhaps they last eight to 10 years, when you have to reinvest again at a much higher cost. So the risks in IT systems are considerable.” The group has designed this system on a modular basis to make implementation and updating much easier to do, he adds. Funds have to consider IT investment as part of their long term strategy. “So we can offer state of art technology as part of our proposition.” The innovations include internet availability of members’ pension entitlement and a financial planning module.
While Schouten reckons it is impossible to predict what sort of savings can come when funds or management companies merge, he points to the CEM benchmark of pensions costs in which around six of the main pension funds in the Netherlands participate in. “In the last two yearly benchmarks, our main pension fund was the best in the combination of quality and price. This provides something of an assurance to other pension funds when talking to us. So I do think there efficiency gains are possible. But it is never price that should be the most important consideration, quality and durability are important. Also, we see our ability to solve many problems simultaneously rather than have to tackle them one by one and taking months if not years. Whether it is changing to the euro or meeting the new supervisory requirements, the ability to do so quickly and successfully, is more important than price. But don’t worry, we are still Dutchmen, when it comes to price!”
The fund has carried out an analysis of the industries, its approach would suit and believes those with mobile workforces such as catering or IT, could be candidates. “We have strengths to deal with small companies with high staff turnover and which may be lacking administration skills. We have developed systems to support them and to make things easy for them. So in the building industry, we collect the data and money with in three months in 89.5% of cases. So that is a good track record.” The group has developed special discs so the PC systems at the employer cannot make mistakes, or can provide accountants specialised in giving support to them. “We have put a lot of effort into this area, which enables us to make collections within this period.”
The main service offering is defined benefit(DB), which is standard for the Dutch market, but defined contribution(DC) can be provided. “The group’s insurance company has that facility, which we are developing, as there is a clear trend for employers to go to DC.” There is a role for the insurance company, as part of the total services of the group. “But we see the Dutch DB system as a very good solution, which we support.”
While SFB can unbundle its services and provide them on a standalone basis, so if a pension fund just wants help with the collection of contributions, administration of the liabilities, or asset liability studies or part of it, or managing the assets, that can be provided. “But there is more to be gained by concentrating on the overall management issues of the fund, sorting out of policy and its execution, and the liability management. It’s not a question of picking from the shelf.”
Whether it is the management company working for BMPT or the other funds that SFB has discussions with about merging or working more closely with, Schouten knows these will always take time. “The decision making processes are difficult naturally, because any such decision is very fundamental. Convincing people is never easy. It can take months or even years to go through such negotiations.”
But he clearly very much hopes the negotiations with BMPT management company will work out. “I would very much like to see a successful conclusion to this. But in such sensitive matters, you can never be sure, something can always go wrong at the last moment.”
The pensions climate may be moving more in this direction, he believes. With the current worries about pensions underfunding and the new accounting rules, the industry may be willing to consider these questions of coming together at last. “Up to now there were no real pressures for people to consider these matters.”

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