Europe’s large corporates face some searching questions on their approach to pension provision, in the view of Peter Scherkamp, who recently left Siemens in Munich head of finance strategies and Vorstand of the Siemens Pension Trust to set up his own pensions consulting firm.
“Chief financial officers realise that they can no longer leave their off balance sheet pension funds out on their own any longer.” As corporate treasurers move to gain greater control, short-termism takes over since they will run pension affairs with the analysts looking over their shoulders quarter by quarter. This may result in a reduction in risk appetite. “They will try to manage pension assets with low risk strategies, which is hard to do especially when looking at the return requirements of their long term liabilities. Shortfalls and additional funding requirements will be the consequences,” he believes.
The issue as he sees it is one of trying to find a balance between the long- and the short-term perspective. “At first glance, this looks like an equation that cannot be solved,” he adds. But Scherkamp restates his faith in a more sophisticated asset liability modelling (ALM) tool as a way forward. ALM certainly takes care of the longer terms perspective, but can it also apply shorter term?
He is convinced that on the basis of the same data that are used longer term, it is possible to build decisions for the shorter term as well. “ALM is the only tool that links the assets and the liabilities together in a consistent way. I think it was a widespread misunderstanding to do ALM studies every three years and then leave the asset allocation untouched. A good ALM-provider should look at the scenarios much more frequently, perhaps every quarter, and ring the bell if boundaries are violated.”
Funds need their strategic asset allocation derived from the ALM exercises, and this provides the basis from which the asset managers are engaged to do their work. On top of this, there is scope for tactical asset allocation or overlay strategies. “But in the last analysis it is solid ALM that can give guidance and against which the asset managers as well as the overlay manager have to measure their performance,” he says.
However good a group’s ALM studies are and however successful on the tactical side, he does not see any easy exits from the pension traps that many pension funds are now in at present. “With current levels of under-funding, it is very difficult to recover, particularly if the funds have a low equity content.”
But he believes that the corporate clients will be receptive now to the type of consulting he is offering. His company Scherkamp & Partner, will provide what he terms as ‘pensioneering’ services. “This is reminiscent of the type of work I did at Siemens where we engineered the pension area.”
Although he is running his own company, Scherkamp stresses that he is not a one-man band. He is building up a network of like-minded firms and specialists. “The network is constructed along the pensions value chain. You start from design to evaluation, to funding, to governance, to ALM, to tactics and overlay strategies.”
Other firms he will work with include Heller & Associates in London, Protinus in Munich – a ‘globALM’ expert team based around Thomas Bauerfeind – and several more. “The aim is to take a holistic view of pensions.”
He also thinks the corporate climate is open to look at international and particularly pan European solutions. “The time is now right to look into the question of a European pension fund vehicle,” says Scherkamp, who in fact has re-established a Luxembourg advisory company he set up in 1997, prior to joining Siemens.
“I had set up Scherkamp & Partner then with a focus on European pensions,” he says. In association with another consultant, Jonathan Heller, he had opened up a niche practice focusing on the role of pooling vehicles. Looking back he says he was probably too early then for such an initiative. “But pensions nowadays have to be viewed more gloabally.”
There are not that many players in the market, who are able to give such across the board advice. “You need a lot of experience and to be completely up to date with developments. Currently, there are so many changeing factors affecting corporate pensions,” he says.
Here being a small operation he does not find daunting. “No one firm no matter how large it is will be good at everything. In addition, the expertise is typically in the heads of only a handful of experts.” One big advantage he points to is having dealt with many consultants from the other side when he was with Siemens. “Though I personally won’t be able to solve every aspect, I can bring the best people to do so to the table.”
In his career, Scherkamp has worked at the investment banking side of J P Morgan in Germany and subsequently with the UBS KAG.
He left UBS to set up his advisory company before moving across to the corporate side joining Siemens – first as managing director of Siemens Kapitalanlagegesellschaft starting to offer mutual funds for employees, setting up a pension advisory team and launching the institutional real estate fund business before moving to the corporate finance centre; www.scherkamp.net.

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