Avida International has made an assessment of the potential of the most important fiduciary services for the largest pension and insurance markets in the UK and mainland Europe.
The study details the addressable fee potential per market segment in terms of size, country and type of institution.
The analysis is based on 9 independent data-sources and Avida’s 15-year track record in assessing and optimising fiduciary outsourcing arrangements and has been carried out by Dr. Dorothee Franzen Phd (Managing Partner Germany and Head of Market Research), Tim Juling Msc (senior business analyst) and Paul Boerboom Msc (Founding Partner, Lecturer Erasmus University in Strategic Outsourcing/partnering in Institutional Investing).
HISTORIC OPPORTUNITY
The main conclusion is that the smaller and mid-cap pension fund segment in the UK represents a historic opportunity for fiduciary service providers.
This owes itself to various reasons:
- The buyers market is still very fragmented, whereas the market of providers is relatively concentrated.
- As a result fees are somewhat higher than elsewhere (reflecting the lower buying power of pension funds).
- The WTW/Aon merger should be seen as a red flag of further concentration at the providers level and a potential game changer.
- The CMA regulator requires an assessment of incumbent providers by mid 2021.
- A new generation of (independent) professional Trustees is emerging.
- Pension funds have a legal obligation to use a consultant.
- Most pension and insurance markets in Europe are dominated by a number of large (fiduciary) asset managers, covering the entire value chain for their clients.
STRATEGIC CONSIDERATIONS
Some strategic considerations which are detailed and quantified in the report:
- Based on our observations, we expect further consolidation in most markets. This will reduce the number of smaller pension funds and hence the hunting ground for integrated delegated services. At the same time, the winning consolidators might consider outsourcing or partnering for parts of the more complex activities.
- Given the complexity and challenges ahead, institutions will have to insource innovation / creativity and build relationships based on co-creation. For example, this could apply to topics such as strategy setting, interest and inflation hedging strategies, the design of new offerings for beneficiaries or sustainability.
- In some markets, we expect some level of partnering or outsourcing for part of the more complex functions (such as manager selection in private markets and ESG investing).
- Other activities which are more scale-related are expected to stay or land with the largest providers. Following the consolidation which is taking place, this implies a higher level of insourcing (e.g. the implementation of liability matching fixed income portfolio and plain vanilla return assets).
- Larger pension funds are often part of the same eco-system and tend to partner and share resources (e.g. in private markets), reducing their dependence on external commercial providers.
- Large insurers will continue to have their own captive fiduciary asset managers. Medium and smaller sized pension funds and insurance companies might partly outsource to a fiduciary service provider.
- Levels of delegation vary per market segment. In most cases the institutions want to maintain control and are likely to delegate less.
- The management of fixed income liability matching assets is often executed by the fiduciary manager.
- In some markets such as the UK and the Netherlands, pension regulators or competition authorities are stimulating pension funds to evaluate their key service providers.
- The specifications of these trends will depend on local market structures, legal frameworks and regulatory policies, and will vary to a large extent.
For more information on how Avida can help you grow your business please contact Paul Boerboom
