At the request of DUFAS (the Dutch Fund and Asset Management Association) and OPF (the Dutch Association for Company Pension Funds) De Brauw has drafted a template Fiduciary Management Agreement, which is based on The DUFAS Principles of Fiduciary Management, which were published on 13 November 2008.

The Fiduciary Management Agreement is a template for Dutch pension funds to use when outsourcing fiduciary management to investment firms. It has been designed to assist pension funds and fiduciary managers to structure their fiduciary management relationship and properly allocate the different tasks and duties to both parties, taking into account their different roles and legal obligations.

The Explanatory Notes clarify certain specific provisions of the Fiduciary Management Agreement.

Fiduciary Management

Fiduciary management is fundamentally different from operational asset management. Transferring the management of assets to a fiduciary manager, gives a pension fund access to professional expertise with regard to:

  • pension fund asset management;
  • management of the pension fund’s entire balance sheet; and
  • increasingly stricter regulatory supervision.

Fiduciary management has become increasingly important in the institutional fund management industry.

Fiduciary management activities

The template Fiduciary Management Agreement encompasses arrangements for a wide variety of both core and additional activities, including advising the pension fund on:

  • the ALM study;
  • the Strategic Investment Policy (Strategisch Beleggingsbeleid);
  • the Investment Plan (Beleggingsplan);
  • the continuity analysis;
  • if necessary: recovery plans; and
  • the actuarial and technical business report (actuariële en bedrijfstechnische nota).

The fiduciary manager will typically:

  • select operational asset managers and investment institutions;
  • conclude and terminating operational asset management mandates;
  • supervise the operational asset managers and investment institutions;
  • execute overlay-strategies regarding all of the pension fund assets, including by derivatives transactions to hedge currency and interest risks;
  • measure and analyse the management performance and management of operational asset managers and investment institutions; and
  • report to the pension fund on all investment activities carried out in respect of the pension fund assets under the Fiduciary Management Agreement.

Other services to be rendered by the fiduciary manager to the pension fund may include:

  • selecting custodians, prime brokers, clearing brokers and executing brokers;
  • maintaining contact with and cooperating with the custodian;
  • advising on and drafting the reports of the pension fund to the supervising authorities; and
  • advising on issues of corporate social responsibility.

Both the pension fund and the fiduciary manager must carefully consider which of these activities are to be included as well as the scope of these activities prior to entering into the agreement and subsequently transferring the fiduciary management to the fiduciary manager.

Other aspects of the agreement

In addition to selecting various activities to be carried out by the fiduciary manager and making the corresponding choices, parties need to realise that other aspects of a fiduciary management agreement are equally important when setting up a framework for rendering fiduciary management services, including:

  • a clear conflicts of interest policy must deal with potential conflicts of interest between the pension fund and the fiduciary manager;
  • transparency about all costs and fees in connection with the fiduciary management; and
  • transparency about costs associated with the investment of assets with operational asset managers or investment institutions.