The leisure industry has changed beyond recognition in recent years and now the same is happening within the industry wide pension fund that serves the hotels, bars and catering sectors in the Netherlands.
This year the Pensionsfonds Horeca & Catering (PH&C) celebrates its fortieth anniversary. “When we were founded in 1964, these sectors were economically small, but now, as people spend more of their income in the leisure industry, they are much larger,” says Eric Uijen, managing director of the fund, which is based in Zoetemeer.
The structure of the funds, which are run jointly by the employers’ organisation and the unions, reflects dramatically the economics of the industry. The funds have 543,000 members - a huge number - but over two-thirds of these are deferreds, or ‘sleepers’, as the Dutch call them.
The industry’s low pay levels are reflected in the relatively small pensions assets, amounting to E1.56bn and liabilities of E1.44bn at the end of 2003, and that’s after 40 years.
But handling such numbers poses its own challenges and thereby hangs a tale. “Because of the size of the membership, we have had to develop a very sophisticated IT system,” Uijen points out. The fund’s administration has up to now been handled by an external management company, Achmea, but it has been decided that it is time to repatriate this. “This is a large project for us to insource the whole administration, due to be completed next year in time for a January 2006 start,” Uijen says.
Following research by management consultants, the decisive step of centralising the fund’s activities was taken. When the fund outsourced originally, it was to a non-profit organisation, but this changed with the arrival of commercial players in the management industry.
“We believe that with their profit margin and the value added tax we save, there is perhaps up to 35% to be taken back,” says Uijen. “We are convinced that it is cheaper for us to do it ourselves. Some years ago we would not have been able to do this, but now the packages are available. We chose the system from Watson Wyatt for this.”
Uijen reckons that a team of 100 will be able to handle this, including the investment operations. The payback should be achieved in a period of five years or so. PH&C has no plans to offer administration services to other funds.
“Many pensions people have said to me, ‘what you are doing is very complex and dangerous’” he says. “We will be dedicated to serving one board, and we will not administer other schemes.” He is optimistic that the administration will be handled more efficiently and at a lower cost in house. “Perhaps we will not even need 100 people to do it,” he says. “More people than this are working on our fund at Achmea at present.” He would not be surprised if other funds started to follow the trend.
PVF Achmea had also been involved in the investment side of the fund since the end of the 1990s when Achmea Global Investors was sole manager. “We took the decision to replace this structure with a number of managers, operating a range of investment styles across different markets,” Uijen says
This followed a review, in which the board decided to look for a broader range of asset classes, first from other Dutch managers and then more widely. The first step involved Robeco being taken on board to look after 26% of the portfolio. Then Achmea obligingly transformed into F&C and still continues as a manager, handling some 63% of the assets. Both managers invest on a balanced basis.
There have been further developments this year, says Uijen. “In April we appointed Western Asset Management in London to run 11% in fixed income, and for private equity committed a small amount to two private equity funds run by Alpinvest – this can grow ultimately to 5%.”
The fund is also becoming more specialist and is taking the F&C equity portion and splitting it among two new managers within the next few months, for a US enhanced index and an EAFE active mandates. F&C remains as a fixed income manager, with a large mandate that includes convertibles, and it also looks after indirect real estate. Altogether, the fund’s 10% real estate allocation is half in indirect investments and half direct. “We expect to increase the real estate portion due to the new regulations, and this will involve looking outside the Dutch market,” says Uijen.
The board sets the strategic asset allocation, which is basically 40% fixed income, 50% equities (including private equity) and 10% real estate. But the fund is able to make adjustments to these allocations within 10% bands through a tactical asset allocation (TAA) strategy, which Uijen describes as one of ‘smart passive rebalancing’ to be handled internally.
“We are finalising how this is to be implemented as from the beginning of 2005,” he says. “But it will be based on information received from all our managers. We will structure this information for ourselves. On the basis of this we will allocate the new inflows to the fund to the different managers and in some instances will move assets from some classes to others, taking a three-month to six-month view.” The more specialist managers should be able to provide in depth research, but the fund is prepared to look outside this to get the level of advice it will need for TAA. “While we will review our allocations on a monthly basis, any changes will be made quarterly. But it will depend on the strength of cash flows.”
Despite having been in operation for 40 years, the fund still has a relatively youthful age profile, resulting in a very positive cash flow for investment: contributions amounted to more than e200m in 2003. “This could increase further if the entry age to the fund is reduced to 18 from the current 25 years, which is under discussion currently,” says Uijen.

Uijen sees a clear role for himself and his team. “Our job is to hire and monitor managers and fire them when necessary, manage the TAA process and manage the fund’s cash flows,” he says.
The most important thing for the fund is to maintain progress on its recovery plan and in particular to stabilise its asset liability ratio, which had dipped to 99.7% in 2002, but recovered to 109% last year. “Currently it is running at 111%,” Uijen says.
He does not expect to see any change in the strategic asset allocation under the new FTK financial framework. The equity ratio will be held steady as the fund acts to match its liabilities more closely with fixed income. “This is being done by duration moves and increasing exposure to inflation-linked bonds,” he says. One reason for opting for Western Asset Management on the fixed income side is its expertise in inflation-linked instruments, he adds.
The portfolio is hedged back to euros, 50% in the case of equities and 100% for fixed income, but this may need to be reviewed to meet evolving DNB requirements. “We are also researching the area of structured products for the future,” Uijen says. Watson Wyatt, the fund’s actuary and investment consultant, is helping here. Investment in hedge funds is also on the agenda.
One of the changes brought about by the employment of a wider range of managers is that the assets are run as segregated discretionary mandates, which resulted in KAS Bank being appointed as a global custodian in 2000.
Uijen believes that positive returns are still available from active managers, but a fund has itself to actively manage the process. “You have to hire and fire on time, if you don’t manage this successfully, you will have problems. It is essential to diversify across styles and make decisions more quickly than in the past.” One thing he is certain about is that the fund is much too small to consider doing the asset management in house. “Our role is to be managers of the best asset managers.”
So the schedule for the next 12 months is hectically busy for Uijen and his team – not least being a move to new premises up the street. Looking ahead after the new structures and administration systems are in place, he sees the fund increasing its longer-term exposure to real assets in perhaps two years’ time. “We need the lift that real assets can bring.”

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