ATP is the latest in-house investment unit in Europe to pursue outside clients, seeing fertile opportunities in the U.K. where its capabilities could attract pension funds coping with the shift from defined benefit to defined contribution plans.
“Right now, we're looking at two areas (in the U.K.): One is offering predictable, simple, low-cost DC products to companies. We know we can keep the process simple and efficient while providing complex, sophisticatced portfolio management at a low cost,” said Morten Nilsson, head of international operations at ATP, which manages the 418 billion Danish kroner ($77.5 billion) ATP pension scheme, Hilleroed, Denmark.
“The other is fiduciary management to pension funds. We've got a good track record of managing pension fund assets, particularly through the financial crisis.”
ATP Group, which already manages and administers pensions for nearly all of the Danish adult population, is now tapping overseas clients. The U.K., which is the largest pensions market in Europe with an estimated £800 billion ($1.26 trillion), proved an attractive target both for the nation's relative low rate of DC pension savings and the turmoil in its DB system following the financial crisis.
“ATP has a successful record of linking investment strategies to liabilities,” said a money management executive familiar with ATP, who asked not to be named. “Conceptually, they have a strong story to tell.”
ATP officials have not enlisted any external institutional clients in the U.K., but are in discussions with several to provide investment services. Mr. Nilsson declined to elaborate on specific services and to name those funds because negotiations are not finalized.
ATP, which opened a London office earlier this year, is considering expanding both its defined benefit and defined contribution plan money management operations. Other in-house managers — such as Hermes Fund Managers Ltd., owned by the London-based £33.9 billion BT Pension Scheme — have mostly focused on managing external institutional assets for other pension funds.
Paul Verdin, chair of strategy and organization at Solvay Business School in Brussels and editor of the recently published book, “Growth and Value Creation in Asset Management,” said the overall money management industry is going through “a drastic change” in which “the environment is going to be either fiercely competitive or brutally competitive.”
The reasons are twofold: A slow growth environment is expected to depress returns, putting pressure on fees; and, clients are demanding more bang for the buck, potentially leading to lower profits, sources said.
“It seems to me that in an environment like this, it will be hard (for in-house managers) to hold on to what they have, let alone go out and win third-party assets,” Mr. Verdin said in a telephone interview. “In order for there to be sustainable growth, these managers will have to show proven added value.”