Going Dutch: The Future of Fiduciary Management

Jul 7 2009 | 1:00am ET

By Nigel Birch -- Fiduciary management is a Dutch born model of pension management and somewhat of a misnomer with the exact definition a hotly contested point. Fiduciary management should be viewed as an umbrella term for an investment model involving the outsourcing of the design, implementation and oversight of a pension fund’s investment program to one single provider, the fiduciary manager.

Figure 1

In recent years the model has seen tremendous growth inside the Dutch market where fiduciary managers now managed over $400 billion (€300 billion) of institutional money.

One can attribute this growth to the rapidly evolving regulatory environment and increasing diversity and complexity of capital markets. This, coupled with asset liability management, risk management, accounting and performance measurement becoming more professionalized is leading to pension managers questioning whether they have the skills and resources to perform adequate due diligence and risk management, while at the same time achieving the higher returns required to meet spiraling pension liabilities.

This growth has not gone unnoticed, however, and with a fixed volume client base, competition in the Netherlands is fierce. Fiduciary managers are reportedly slashing margins to gain market share. An obvious solution to this plateau would be to expand into new markets, and this is exactly what has happened. European markets with developed pension systems such as the UK, Germany, Italy and Switzerland are firmly in the sites of global players such as SEI, Goldman Sachs, Blackrock and the larger Dutch contingents such as Mn Services, APG Cordares and Cardano. Mandates have been won for funds as large as Asda in the UK, Henkel in Germany and Pens Plan in Italy. A recent poll conducted by SEI found 61.3% of UK Pensions would consider outsourcing the management of their assets to a fiduciary manager.

Figure 2 : Geographical Distribution Of Asset Managers (%, 2008)

As figure 2 describes, the growth of this model has seen Dutch asset managers significantly increasing their market share of their home market, predominantly at the expense of the U.S. and UK. 

With the Dutch market becoming saturated and the jury still out on the acceptance of the model in wider European markets, the future of the model is far from certain. This uncertainty has significant implications on traditional asset managers and hedge funds internationally.

A current research study focused on this area is being compiled by market intelligence firm Spence Johnson and focuses on the ideas and innovations of fiduciary managers and institutional investors, calculating possible futures of the market and the effects it will have on asset managers.

Acceptance and further growth of the model would result in asset managers no longer selling to Joe the Pension Manager but, Joe the Fiduciary manager—a very different breed of professional whose colleagues at the same firm are, more often than not, offering competing products. Understanding the needs, wants and mindset of these managers will become more and more crucial for hedge funds and traditional asset managers when looking at attracting institutional money.

Nigel Birch is a consultant at Spence Johnson Ltd., a specialist provider of marketing intelligence. The firm’s research products and consulting assignments support marketing, sales, and strategic planners across the international investment business, including asset management, life & pensions and wealth management.


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