ABP: the man behind the strategy

Francesca Fabrizi meets Olaf Sleijpen, director of corporate strategy and policy at Dutch pension fund ABP, to discuss the fund’s plans for 2008

Although a relative new-comer to the world of pensions, Olaf Sleijpen (pictured above) has more than enough economic and banking experience to assist him in understanding the needs of one of the largest pension funds in the world*.

Since completing a Masters and a PhD in economics, he has held several positions at the Nederlandsche Bank, the Dutch central bank, at the General Secretariat, the External Relations and Information Department, the Monetary and Economic Policy Department and the International Affairs Department.

He was, in later years, personal advisor to Wim Duisenberg, president of the European Central Bank (ECB) and co-ordinator of the counsel to the executive board of the ECB.

Sleijpen joined ABP – the general pension fund for public employees and the educational sector in the Netherlands – in February 2004, where he started as deputy head of allocation at ABP Investments. He later took on the role of director of financial and risk policy at the ABP pension fund where he was mainly involved in the new pension law and the implementation of the Financial Assessment Framework (FTK).

Today Sleijpen is responsible for the overall strategy of the organisation where, he says, sentiment is positive, in spite of the recent market turmoil. The ABP Investment Portfolio achieved a return of 3.8% for 2007. Strategywise, 2007 was also a very good year for ABP. “If you look at what ABP’s aim is – which is to offer our members a pension which is both good and relatively cheap – we have done very well on both counts. We have been able to fully index the pension that we pay to our members in 2007 (at 2.05%) and on top of that we have managed to repair the indexation that has been lost in the last three years (1.96%).”

In addition ABP has been, for a number of years, one of the cheapest pension funds in the Netherlands, if not the cheapest, “and so I think if you look at what we stand for and what we want to achieve, 2007 was indeed a good year.”

So what is the secret of ABP’s success? “Persistence in sticking with what you believe to be the right strategy in the long-term”, argues Sleijpen: “We have opted for an investment and financial policy which, in our view and in the view
of the board of trustees, is a good policy in the long-term and it is paying off. We try not to get side-tracked by short-term developments.”

That is not to say, of course, that a fund like ABP will never have bad years when it comes to its investment returns, he explains, “but you should not allow these events to overtake what you feel is the best strategy in the long-run and that, I think, is quite important.”

One of the main challenges for Dutch pension funds in 2007 was the implementation of the new FTK which,
says Sleijpen, was hard work but worthwhile: “We were rather happy with the new framework as it was approved by Dutch parliament and I think it works quite well.

“There was a lot of criticism in the run-up to its introduction and while I can understand some of the concern, I think it was a little bit overdone. It was very obvious that the framework we had was out of date and was no longer suitable –we really needed something which was more in line with what others were doing in the financial industry; and while you can always discuss how it could have been better, at least we now have something which works quite well and better suits our needs.”

One of the other big issues for ABP in 2007 was the decision of the board of trustees to strategically “split” the fund from the company – creating a fund and a separate administration agency. This will bring an end to the self-administering nature of the pension fund, and brings ABP more in line with the basic principles of good governance. Sleijpen explains: “From Spring 2008 there will be a financial institution which will be owned by the pension fund completely, and that firm will first of all have the task to serve its main client – namely ABP – but at the same time will have the opportunity to enter the pension market which until now was very difficult if not impossible for us to do.”

Following on from this, in November 2007, ABP announced it was entering into discussions with pensions administration company Cordares to examine whether a close cooperation between the two could be possible, given their similarities. “At ABP we feel we are very good at the implementation of collective second pillar pension schemes – in fact we believe in the superiority of collective pension contracts – and we also have a very strong relationship with our stakeholders being social partners.

“Similarly, Cordares is a financial institution which stands for the good implementation/superiority of collective pension schemes and like us has strong grassroots with its social partners, so I think this could be a very important partnership.”

Through this close cooperation, both parties hope to further professionalise their services for the benefit of their members, and gain a better competitive advantage in the Dutch and international pension and asset management markets through economies of scale.

“If you look at the Dutch market you have to make a distinction between the pension funds and the financial institutions that execute the pension deals. At the moment there are about 700 pension funds here (although it is expected that there will be some consolidation which to some extent has already started) and the smaller funds in particular will be trying to find new solutions because, in order to stay compliant with legislation and increasing risk management requirements they will need to, in relative terms, invest such large amounts of money that it is going to become more and more expensive for them to do it alone.

“Then you have the world of the financial institutions that serve these Dutch pension funds and there are about seven or eight large or medium-sized organisations that operate in that market (again it is expected that there will be some degree of consolidation) - and if you are large you have economies of scale which are extremely useful in the pensions industry.”

Other big topics for the year are risk management and communication. “On the risk management side, we have made a start with the new framework but we still have some way to go. If you look at risk management practices among, for example, banks and insurance companies, pension funds by comparison – even on an international level – still have a lot to learn; and the fact that pension funds are fundamentally different to banks and insurance companies means that any new risk-based supervisory or financial framework needs to be tailor made.”

On the communication side, ABP has an ambition to be the best pension fund in the world and, says Sleijpen, it is very close to getting there. “We are keen on providing our plan members with good information – we are also proud of what we have achieved in this area; this includes a combination of on the one hand giving good information and allowing plan members to give feedback.”

For example, ABP’s award winning application “My ABP” is a web-based application which gives members real time on-line information about their pension accounts, but also allows them to change the modalities. He explains: “For example, we have a pension deal which allows members to leave when they are between 60 and 70 and with this application they can see what their pension benefits would be depending on when they retire; this is extremely powerful and something we are very proud of.”

So risk management and communication are key concerns, he concludes, but on top of that, he adds “it’s also business as usual. We want to continue to serve our client – and in our case our client is ABP – and we want to do that as good as we did it in 2007.”

* Stichting Pensioenfonds ABP has managed assets of €217 billion (as at 31 December 2007).