Control of costs

The degree of realisation of the return target after costs is decisive in assessing whether the manager is best in class. In every step of the Product Approval Process, there is attention to controlling the overall costs. The Investment Case for an asset class indicates a bandwidth for costs. In the reviews per asset class, Fiduciary Advice makes a cost comparison with other market parties. In the execution per asset class, a fee protocol is used prescribing maximum costs. Control of cost is a condition for us to be a financially healthy organisation and indispensable in order to realise our strategy.

Interest rates are extremely low and the return on investments is expected to be historically low in the coming period. This influences the affordability of pension but also puts pressure on lowering (hidden) costs in our daily execution. That is why we work on client returns, critically examining what our current strategic investments yield and aiming at improving efficiency.

With the Cost Efficiency program, we are investigating how we can work more cost-efficient within PGGM Investments. Cost efficiency is part of a bigger picture, in which we examine the business model of the future with Vision2030 by PGGM Investments: emphasizing which asset management organization do we want to be in the upcoming period? And what cost level is associated with that? At the same time, we now sometimes spot inefficiencies in our day-to-day work, which we do not always address. With this program we want to realize small and bigger changes, short and long run improvements. As an aside, this will yield us more than just financial savings. Consider, for example, savings on meeting, working and traveling time, and the reduction of bureaucracy and CO2 emissions. With the aim of lowering costs, more focus on what is important and more job satisfaction stressing our license to operate for the upcoming years.

A more cost-efficient investment management: internal costs

In analysing our external expenses, we mainly look at expenditures that are now specified as "other". With a data analysis and interviews with various colleagues, we gained insight where costs can be saved in the short term. A few results:

External hiring is now only possible through our purchasing desk, which takes care of standardized contracts, fair prices and negotiates better conditions in case of larger contracts.
Due to the pandemic, we are now better equipped to have online meetings instead of meeting in person and therefore were able to cut down travelling budgets by 20%.
We reviewed our paper subscriptions to papers and magazines and decided to reduce these to a minimum required for executing our BiC performance. This not only saves us money, but also leads to CO2 reduction.

Reviews Front Office

We are working on a plan to reduce the time needed for Front Office reviews. At this moment, a Front Office team is usually reviewed by six internal and external parties. There appears to be a considerable overlap between the information requested for different reviews. By creating a database with information about the required documents, reports and findings from previous reviews, reviews can become much more efficient. Existing information will then be included. But also we review whether all reviews are necessary, improving our entire business efficiency.

(Simplified) Control Framework

The Control Framework includes all Investment Management processes and provides insight into which control measures are used to control these processes. We currently have a very extensive and complete Framework, and the Standard 3402/3000A for 2020 contained no restrictions (a so-called 'clean' auditor's report). The downside, however, is that we currently spend a lot of time preparing reports in which we demonstrate how we comply with the Control Framework.
That is why we strive to moving towards a simplified version of the Framework. We are looking at how we can seamlessly connect the Control Framework 2.0 with our primary process. The aim is to reduce the extra time spend on establishing our controls by 90% for 2022 compared to 2020. And we have already started: in Phase 1 of the project, we picked the low-hanging fruit by eliminating 55 controls.

Outlook on cost efficiency

In 2022 we will continue to work on cost efficiency initiatives. In addition to the previous example, we are working on issuing less reports, or at least issuing less frequent, more concise and more targeted, yet in coordination with the target audience of the specific reports of course. We are continuously looking for a way in which we can have more efficient meetings, by reducing the time, frequency, number of participants, while at the same time keeping all stakeholders involved. Also, we currently administer externally managed mandates both internally and externally. This means that we are partially performing the same administrative tasks as the external managers do. This way of working doesn’t comply with our Future State Architecture and should be made more efficient. That is why we have started mapping the administrative processes and the information needs of various departments involved (such as Front Office, Risk and Reporting) and external parties. Additionally, we are currently carrying out a cost benchmarks, in order to compare our costs at function level with those of our peers. With the results of this research we will define new cost saving projects for the coming years.