The funding level of defined benefit (DB) pension plans in the UK has risen to nearly 94%, after the Pension Protection Fund (PPF) updated the data used to calculate deficits across the system.According to the PPF 7800 index for the end of October, the aggregate deficit fell to nearly £75bn (€90bn), down £9.4bn over readjusted figures for September.The index’s methodology was reassessed following the publication of the 2013 Purple Book earlier this month, resulting in the funding ratio for September being revised upwards by 2.2 percentage points to 92.9%, after the aggregate deficit fell by nearly £30bn.For the end of October, the funding level across the 6,150 pension funds – down by 166 on the previous dataset – reported a funding level of 93.8%, a significant improvement over the 83% reported for the same period last year. The PPF added that assets within the index now amounted to £1.1trn.“Over the month, scheme assets rose by 2.3%, and, over the year, there was an increase of 8.3%,” it said.It added that, while liabilities increased compared with the end of September, they fell by 4% year on year.In other news, Barclays has launched a defined contribution (DC) investment consultancy to complement a corporate pensions platform launched earlier this year.The service, provided by Barclays Corporate & Employer Solutions (BCES), will help trustees “create an investment solution that takes account of different and changing member needs”, according to a statement.The approach will enable investment in a number of pre-selected default strategies, while BCES will also profile the company’s workforce to assess the investment risk suitable for each workforce.Katharine Photiou, head of workplace savings at BCES, said: “Traditional retirement planning and DC investment strategies do not do enough to take account of an individual’s needs, or adapt to changing market conditions.”
Pension providers will then have five months at the most to have an updated insider register in place, the ministry said.Under the new rules, boards of the pension insurance companies will have to establish a set of principles of corporate governance. Chief executives and board members will not be barred from sitting on the boards of other companies, the ministry said.However, the pension provider’s board will have to consider such involvement and the reasons why a membership on a board of an outside organisation is necessary, it said.Conflict of interest provisions for directors and chief executives of earnings-related pension providers will be stricter than those applying to limited liability companies, according to the new rules.Board members or chief executives will be unable to take part in negotiations of a deal if they are employees or members of a management body of another company involved in the deal.Significant business transactions by the company’s management and management’s inner circle, such as home purchases, should be considered by the company’s board, and these transactions must be made public, the ministry said.The proposed law also deals with reward systems at the pension insurers, stipulating they should serve the firm’s operations and objectives and be in its long-term interests.“Reward systems should not encourage excessive risk taking,” it said.The spotlight fell on pension fund governance in Finland late last year after a management scandal at the country’s largest pension fund, Keva.Merja Ailus, then the managing director, resigned following media accusations that, among other things, she had charged the institution for some personal expenses.Keva’s investigation concluded that its guidelines for fringe benefits were insufficient and that good corporate governance had not always been followed. New rules on transparency for private sector providers in Finland’s earnings-related pension system moved a step closer after the government submitted a bill to Parliament.The Ministry of Social Affairs and Heath said that, when passed, the new law would require pension insurance companies to hold an insider register of board members and their substitutes, chief executives and their deputies, auditors and employees able to influence the company’s investment decisions.Those on the register will be required to report their stock exchange holdings and business dealings.The new governance law is set to come into force by 1 January 2015.
AP4’s chief executive Mats Andersson predicted that low carbon investments would become “more popular and mainstream”.“AP4 plans to invest with its partners up to €1bn in these new low-carbon investments,” he added.“Combined with a carbon footprint disclosure, we are confident this approach can offer an alternative source of return while working for the public good.”The Swedish buffer fund has gradually been shifting 10% of its global equity exposure into low-carbon shares, and wishes to avoid “companies that have the greatest and most negative impact on the environment in terms of carbon dioxide”, according to its most recent half-yearly report.The report added that it was AP4’s “ambition” to shift its entire equity portfolio towards a low-carbon strategy.As of the end of June, the fund had SEK276bn (€30bn) in assets, with 41% in global equities and a further 19% in Swedish stocks.Yves Chevalier and Olivier Rousseau, members of the executive board of the €36.6bn FRR, added that low-carbon indices were a “promising avenue” for making companies aware of how important investors consider issues surrounding their carbon footprints.“We see them as a new, pragmatic and powerful addition to FRR’s climate toolbox,” they said, pledging to allocate up to €1bn to the strategy.In a further statement on its website, FRR highlighted its long-lasting commitment to sustainable investing and noted that it had been measuring the environmental impact of its portfolio since 2007.In the wake of the move, it also undertook a study to assess how global warming would affect its portfolio, projecting the impact of climate change on portfolio returns through to 2040. AP4 and Fonds de Réserve pour les Retraites (FRR) have assisted MSCI with the development of a new low-carbon equity index that both investors said could be the basis for a new €1bn portfolio.The new benchmark, the MSCI Global Low Carbon Leaders index, is based on the firm’s existing All Country World index and seeks to take into consideration carbon emissions and fossil fuel reserves.The company said in a statement: “While selecting companies with a lower carbon exposure, the indexes aim to maintain a wide and consistent market exposure by minimising the tracking error compared with the performance of the parent standard indexes.”French asset manager Amundi also worked with MSCI and the two other institutions to develop the index.
Mirabaud Asset Management – Emilio Barberá has been appointed as senior portfolio manager/analyst for Spanish equities at Mirabaud Asset Management in Barcelona. He joins from Inverseguros in Madrid, where he was responsible for a Spanish equity fund and involved in managing various European funds. Barberá will act as the deputy portfolio manager for the Equities Spain fund and analyst on Spanish equities, while Gemma Hurtado San Leandro will remain as the lead portfolio manager and team leader. Pioneer Investments – Craig Sterling has been hired by Pioneer Investments as head of equity research, US. In the new role, he is managing the company’s team of 14 equity research analysts based in Boston. He was previously managing director and head of global equity research at equity research firm EVA Dimensions in New York. Sterling will become a portfolio manager on Pioneer Investments’ research-based US equity strategies on 29 May. The current co-heads of US equity research, Paul Cloonan and John Peckham, will then focus on portfolio management, with Cloonan concentrating solely on the US large-cap growth portfolio and Peckham working on US value equity portfolio management. Pictet Group – Laurent Ramsey has been appointed to the partnership of the Pictet Group with effect from 1 January next year. Once a partner, Ramsey will keep his current responsibilities as deputy chief executive of Pictet Asset Management. Separately, the group announced that Jean-François Demole decided to retire from the partnership with effect from 30 August this year. Demole joined Pictet in 1991 and became a partner in 1998. After retiring, he will continue as board member of Banque Pictet & Cie and of Pictet Alternative Advisors, and will concentrate on private equity and real estate. PRI, Northern Trust, Investor Group on Climate Change, Sycomore Asset Management, Newton Investment Management, Mirabaud Asset Management, Pioneer Investments, Pictet GroupPrinciples for Responsible Investment (PRI) – Nathan Fabian has been appointed director of policy at the PRI and will start his new London-based role on 30 June. He has been chief executive of the Investor Group on Climate Change (IGCC) for six years and before that was head of ESG research at Regnan. Fabian has also worked as a senior consultant for Arthur Andersen. Separately, Mamadou-Abou Sarr, global head of environmental, social and governance investing at Northern Trust, has been chosen to join the listed equity steering committee and chair the outreach sub-committee for PRI. In addition, Northern Trust’s senior fixed income portfolio manager Geeta Sharma has joined PRI’s fixed income outreach committee. Sycomore Asset Management – Bertille Presta has been hired as fund manager and head of environmental, social and governance (ESG) research. From March last year, she worked at Financière de l’Echiquier, co-leading its SRI strategy and ESG integration process. At Sycomore Asset Management, Presta is taking over from Léa Dunand-Chatellet. She will manage the firm’s ESG team, which currently comprises Alban Préaubert and Claire Bataillie. She will be directly involved in running the company’s SRI portfolios and mandates, along with founding associate Cyril Charlot. Newton Investment Management – Elizabeth Para is joining BNY Mellon subsidiary Newton Investment Management as UK institutional business development manager. She will report to Julian Lyne, head of UK institutional business development and global consultants, and be responsible for forging links with new clients as well as building the firm’s business with corporate and local authority pensions. She will join a team of 14 staff. Para was most recently at Fundsmith, where she worked in institutional sales and consultant relations. Before that, she worked at State Street Global Advisors, BNP Paribas Investment Partners and Alliance Bernstein.
Romania’s Financial Supervisory Authority (ASF) has finally launched a public consultation recommending changes in second and third pillar pension fund investments and asset valuation.The proposals, which have long been the subject of discussion with the Romanian Pension Funds’ Association (APAPR), include allowing pension funds to invest in municipal and corporate bonds outside of regulated markets, provided they are reflected in the fund managers’ risk management policy, including counterparty criteria, pricing and liquidity.The transactions would restricted to instruments where the relevant regulated market was illiquid, and have to be approved on a case-by-case basis by the ASF.The ASF’s proposals would also ease the asset risk weighting of certain non-investment grade asset categories from 0% to 25%, including holdings in Romanian leu, freely convertible currency accounts and deposits, and treasury bills and government securities issued by EU and EEA member states. The weighting on investment-grade corporate bonds would rise from 50% to 75%, and that on non-EU or EEA government securities traded on regulated Romanian, EU or EEA markets from 50% to 100%.Mihai Bobocea, adviser to the APAPR, told IPE that the change in these risk weightings would free up portfolios to increase their equity investment.“The new regulation favours a little bit more allocation into all other instruments rather than government bonds. Also, it slightly reduces the previously exaggerated risk-valuation gap between ‘investment grade’ and ‘non-investment grade’ instruments,” he said. “However, we do not expect these changes to significantly affect other allocations other than a slight increase in the share of equity in pension fund portfolios. Currently, the average is at about 20% of all assets, but we do not expect it to go as high up as 25% for example, even under the new, more relaxed, regulations by the AFS.”Bobocea added that other regulations, such as the relative guarantee return benchmark, would maintain an investment herding instinct.The ASF has also proposed a significant change in interest-rate hedging, currently restricted to instruments traded on regulated markets, but only for third-pillar funds.Where the regulated market is insufficiently liquid to allow such contracts to be initiated or unwound at any time, the funds will be able to use over-the-counter (OTC) derivatives such as forwards and swaps.As in the current legislation, such hedges would be confined to assets with a minimum five years’ residual maturity from the date of the transaction.The proposals specify that such OTC derivatives must be valued daily, and be able to be – at the fund manager’s initiative – sold, liquidated or closed at any time at their fair value, and with the original counterparty.The size of all derivatives contracts must not exceed the repayable principal sum of the underlying assets hedged. Fund managers would also be obliged to use the International Swap Dealers Association’s master agreements adjusted to Romanian legislation.The use of additional interest rate hedging tools would prove valuable for third pillar funds: as of the end of April 73% of their aggregated portfolio was invested in bonds.Bobocea said he was disappointed that the second pillar would not be able to benefit.
Nearly 300 international institutional investors have filed claims totalling €3.3bn against Volkswagen in the German courts, following last year’s emissions test scandal.The 278 claimants include investors from Austria, Denmark, France, Italy, the Netherlands, Norway, Sweden and the UK.US investors include CalPERS, while Australia, Canada, Japan and Taiwan are also represented.A number of German investment management companies and insurance companies are also among the claimants. The lawsuit was filed last Monday in the Regional Court in Braunschweig (Brunswick), Lower Saxony, also the home state of VW’s headquarters in Wolfsburg.It alleges several breaches of duty on the capital markets committed by VW between 6 June 2008 and 18 September 2015.The car manufacturer had used ‘defeat device’ software on thousands of diesel vehicles sold in the US, enabling them to violate emissions standards.Around €25bn was wiped off the company’s market capitalisation on German exchanges in two days following revelations of the fraud by US environmental agencies, with the share price plummeting from €160 to €100.The lawsuit claims VW failed to publish information about the emissions scandal in a timely manner.Andreas Tilp, managing partner at law firm TISAB, which filed the action, said: “According to our information and experience, Volkswagen persistently refuses any settlement negotiations and has also until now refused to waive the statute of limitation defence, so it has been necessary to file this first multi-billion-euro lawsuit.”TISAB has also filed a motion to initiate so-called KapMuG proceedings against VW.This process provides a group model to allow court rulings won by individual investors to set damages for other investors in the same position.Germany, unlike the US, has no opt-out class action system.The lawsuit is being financed by an international consortium consisting of litigation funder Claims Funding Europe and US law firms DRRT, Grant & Eisenhofer and Kessler Topaz Meltzer & Check.Tilp said that, because significant material claims threaten to lapse on 19 September 2016, under the respective statute of limitation period, the consortium of funders will finance further lawsuits for institutional entities, represented by TISAB, against Volkswagen.“For this purpose, a further 20 institutional investors with damage claims totalling over €1bn have approached us,” he said.A TISAB spokesman told IPE: “We are convinced we have a very good pan-European capital markets case and are going to recover losses for our investors.”TISAB’s sister law firm TILP has already successfully conducted model case proceedings against Deutsche Telekom and Hypo Real Estate Holding.Meanwhile, a Dutch settlement foundation has been set up to pursue legal action against VW in the Amsterdam Court of Appeals, while a number of lawsuits have been filed against the car manufacturer in the US.
“The shift to long-term investment is not just possible, not just essential, but profitable,” he said.“However, making the shift requires both novel thinking and daring action.”Lars Dijkstra, CIO at KCM, added: “As a long-term, engaged shareholder, Kempen would like to contribute by giving that last little push needed to bring about a shift in the financial sector.”Dominic Barton, global managing director at McKinsey & Company and a member of the editorial board, called for a shift away from “quarterly capitalism”.“This shift is not just about persistently thinking and acting with a next-generation view, although that’s a key part of it,” he said.“It’s about rewiring the fundamental ways we govern, manage and lead corporations. It’s also about changing how we view a business’s value and its role in society.”McKinsey is also involved in the Focusing Capital on The Long-Term (FCLT) initiative, a group of some of the world’s largest pension investors wishing to bring about a change in behaviour.The FCLT was behind the recent design and launch of a long-term equity index by S&P, supported by Denmark’s ATP and several large Canadian pension investors.,WebsitesWe are not responsible for the content of external sitesLink to ‘Shift To’ Kempen Capital Management (KCM) is to work with the Dutch pensions industry to raise awareness of long-term investment matters, launching a website to educate the sector.The site, Shift To, hopes to educate all those involved in pension investment about the need for greater focus on the long term, Kempen said in a statement.The venture will be supported by a thirteen-strong editorial board, including Dutch academic Lieke van der Lecq of the Free University Amsterdam and Keith Ambachtsheer of the Rotman School of Management, as well as union and pension fund representatives.Ambachtsheer cited the importance of the pensions industry shifting to a more long-term view.
State Street has sold Swiss data and analysis firm Complementa Investment Controlling to its management.Complementa CEO Heinz B. Rothacher has bought the company, based in St Gallen, plus its branch in Zurich and German subsidiary in Frankfurt.The formerly independent Swiss advisory was sold by its founder Michael Brandenberger to State Street in 2011. “State Street has reviewed its strategy and only wants to provide investment reporting and analytics services to clients who have a depot with them,” Rothacher told IPE. A spokeswoman for State Street said the decision to sell Complementa “reflects the strategy to focus on the delivery of our core services to our asset servicing clients”.She added: “We will continue to offer performance measurement services to our asset servicing clients as part of a fully-integrated solution and remain committed to the region.”Rothacher bought 100% of the shares in Complementa plus it subsidiaries and will keep the name, he said.Rothacher will take on most of the 90 members of staff at Complementa and the management board. Only 14 will remain with State Street. The new structure will come into effect from 1 December.“Both our clients as well as the staff have welcomed that we will become an independent company once again,” said Rothacher.He confirmed Complementa will continue to cooperate with State Street, but emphasised that independent collection of data was key for services such as its annual risk check-up.“For our clients our independence means we become a second layer of control,” says Rothacher, who also sees “good chances” for the “new” Complementa in the Swiss and German institutional markets.“It is also easier for us as a consultancy to no longer be part of a banking group because we had to adhere to all their compliance regulation which actually did not apply to us,” noted Rothacher. He stressed the company was striving for continuity and least possible disruption to the clients.Meanwhile, Allocare – which provides Complementa’s reporting system – was also externalised in a separate management buyout.
Several Swiss Pensionskassen have cut conversion rates, which are used to calculate members’ pension payout levels, in recent years to put the schemes on a stable financing footing.The association said that Swiss pension funds’ asset allocation has remained almost unchanged since the 1980s despite significant changes in the market environment, such as the implementation of negative interest rates.“Generally speaking, their investment policies are still dominated by bonds, equities and domestic real estate, while non-traditional investments continue to play only a secondary role,” it said.According to recent surveys by Credit Suisse and UBS, Swiss Pensionskassen’ allocation to alternative assets increased last year, with the former noting it had reached an all-time high of 6.86%.According to the SBA, there is too much resistance to investing in alternative assets, which meant pension funds miss out on opportunities to generate much-needed return.It said returns on Swiss second pillar assets would increase by around CHF8bn (€7.5bn) if pension fund portfolios were more broadly diversified, and that Switzerland lags other countries in terms of pension funds’ investment performance.The association argued that the investment guidelines for occupational pension plans (BVV2) contributed to deterring greater allocations to alternative assets because of they way they categorise assets.#*#*Show Fullscreen*#*# The Swiss Bankers Association (SBA) has called for the country’s investment guidelines for occupational pension schemes to be amended to encourage more investment in alternatives.Launching a study on investment by occupational pension plans earlier this week, the association said that the political debate around the “AV2020” pensions reform package “wantonly” neglects the role of returns on invested pension assets in building retirement capital.Pension funds must adjust their asset allocation, in particular to invest more in alternative assets, the association argued.Herbert Scheidt, chairman of the SBA, said: “Without an adjustment to asset allocation, pension funds will face yield-related problems. This would translate into accepting the risk of a funding shortfall and cuts to benefits in the pension system for no good reason.” Source: SBAThe SBA proposed that asset classes be broken down into equity, debt, real assets, and trading and resources. Private equity, private debt, and infrastructure would be assigned to the categories of their listed counterparts. This recategorisation (see table*) would align assets more closely “with the intended financial purpose of the investment”, according to the SBA.“Further to this, the category limits are adjusted or relaxed on the basis of the changes outlined,” it added.It said that changes to the guidelines would be relatively easy to make, and pointed out that pension funds and businesses had also called for amendments.It said that opinion is increasingly swaying in favour of introducing the ‘prudent investor principle’ for pension funds, which the SBA supports, but that changes to the investment guidelines could be a helpful intermediate step.“The good news is that the issue is timely and it is being discussed,” said the SBA.“The hope is that occupational pension plan stakeholders will assert themselves in a coordinated manner, with the result that the framework conditions for asset management are improved as soon as possible and the existing potential for optimisation can be exploited.” * OOB2 refers to the BVV2 investment guidelines (Verordnung über die berufliche Alters-, Hinterlassenen- und Invalidenvorsorge)
In 2016 the fund’s real estate investments generated a 9.6% return, while private equity gained 10.4% and infrastructure gained 10.9%.The number of members covered by employer-paid pension schemes at the Danish pension fund is back to the pre-crisis level of nearly 10 years ago, it said.It attributed this to economic growth in Denmark, which boosted staff numbers at the companies whose employees have schemes with PensionDanmark.The pension provider had 695,000 members at the end of the year, up from 684,000 in 2015. Contributions reached an all-time high of DKK12.8bn in 2016, while its overall assets were up 11%.The pension provider highlighted that 22,000 members have more than DKK1m in their accounts, compared with 700 five years ago.It said it has reduced its “already low” administrative expenses thanks to digitalisation and automating an increasing number of processes.The administration fee was down to DKK289 per member in 2016, from DKK305 the year before.PensionDanmark is one of four Danish labour market pension funds that recently announced they are backing a state-backed farming fund. PensionDanmark returned just over 7%, or nearly DKK13bn (€1.7bn), in 2016, due to strong performance from its real estate, private equity and infrastructure investments.The return is nearly double the DKK7.1bn the fund added in 2015.Torben Möger Pedersen, CEO at the DKK221.5bn labour market pension fund, said PensionDanmark had stepped up investments in corporate bonds, private equity, infrastructure, and real estate as a response to the challenge of generating solid returns in a low interest rate environment.“Thanks to this strategy, our members receive solid, stable returns that rely less on developments in the world economy and equity markets,” he said.