• Welcome
• Asset Pooling
• Opening up the Pooling Market

Welcome

Jervis Smith
Managing Director, Global Head of Client Executive,
Global Transaction Services, Citi

In this edition of Spotlight we look at the benefits that asset pooling can bring to asset managers and multinational companies with multiple pension funds across the globe. For too long the preserve of only the very biggest multinationals, asset pooling is now also a viable option for smaller- and medium-sized multinationals – thanks to a partnership between AEGON and Citi.

Surveys of European corporates have consistently shown high levels of interest in asset pooling. However, pooling has yet to become mainstream. It can be both costly and time-consuming to put a bespoke pooling solution in place.

We hear from Karen Zeeb, Director, Head of Pooling Product for EMEA at Citi's Global Transaction Services, on the benefits that asset pooling can offer, and the specific characteristics of Citi's advanced pooling solution. We also hear from Martijn Tans, Director, Marketing and Product Development, AEGON Global Pensions (AGP), on the innovative, multi-client pooling and asset management solution that AEGON has developed on the Citi platform.

Asset Pooling

Karen Zeeb,
Director, Head of Pooling Product EMEA
Global Transaction Services, Citi

When speaking with Asset Managers, its appeal is to achieve greater efficiencies by being able to bring together investors with a common investment strategy. For the multinational, it is the opportunity to achieve better governance, improve operating efficiency and gain the benefits of unified investment management for its pension funds. What are they speaking about? The answer is the implementation of a cross-border asset pooling solution.

So what is asset pooling?
Asset pooling involves the co-mingling of assets in a single account structure. By pooling the assets into a single account, it is possible for the investment manager to manage one account per mandate, as illustrated below.

The attractions are clear. By being part of a large pool, investors can gain access to top-of-the-range investment managers and are better able to achieve greater asset diversification and economies of scale. The investors can also retain, in most cases, the same tax status that would have been achieved if they had invested directly. For the investment manager, there is the ability to implement a common investment strategy, while still retaining flexibility and growth potential.

What sets the Citi solution apart is the ability to accommodate different types of institutions with different fiscal profiles, from insurance companies and pension funds to investors with different regulatory and/or accounting profiles. Due to the flexibility of the fund-accounting platform, Citi's solution can also handle the complex structures required when asset managers are looking to achieve their diverse investment objectives, as illustrated in the diagram below.

Opening up the Pooling Market

Martijn Tans
Director Marketing and Product Development,
AEGON Global Pensions

The European Federation for Retirement Provision has estimated the benefits of asset pooling for the average multinational with several different pension plans at EUR1.2 million a year. Other estimates have put the annual gains at around 20 basis points. But, more important than the financial benefits, is the improved control that pooling brings.

Multinationals may have a liability to defined benefit plans in a number of different countries. Pooling allows them to better manage those schemes while aligning governance arrangements. Surveys have shown that improved risk management and governance are important drivers for companies looking to implement asset pooling.

While surveys have shown huge interest on the part of multinationals in the unified management of their European pension schemes, the development of cross-border pooling vehicles has until now been limited to the very largest companies. The great majority have been self-administered schemes - with EUR2 billion or more in assets. The costs and the complexity of developing a bespoke pooling solution are matched only by the timescales involved, which can stretch to three or four years.

Now, AEGON Global Pensions has launched an off-the-shelf asset pooling solution for multinational corporations that either do not wish to set up their own platform or lack the scale or resources to do so. Smaller multinational firms can benefit from the scale of AEGON to achieve all the benefits of asset pooling in a cost-effective manner. Experience suggests that smaller- and medium-sized plans stand to achieve the greatest financial benefit from pooling, as they are likely to be paying higher fees and may be restricted in their ability to mandate a broader range of managers.

Drawing on Citi's development efforts, AEGON has established a multi-client, off-the-peg solution that permits the tax-transparent, cross-border pooling of pension assets of any reasonable size. It will also accommodate insurance company assets with the same tax transparency. It is currently available for investors domiciled in the Netherlands, the UK and France; however, country coverage is expected to be extended over time.

The new platform makes asset pooling a reality for a much broader group of companies than before. The AEGON solution is both standardised and easier to put in place.

Using the Dutch Fonds voor Gemene Rekening (FGR) structure as a tax-transparent vehicle to minimise the impact of withholding tax, the AEGON platform is the product of three years' collaboration between AEGON and Citi. The asset pool is domiciled in the Netherlands, which has one of the most mature pensions markets in Europe. The platform has been built to allow a full suite of accounting, compliance, performance-measurement, securities-lending and other services. Moreover, it is highly scalable.

The AEGON pooling vehicle is offered as a complete, bundled solution including investment management, which is provided by AEGON subsidiary TKP Investments. TKP Investments operates a highly successful multi-manager platform, which operates 23 multi-managed investment pools, and blends the styles of the world's leading investment managers to fit the strategy of its pension fund clients. It draws on a diverse range of asset classes – from equities and fixed income to alternatives and real estate. It won the European Pensions Multi-Manager of the Year award last year and has been short-listed again this year.