In the Netherlands, the classic model of fiduciary management has been losing ground since the crisis of 2008. Trustee boards are taking back control. André de Vos reports

The Dutch Pension Act requires pension fund trustee boards to remain ‘in control' of their pension fund at all times, and does not allow the ultimate fiduciary responsibility to be delegated to a third party. But with fiduciary management an ever more popular solution, over the first decade of this century more pension schemes delegated more of the investment process - from strategic allocation to manager selection - to a trusted third party: a fiduciary manager.

It took the credit crisis of 2008 to reveal that pension funds were not always aware of exactly what their fiduciary managers were doing, and that trustee boards in some cases weren't ‘in control' at all. It should be no surprise, then, that the concept of fiduciary outsourcing has come under intense scrutiny in the Dutch market. Although few would be willing to give up the clear advantages that fiduciary management offers altogether, it was clear that the classic concept was in need of recalibration.

The renewed emphasis on control has changed the fiduciary business in several ways. One result is a further division of labour: pension funds are dividing up fiduciary tasks and appointing different managers to different roles.

On one hand, this introduces more checks and balances. On the other hand, it is defeating the purpose considering that fiduciary management was supposed to provide a one-stop-shop solution.

Pension funds are separating investment and risk management, says Charles Janssen, head institutional clients Northern Europe with asset manager BNP Paribas Investment Partners. "From a pension fund governance perspective this is a positive development."
In this vein, more and more pension funds are hiring a strategic risk, or overlay, manager - a market that has been cornered, in particular, by Cardano, with nine new mandates in the past 18 months. Cardano now handles risk management for over 30 clients with total €100bn AUM.

Another way pension funds spread and diversify tasks and responsibilities is by allotting a more important role to their custodian to prevent their fiduciary manager from reporting biased investment results.

By the same token, some pension funds have adopted a strict policy against fiduciary managers running investments in-house. "Pension funds devote a lot more attention to the whole outsourcing and risk management process. For our Dutch clients, we do not invest in our own in-house funds. It's not because Dutch clients won't allow this at all anymore, but you have to be able to show that you can fire your internal manager just as easily as an external money manager," says Marc van Heel, director for Benelux at Goldman Sachs Asset Management.

The €111bn healthcare scheme PFZW has no problem with PGGM - its former in-house investment department - investing in its own home funds. "As long as PGGM can clearly explain why their own manager is better than an external manager, I don't see why there would be a problem with that," says Peter Bannink, service level and risk manager for PFZW. But in a sense the healthcare scheme, too, is multi-sourcing, as it divides services into separate parcels or ‘lots'. PGGM delivers a plethora of different services to PFZW, each of which is sourced from a separate department or ‘lot'. "When it comes to strategic advice, asset management, investments and reporting we are doing business with different entities within PGGM. PGGM understands that from a governance standpoint these are all worlds onto themselves to us. Because we can assign each contract to its own lot, we can judge each contract on its own merits. This also helps avoid conflicts of interest, as we check whether investment and business cases are promoting the scheme's best interest."

Classic multi-sourcing involving multiple service providers has significant drawbacks, Bannink believes. "In that case, you're dealing with different information systems and different analyses, and it's a real challenge to manage the investment chain responsibilities. The cost of co-ordinating such an approach should not be underestimated," he says.

Charles Janssen of BNP Paribas agrees. BNP, too, offers different services separately, "such as multi-management and risk management," he explains. "Customers can mix and match all the services we have on offer as though they were Lego blocks." But getting these separate services from different third parties would be a different story: "There is a limit to the number of different parties you can employ as a pension fund. It would make coordinating the process a lot trickier. And the cost would go up."