Mixing and matching internal and external funds
Rasmus Bartholdy and Torben Hansen at Denmark’s PFA explain their approach of blending internal and external funds.
The Danish pension market is being affected like many others across Europe by a shift towards non-guaranteed policies, in which the investment risk is born by the employee rather than the employer.
At the same time, existing policies sold many years ago offering guranteed rates of return are posing problems for those responsible for managing assets on behalf of long term savings at a time when real interest rates are close to or even below zero in many instances.
It is in this environment that Rasmus Bartholdy and Torben Hansen, both senior selection managers Equities & Alternatives at PFA Asset Management do their work on behalf of parent PFA Pension, one of the biggest providers of pension schemes in the domestic market, with assets of more than €40bn equivalent on the group balance sheet, and more than €32bn in client assets.
Their work is focused on the selection and deselection of funds both in terms of the PFA platform, but also involving segregated accounts, and across asset classes. One issue that distinguishes their work from certain others’ in the local market is that PFA is also a manufacturer of funds itself.
“We do not outsource everything – we have our own portfolio managers and analysis. Some pension fund providers are 100% external, and perhaps are not as close to the markets as those who have both internal and external management. I think it is a good mix we have here at PFA. We outsource areas where we think we do not have the ability to manage top performing products. But there is good feedback between internal and external here,” says Bartholdy.
Besides having the option to outsource, say, part of the global equity portfolio, PFA also has its own fund administration company within the group, which means a single component such as a global equity ‘block’ can be used across products, creating economies of scale.
The selectors are focused on actively management funds, both internlly and externaly managed, apart from four passive developed market equity funds. That said, there may be a certain level of demand for passive from clients. However, room for negotiation over pricing involving active managers is improved by the fact that to a large extent the same managers are used in segregated mandates as on the fund platform. Added to that is the relatively highly concentrated Danish pension market, which also puts the likes of PFA in a stronger position to negotiate prices.
Denmark is similar to another European pension market – the Netherlands – adds Bartholdy.
“If you take the top 20 pension funds in Europe. I would say that quite a substantial amount of total assets are gathered in Denmark and Netherlands. The two Dutch public pension funds and the Danish are in the top five. PFA is probably in the top 10-15.”