AMSTERDAM — The anticipated merger of Cordares Holding NV and a new holding company linked to the €220 billion ($325 billion) Stichting Pensioenfonds ABP, Heerlen, is on track, but the ride may get a lot more bumpy.
Interviews with industry sources familiar with the merger talks see a potentially astute business development strategy emerging from one of the boldest acquisitions in the Dutch pensions market.
But the combined group is venturing into a territory where real success has proven elusive. The aim is to transform two organizations — each largely dominated by one client — into an independent industry powerhouse competing to manage third-party assets.
“That’s the big issue — focus,” said Frits Bosch, director of Bureau Bosch, a specialist institutional investment consultant based in Nuenen, Netherlands. “These are two very different companies currently moving in different directions and they’re searching for a new focus but it’s not there yet.”
Cordares has €26.5 billion in assets under management primarily for one client, the Stichting Bedrijfstakpensioenfonds voor de Bouwnijverheid, an approximately €20 billion Amsterdam-based pension fund for construction workers.
Officials at Cordares and ABP announced the merger talks in November. A new holding company to be established March 1 by ABP will take a majority interest in Cordares if an agreement is reached. According to sources close to the talks, both companies are negotiating on such issues as valuations and due diligence. The goal is to announce a deal around early April, the sources said. Completion is scheduled for summer.
“If you look at it in detail, it completely makes sense,” said Rik Brouwer, senior business development manager at Aberdeen Asset Management PLC, based in Amsterdam. Mr. Brouwer was formerly a senior investment consultant at Watson Wyatt Worldwide in Amsterdam.
Asset management and insurance-based product development and distribution will be the initial focus, while other areas such as pension consulting could be integrated later, according to a letter of intent signed by both parties on Dec. 20. “As a result of the collaboration, the parties will be better able to anticipate and respond to national and international developments in the field of pensions,” the letter said.
The new company would be positioned to compete against others for third-party assets. Another field it is likely to enter is fiduciary management services — cost-effective outsourcing of pension asset management and administration. While the initial aim is to manage assets for Dutch funds, the longer-term view will probably involve expansion throughout Europe, Mr. Bosch said. “There’s still a long way to go,” Mr. Bosch said.
Franck Erkens, director of marketing and corporate communications at Cordares, and Hans ten Brinke, director of corporate communications at ABP, did not respond to requests to comment.
The merged firm would easily overtake Barclays Global Investors, San Francisco, which had been in the top spot among Dutch external pension asset managers for several years. BGI managed €61.9 billion in assets for Dutch funds as of March 2007, according to the latest data provided by Bureau Bosch.
PGGM Advies BV — a new Zeist-based company established to manage the €88 billion Pensioenfonds Zorg en Welzijn (formerly Stichting Pensioenfonds PGGM) — became one of the largest Dutch managers on Jan. 1, when the Zorg fund spun off its management and administration business.
The Cordares-ABP talks followed another major pension fund merger in 2007: the union of Mn Services, a firm that manages outsourced pension plans based in Rijswijk, and Pensioenfonds Metalektro, Schiphol. The transaction boosted Mn Services’ assets under management by €21 billion to about €58 billion at the time (Pensions & Investments, May 14).
“What we’re seeing is further consolidation of pension funds,” said Ruud Hendriks, regional chairman for Benelux businesses at Goldman Sachs Asset Management based in London.
ABP’s holding company is expected to dominate the asset management business if the merger happens, separate sources said. Traditionally, ABP has outsourced only about 20% of its portfolio. At Cordares, about 50 external managers ran at least half of Cordares’ portfolio at the year-end 2007. Most of the outsourced strategies, such as active emerging markets equity, are well within ABP’s in-house capabilities. As a result, pension experts say, some of the Cordares’ current external managers may be terminated, and the assets will be moved in-house.
“There’s no doubt that ABP is a very good investment manager, and (the merger) would be an advantage for the beneficiaries of Cordares,” said a consultant who asked not to be named. “The worry is that ABP may become so big that it will be difficult” to generate alpha.
The merger would also provide the newly established company with more leverage in developing its insurance-based pension business and defined contribution platform, sources said. While not yet a significant role in the Dutch pension market, DC is expected to make significant inroads in the coming years.
As defined benefit pension funds are increasingly burdened by strict accounting rules, more companies are expected to shift investment risks to employees through platforms such as collective defined contribution funds. In 2006, the Dutch government also introduced “levensloop,” or lifecycle plans, to allow employees to save up to 12% of salary tax-free annually. The launch of the insurance-based product could be used not only in retirement, but also to fund educational pursuits, sabbaticals and parental leave among others.
The new company will aim to sell such products to its members, and a union with Cordares would increase the pool of available clients, sources said. ABP needs to succeed in a merger with Cordares to “prove to the market that (the new company) is indeed independent from the pension fund and is taking a bold step forward” in expanding the business, one source who’s familiar with the negotiations said on the condition that he not be named.
Can’t fail
“(ABP) can’t afford a failure,” the source added. “That would wreck their name for a very long time.”
Previous attempts by Dutch pension funds with a captive client to go after third-party assets have failed. For example, after trying to broaden its client base, Royal Philips Electronics NV, Amsterdam, in 2005 sold its pension administration and asset management business, which was dominated by the Philips Pension Fund, Eindhoven, Netherlands. At the time, New York-based Merrill Lynch Investment Management (now BlackRock, Inc.) won a deal to manage Philips’ $16 billion in pension assets and Hewitt Associates LLC, Lincolnshire, Ill., took over the pension administration business.
For Cordares, the desire to join with a higher profile pension manager has been in the works for a few years. A failed attempt to merge with Mn Services in 2004 resulted in a renewed attempt to compete for third-party assets. The company changed its name to Cordares from SFB Groep in 2005 as part of a rebranding campaign to shift its attention outward, establishing strategies to attract a wider audience.
“Cordares did not have enough of an understanding for what it would take to really become market-oriented,” said a source who is close to the negotiations. Despite the growth in assets under management, “Cordares was (still) caught somewhere in between as far as size is concerned. … It is not a boutique, but not large enough to offer broadly skilled asset management.”
The merger would allow Cordares to access the breadth and depth of ABP’s investment skills and help attract third-party assets. While sources question how the two companies can co-exist in name without destroying the relevant brands that each has nurtured, the combination is nevertheless believed to be complementary. Significant job losses are not expected and “major business lines are not likely to be threatened” for either side, one source close to the negotiations said.
