Mn Services Investment Management UK: A Cure for Pension Schemes: Remco van Eeuwijk
With pensions weighing down on corporate finances in the wake of the credit crunch, FDs are looking to control their balance sheets and fiduciary management may be the cure, Remco van Eeuwijk of Mn Services Investment Management UK tells FDE.
Finance directors and trustees are used to looking to external specialists to help with managing the pension scheme. Actuaries and investment consultants advise on the investment strategy and this strategy is then implemented by appointing external managers for specific mandates.
"The fundamental problem with the traditional governance model is that it relies on part-time lay trustees to manage the overall portfolio on a day-to-day basis," explains Remco van Eeuwijk, managing director, Mn Services Investment Management UK. "That is just unrealistic. Trustees and finance directors simply don’t have the time or expertise to manage the portfolio continuously on an integrated basis."
Enter fiduciary management. A fiduciary manager is a full-time expert that will pro-actively advise on strategy, implement the strategy, manage risk on a continuous, integrated basis across the various specialist asset managers, and is accountable for the results.
"Fiduciary management is the next generation of pension scheme governance. In the old days, a fund may have been managed by a single balanced manager. But as people started to realise that a single manager can’t be the best at everything, investment consultants came in to help pension schemes put together a best-of-breed solution involving multiple specialist managers. The consultancy approach, however, fails to recognise that the solution is dynamic, that it requires continuous, integrated management. And it fails because there’s too little accountability for the results and therefore too little incentive to be innovative. That is where the fiduciary manager comes in," explains van Eeuwijk.
Mn Services is one of the pioneers of fiduciary management. Since being spun off from the metal industry pension scheme as an independent company in 2001, it now manages some £50 billion in assets for more than 20 pension schemes and also administers pensions for more than one million pension scheme members.
Selecting the right provider as your fiduciary manager is critical. A specialist asset manager can be hired and fired relatively easily because he manages only a part of the portfolio. But a fiduciary manager is the spin in the web of the governance structure that is difficult to replace. As a result, a fiduciary manager must be a strategic partner. Van Eeuwijk believes that Mn Services is uniquely positioned as a strategic partner: "One of the things that sets us apart is that we are owned by pension schemes. They only own us because they want us to be the best service provider to pension schemes." This fundamental alignment with the interests of pension schemes has some poignant practical benefits. Van Eeuwijk explains: "Fiduciary management is our core business. It is not a tactical add-on to an underlying asset management or consultancy business. We are in the fiduciary management business for the long run. We are focused, committed, and independent." But perhaps the most important consideration is teamwork.
"Fiduciary management is really a network integration business. The work of actuaries, investment strategists, specialist asset managers, custodians, legal and tax advisors, and accountants all needs to be managed as a single integrated, continuously evolving solution for a pension scheme. You simply can’t build such a complex solution overnight," states van Eeuwijk.
The benefits have been seen over the last eight years in the Netherlands, where companies have steadily progressed towards fiduciary management. Many start by delegating only some of the decisions, building confidence, but are often quick to embrace the concept fully once they understand that they remain firmly in control.
"In the UK, some have the perception that you lose control when you appoint a fiduciary manager, but the opposite is the case. We will pro-actively advise on strategy, but the client sets that strategy and we execute it," says van Eeuwijk.