Private pension schemes in Spain have more than doubled since 1989. By the end of June 2007, total assets had risen to €83.7bn, up 14% year-on-year, according to the Association of Investment and Pension Fund Managers. Growth has been driven in part by concerns over the future public pension system, owing to demographic pressures on public finances.

The industry received a boost following a law which made it mandatory for non-financial firms to delegate their pension fund operations to institutional money mangers. The private pensions market, however, is still underdeveloped and concentrated among a number of domestic financial institutions. The sector is largely dominated by Banco Santander Central Hispano (BSCH), Banco Bilbao Vizcaya Argentina (BBVA) and La Caixa. Together they represent 42% of the market (€30bn consists of corporate pension assets), according to Inverco. They are followed by Fonditel, Grupo Caser and Ibercaja.

Fonditel is one of the largest managers of defined contribution corporate pension assets with no ties to the banking sector. In recent years, it has attracted clients from other companies outside Telefonica. Many of them are multi-nationals like Hewlett Packard with Spanish operations. About 20% of Fonditel’s total DC assets under management come from outside Telefonica. Luis Pena, Fonditel’s CEO, believes the Spain’s second pillar has remained largely static and does not see room strong growth. “The government does not want to introduce the necessary reforms,” he says. “The workers do not want to defer their pensions. They want their money now. The sponsors do not want it. It is absolutely dead.”

Foreign money managers, whose roles have so far been limited to mutual fund distribution, have also had a difficult time entering Spain’s historically closed occupational market. As the Directorate General of Insurance and Pension Funds relaxes legislation to allow up to 30% of assets to be invested in alternatives such as private equity and hedge funds, pension funds may increasingly turn to non-domestic managers for expertise.

In addition, Spanish regulators restrict managers from charging more than 2% in fees for occupational and individual pensions. The cap has made it difficult for external managers to compete with domestic banks; however, the law is under consideration and may be lifted this year, removing another obstacle to entry for non-domestic players.

VB and VC