AMSTERDAM - Pensioenfondsen Metallindustrie hired three new managers and a global custodian last month, finishing a revamping of the fund's e12.5 billion ($11.1 billion) in assets.
In the process the fund, which covers workers in the heavy metal industry, reworked its contract with Achmea Group. The Zeist-based insurer had managed all of the fund's assets and served as its custodian, consultant and administrator.
State Street Global Advisors and Merrill Lynch Investment Managers, both of London, were hired to run e1.16 billion and e375 million, respectively, in enhanced indexed equities benchmarked to the FTSE North America index.
The Vanguard Group, London, will manage a e280 million index-plus bond portfolio benchmarked to the Lehman U.S. Government Bond index.
Northern Trust Global Advisors, London, was named global custodian.
Some portfolios remain
PMI kept 12 portfolios totaling e7 billion with F&C Investments, London, which recently absorbed Achmea Global Investors, the asset management arm of Achmea. (F&C was acquired early last year by Eureko BV, Amsterdam, Achmea's parent.) The portfolios were retained under a letter of intent to restructure the PMI-Achmea contract that was signed last summer (Pensions & Investments, Sept. 17). That letter stipulated PMI would not move mandates that were in line with what F&C could offer.
The revamping started May 1, when Roland van den Brink was appointed chief executive officer of the pension fund.
"Achmea had only proposed products to us that they had in their portfolio," Mr. van den Brink said, noting such areas as commodities, venture capital and private equity were never discussed.
Fund officials wound up reducing Achmea's mandate, introducing performance-based fees for all managers, and hiring a new global custodian and investment managers to handle U.S. securities. They also plan to do an asset-liability study later this year and will look into the possibility of investing in areas such as venture capital and private equity.
The decision to keep some portfolios with F&C was done to speed up the process and to avoid new special products with no history, Mr. van den Brink said.
"We decided we didn't want to leave them in one giant step in three months," he said. "We decided to go with 12 mandates and said if they performed well, we would have no reason to change things. But we said if things did not go well, we would take the money away from them."
F&C manages the following equity mandates: e2.07 billion in eurozone investments; e301 million in Europe ex-eurozone; e231 million, Japanese equities; e161 million, Asia Pacific ex-Japan; and e231 million, all world, all-emerging markets portfolio.
F&C's bond mandates are: a e1.04 billion eurozone mandate; e294 million, pan-European ex-eurozone; e521 million, pan-European aggregate credits; and e819 million in U.S. aggregate credits mandate.
F&C also manages a e294 million convertible securities portfolio; e504 million private loan portfolio; and a e525 million real estate portfolio.
Insurance assets
PMI also has about e2 billion, 16% of its assets, in a reinsurance mandate managed by a group of five insurance companies. Achmea was administrator for that portfolio before the restructuring, but it did not manage those assets. Administration of that portfolio is now run by the pension fund. Mr. van den Brink said "there is very little work to do" to administer it.
The fund also has about e2 billion in mortgages and direct real estate investments run by Achmea Group.
Before Achmea's contract was restructured, the money it managed for PMI was invested 40% in equities, 22.5% in bonds (including global credits), 13% in reinsurance, 8.5% in real estate funds, 7.5% in mortgages, 2.5% in real estate properties, 2.5% in private loans, 2% in global convertibles and 1.5% in cash.
Gert van Arkel, a member of Achmea's executive board, said the firm is very happy with the new arrangement, including the performance fee structure. Mr. van den Brink wouldn't disclose what the arrangement is, but said there is a general "20-20" rule, where the money manager gets a fee of 20 basis points and 20% of the outperformance of the portfolio.
"We never like to lose assets under management," Mr. van Arkel said, "but in this deal we kept most of the money." He added Europe is seeing a lot of competition for pension fund assets.
Single-digit returns
Commenting on PMI's future strategy, Mr. van den Brink said, "Personally, I believe that the return on asset classes will be single digit in the next few years to come."
That prediction has several implications, he said; first, "the simple strategy `more equity equals more return' is over."
Second, "managing (absolute) risk will become far more important," he said. "This can be done by using various non-traditional investments such as alternative investments, commodities, high yield, inflation-linked contracts and so forth," he added. "By diversifying, one can lower the absolute risk of the fund, and this risk reduction can be used for more non-traditional, but interesting, investments."
Third, "The timing of when to implement a strategy, which is very difficult, will become more important," he said.
He added the fund's impending asset-liability study will take all these effects into account.
