Shell stops paddling and jumps in pensions pool

After much dipping of toes in water, Royal Dutch Shell has finally taken the pensions pooling plunge. Following the examples of Unilever and Nestlé, the oil company will pool all its global pension and insurance assets in order to outsource administrative and other functions to JPMorgan.

Shell Asset Management Company (Samco), the asset management arm of Royal Dutch Shell, has entered an agreement with JPMorgan Investor Services to provide pooling services for $70bn (£35bn, €44bn) of pension assets. The deal includes custody, fund accounting, fund administration and certain securities lending services from all segregated and pooled accounts.

Samco has already transferred 75 per cent of the assets to JPMorgan and the process should be completed later this year. The asset manager will create a single fund for the assets, a tax-transparent joint account vehicle that will be a Dutch-registered FGR (Fonds voor Gemene Rekening) under Ucits III regulation.

“Pooling has been done before but it never really took off because the offerings in the market were never really complete,” says Francis Jackson, head of EMEA business development and relationship management at JPMorgan.

“With this Shell mandate, we have created a pooling service that will support Samco globally. We will provide full transparency around all the tax jurisdictions of all the underlying pension funds, which allows Samco to manage all those assets without having to worry about the tax status of the individual funds, enabling them to manage all those pooled assets in the same way as they would manage segregated assets.”

Multinational corporates have tried to come up with a better way to manage all their pension assets and liabilities, but there has been little flexibility, with tax constantly seen as a key issue.

“Tax is a substantial issue when it comes to pooling; putting together a pooling capability that not only allows for assets to be pooled in a single pot, but also has the ability to tag the tax identifiers onto the ownership of that pool at different multiple levels, is the differentiator,” says Mr Jackson. “

In the case of Samco, they can look into the pool and see what the tax status is of each of their investments in that pool and manage the assets accordingly, and we think this is a first. Significantly, we can also lend securities out of this pool.”

He claims pooling is starting to pick up as service providers launch better offerings.

“If you’re the CFO [chief financial officer] of a multinational corporate, one of the biggest worries you have is pensions. You need to ask what is the status of each individual pension fund globally, what are the liabilities against each individual pension fund globally, and how to manage that more centrally and look after the pensions and protect the interests of the corporate at the same time.”

Until now, he says, “pension funds have never had the infrastructure, the technology or the ability from an administrative perspective to look at all this in one place”. Mr Jackson says Samco’s pooling decision will result in significant cost savings because it will have all the information in one place, relieving the internal administrative burden.

“It also helps pension funds measure their liabilities more accurately, as well as allow them to make more use of derivatives, currency, hedging and greater use of swaps and options to help improve cash flows and yields,” says Mr Jackson.

Peter Wit, Samco’s operational and financial director adds: “The pooling platform will enable a number of [smaller] pension funds to invest in the markets as if they were one [larger] fund.

“This has advantages in terms of better risk-adjusted returns through better diversification, risk reduction through the simplification of operations, potential increases in revenue through ability to engage in more security lending at better rates as well as lower cost from investment managers without losing the benefit of pension fund specific tax treatment.”

Kalpana Fitzpatrick is the editor of PensionsNews.com

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