HEERLEN, Netherlands -- The world's largest pension plan is trying to operate more like a commercially minded money manager.
Stichting Pensioenfonds ABP is transforming its E136 billion ($137.36 billion) in assets into unitized funds for each asset class, beefing up its asset-liability management services and improving its client reporting with the help of management consultants Bain & Co Inc., Boston, and boutique Dutch actuary Ortec BV, Gouda.
"We are in the middle of a process of transforming from a monolithic in-house investment manager" to one organized more like a third-party money manager, said Jean Frijns, chief investment officer for ABP.
About 87% of the pension fund's assets are managed internally.
The group already has considerably strengthened its in-house banking services through its joint holding with Zeist-based Pensioenfonds PGGM of investment bank NIB Capital NV, Schiphol.
Last month, NIB Capital bought Dutch private equity specialist Alpinvest for E820 million. And just last week, NIB Capital officials announced they had appointed Jaap Fieret, former chief executive officer of ABN AMRO Asset Management, Amsterdam, to its board of directors as head of asset management.
The reason for the internal revamp is that from next January ABP's client base of civil servants will be free to choose other managers to look after their pension assets.
If any do choose other managers, ABP likely would be split up as its clients, nine sectors of the Dutch civil service, are also its shareholders.
For the moment, however, ABP's civil service clients have elected to stay with the plan, said Mr. Frijns.
Employers and employees in the civil service scheme agreed last year not to leave the group but are currently in the process of outlining if and how they would like the management of their assets to change.
ABP manages the assets using a single pool of assets that at the end of 1999 was invested 39.6% in equity, 52.8% in fixed income and 7.6% in real estate. The pension assets cover the following sectors: education, culture and sciences; state; defense force; police; judiciary; municipal; provincial; water board; and the energy and utilities sector.
One board of trustees covers all these sectors. Consultants are concerned that such a broad range of liabilities is run with a single asset allocation strategy.
Mr. Frijns said ABP anticipated that plan members may call for the launch of unitized asset classes, as this would enable each sector to manage its liabilities more efficiently than under the one-size-fits-all approach.
Some plan members, such as the teachers, are believed to have grumbled in the past about the lack of sector-specific asset liability management. The launch of a unitized structure is considered a step in the right direction.
"Different sectors have their own risk profiles, and it is easier to accommodate their different wishes with this structure," said Mr. Frijns. "By using the funds as building blocks, the sectors can get the asset allocation they need."
The groups now are discussing the type of model and degree of individualization they want to apply to the management of their assets.
"The outcome of the discussion is very important, but we are confident that whatever the social partners choose, even if it is different funds, we will remain one organization," said Mr. Frijns.
Few expect departures
And few investment specialists are betting on an exodus into the open market by ABP's clients. Senior Dutch investment managers said the fund probably will be able to maintain its client base in the more competitive environment for a least a couple of years.
"ABP's clients are government-oriented groups and slow to change. It is hard enough getting people to change their asset strategy, let alone switch managers," said a Dutch consultant who asked not to be named.
Money managers said it is still difficult to market to ABP members, as they keep a low profile and are extremely loyal to the plan.
ABP would be vulnerable to losing its clients, however, if each sector were to set up a formal stichting, or stand-alone pension plan. A plan with its own board of trustees could be more susceptible to overtures from other managers, said a leading figure in the Dutch pensions market. It may be possible, however, to separately manage the assets of particular interest groups within a single stand-alone fund as SPF Beheer BV, Utrecht, is believed to do in running the pension fund of the Dutch railways.
As is the case for most commercial money managers, performance numbers will be vital to retaining client loyalty, and ABP would need to ensure it matches other money managers on this score. ABP's performance figures for 1999 will not be available until April, but Mr. Frijns said performance was "a bit disappointing" because of the fund's relatively overweight position in fixed income.
In 1998, ABP achieved growth in investments 0.5% higher than the WM-Universum benchmark of the average yield of nearly all Dutch pension funds, but excluding ABP.
"It is hard to argue that ABP's clients could do better elsewhere," said the Dutch consultant who asked not to be named.
Marketing inexperience
But the plan's relative inexperience in marketing, sales and service could prove to be its Achilles heel. Market sources question whether the plan will be as effective a manager of a commercial asset management business as it has been of its own funds.
Possible rivals such as ABN AMRO Bank NV or ING Groep NV, both of Amsterdam, might be able to tempt ABP clients out of the fold with offers of more innovative and perhaps exciting asset management strategies.
ABP's current priority is to restructure the existing asset classes, and Mr. Frijns has no intention in the short-term of launching themed funds, although the group is implementing a sector-based approach to its equity investments in Europe.
"This is a serious business. It's not so sexy, but it's solid," he said.
"The challenge for ABP and all Dutch pension funds is to come up with a level of service that will please the clients. Pension fund operators could lose clients, but they could also gain clients," said Toine van der Stee, head of Dutch institutional business at Robeco Institutional Asset Management BV, Rotterdam.
