Pensions advisory groups tap actuarial talent

While investment bankers and traders are reportedly scooping up hefty bonuses, a lesser known subsector of the financial services community is not doing too badly either. Actuaries are flavour of the moment with investment banks.

Recruiters in the US and Northern Europe say corporate pension deficits are driving demand for actuaries who can help match pension fund assets to ever mounting pension liabilities. As the problem becomes more acute, so demand is likely to rise.

"Banks are keen to strengthen their offering in this space," says Kim Yates, a director at London-based search firm Principal Search. She says, "There are several clear leaders, and others are seeking to challenge them."

The leaders are Goldman Sachs and Morgan Stanley, which formed so-called 'pension advisory groups' in the late 1990s and now have large teams devoted to the business. More recent entrants include ABN AMRO, which founded its pension advisory group in 2004. Rumour has it that Lehman Brothers plans to enter the market this year, a fact the bank was unable to confirm.

Deficits prompt recruitment

The carrot encouraging banks' pursuit of fees in the pensions advisory market is the rising tide of pension deficits.

Estimates from accountancy firm Deloitte suggest aggregate pension deficits for FTSE 100 companies in the UK exceed 100bn (€145bn, $179bn), with the total forced significantly higher in recent weeks by falling bond yields. Earlier this month, Donald Duval, chief actuary of pensions adviser Aon Consulting, said British Airways should declare itself bankrupt in the face of its 1.4bn pension deficit. In the US, IBM, Verizon, Motorola and others have recently frozen their pension plans in the face of the mounting cost of funding 401(k) contributions.

Not all countries are equally affected, however. While the corporate sector in the US, the UK and other northern European countries such as Holland struggles under the burden of large pension deficits, in Italy and France the pensions burden is currently borne primarily by the state.

"Italian state provision is very generous," says Gareth Derbyshire, managing director in the insurance and pensions group at Merrill Lynch. He says, "It could be said the Italian state is being bankrupted by its current pension commitments."

Holland is hot

Actuaries with a yen to work in banking will therefore find it easiest to do so in Northern Europe and the US.

René de Zwaan, a consultant at search firm Russell Reynolds in Amsterdam, says hiring is robust in Holland in anticipation of new financieël toetsingskader (FTK) legislation, expected to come into force next year. The new law will require pension funds to match liabilities and assets over a longer period. "A lot of the investment banks are looking for Dutch nationals to join their pension advisory teams in London," he says.

Demand also exists in the smaller Swiss market, where Mark Ritter, senior consultant at Zurich-based MCZ Consulting, says pensions advisory services are offered by private banks such as Julius Baer and Pictet, as well as universal banks such as UBS and Credit Suisse.

In the US, Jacob Navon, a partner at New York-based search firm Westwood Consulting, says jobs matching pension liabilities with assets are currently focused on the buyside. "Ten years ago, these groups were in sellside firms, but a lot were shut down around 2000," he says. "Now it is the investment managers who are most interested in building their pension advisory capability."

Not all are welcome

For all the hiring, actuaries working in pension consultants will not necessarily find it easy to transfer to a more lucrative role in an investment bank or fund manager.

Derbyshire at Merrill Lynch, himself an actuary by training, says actuarial skills alone are insufficient: "We need a combination of actuarial abilities, detailed derivatives knowledge, quantitative skills, structuring skills, and sales skills. That's rarely found in one person."

Navon says the ideal candidate is impossible to find: "We're looking for people with an investment management or actuarial background who have very sophisticated derivatives knowledge and a strong awareness of pension finance. These people just don't exist."

Seven-figure pay packages

If banks are choosy about who gets to work in their pension advisory groups, that's probably because they can afford to be.

In the UK, Yates at Principal Search says actuaries currently working for investment consultants have a strong incentive to move. "A senior investment consultant can earn a six-figure base, plus a 20% bonus. In a bank, base pay in pensions advisory groups may well be a bit lower, but the bonus could be several hundred thousand."

In the US, Navon at Westwood Consulting says candidates with five years' experience are rare, with the result that seasoned employees working on pension advisory teams in investment banks can expect packages pushing on seven figures.

And de Zwaan at Russell Reynolds in Amsterdam says seven-figure packages are also on offer for top performers in Dutch pensions advisory teams.