When PME, the €22bn industry-wide pension fund for mechanical and electrical engineering, appointed Mn Services its asset manager earlier this year, it represented a step change in the Dutch asset management industry.

PME is the asset manager and pensions provider for the €32bn industry-wide scheme for the metalworking and mechanical engineering schemes. As a result of the deal, Mn Services has been transformed into a business with €58bn under management, serving 1.7m participants

Rudolf Hagendijk, chairman of Mn Services is in no doubt about the significance of the move. "PME is absolutely our biggest prize so far. Such a large new customer will provide sufficient critical mass for a decisive role of Mn Services on both national and international markets. Our new weight will allow us to take part in discussions on a more level playing field with the large schemes, such as ABP and PGGM."

Apart from being a large customer, PME also fits within the set-up of Mn Services, in which the social partners - employers and employees - are the only shareholders. The new combination will be by far the largest non-commercial pensions provider and asset manager in the Netherlands, rivalled only by Cordares, the €25.5bn provider for the construction industry.

Hagendijk is enthusiastic about the future of his company. "We will be more be able to take a stand against the big competitors from the UK and the US," he says. "Our new size will improve our position as employer in today's tight labour market, enable us to attract better managers and to arrange better conditions, which will lead to better returns and lower administration costs. Ultimately, it will mean better pension conditions for everyone in the metal sector."

PME joining Mn Services is a logical development, Hagendijk says, not only because PME and PMT are serving the same sector. "We must counterbalance the pressure from the very large Anglo-Saxon asset managers. And we need volume to prevent them from taking our best staff, and to attract knowledge on the increased supervision and governance, including the increased demand for transparency. During the past few years, we have increased our number of lawyers from two to 12."

Hagendijk says the most concrete example of how the partners will benefit from the new cooperation is that employers and employees will face one provider, applying the same concepts. "Moreover, Mn Services has a strong distribution system, and carries out additional income-related schemes, such as the tax-friendly savings scheme ‘levensloop', and the ANW, the benefit scheme for surviving partners.

"Our new volume will allow us to improve quality of service and drive down costs, and there will be of course the synergy effects of the asset management under one roof. We will have a bigger say within the investment sector." However, he declines to give an indication of the expected benefits and savings. "We will know in a year's time,"
he says.

PME joining Mn Services will not lead to changes in Mn's philosophy, nor in its business strategy, Hagendijk emphasises. "It's actually very simple. PME has chosen us, because of what we are. It is about the way we operate and how our governance is organised."

A similar approach applies to the transfer of PME's €22bn of assets into Mn's fiduciary management this summer. So far, PME's assets have been managed by 35 external commercial parties worldwide in 45 different mandates.

Hagendijk says the new selection process will mean no dramatic changes. "We won't start by holding every manager up against the light. Any future reselection of asset managers will happen as part of the ongoing and gradual process of finding the best value for money. And although Mn Services will have the operational management, strategic decisions are always made by the respective pension fund boards."

Mn Services has currently contracted out the management of 70% of its assets, which are managed by approximately 30 parties, and divided into over 45 mandates. "We are managing a number of
our mandates in Europe ourselves, real estate in particular. We have invested over €4bn in both listed and unlisted property. In addition, we are managing our high yield and private loans portfolios in and outside Europe," the chairman says. "Being present in the local market and knowing its culture, allows us to make better decisions."

The ratio of assets contracted out and assets under its own management at Mn Services will remain unchanged, he says. "This has proven to be effective in our situation. We think that we will lose the connection with the market, if we contract out everything."

Compliance with the flood of recent legislation is one of the main focuses of Mn's policy, says Hagendijk. "We have already set up internal compliance committees, and our goal is to be one of the leaders on the issue."

Hagendijk has robust views on compliance. "The supervisor should leave pension funds the necessary space to formulate their own policy, and to take their own responsibility," he says. "The schemes don't need steering supervision, such as on indexation, financial buffers and communication. This is really over the top. Governing should be left to the governors ultimately."

Socially responsible investment is also high on Mn's priority list. "We have already carried out a lot of research in this field," Hagendijk says. "Recently we have appointed former labour MP and union manager Kris Douma as corporate governance officer. Although we are still developing our policy, we have decided to make our voice heard at all AGM's of companies in our equity portfolio."

Meanwhile, Mn's efforts to commence business abroad haven't resulted yet in a firm commitment with a foreign partner. The intended cooperation with ‘a pension fund' in the UK - announced 18 months ago - is still being discussed, Hagendijk admits. But Mn's interest in a UK operation is undimmed, he notes. "We have something to offer. With our expertise, on issues such as asset mix, asset liability management and the deployment of derivatives, we could earn money for
UK schemes."

Mn Services has also started looking for a partner in Germany, where it is targeting other institutional players as well, Hagendijk says. Hagendijk's earlier ambition to penetrate the pensions market in Eastern Europe has faded however.

"The different culture and legislation make business over there too uncertain at the moment. We keep an eye on the developments, but we prefer to just wait and see which way the wind blows."

For the time being, Hagendijk wants to focus on his greatest challenge: the smooth integration of PME's asset management into Mn's organisation, with the second stage already on the horizon. He is convinced that PME's administration will also be placed with Mn Services, as already agreed in principle: "It depends on how PME can make the necessary arrangements with its present provider PV Achmea. And, because of the interest of the participants, a transfer must happen carefully." He believes Mn Services could be PME's full provider within two years.

According to Hagendijk, no jobs will be lost as a consequence of the deal. The parties expect employment to even grow in future.

Looking further ahead, Hagendijk says he does not exclude the option of a merger with Cordares. Both players have been talking for years about cooperation. So far they have decided to work together on the exchange of investment expertise and on IT. The data of both companies are already being copied through a shared services centre.

"We have a lot in common, and we would fit well together," Hagendijk says. "But I can't see a merger happening in the short term."

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