A presentation delivered to the Transparency task force which helps us to understand not just what we are paying for asset management but what we are getting for our money

1. Communication of asset
management costs
How to explain costs levels of asset
management to stakeholders
April, 20th 2016
Eric Veldpaus

2. Agenda
1. Introduction
2. Costs and press
3. An example
4. Best practice disclosure
5. Questions and contact
Page 2
2© April 2016

3. Agenda
1. Introduction
2. Costs and press
3. An example
4. Best practice disclosure
5. Questions and contact
Page 3
3© April 2016

4. Page 4
Dutch landscape of
Pension Funds
• 85% of employees is a member of a Pension Fund
• 70 large pension funds for specific branches of industry
such as government employees (ABP, with up to € 356
billion AuM and health care employees (€ 166 billion AuM)
• Approximately 300 smaller company Pension Funds
• Mostly Defined Benefit contracts, but risk sharing between
employers, employees and pensioners
• Specific framework set by Dutch Central Bank (DCB)
• Necessarily to hedge interest
• Limits with regard to asset allocation
• Influence of currencies
• Obligations with regard to information to stakeholders
1.Introduction
4© April 2016

5. Pension Fund industry:
roles and responsibilities
• Board of trustees includes social partners
• Fiduciary managers / service-providers
• Asset managers
• Federation of Dutch Pension funds
• Regulatory landscape (AFM, DCB)
Page 5
5© April 2016

6. Responsibilities Board of Trustees
with regard to costs
• The Board is responsible for costs and cost reporting
• Organize adequate reporting of costs by their asset managers
and / or service-providers
• Disclose costs (taking complexity into account)
Page 6
6© April 2016

7. Recommendations
• Report the costs related to pension management in euros per
member. The number of members is the sum of active
members and pensioners.
• Report the asset management costs as a percentage of the
average asset under management. In addition, review these
costs in relation to:
• The investment mix selected and the associated benchmark costs
• Long term return
• On a separate basis, report the transaction fees as a
percentage of the average assets under management.
Page 7
7© April 2016

8. Implementation results
• High compliance rates to the Recommendations. 96% of
funds report pension management costs, 95% asset
management costs and 77% transaction costs (2014).
• Increase in cost comparability between funds.
• Regulator and supervisor use Recommendations in law and
regulations.
• Transparency leads to media attention, questions from
Page 8
8© April 2016
Source: Federation of Dutch Pension Funds, February 3rd, 2016

9. Agenda
1. Introduction
2. Costs and press
3. An example
4. Best practice disclosure
5. Questions and contact
Page 9
9© April 2016

10. 10© April 2016
Source: Pensioen Pro Nr. 07
Asset management costs 2014
Top 15 highest costs(bp) Top 15 lowest costs(bp)

11. • Compare cost level with other pension funds?
• Asset management costs compared to peer group?
• How to explain to stakeholders?
• Comparing apples to oranges ?
© April 2016 11
How to explain?

12. Risks, return and costs
Costs
• Risk and return are
central issues; costs
follow from these.
• Do not look at the
costs separately, but
always in relation to
return and risks.
Return
(asset
allocation)
Risks
Page 12

13. Agenda
1. Introduction
2. Costs and press
3. An example
4. Best practice disclosure
5. Questions and contact
Page 13
13© April 2016

14. Pf. A Pf B.
Gemiddelde vermogensbeheerkosten sector : 53 bps
IBI Benchmark 17 79
Asset management costs (in bps) 22 70
• Aandelen 35% 50%
• Vastrentende waarden 60% 30%
• Alternatieve beleggingen 5% 20%
Netto rendement verslagjaar (in bps.) 500 1.000
Gemiddeld netto rendement afgelopen 3 jaar (in bps.) 300 900
IBI Asset Allocatie Index 85 125
IBI Alpha Index 15 110
IBI Implementatie Index 115 85
© April 2016 14
Which pension fund do
you prefer?
Waarvan prestatie gerelateerde vergoedingen 0 20
Waarvan excess rendement 0 100
Waarvan excess rendement 10 250

15. Pf. A Pf B.
Average management costs of the Dutch pension fund industry 53 bps.mark
17 79
Asset management costs (in bps) 22 70
• Aandelen 35% 50%
• Vastrentende waarden 60% 30%
• Alternatieve beleggingen 5% 20%
Netto rendement verslagjaar (in bps.) 500 1.000
Gemiddeld netto rendement afgelopen 3 jaar (in bps.) 300 900
IBI Asset Allocatie Index 85 125 15
110
IBI Implementatie Index 115 85
© April 2016 15
Average costs as a norm?
Waarvan prestatie gerelateerde vergoedingen 0 20
Waarvan excess rendement 0 100
Waarvan excess rendement 10 250

16. Pf. A Pf B.
Average management costs of the Dutch pension fund industry 53 bps
IBI Benchmark 17 79
Asset management costs (in bps) 22 70
• Equity 35% 50%
• Fixed income assets 60% 30%
• Alternative investments 5% 20%
Netto rendement verslagjaar (in bps.) 500 1.000
Gemiddeld netto rendement afgelopen 3 jaar (in bps.) 300 900
IBI Asset Allocation Index 80 125
IBI Alpha Index 15 110
IBI Implementatie Index 115 85
© April 2016 16
Asset allocation important
cost driver
Waarvan prestatie gerelateerde vergoedingen 0 20
Waarvan excess rendement 0 100
Waarvan excess rendement 10 250
Takes differences in asset allocation into account

17. Pf. A Pf B.
Average management costs of the Dutch pension fund industry : 53 bps
Benchmark costs 17 79
Asset management costs (in bps) 22 70
• Equity 35% 50%
• Fixed income 60% 30%
• Alternative investments 5% 20%
Netto rendement verslagjaar (in bps.) 500 1.000
Gemiddeld netto rendement afgelopen 3 jaar (in bps.) 300 900
IBI Asset Allocation Index 80 125
IBI Alpha Index 15 110
IBI Implementatie Index 115 85
© April 2016 17
Use benchmark costs as
the reference
Waarvan prestatie gerelateerde vergoedingen 0 20
Waarvan excess rendement 0 100
Waarvan excess rendement 10 250

18. Pf. A Pf B.
Gemiddelde vermogensbeheerkosten sector : 53 bps
Benchmark costs 17 79
Asset management costs (in bps) 22 70
• Equity 35% 50%
• Fixed Income 60% 30%
• Alternative investments 5% 20%
Nett return (in bps.) 500 1.000
Gemiddeld netto rendement afgelopen 3 jaar (in bps.) 300 900
IBI Asset Allocation Index 80 125
IBI Alpha Index 15 110
IBI Implementatie Index 115 85
© April 2016 18
Cost in relation to return
Waarvan prestatie gerelateerde vergoedingen 0 20
Waarvan excess rendement 0 100
Waarvan excess rendement 10 250

19. Pf. A Pf B.
Gemiddelde vermogensbeheerkosten sector : 53 bps
Benchmark costs 17 79
Asset management costs (in bps) 22 70
• Equity 35% 50%
• Fixed income 60% 30%
• Alternative investments 5% 20%
Net return (in bps.) 500 1.000
Gemiddeld netto rendement afgelopen 3 jaar (in bps.) 300 900
IBI Asset Allocation Index 80 125
IBI Alpha Index 15 110
IBI Implementatie Index 115 85
© April 2016 19
Active / passive management
Including performance related costs 0 20
Including excess return 0 100
Waarvan excess rendement 10 250
Takes differences of active / passive management into account

20. Pf. A Pf B.
Gemiddelde vermogensbeheerkosten sector : 53 bps
Benchmark costs 17 79
Asset management costs (in bps) 22 70
• Equity 35% 50%
• Fixed income 60% 30%
• Alternative investments 5% 20%
Net return (in bps.) 500 1.000
Gemiddeld netto rendement afgelopen 3 jaar (in bps.) 300 900
IBI Asset Allocation Index 80 125
IBI Alpha Index 15 110
IBI Implementatie Index 115 85
© April 2016 20
Hedging interest
important for return
Including performance related fees 0 20
Including excess rendement 0 100
Waarvan excess rendement 10 250
Including return interest hedge 200 150

21. Pf. A Pf B.
Benchmark costs 17 79
Asset management costs (in bps) 22 70
• Equity 35% 50%
• Fixed income 60% 30%
• Alternative investments 5% 20%
Net return (in bps.) 500 1.000
Average netto return past 3 years (in bps.) 300 900
IBI Asset Allocation Index 80 125
IBI Alpha Index 15 110
IBI Implementation Index 115 85
© April 2016 21
Interest hedge return
past three years
Including performance related fees 0 20
Including excess rendement 0 100
Including excess rendement 10 250
Including return interest hedge 200 150
Including return interest hedge 300 450

22. 22© April 2016
Matrix
Pf A
Pf B
Excl. performance
related costs
IBI Asset Allocation Index vs cost of policy mix
IBI Asset Allocation Index vs cost of policy mix
IBIAssetAllocationIndexvscostofpolicymix
Fund
Peers
Universe

23. IBI Transparency Index tm
• IBI developed a Transparency Index
• This index shows whether all asset management costs are disclosed
• Similarly for Pension administration costs
Page 23
23© April 2016
IBI Transparency Index vs asset management costs
TransparencyIndex
Fund
Peers
Universe
Asset management costs

24. Agenda
1. Introduction
2. Costs and press
3. An example
4. Best practice disclosure
5. Questions and contact
Page 24
24© April 2016

25. Best practice disclosure ?
Page 25
25© April 2016

26. Too much disclosure is
unnecessary and confusing
• Use investment believes to explain the cost level;
• Avoid detailed tables with costs per asset category  next step is
to explain that pension funds use different strategies;
• The disclosure of cost levels might even be confidential
information agreed with asset managers and other service
providers such as custodians.
The board of directors :
• Is responsible for the implementation of the strategy agreed
upon in the annual investment plan.
• They should receive relevant and detailed information and judge
whether the costs are in line.
• Based upon this information they might decide to optimize costs.
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26© April 2016

27. Agenda
1. Introduction
2. Costs and press
3. An example
4. Best practice disclosure
5. Questions and contact
Page 27
27© April 2016

28. 28© April 2016
Eric Veldpaus
+31 20 208 8507
eric.veldpaus@institutionalbenchmarking.org
Institutional Benchmarking Institute
P +31 20 208 8555
F +31 20 208 8525
www.institutionalbenchmarking.org
Questions?