The new regulatory framework for the Dutch market, Financieel Toetsingskader (nFTK), has provided a rich seam of business for Kas Bank, the Dutch custody, clearing and settlement specialist. In the first half of 2005 to 30 June, the bank recorded a 30% rise in net profit to €9m, while total assets in custody or under administration reached nearly €300bn.
During the period income from custody and investment management services increased by 11% to €13.6m. Total assets held under custody or administration increased by 17% to €287bn and assets under administration now total more than €20bn.
FTK regulations, which come into effect on 1 January 2006, require plan sponsors to more closely match pension funds’ assets with liabilities. The regulations also aim to improve transparency and enable comparisons between different pension products.
In announcing the latest results, Albert Röell, chairman of KAS Bank, said the growth had taken place in the institutional investor and financial institution areas. The bank had also responded “quickly and efficiently” to significant market developments such as FTK, he said.
Kas Bank’s main client base is corporate pension schemes, ranging from small to very large schemes. Other clients include life insurers, institutional asset managers and fund managers. Laurens Vis managing director, Kas Bank says the bank also has ‘second leg’ of expertise and services in the intermediary market. “There is an increasing blurring between institutional end-investors and financial intermediaries when it comes to asset and fund management,” he says. “The pattern of investment is away from direct and more into indirect vehicles such as funds of funds and pooled funds. There is no longer such a straightforward border between institutions and intermediaries.”
Kas Bank is one of the specialist providers of FTK services in the Netherlands, helping clients to match liabilities and assets, says Vis. “We support our institutional investor clients in steering the match between liabilities and assets from the asset side of the fence. We advise clients on FTK with a step-by-step approach without taking over the role of a pensions director, investment manager or consultant.”
In addition to FTK-related business there is also an increase in outsourcing among Kas Bank’s clients. While in the past pension funds were doing their own investment accounting, compliance monitoring, performance measurement and risk analysis, they are now much more likely to outsource these functions to custodians such as Kas Bank, says Mark Van Weezenbeek, associate director, institutional investors.
“Outsourcing is being driven by the increase in multi-manager structures as well as the growing complexity of mandates. A fixed income manager will now use repos, credit default swaps and interest rate swaps.
“These more complex instruments are very difficult to account for by a pension fund itself because to do so requires state-of-the-art systems and administrative skills. We expect the outsourcing business to grow over the coming year as many pension funds have not yet outsourced all of their so-called middle office functions.”
In March, Dutch foundation pension fund TNO outsourced asset administration to Kas Bank. The fund, which has 15 affiliated employers, has net assets of around €1.5bn. Director of the TNO fund, Erik van Ballegooijen says after working with Kas Bank for several years, the organisation had gained sufficient trust to decide to outsource asset administration to Kas Bank.
Vis says the market is becoming more comfortable with outsourcing. “Pension schemes’ expertise has been drawn to their responsibilities and performance,” he says. “I think pension funds will follow investment managers into outsourcing of the non-critical, non-core functions.”
In its first half results announcement, Kas Bank said it anticipated the main trends in the Dutch and UK institutional investor markets would include the introduction of new legislation with regards to the management of assets and liabilities of pension funds, the life-course savings scheme and the gradual transition from a final-wage system to mid-wage and defined contribution schemes. In addition, completely or partly outsourcing middle and back office activities such as risk analysis, asset administration and compliance reporting would enable Kas Bank to broaden and deepen its relationships.
Life course savings schemes will be introduced on 1 January 2006. These schemes take into account the fact that people are living longer and may want to mix retirement, education and employment. A member of the scheme can take a year off, three times during their working career, while receiving 70% of their salary.
In September, Careon Levensloop, a subsidiary of pension fund PGGM, outsourced back office processes for its life-course scheme to Kas Bank and Ordina, an IT management and consultancy firm. Ordina will provide administration while KAS Bank will provide the associated banking processes.
Careon Levensloop provides fulfilment processes for PGGM’s life-course plan for the healthcare and welfare sectors. The sectors cover 1.1m employees and around 14,000 employers. The life-course scheme is offered as a supplement to the PGGM pension product.
There’ll be plenty happening in the Dutch and UK markets to keep Kas Bank busy for some time to come. Vis says another area of interest is European pension pooling, which “ is coming our way”, particularly because of the Investment Services Directive and the “European passport” for institutional investors.
“Because the regime is comprehensive on the asset side it will make it possible to pool assets across borders,” he says. “The decision as to where to pool the assets is a big one and I think the Netherlands is very well placed as a country with a big tradition in managing the pension issue and with an open eye for related fiscal and regulatory topics.”

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