Investment services in the Netherlands are the cradle of a true, possibly EU-wide revolution in finance: following in the footsteps of asset owners, such as pension funds, the major banks are also rearranging their client portfolios. No longer with investment funds, but with so-called mandate solutions. The one that goes furthest in this respect is the cooperative Rabobank. Its portfolio policy may be emulated in Europe.
Rabobank recently presented a new style of its investment service to clients, called ‘Beheerd Beleggen’. In it, the bank determines the direction, BlackRock is the ‘umbrella fund manager’ of eight mandate funds in which several managers manage part of the asset allocation. It would enable Rabobank to regain full control of the client assets.
This is what Peter Dom, co-founder and partner of AF Advisors, one of the leading Netherlands-based consultancy firms in financial services, says in conversation with Investment Officer’s Dutch sister publication, Fondsnieuws.nl. Dom is responding to the question of whether the role of investment funds will eventually be over, because both major banks and pension funds are gradually switching from classical investment funds to mandate solutions.
Control of the client assets
The advantage of this architecture is that the asset owner can once again really control the client assets, the investment and the ESG policy, which is only partly the case with a retail fund. Furthermore, he or she gets real-time insight into the underlying investments and can make immediate changes to the portfolio. The costs of a mandate are also substantially lower than those of an investment fund. The cooperative bank - Rabo - passes these advantages on to the customer on a one-to-one basis.
“Now that Dutch banks have started to use mandate solutions across a broad front, there is an institutionalisation of the wholesale sector. For the account managers of fund houses in the wholesale sector, this has become a completely different game. If, as an asset manager, you want to win a mandate, you really have to adjust your pricing and other services accordingly.”
‘Wake-up call’
“In that sense, the institutionalised structure that Rabobank has now chosen really is a ‘wake-up call’ for the market,” says Dom. Not a single Dutch party has been included as a manager in the mandate funds, which Dom says means that parties need to think more carefully about “what their core business is as an asset manager”.
When asked whether investment funds are gradually going out of fashion in investment services, Dom answers with a number of trends that he sees. “An investment fund is quite expensive to keep in the air. So, it is logical that the market is looking for alternatives. In the US, for example, folio investing was once set up, which is a basket of individual shares. But that didn’t really take off.”
Another example of an ‘attack’ on investment funds were structured products, with a guarantee, but that too has a volatile popularity and still does not really break through. Another alternative that was born was crowd funding. But what was really a serious attack was institutional investors turning away from investment funds. “From their point of view, they have too many disadvantages when investing together. You have to take account of other participants and that takes a lot of time and money,” says Dom. In response to these developments, mandates have emerged and are being widely embraced.
For example, the share of investment funds in total assets under management among Dutch pension funds has fallen from 51 per cent in 2017 to 45 per cent in 2020. Trend: declining. This is partly due to the disadvantages of ‘investing together’, namely that you have to take others into account.
Institutionalising their earnings model
Now the banks are coming on top, with the investment offices, in turn, institutionalising their strategy and earnings model. All the major Dutch banks are now working on cost savings, with mandate solutions as a result.
Dom thinks that Rabobank’s chosen approach serves as an example. The investment fund will continue to exist as a fund for joint account, so the form will not change significantly, but the content will. “A mandate fund is set up over which you can have tight control, but in that fund, there are asset managers who manage certain parts of the portfolio for you.”
AF Advisors believes this is also an attractive option for other banks in Europe, although Dom acknowledges that the Netherlands is a highly institutionalised market where purchasing power and service are the main considerations along with how this can all be done as efficiently as possible. In other countries, Dom believes, the distributor’s interests will be more important.
Still, he sees the Dutch answer to scaling-up and falling fees, in the form of mandate solutions, as a fully-fledged ‘export product’. “Although I do think that this development is mainly about a different interpretation and use of structural techniques. It won’t make much difference to UCITS as a successful, widely used structure.”