MADRID - International money managers could bag at least e6 billion ($5.2 billion) in new business from Spanish corporate pension plans when plan trustees later this year are allowed to appoint more than one money manager.
Specialist equity and fixed-income managers covering the United States and Europe, excluding Spain, likely will be most in demand, local consultants said.
Passive managers also might be given some opportunities, as most Spanish pension assets now are actively managed.
At the moment, Spanish corporate pension plans can only appoint one money manager, or gestora, to run their assets. The money manager is allowed to pass assets for international investments to one third-party money manager, but no more than 20% of total plan assets may be outsourced in this way.
At this stage, few gestora pass portfolios to third-party managers, and even fewer make use of non-domestic managers, said Ana del Solar, manager at Towers Perrin, Madrid.
At the end of last year, Spain's funded corporate pension plans had total assets of e18.8 billion, according to Inverco, the Madrid-based Association of Collective Investment Funds and Pensions. Around 31% of these assets are invested in non-domestic equities and bonds, and it is here that international money managers have the best chance of gaining market share.
"Pension funds should recognize that diversification among money managers is good," said Constantino Gomez, head of investment consulting at William M. Mercer Ltd., Madrid. He expects pension funds gradually will shift from their general use of balanced mandates to a core/specialist approach in the next three to five years.
Institutional and retail investors also are increasingly keen to reduce their exposure to the Spanish market as many local companies, and banks in particular, were hit hard by their exposure to Argentina following that country's currency crisis, said Chris Walker, head of global business development for Scottish Widows Investment Partnership, Edinburgh.
A new pensions law approved late last year introduced a range of measures, including tax breaks, designed to stimulate greater use of individual and company-sponsored pension plans. Local pension experts said the new law will open the Spanish pension market considerably to greater competition. But regulations to enact the legislation aren't expected until the end of this year, according to Angel Martinez-Aldama, director general of Inverco.
Fonditel, the asset manager for Spain's largest pension scheme, the e3.8 billion Telefonica plan, wants to increase its use of specialist money managers, said Santiago Valbuena, chief executive.
He said the firm would consider using specialist international money managers that focus on absolute return strategies and currency management.
The Telefonica plan is managed solely by Fonditel, with 90% of the assets invested passively. Fund managers use the remaining 10% of plan assets for tactical asset allocation strategies.
Fonditel will launch an asset allocation study this year to update its 1997 study, which recommended its current equity/bond split of 35%/65%.
Most consultants welcome the government's move to increase competition in the Spanish pensions market.
"The industry has been calling for this for some years. The new regulation will give the opportunity to new players to enter the market," said Towers Perrin's Ms. Del Solar.
But pension funds aren't likely to appoint more than two to three money managers, said Mercer's Mr. Gomez. It also is unclear what demand there will be for passive management.
"Index management is, hopefully, something that will catch on," said Jean-Francois Schock, executive director-European sales and marketing for State Street Global Advisors, Brussels. "We have been working with the Spanish market for some time without scoring breath taking victories."
Mr. Schock expects enhanced indexing, long-short and market-neutral strategies to be in demand once the market opens up; SSgA is looking for local distribution partners in anticipation of that.
Local pension experts said only the very large banks with sizable asset management operations - such as Grupo Banco Bilbao Vizcaya Argentaria and Banco Santander Central Hispano, both of Madrid - have the capacity to offer non-domestic investment products and would be able to compete with international money managers.
According to research by Inverco, BBVA is the dominant money manager for corporate pension plans, with 27.7% of the market. Fonditel is the second largest, and La Caixa Catalunya, Barcelona, ranks third, with 10.8% of the market.
BSCH is responsible for only 3.5% of corporate pension assets. Its share is limited because the bank has not yet transferred its corporate pension assets into a funded pension plan - currently they are recorded as reserves on the balance sheet - and few of its clients use funded pension plan vehicles, said Monica Garay, director of institutional marketing at Santander Central Hispano, the asset management arm of BSCH.
The Spanish pensions market is one of the fastest growing in Europe, according to SWIP's Mr. Walker. "It started from nowhere and is growing like Topsy," he added.
The local pension industry has total assets of e43.8 billion and is split into three sectors. Individual pension plans account for the largest share of the overall market, with total assets of e24.2 billion by the end of last year; and their assets grew 12.6% during 2001.
Corporate pension plans are relatively new and first came into being as sizable pools of assets in 1999, when the Spanish government announced companies had to fund pension liabilities that had been held as balance sheet reserves.
During 2001, assets held by corporate pension plans grew by 21%. Mercer's Mr. Gomez expects this growth rate to be sustained over the next three to five years.
Around e778 million is invested in associate or industrywide plans, a small and slow-growing sector of the market, said Francisco Gimenez, Inverco's head of research.
A conservative estimate by Watson Wyatt has the total pensions market more than doubling by 2005, with total pension assets increasing to e83.4 billion, said Victor de Vincente, senior consultant for Watson Wyatt Worldwide, Madrid.