Straatman and profits of doom
It’s not every day that someone moves from working for the Dutch civil service pension fund to teaming up with a flamboyant UK pizza-and-pubs magnate. But that’s just what Jan Straatman is about to do.
His decision to leave his berth at ABP Investments, where he was chief investment officer for capital markets, to join entrepreneur Hugh Osmond’s new closed life funds venture is an interesting career move, to say the least. The industry will be watching his progress - he starts on March 1 - with interest.
The move, which was announced in November, will see the 45-year-old Straatman become CIO at Osmond’s Pearl Group. Pearl is a venerable name in the life industry in the UK, which Osmond and his private equity partners are using a vehicle to enter what he sees as a potentially lucrative sector that is ripe for consolidation.
Pearl, which dates back to the mid-19th century, has had a chequered recent history. Most recently it was part of the life insurance arm of the Henderson Group along with NPI and London Life. Osmond’s team, then known as Life Company Investor Group, bought this division late last year and renamed it Pearl Group. Life Capital had been formed by Osmond’s Sun Capital Partners and private equity outfit TDR Capital.
The involvement of private equity firms inevitably suggests a willingness to hire top managers to turn a business around. Osmond says his new CIO brings “the expertise and the track record” to add value to long-term savings policies by maximising risk-adjusted returns. Indeed, Pearl conducted a three-month worldwide search to find Straatman, who joined the giant civil service fund in 2001.
The recruit will be joining what’s officially known as the UK Closed Fund Sector, or more informally as ‘zombie funds’. They emerged following the stock market declines at the start of this decade, when many insurers had to close traditional with-profits funds to new customers.
“The closed with-profits sector has been anything but a closed book,” says David Strachan, insurance sector leader at the Financial Services Authority, the market regulator. “Change has ranged from continuing regulatory reform to shifts in the dynamics of the commercial environment.”
He acknowledges that the sector has been “radically altered” by the emergence of third party consolidators such
as Pearl, which are looking to acquire
significant books of closed business.
The new entrants seek economies of
scale - and shareholder returns - while continuing to meet their obligations to shareholders.
The FSA says there are now 51 firms managing closed funds, out of a total of 99 with-profits firms. It estimates that around 42% of firms that had a with-profits fund with liabilities over £500m were closed to new business.
It estimates that closed funds have £85bn (e123.7bn) invested in equities, fixed income, cash and property – against £300bn for firms that are still open. They are typically characterised by low equity allocations. According to the FSA. a challenge for firms with closed funds is to have an investment strategy that meets the expectations of different groups of policyholders – as well as different shareholder requirements.
“We see our life insurance business as an excellent foundation on which to build a leading force in the UK savings industry,” Pearl says. “We are focused on the key areas of importance to policyholders: financial security, long-term investment returns and service standards.”
“We believe in the benefits of long- term consolidation for closed fund businesses.” The firm has not hidden its desire to buy more funds.
Pearl itself, whose ultimate predecessor company dates back to 1857, runs some £27bn. Pearl is explicitly targeting the consolidation of the sector. It has reportedly sought to buy closed life funds from Aviva and Abbey.
Descriptions of Osmond himself range from ‘serial entrepreneur’ to ‘corporate raider’. He made his name at restaurant group Pizza Express in the 1990s and his involvement with Punch Taverns. He’s a regular in the business pages and the Sunday Times Rich List. But he’s not always successful: his £5.5bn bid for the Six Continents hotel group a few years ago was rejected by shareholders.
There are no doubt many reasons behind Straatman’s decision to move on, which ABP itself admitted was a ‘once in a lifetime’ opportunity.
He may feel that it’s ‘job done’ at ABP, having seen the multi-asset strategy shift through to its conclusion. Straatman will move from overseeing around €130bn at ABP. He was a undoubtedly a senior figure at ABP, heading a team of roughly 100 fixed income and equity professionals in Amsterdam and New York for the past four years. Incidentally, he’ll be leaving about a year after the arrival of new chief investment officer Roderick Munsters from PGGM. Munsters will assume Straatman’s responsibilities on an interim basis.
Within ABP, Straatman was chairman of its strategy committee, vice-chairman of the allocation committee, chairman of the capital markets strategy team as well as ABP’s corporate governance working group. He was instrumental in the giant scheme’s shift to an innovative multi-asset-class, skill-based investment structure. As well as taking a pivotal role in the restructuring of ABP’s portfolios, and perhaps just as important, he is adept at articulating the thinking behind it, as he has demonstrated at industry events.
He will be moving into a different sort of culture. ABP is of course widely admired within the pension community and its senior people are extremely well regarded. But at Pearl, Straatman will be the acknowledged expert, specifically brought in to perform a certain task so that the investors can get to their lucrative ‘exit’. This is likely to be three or so years down the line. No doubt Straatman will be a participant in this if all goes well.
“I am looking forward to the challenge of applying what I have learned to an important UK industry,” he says. “Traditional investment models are usually not set up to capture true long-term inefficiencies, nor do they properly reflect the nature of the liabilities. I am excited by Pearl Group’s vision for the life insurance, savings and pensions sector and believe I can help turn it into reality.”
Straatman has made some forthright comments about the nature of the industry. Speaking on the IPE’s online e-Symposium recently, for example, he queried whether the pension industry really always works on behalf of the asset owner – the pensioner.
His talk attempted to explore some of the “myths of the investment industry”. He called it “extremely structured, extremely rigid” – with small and narrow clusters of activity.
So Pearl is not just getting a skilled investment professional, but one who has some interesting ideas about the state of the industry in broader terms.