Revolution at Wasserdicht Pension Funds. The whole investment team is debating the targeting of third-party assets. From Brussels to Vienna and Frankfurt to London, our sharpest minds are congregating in Amsterdam to discuss how we would do this. Jean from Bruxelles began proceedings: “We should ask smaller pension funds to join us and share our managers, and that way we all benefit from lower fees.” “And we can even charge them a fee for joining in,” suggests Sven. “But would they really want access to our managers?” sighs Hans, “I don’t any more”. “But do we want external managers? There might be scope to return to in-house management. We couldn’t be any worse.” Lots of nodding.

The catalyst for the meeting was that fees paid to our underperforming active managers across Europe were too high to ignore. The combined underperformance necessitated a new Europe-wide ALM to be conducted by an expensive consultant and, having discounted fiduciary management as an option, we thought we could join the fray and become a fund manager in our own right. We had also asked our investment consultant to attend the meeting and for him to give us advice.

“You cannot do that,” was the first utterance from the firm whose strap line was ‘we deliver Alpha where you expect Beta’, which proves the point that in life you sometimes get more than you ask for. “Why can’t we do this?” “Because as a group of pension funds from different jurisdictions within Europe you are not a regulated investment entity that is entitled to manage third-party assets.” “But if we establish Wasserdicht Asset Management in Amsterdam and have each of our European pension fund entities appoint WAM as its fund manager, we would be OK?” “Yes, I suppose so.” “And you as the investment consultant would obviously advise our pension funds to do that.” “Ah, well maybe not.” “Oh, in which case you would no longer be our investment consultant.” “That would be disappointing… but then I could become an external adviser to WAM instead.” “Yes, and you could advise us how best to target your other pension fund clients to become our clients.” “Ah, I probably could not do that either.” “Why not?” “Because I need to show a good track record, a stable investment team, and all the other things that I convince you about when we selected your current managers.”

Hans interjects: “Herr Dr Konsultant… you may remember the theory of stock selection being a random walk with monkeys able to throw darts at a list of stocks and beat the professionals… well we think we would be very good monkeys. You have shown us the track records of the professionals and we appointed them. It has not been successful and so we think we should explore the in-house fund management company idea.”

Our consultant sighs: “But have you thought of any conflicts of interest?” “They are surmountable,” I reply. “Why?” “Because you as a consultant now sell a multi-manager product, and if you can do it, why can’t we?” “Good point, so it looks as if our relationship might end.” “Probably.” Our consultant smiles. “Can we offer you ideas for a strap line?” 

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