Af2i, the French institutional investor association that represents more than €2.2trn in assets, has written to the French presidential election candidates with its policy wish-list, ranging from domestic fiscal matters to Brexit and France’s place in the European Union.Released last week, ahead of the first round of presidential elections on 23 April, the open letter was split in two, covering issues at the national level, such as the financing of the real economy and infrastructure, and issues at the level of the European Union, such as accounting and prudential regulation. The association said the measures it proposed reflect the views of the majority of its members.At the national level, Af2i praised the work being done by industry-led initiatives, such as the FROG working group, to boost the competitiveness of French asset management. It said that these should be perpetuated in order “to promote and accelerate the reforms that our economy and financial players need”.It contrasted these types of initiatives with rules and regulation it said the financial industry wished were less burdensome and better co-ordinated or consulted on. Af2i highlighted draft reforms of the rules for pension schemes for the “free” professions (such as dentists, architects, and mid-wives), saying the envisaged regulations were difficult to follow, would increase operational and compliance risks, and would impose unjustified and detrimental asset sales.The regulation needed to be re-worked, but without haste and with full industry consultation, it said.Another specific request from Af2i was for the creation of a common institutional investor code, which it said would allow disparate and often obsolete rules – and good practice – to be unified in a single legislative or regulatory text.A spokesman for Af2i noted that there were more than 20 types of entities deemed to be institutional investors in France, each governed by their own set of rules, which can be different or relatively similar, albeit without being identical.He told IPE the association thought it should be possible to agree on matters such as the notion of prudent management, the definition of eligible assets, good governance, risk control, and the use of derivatives and financial instruments such as futures. Brexit concerns and opportunitiesThe UK’s pending departure from the European Union featured in Af2i’s letter, with the association saying that the country’s institutional investors feared unintended consequences if Brexit negotiations were unsuccessful and the European political climate deteriorated.The association estimated that more than €300bn of French institutional assets were managed by London-based financial institutions of various nationalities, and said that the loss of the European investment fund passport would lead to uncertainty that institutional investors could have done without.Af2i’s Brexit proposals to the presidential candidates included promoting the development of French subsidiaries of international fund managers in Paris and encouraging French expats to return to the capital. In connection with this, the state should promote accelerated construction of offices and quality accommodation in or near to the business districts in Paris, it said.In a section dedicated to France’s place in Europe, the association’s letter said the country had many attractive features with regard to finance, but that “its voice is timid, little heard, and misunderstood”.Brexit and the ensuing negotiations, both external and internal, were “a dream opportunity” for the country’s financial actors to be more present and more influential, with more support from the public authorities, said Af2i.The letter can be found in full here.Read more about French pension reform ideas and plans in IPE’s forthcoming May magazine
The Commission said the changes would help make the funds more attractive to investors.Invest Europe, the association for European private equity and venture capital, said it welcomed the agreement reached by the three EU institutions.“Several positive elements of the Commission’s proposal were accepted, including those extending the regime’s scope and flexibility on eligible investments,” it said. “We anticipate that the final text will be appropriate and proportionate for the venture capital industry’s needs, to improve take-up of the EuVECA label and facilitate greater investment in Europe.”In November last year the Commission and the European Investment Fund – a branch of the European Investment Bank – launched a pan-European venture capital fund of funds in a bid to attract capital from major institutional investors.In Denmark, a recent proposal from the country’s IT industry association for a state-supported venture capital fund drew a cautious response from some pension funds.Securitisation rules take a step forwardAlso this week, EU lawmakers agreed a new regulatory framework on securitisation which they hope will free up €150bn for investment into the European economy.It is hoped this will revive interest in the asset-backed securities (ABS) market by setting out criteria to distinguish “simple, transparent, and standardised” (STS) securitisations from more opaque and complex ones.In a statement, the Commission said the regulatory package “bears no relation” to the securitisation of sub-prime mortgages in the US that was a major factor in the 2007-08 financial crisis.“The European Commission does not intend to go back to the days of opaque and complex sub-prime instruments,” it said. The new regulatory framework for securitisation comprises two legislative measures: a regulation on securitisation that includes rules on due diligence, risk retention, transparency, and criteria defining STS securitisations; and an amendment to the capital requirements regulation for banks.Edward Scicluna, minister for finance of Malta, which currently holds the Council presidency, said that it would help “relaunch the securitisation market”.The Council in a separate statement said: “Developing a securitisation market will help create new investment possibilities and provide an additional source of finance, particularly for SMEs and start-ups.”However, the framework still faces some hurdles, especially over the so-called “retention rate”, which sets how much an issuer of a securities package has to hold onto as a guarantee of propriety.The Commission’s initial proposal was for ABS issuers to retain 5% of the whole issuance. A draft text from the European Parliament raised the minimum to 10% or, in certain circumstances, higher. Dutch rapporteur Paul Tang supported the latter position on the grounds that the market needed to survive “in good times but also in bad times”.Finance Watch, a public interest association in Brussels, argued: “Unfortunately, at 5%, the risk retention requirement is too low to provide a meaningful [disciplinary] effect for banks.”The Association for Financial Markets in Europe added that it understood there would be “provisions for supervisors to monitor build-up of excessive risks on the market and to be ready to step up with warnings or recommendations”. However, there were still “technical details” to be agreed.On the other side of the fence, Austrian MEP Othmar Karas said too many limits would prove detrimental: “If you were to build a car that has seven safety belts, eight airbags and can only drive a maximum of five kilometres per hour, nobody would buy it.”The European Commission has called the securitisation rules “one of the cornerstones of the CMU”.“Securitisation can allow diversification of funding sources and a broader distribution of risk by allowing banks to transfer the risk of some exposures to other institutions or long-term investors, such as insurance companies and asset managers,” the Commission said.“This allows banks to free the capital they set aside to cover for risks of those exposures, allowing them to generate new lending to households and SMEs. STS securitisations will also provide new investment opportunities for institutional investors such as pension funds and insurance companies.” The European Union has agreed new rules aimed at stimulating venture capital investments in the EU and reviving the region’s securitisation market.The agreements on both sets of regulations are part of the European Commission’s action plan to create a Capital Markets Union (CMU) in the EU.The revised regulations on European venture capital funds (EuVECA) and European social entrepreneurship funds (EuSEF) will open these areas up to larger fund managers and expand the range of companies in which the funds can invest.The new rules will also make cross-border marketing of the funds cheaper, and simplify registration processes.
Denmark’s largest commercial pension fund PFA took a hit to its bonus pool because of rising life expectancy.PFA boosted its business in the first nine months of the year, according to its third-quarter resuts, but its bonus potential was dented by DKK2.2bn (€296m) of provisions set aside to account for increased life expectancy of its members.The pension fund said its investments produced between 4.3% and 9% in profits for market-rate customers between January and September, and 1.8% for customers on average-rate pensions.Allan Polack, PFA’s chief executive, said: “People in Denmark live longer, which is positive, but when longevity in Denmark increases markedly, we must take due account of this in our financial statements.” Since 30 September, PFA’s life insurance provisions have been based on a 20-year longevity benchmark instead of the previous 30-year benchmark, it said.This change reduced the collective bonus potential by DKK2.2bn, with this increase also affecting results for the first three quarters of 2017.In the first nine months of the year, PFA’s regular pension contributions were up 12% year-on-year. In the same period, it won 189 new corporate customers and lost 59.“We are seeing considerable growth in regular payments and we are attracting many new corporate customers, which is impressive in a mature market,” Polack said.PFA’s customer assets rose to DKK463bn at the end of September, from DKK440bn.Alternatives boost Danica in 2017Meanwhile, Danica Pension said alternative investments produced particularly strong returns for its customers in the year to September, with the asset class generating 9.6% overall in the period.Per Klitgård, chief executive of the Danske Bank pensions subsidiary, said: “With our alternative investments, we are spreading our investments and producing attractive returns.”In the first three quarters of the year, Danica Pension had put around DKK6bn directly into “sound companies”, he said.“In the coming years, our ambition is to invest DKK15bn annually, provided we can find suitable investment prospects,” Klitgård added.The firm began its direct investment strategy in 2014.Danica Pension increased its return for unit-linked pensions to 6.3% in the first nine months of this year, from 1.3% for the same period in 2016, according to its interim financial report.However, the return on traditional with-profits pensions fell to 1.3%, from from 8.9%.Folksam hits out at savings taxSwedish pensions and insurance group Folksam has criticised the government’s plan to increase tax on insurance-based savings products.In the group’s interim report, chief executive Jens Henriksson highlighted the government’s proposal for the increased tax, which is set to take effect on 1 January next year.“For us in the Folksam Group, the starting point is always our customers,” he said. “Even though the cost of the increased tax is modest, the focus should be on creating opportunities for higher pensions instead, because they are already under pressure.”Folksam’s life insurance and pensions division Folksam Liv made a 3.4% total return in the nine months to the end of September.KPA Pension, which covers local government staff in Sweden and is 60% owned by Folksam, made a 3.7% return in the period.
Societe Generale Securities Services (SGSS) has partnered with a French financial technology company to introduce automated performance commentaries for its asset management clients.The fintech firm, Addventa, uses artificial intelligence (AI) techniques to draft portfolio management commentaries in a range of languages and covering specific time periods, based on data from SGSS’ analytics tools.In a statement, SGSS said the new service would help fund managers and investment teams to meet their regulatory reporting requirements and free up time for staff to spend on other work.Damien Jamet, head of transformation and innovation at SGSS, said: “This partnership is another illustration of Societe Generale’s open innovation and partnership approach with the fintech ecosystem.” SGSS has joined a growing list of companies exploring uses of AI and related technologies to improve financial products and processes.Most recently, Japan’s Government Pension Investment Fund published a report that suggested using AI could improve its analysis of manager performance and inform its selection process.Dutch asset manager NN Investment Partners hired a head of AI investing in September. Rani Piputri has been tasked with overseeing the company’s 16 investors, data scientists and researchers running €11bn across several factor investing strategies.Earlier this year, the Finnish Centre for Pensions ran tests that suggested AI technology could predict — to some extent — which individuals would take early retirement on health grounds.In tests, the technology managed to identify four out of five retirees taking a disability pension two years before they had actually done so, the centre said.
Chris Cummings, chief executive of the IA, said: “The publication of gender pay gap figures is opening up important conversations in boardrooms around Britain about how we recruit, promote and retain a diverse talent pool. The bottom line is clear: firms with a diverse management team and pipeline make better decisions.” State Street’s ‘Fearless Girl’ statue was moved last month from Wall Street in New York to Paternoster Square in London, close to the London Stock ExchangeThe IA’s ‘Closing the Gap’ report describes 15 projects being implemented by the industry to address the gender pay gap and diversify the sector. These are based around three core themes: attraction and recruitment, retention, and advancement.Some plans introduced by IA members included offering support early on in womens’ careers, such as female recruitment days and gender-focused insight days. Asset managers have also introduced requirements for gender-balanced short and long lists when recruiting for a role, and name-blind CVs.“The sobering gender pay gap figures – as opposed to unequal pay which is illegal – published for the first time last year were never going to be fixed overnight, and it will take time for the solutions that our industry [is] pursuing to bear fruit,” said Cummings.“But it is only by investing in long-term solutions that we can hardwire diversity into the foundations of our industry and help it become more diverse, inclusive and more successful, at every level.”The report suggested that companies should implement strategies to increase balance in pay and employment between genders, such as gender representation for new candidates and monitoring the number of applications received by gender each year.The IA said that two thirds of members surveyed conducted equal pay audits and monitored gender related metrics, but the level of detail of these varied widely from firm to firm.How asset managers are shaping up on gender pay gapsData reported by some of the UK’s largest asset managers (or their parent companies) shows positive progress on addressing the gender pay gap since the first reports last year.Median gender pay gap (%)Chart Maker* Goldman Sachs UK Limited, a separate legal entity, had a median salary gap of 19.5% in 2018, down from 20.2% a year earlier. ** 2017 data based on pre-merger Aberdeen Asset Management. Standard Life Investments reported the same figure.Median gender bonus gap (%)Chart Maker* Goldman Sachs UK Limited, a separate legal entity, had a median bonus gap of 35.8% in 2018, up from 30.5% a year earlier. ** 2017 data based on pre-merger Aberdeen Asset Management. Standard Life Investments reported a gap of 53%.The Pension Protection Fund – the UK’s lifeboat fund for defined benefit pension schemes – reported its gender pay gap in February. The median measure for salaries fell from 20.4% in 2017 to 17.2% in 2018. However, the median bonus gap increased year on year, from 24.1% to 30.6%.Katherine Easter, chief people officer at the PPF, said the organisation was “still a long way from where we want to be”.“This year’s results tell us that we must continue working hard to increase the pipeline of talented women in our organisation,” Easter added.“Our gender pay gap is largely driven by the number of men in our investment team relative to women and the way specialist skills in that area are rewarded. The other main reason for the gap is that we don’t have enough women in senior roles.“We’ve made progress on our target to have 40% female senior leaders by 2021. We’re focusing on growing our own pipeline of talent to achieve this.”Additional reporting by Nick Reeve UK asset managers have reported a median pay gap between men and women of 31%, according to a report published today.The Investment Association (IA), which represents the UK’s £7.7trn (€9trn) asset management sector, published the data ahead of the deadline for UK companies to report on the pay gap between men and women at their organisations.The IA said a significant contributing factor to this gap was the lack of women in senior positions.Its member survey found that only 11% of respondents reported having a female chief executive or chair of a supervisory board, while women made up 38% of total employees working in asset management.
According to its website, Fondo Telemaco also issued tenders for an active European equity manager and a passive global equity manager in November, at the same time as it opened the search for the fixed income mandates.In February, the pension fund advertised for a manager to run its guaranteed sub-fund.Speaking to IPE last year, director Marco Melegari said the scheme was also exploring options for investment in alternatives, such as private debt or private equity. Payden & Rygel managed more than €30bn for European institutional investors, according to IPE’s Top 400 Asset Managers survey, and was ranked 135th globally by assets under management.Further readingTelemaco: A colourful approach Director Marco Melegari explains the Italian pension fund’s investment approach and its plans to revise its asset allocation. An Italian industry pension fund has appointed fixed income specialist manager Payden & Rygel to run two mandates totalling €250m.The €1.8bn Fondo Telemaco pension fund has tasked Payden & Rygel Investment Management with two bond mandates “with an absolute return target”, according to a statement from the asset manager.Fondo Telemaco is the pension fund for Italy’s telecommunications industry.Nicolò Piotti, managing director of Payden & Rygel, said: “We are honoured to have been selected by Telemaco… by offering a personalised investment solution specifically aimed at achieving the investment objectives of its members, through one of our best strategies with an extensive track record and consistent returns.”
The ethos of DGFs is to offer a wide range of assets that all react differently to market movements. Some will move up while others move down, theoretically offsetting losses.However, with equity markets being artificially supported by quantitative easing and bond markets finding favour with yield-hungry investors, the fundamental DGF process has often failed in the past 10 years, as loss-offsetting has not been needed.Yet, despite poor performances, Arthur said he valued the diversification these funds brought to institutional portfolios: “In many UK pension funds, a DGF is the only bit of the investment that can be used to express asset allocation decisions in a timely fashion.”However, some managers’ reliance on diversification – and a failure to use this opportunity to make dynamic investment decisions – was cited as one of the reasons for some investors’ disenchantment with the strategy.Steven Crane, a trustee for a small, open defined benefit scheme that has switched several of its managers in the past seven years, said some of its DGFs focused too much on diversification instead of tracking the equity market when it made sense, for example.Crane’s scheme was “wary of pulling the trigger now” and moving back into DGFs, he said, with the sponsor’s priority being low-volatility, low-risk return streams.The panel agreed that DGFs could help deliver lower volatility to an investment portfolio as a whole.Overall, the participants said the current mood could take another five years to change, with the onus falling on consultants to help clients decide which type of DGF might help them in the future.However, this has become a complex task, as the universe now contains more than 100 DGFs, up from 20 a decade ago, according to Arthur.The white paper is available to download here. Multi-asset funds face years of trying to win back institutional investment clients after a decade of wrong turns, according to a panel of trustees, fund managers and consultants.In a discussion, hosted by data provider Camradata, institutional investors pointed to where the funds had failed them since the financial crisis – and what their managers would have to do to win back confidence.John Arthur, senior consultant at MJ Hudson Allenbridge, said it had been a “tough few years” for diversified growth funds (DGFs), another term for multi-asset strategies.“A long bull market in equities since the global financial crisis has made clients wonder whether to keep faith with DGFs,” said Arthur. “A basic equity/bond allocation would have done a better job than most.”
The €431bn civil service scheme ABP received the Communication Award for the insight it offered its participants into their accrued pension through their “personal pension pot”.The judges also deemed the Dutch general pension fund of Unilever the best large scheme, describing it as “all round solid”. PWRI, the Dutch pension fund for disabled workers in a sheltered environment, has been proclaimed the best Dutch pension fund for 2019.The €9bn scheme took home the golden award at the annual conference and awards hosted by Dutch pensions publication Pensioen Pro last week.PWRI received the award for its efforts as an investor to encourage firms in its investment universe to employ people with a disability. The judges said this was an entirely exclusive way of engagement benefiting the scheme’s participants.The €1.5bn pension fund for electronics firm Thales Netherlands won the silver award for best scheme with assets under €5bn, in particular for excellence on policy, performance, governance, communication and client satisfaction. Source: Tilburg UniversityLans Bovenberg, professor at Tilburg University and co-founder of NetsparLans Bovenberg, economist and co-founder of Dutch pensions think-tank Netspar, was also recognised for his outstanding contribution to the Dutch pensions sector.The judges said that Bovenberg, who co-founded Netspar in 2005, was an “original thinker, innovator and bridge builder as well an a connecting force between science and the sector”.Bovenberg had, for example, developed the concept of improved defined contribution with collective risk-sharing, which is one of the alternative options currently being considered for a new pensions system in the Netherlands.
Wopke Hoekstra, the Dutch finance minister, described the agreement as “unique”, and said that foreign colleagues admired the fact that participation was voluntary but that implementation was binding. The scope of carbon emission reduction targets in the Dutch pension sector is set to widen after nine large Dutch pension funds, as well as asset managers, insurers and banks, signed up to the government’s national Climate Accord.“The signing of the agreement means broadening the current reduction goals,” said Gerard van Olphen, chairman of the Climate Accord finance task force and chief executive of the €500bn asset manager APG.“We wanted to be more than just onlookers,” he added. The agreement, in which financial institutions commit to adhering to the Climate Accord – based on the UN-brokered Paris Agreement – was signed by four industry organisations, as well as 45 other financial institutions in The Hague on Wednesday. Gerard van Olphen, CEO of APG and chair of the Climate Accord finance task forceThe Netherlands’ commitment to the Paris Agreement requires it to halve its emissions by half by 2030. “As a consequence, investors’ commitments are to apply to a much longer period, and to all other relevant asset classes besides just equity,” said Van Olphen. Most pension funds used a five year period for their carbon reduction target.The Dutch pension funds that have signed the domestic agreement have €800bn of assets between them, and include civil service scheme ABP, healthcare pension fund PFZW, the metal schemes PME and PMT as well as BpfBouw, the pension fund for the construction sector.APG and MN, the asset managers for ABP and the metal schemes, respectively, are also participants.As of 2020, signatories must report the carbon emissions associated with their holdings. They must make clear by 2022 how they will reduce emissions.An independent organisation is to monitor progress every five years.Implications unclearIt is not yet clear how tightening the reduction targets will affect pension funds.Marcel Andringa, executive trustee for asset management at PME, said the way emissions are measured needed to be harmonised.Another problem is that the Paris Agreement’s reduction target relates to 1990, whereas pension funds do not know these emissions, as no monitoring was taking place at the time.The signatories are to exchange their experiences in a forum chaired by Dutch supervisor De Nederlandsche Bank (DNB). The ‘Platform for Sustainable Financing’ is already developing a uniform method for measuring carbon emissions.Last year, more than 70 Dutch pension funds signed an international responsible investment covenant, known as IMVB in Dutch but Shaktie Rambaran Mishre, chair of the Dutch Pensions Federation, said there was hardly an overlap with the new commitment “as the IMVB covenant predominantly addressed social issues such as labour conditions”.
The report lists recent cyber attacks and their financial impact, such as the hacking of 380,000 British Airways accounts in September 2018 that led to a $229m (€208m) fine “with a possible £500m (€581m) lawsuit on top”.The document presents case studies on research and engagement carried out on cyber security by some UK pension funds, and suggests questions trustees can put to their asset managers and portfolio companies on the topic.Richard Williams, CIO at RPMI Railpen, the investment manager for the UK’s £31bn (€34bn) railways pension schemes, said: “Trustees need to acknowledge that it is not a matter of ‘if’ but ‘when’ their investee companies will face a serious cyber security breach.“[This] publication provides a toolkit for pension scheme trustees. Companies should be ready for questions from investors, and pension funds need to start raising the topic with their managers.” NEST and RPMI Railpen, two well-known UK pension investors, have moved to fill a gap in the advice available to pension scheme trustees on cyber security risk with a report concentrating on the risk it poses to their portfolios.In a statement announcing publication of the report, the schemes said that while there is guidance for trustees on how to build cyber resilience with regard to the scheme itself and its data, there was to date no equivalent advice for them on how to incorporate cyber security into their investment and stewardship processes.”Generally,” the report states, “little is understood by pension funds about these risks and there is seemingly no obvious common or standardised approach for addressing them.”And yet cyber security risks were financially material and of interest to members and other stakeholders, according to the report, referring to “numerous papers and articles […] citing cyber security as a prominent and growing issue that can have strong, negative implications on investment performance”.