Investor Profile

Dutch fund refines fiduciary manager duties

The Dutch fund for the transport industry, Pensioenfonds Vervoer, sacked Goldman Sachs Asset Management as its fiduciary manager in June last year. It is now close to appointing a replacement. Chief investment officer, Patrick Groenendijk, spoke to about what it wants from an outsourced fiduciary.
The Dutch transport industry pension fund, Pensioenfonds Vervoer, has been through a transformation in the past five years, and it is still refining what it needs from its outsourcing partners.

From a governance perspective, what started as simply the board meeting four times a year has expanded to include an executive group, with an office, that sets the strategic asset allocation, asset liability modelling and risk budgeting.

In 2005 the board decided to outsource its investments to a fiduciary manager – which in turn would select and monitor underlying investment managers.

Prior to outsourcing to a fiduciary manager, Pensioenfonds Vervoer allocated investments to asset management company F&C in London in a balanced fund.

“The fund had about €5 to 6 billion at that time and the thought was that concentrating all the assets with one manager was too risky,” says chief investment officer, Patrick Groenendijk. “The first step was setting up an executive office, which would outsource to a fiduciary manager, which would then outsource and manage the underlying funds managers,” he says.

The outsourcing of investments to a fiduciary manager was somewhat fashionable at the time, but the outsourcing to Goldman Sachs was reportedly instrumental for the manager in cementing its business in the Netherlands.

Groenendijk says the fiduciary manager model was suitable for the fund because it allowed the executive team and board to concentrate on strategy.

“Strategy is much more important than selecting managers and if you choose managers yourself then you spend about 80 to 90 per cent of the time on selecting managers and not on strategy,” he says.

Goldman Sachs Asset Management (GSAM) was the fiduciary manager from 2006 until its termination in June 2010.

“As with every asset manager, you monitor and review,” Groenendijk says.

“We were unhappy with Goldman Sachs’ performance, and we were also unhappy with the underlying managers, and GSAM was rewarded on that.”

The fund had a policy portfolio that the fiduciary-managed portfolio was measured against, which Groenendijk says “added negative alpha”, and which some reports have shown was as much as -14 per cent.

“We did acknowledge the economic conditions of that period, but still they were negative,” he says.

In addition to the performance concerns, there were a number of regulatory changes in the Netherlands, which Groenendijk says Goldman Sachs, being a US firm, was removed from.

As a result, the Pensioenfonds Vervoer made a decision to strengthen its executive team, adding strategy, responsible investing and risk models, and expanding the investment team to five. It has also merged with a number of pension funds, with assets now sitting at about €10 billion.

All of this activity prompted the fund to reassess what it requires from a fiduciary manager, as well as its fees, accountability and responsibilities.

The fund has now shortlisted four providers – all are Dutch firms – and expects to make a decision in October.

“A local provider means they are more in touch with our beneficiaries. And we have been working to make sure the division of responsibility is more clear than in the past,” Groenendijk says.

He says previously there was a grey zone between the responsibilities of the pension fund and the asset manager; for example, market timing decisions and allocation changes.

In addition, while the fiduciary manager was one of the key advisers on strategy, the responsibility is with the fund.

“That is more clear in the contract now; it wasn’t clearly defined before,” Groenendijk says.

In addition, once a provider is announced, there will be a change of investment strategy with the new fiduciary manager, and most likely the addition of new asset classes.

The fund has recently introduced emerging markets mandates in local currency, infrastructure, index investing, and an ESG program including micro finance.

“We are not reluctant to invest in complexity as long as it adds value,” Groenendijk says. “We can access the tools of the fiduciary manager, but we have to educate and invest in only what we understand.”

Under GSAM there were 35 external asset managers and that has remained largely unchanged.

One of the clear boundaries with the GSAM contract was that it did not manage any mandates itself, but Groenendijk says the fund is now contemplating the idea of the new fiduciary manager also managing the currency overlay, and duration program.

When Goldman Sachs was terminated, the asset management arm of Northern Trust, the fund’s custodian, was appointed the interim fiduciary manager.

“We didn’t change the strategy, the interim fiduciary manager is more of a babysitting role,” he says.

The fund is roughly 67 per cent allocated to global fixed income – including high yield, emerging market debt, and local currency emerging debt (which is a new category) – and 27 per cent to equities, including emerging markets and small caps, with 6 per cent real estate, which is mostly domestic, and includes infrastructure.

While Groenendijk concedes, in principle, that the fiduciary manager model adds a layer of cost, he says that is not necessarily a bad thing.

“Higher cost is not a bad thing in itself if you are getting the best people. We can get access to the best ideas and the best people,” he says.


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