VIENNA - Executives of the e280 million ($245 million) Verbund Pensionskasse AG will decide this month whether to outsource its plan administration or merge with one of Austria's multiemployer pension plans, said Franz Paulus, a pension plan board member.
The scheme is one of Austria's largest corporate pension plans and covers employees of Verbundgesellschaft AG, Vienna, the country's largest power generator. Ten percent of the assets are in a defined contribution plan with the balance held in a defined benefit plan.
The plan sponsor decided late last year that in-house administration of the plan was becoming too costly and time consuming, and in April issued a request for proposals for an administrator, Mr. Paulus said.
Looking at large plans
Sources close to the Austrian market said a merger with another pension plan is most likely, as Verbund executives already have been in talks with some of the country's seven multiemployer funds. Verbund's relatively large pool of assets means it is more likely to merge with one of the country's largest plans, which are seen as having the resources, systems and management options needed, the sources said.
The four largest multiemployer plans, all in Vienna, are Vereinigte Pensionskasse AG, with e1.7 billion at year end; APK Pensionskasse, with e1.5 billion; (tm)PAG Pensionskasse AG, which managed e1 billion at the end of 2000; and BVP-Pensionskasse AG, with e669 million.
The supervisory board of the Verbund fund will meet at the end of May and a decision will be announced in mid-June, said Mr. Paulus.
Martin Cech, portfolio manager at Vereinigte said the plan had been in initial talks with Verbund but it is too soon to tell what the outcome will be.
APK had pitched to administer the fund on an outsourced basis, said Christian Bohm, a member of the scheme's executive board. But it is not yet clear whether Verbund will seek a full-scale merger, he added.
Once the administration arrangements have been decided, Verbund executives will launch a review of its money managers. The plan uses five European managers, all handling balanced portfolios. Mr. Paulus would not name the managers, but said two are Austrian and the others are German, Swiss and Dutch.
"Asset management is not a problem at the moment. The main thing is to look at our administration, as a company we want to focus on our core business, which is electricity," he added.
By combining with a larger, established pension plan, Verbund might be slightly constrained in its choice of asset managers as all the multiemployer funds have managers in place.
But Andreas Schneck, manager-European sales at Frank Russell Co. Ltd., London, said that because of its size, Verbund likely would be given some leeway to pick its own money managers if it chose.
High equity allocation
APK's Mr. B"hm said many of the fund's larger clients are able to choose their own money managers. The plan has one of the highest allocations to equities among Austrian pension plans with 40% of its total assets invested in this asset class.
But APK's average return on investments fell sharply last year to 1.6%, compared with 13.1% in 1999, according to figures and estimates collected by Roger Emmett, head of International Pension & Compensation Consultants GMBH, Vienna.
(tm)PAG fared slightly better, according to IPC estimates, with an estimated return of 4.5% in 2000 compared with 9.9% in 1999.
Mr. Emmett estimated BVP's return last year to be 2%, compared with 11%, in 1999, while Vereinigte is expected to post an investment return of between -1% and -2% compared with 6.7% in 1999.
During 2000, the Verbund scheme achieved an investment return of 1.9%, compared with the industry average for corporate pension plans of 2.4%.
Mr. Paulus said plan officials were not satisfied with the performance of all the managers, but would not go into further details. "We have different styles and with different styles you have different performance results. But as a pension fund it is important to have different styles," he said.
The fund tweaked its asset allocation late last year with the help of its consultant Complementa Investment Controlling, St. Gallen, Switzerland.
Mr. Paulus said the plan decided to hike its equity allocation to 35% of total assets from 29% previously. No manager changes were made and the fund's money managers incorporated the change into their balanced funds.