PALO ALTO, Calif. - Hewlett-Packard Co. is stepping up efforts to make its non-U.S. pension plans financially more efficient - but is doing so more gradually than other multinationals are.
HP is moving slower than some other multinationals have because executives want to maintain the autonomy of the pension funds in different countries, said Jean-Claude Gauthier, global benefits financing manager. Hewlett-Packard's style is to create strong local management, he said.
"Since our plans are in reasonably good shape financially, we can do things strategically (over the longer term) rather than tactically," he said.
With more than $1 billion in its major overseas pension plans and $3 billion in its U.S. plan, there are ways of cutting costs while boosting returns. Among them:
Encouraging its non-U.S. funds to raise their equity allocations and lower fixed-income holdings. Although funds aren't given any set allocation targets, "we insist that funds undertake asset-liability modeling," after which they should work toward eventually achieving "the best strategic equity allocation that the model suggests," said Mr. Gauthier.
Attempting to set up, for its European funds, a vehicle for investments in U.S. equities. This pooled fund would replicate on a smaller scale the way HP's U.S. plan invests in U.S. stocks. For the U.S. plan, the company sets broad strategic investment guidelines that are followed by in-house and external managers. This same strategy and process would be used for the European funds.
Considering creating other investment pools for the foreign pension funds, if the U.S. equities pool for foreign funds proves successful.
Increasing its consulting activities to the company's Japanese pension fund, at the request of Japanese fund officials. The Japanese fund, which has been a heavy user of insurance contracts, would like to take advantage of new pension deregulation measures by using more specialized managers for all areas of investment.
Overall, Mr. Gauthier has increased his global oversight of the pension funds. That change began about two years ago, at the request of Hewlett-Packard's investment review committee. He said he spends much more time visiting funds and sharing investment knowledge gained in the United States and abroad.
The company's long-range vision for the pension funds is maintaining "strong local management" while "having investment vehicles that are as efficient as they can be made," said Mr. Gauthier.
For example, lower fees could be negotiated when money managers and custodians are shared among funds in several countries, he noted. HP hasn't done that yet, although the foreign pension funds are encouraged to consider multinational providers.
But however intent HP is on gaining asset management efficiencies, hurdles remain.
For example, 18 months after HP began planning its U.S. equities vehicle for European funds, the project has still not been launched. The two main deterrents: local laws in some countries that impede its creation - because the fund would be domiciled outside of Europe - and "the difficulty of convincing people in some countries that they can take advantage of this," said Mr. Gauthier. Where funds use balanced management, he explained, people in charge believe they have delegated asset allocation responsibility. As a result, they "find it difficult to make a one-asset-class vehicle fit their overall strategy."
Creating a multinational pool won't be easy, as other companies have found. But if and when the fund is operational, the company hopes other such vehicles can be set up, Mr. Gauthier said.
Looking forward, a number of HP's foreign fund officials have said that if the U.S. fund emerges, the next preferred vehicle would be one for emerging markets, he said.
Mr. Gauthier was scheduled to visit Europe last week to continue planning the U.S. fund.
Hewlett-Packard, which operates in more than 40 countries, has nine pension funds outside of the United States in which the company has asset management responsibility.
Its largest funds are in Germany, the United Kingdom, Switzerland, the Netherlands, Japan and Australia. Mr. Gauthier would not provide asset sizes on most of HP's individual funds, but he said that asset sizes of the six major funds range from $400 million to $30 million.