GRONINGEN, Netherlands - The €6 billion ($7 billion) TKP Pensioen expects to double its assets under management over the next four years and increase the number of alternative and hedge fund strategies it offers its clients, said Jan Willem Baan, TKP head of investments.
The Groningen-based pension administrator and manager of managers is completing a search for two to three U.S. market-neutral managers to run just less than 2% of plan assets, said Mr. Baan. This is the first time the group will offer stand-alone absolute return funds. Until now, it ran a small market-neutral strategy within its U.S. equity portfolios using three external managers, which will be retained to help run the new funds. He confirmed that Barclays Global Investors, San Francisco, is one of the managers, adding that TKP's policy is to give the names of its external money managers only to clients.
Mr. Baan plans to offer a greater variety of absolute-return strategies over the next three to four years and sees this as the firm's main area of future manager search activity.
New direction
The ambitious plan to double assets stems from TKP's acquisition earlier this year by Dutch insurer Aegon NV, The Hague. Previously, TKP administered only the pension assets for its previous owners, the Dutch telecommunications group KPN, Groningen, and the postal services company TPG, Amsterdam. But the deal with Aegon allows TKP Pensioen to search for new pension plan clients; it had been legally barred from administering plans other than KPN and TPG. And TKP is getting ready to enter the commercial world of money management.
"We wanted a new shareholder (Aegon) so we could increase our own base of clients and our numbers in the administration base," said Mr. Baan.
Explaining the push for alternatives and hedge fund managers, he said: "Pension plans want to make more use of hedge funds. They are looking for other ideas in the market to get yields to a level to meet their liabilities."
Mr. Baan said the target return on these portfolios will be 4 percentage points above the rate of U.S. Treasury bills. Manager appointments will be made within the next month. He expects to post an annual investment return of around 8% during the next few years and also hopes to pick up a "couple of billion" euros from new clients.
"I would not be surprised if they achieved that target, but it will be a tough battle, as competition is fierce," said Amin Mansour, managing director at consultant Fund Partners, Laren.
Blue Sky Group, Amsterdam, which manages the €7.9 billion pension plans of KLM Royal Dutch Airlines, Amsterdam runs a similar manager-of-managers platform, offers a range of unitized mutual funds, and also is hunting for clients to give it economies of scale, says Fons Lute, chief investment officer.
Other competitors looking to broaden their client base include: MN Services, Rijswijk, which manages €18 billion primarily for pension plans in the metalworking and engineering sectors; and Schootse Poort BV, Eindhoven, which has €13.6 billion under management primarily from the Dutch pension plan of Koninklijke Philips Electronics NV, Eindhoven.
Expensive but worth it
KPN and TPG sold TKP Pensioen to Aegon in January for an undisclosed amount. Local sources say intense interest from a variety of bidders meant Aegon paid a high price, but Aegon officials would not comment.
TKP is generally considered a boon for Aegon, primarily as the pension group has a well-regarded pension payment and administration platform that can manage both defined benefit and defined contribution plans. It recently agreed to help establish and administer the new defined contribution pension plan of SNT, a Dutch call-center operator.
Observers think TKP's manager-of managers platform will broaden Aegon's existing asset management offering. Aegon Asset Management, the company's money management arm, handled €43.4 billion in the Netherlands as of March 31, including the TKP assets. Global assets under management for the same period were €276 billion.
Administration is key
TKP has considerable administation experience, having administered pensions for the various subsidiaries within the KPN group, said Mr. Mansour. This may give it a competitive advantage over other firms that have only managed schemes for a single client, he said.
"Via TKP, a lot of money managers would be able to offer clients a fully integrated pension product," including asset management and administration, said a local consultant who asked not to be named. And as a local provider, its management fees will likely be lower than foreign rivals such as Frank Russell Co., Tacoma, Wash., and SEI Investments, Oaks, Pa., said the head of a large pension plan who would not be named.
Mr. Baan sees TKP's target market as large Dutch pension plans with at least 5,000 participants. But he acknowledges a multimanager approach is most attractive for medium and small-sized pension plans.
The two main pools of pension assets TKP managed showed mixed returns in 2002. TPG recorded an investment return of -9.9%, while KPN posted -6.2%. The average return of Dutch pension plans in 2002 was -8.1%, according to WM Co., Amsterdam. Both plans are around 110% funded.
TKP's asset mix is heavily weighted toward fixed income, with €3.2 billion invested in global bonds. International equity accounts for €2 billion in total assets and is managed by 12 money managers, while euroland equities account for the remaining €800 million.
