In Austria it is the continued trend to externalise book reserves and place them in pension funds that is providing most work for consultants. This tendency to establish new schemes has in turn produced another change. Most of Austria’s older schemes tend to be defined benefit in contrast to new company schemes which are, almost without exception, defined contribution. “In effect there are two changes going on at the moment- from book reserve to pension funds and from defined benefit to defined contribution,” says Waltraud Wiehboeck, senior consultant at Aon Jauch & Hübener.
Most of the work associated with these changes is spent advising on the structure of the fund and on communication with scheme members. As for investment consulting, Austria remains a restricted market for two reasons. First is that the legal restrictions on Austrian pension funds and book reserves are pretty stringent. For the former, the total share of equities cannot exceed 40%. For the latter, half the book reserves need to be covered by certain securities, typically state-issued paper. In other words, the options open to pension funds are relatively narrow and easy to choose between.
Add to this the fact that many of the country’s seven multi-employer funds have insurance companies and banks as their majority shareholders (OEPAG has Uniqa and Raiffeisen, Winterthur has Winterthur Insurance and Credit Suisse etc). According to Wiehboeck, this means that the larger funds tend to use the banks’ investment consultants when they have to make an investment decision.
Paul Roettig of Hewitt Associates says they are seeing more and more smaller organisations and companies considering company pension plans and following their large counterparts, most of whom have switched to externally funded schemes. Although the Austrian government recently extended the deadline for replacing book reserves with separate schemes by 10 years, there is still activity in this area. As such, Roettig says there is quite a lot of demand from companies wanting intricate details of the various available options and in this respect there is quite a lot of what he calls educational work for consultants.
One indication of the Austrian market’s direction is William M Mercer’s decision to buy Constantia, previously its correspondent office for some time. The acquisition gives Mercer its first formal Austrian office and Kurt Bednar, one of Constantia’s founders, will head the new outfit. Mercers recently opened an office in Innsbruck in a joint venture with Marsh McLennan and it hopes to employ around 15 people by the beginning of next year.
Most of Austria’s funds have reported pretty feeble performance figures in the last two years. As mentioned, Austria has traditionally been poor hunting ground for investment consultants but the recent spate of poor performance should, according to Bednar, lift the fortunes of investment consulting as funds realise the importance of selecting the correct investment manager. So much so that Mercer wants to move into investment consulting. “We want to get into this niche, all the others are covered,” he says, adding that it is a logical step.
One of the side effects of the poor performance will be to increase the profile of asset liability studies. “There is a connection between the low number of asset liability studies with continuing poor performance,” says Bednar. One of the reasons for this lack is that the volume of assets in the Pensionskassen are insufficient to finance the studies. As with the importance of employing the correct investment manager, so poor performance has brought to the fore this issue, bread and butter to pensions consultants.