September, 2020 Archive
Danish and Dutch pension systems have achieved the strongest returns, adjusted for inflation, since the onset of the financial crisis, according to OECD calculations.The majority of OECD countries saw pension funds post positive returns last year, rebounding after nearly two-thirds suffered losses in 2011.According to the latest ’Pension Markets in Focus’ report, pension funds in the 34 OECD countries posted an average return of 5% last year and saw their assets continue to grow, at the end of 2012 accounting for 28% of all institutional holdings across the member states.The report also noted that assets under management at pension funds had risen twice as strongly – by 7.4% since 2009 – than the 3.8% and 3.4% growth seen by the funds industry and insurance industry, respectively, in OECD nations. The report said that, despite continuing uncertainties in the world economy, pension funds averaged 5% investment returns in 2012, a marked improvement over the 2011 results when 21 member states saw their pension funds post losses.“Of these 21 countries, 19 experienced positive returns in 2012,” the report adds. “The UK and US had better returns in 2012, though still negative.”In the Netherlands, where pension assets account for 160% of local GPD, its pension industry saw the highest overall returns of all countries examined, seeing assets return 13.5%.On a ranking of European countries, Belgium came second behind its neighbour, due to pension assets returning 9.3%, followed by 7.9% returns by the Swedish system – with 7.5% and 7.1% from Switzerland and Iceland, respectively.“Sixteen further OECD countries saw real investment rates of returns between 2% and 7%,” the report adds. “The simple average improved by 6.7 percentage points, from -1.8% in 2011 to 4.9% in 2012.”The report also found that, since 2008, 16 member states saw nominal annual rates of return exceed 2%.“Turkey and Denmark came through the global instability with the best results in nominal terms, with a return equal to 11.6% and 8.5%, respectively,” it says.“However, after taking into account inflation, Denmark and the Netherlands are the two countries that performed the best over the period, with a real return equal to 6.1% and 3.5%, respectively.”,WebsitesWe are not responsible for the content of external sitesLink to ‘Pensions in Focus’ report
Danica Pension reported a steep rise in its pre-tax profits for the first half of this year to DKK915m (€123m) from DKK82m, benefiting this year from having to use less funds to back its pension guarantees.The significant increase in pre-tax profits stemmed from the fact only DKK82m was transferred in the six months to the end of June, compared with DKK645m in the same period in 2013, it said in its interim report.This was because it had been possible to recognise a greater share of the risk premium from the traditional with-profits business in the first half of 2014 than had been the case in the first half of 2013, it said.Another factor behind the increase in pre-tax profit was growth in the investment return on equity, with this return rising to DKK238m from DKK69m. Contributions in the core Danish market increased by more than 9% to DKK10.3bn.Per Klitgård, chief executive of the Danske-Bank subsidiary, said: “This reflects an increase both in corporate and private customers.”He said the subsidiary’s cooperation with Danske Bank was developing very satisfactorily, with contributions through the bank rising by 43% between the first half 2013 and the latest reporting period.The total return on customer funds in the traditional with-profits business segment climbed to 6.7% at the end of June, up from the 1.2% loss reported for the same period last year.The return on unit-link pensions, meanwhile, was 5.7% on average in the first half.Contributions overall rose to DKK14.4bn from DKK14bn, while total assets increased to DKK344m from DKK321m by the end of June 2014.
Oil cartel OPEC’s decision to freeze production at current levels has caused the European and US high-yield markets to diverge due to the high energy concentration in the latter.Some US high-yield indices contain as much 18% concentration in oil extraction and production, which has seen value drop and yields spread as sector-based default risk increases.Barclays’ US corporate high-yield and global high-yield indices contain a 15% and 10% exposure, respectively.The BofA Merrill Lynch US High Yield Master II Index had a 14% exposure towards the energy sector, according to AXA Investment Managers. Oil prices have been steadily falling in the latter half of the year, falling from $94 (€75) per barrel on 28 September to $68 on 28 November, the day of OPEC’s last meeting.Since the announcement, prices bottomed out at $64 on 30 November before reaching $67 today.This has severely impacted the cash-flow generation plans of exploration and production companies in the US, which had taken on debt burdens throughout the year.Energy companies issued a significant amount of bonds this year, according to fund managers, in order to refinance existing debt and increase capital expenditure.Barclays said year-to-date high-yield energy bond issuance totalled $57bn across 107 transactions.Kames Capital high-yield global fund manager Claire McGuckin said the decision by independent US energy companies to ramp up issuance meant they were investing in excess of current cash flows given the falling oil price.“It is the bonds from these companies that have suffered the heaviest in the recent market turbulence, and a quick rebound is unlikely given the viability of projects/expected cash flows,” she said.“A material adjustment for the increased risk has already been priced in by the market.”Peter Aspbury, lead portfolio manager for European high-yield at JP Morgan Asset Management, said there was a visible impact on performance of the European and US markets over the last few weeks, with the former faring much better.European high-yield markets, unlike US, contained less exposure to energy estimated to be around 1%.The growing spread between the two markets would almost entirely be down to US energy exposure, Aspbury said.“Just as high-yield was starting to perform well again after a few months of weakness, the OPEC decision caused spreads to widen again,” he said.“Given that most of the widening occurred in one sector, it overshadows what is otherwise a pretty healthy market.“It certainly serves to remind credit investors of the risks associated with an industry where there is so much exposure to a single commodity’s price.”Research from Barclays showed that, at current price levels, around a dozen companies would produce negative cash flows, affecting credit ratings and increasing default risk.Other companies would have adequate liquidity to last until the end of 2015 but be unable to sustain low prices much longer.However, Aspbury said there was a risk markets were over-discounting the added default risk given the potential fall in revenues for the US companies.“The key question for oil prices is not how low but how low for how long,” he said.“If prices do fall further and remain so beyond 2015, then it will start to cause some pain.“A higher default risk does not translate into higher default rates straightaway. That will depend on the degree and duration of the oil price decline.”
Similarly, Publica, Switzerland’s largest public pension fund, reported an annual return of just under 6%, attributing its underperformance – relative to the national pension-fund average of 8% – to its currency hedging policy.The BVK said its performance for 2014 was a positive step in achieving its goal of full funding.The scheme’s funding level now stands at 99.3%, up by more than 300 basis points year on year.It added that one of the main performance drivers last year had been directly held property, which returned 5.6%.The BVK also announced that all of its asset managers and consultants confirmed in writing last year that they were not withholding any bonuses they might have received, working on behalf of the pension fund, with third parties.With respect to the corruption scandal that rocked the scheme in 2011-12, the BVK said that external experts, as well as internal councils, were still looking into questions of responsibility and liability, and would keep the public informed of any future developments. Have a look at this article by Alfred Buehler and Lukas Riesen on what the Swiss can expect from their pension funds The pension fund for the Swiss canton of Zurich (BVK) has said its currency hedge prevented more than CHF1bn in losses after the Swiss National Bank’s recent decision to abandon the franc’s peg to the euro. The CHF28bn scheme said it had “comprehensively hedged” its currency positions, allowing it to weather the volatile currency shifts of recent weeks “comparatively well”.For the whole of 2014, currency hedges returned 6.1%, slightly lower than the national average but still above the BVK’s internal benchmark, which returned 6%.The BVK acknowledged that currency hedges introduced three years ago meant it would profit less from last year’s strong US dollar, adding that, without the costs for the hedge, the overall 2014 return for the pension fund would have been 8.4%.
Christopher O’Dea explores whether CalPERS’s decision to sack half of its fund managers illustrates a broader trend in the institutional marketThe decision by the largest US public sector employee pension fund to sack as many as half its investment managers demonstrates that the struggle by large public pension plans to earn enough to pay benefits has entered a new phase – and public plan officials are telling investment managers they’ll have to accept lower fees before officials ask beneficiaries to make larger contributions or accept reduced benefits.CalPERS, the California Public Employees’ Retirement System, will direct its investment board at its June meeting next week to reduce the number of direct relationships with private equity, real estate and other external investment managers to 100 from 212. A public announcement is slated for Monday.The move is aimed at reducing the fees CalPERS paid to external managers last year. That may seem to be pocket change for CalPERS, which has assets of more than $305bn (€270bn). But analysts say the pension fund, like many US plans, is facing a reckoning that stems from the uniquely US system of discounting pension plan liabilities with the assumed rate of return on assets. According to Andrew Biggs of the American Enterprise Institute, US pension plans assume an average 7.75% return on their investments, while pension consultants and investment managers say the median projected return over the next 10 years for a pension plan with 70% in equities is just 5.9%. Assuming lofty returns makes it appear that pension plans’ investment returns will be able to cover payments to retirees. But CalPERS will soon face a duration problem – that is, the increase in its benefit payments will exceed the increase in its asset value from investment activity. “Benefit payments plus operating expenses are starting to exceed net investment income plus contributions,” says David Crane, lecturer on public policy and research scholar at the Stanford University Institute for Economic Policy Research.Investing costs are number eight on the 10-item Investment Beliefs list CalPERS adopted in 2013, which calls for the fund to use its size to gain negotiating leverage to reduce costs and retain a larger share of economic profits from investing. A former member of the Volcker State Budget Crisis Task Force and the American Society of Actuaries’ Blue Ribbon Panel on the Causes of Public Pension Underfunding, Crane expects more plans will follow CalPERS and look to cut fees to investment managers as a way to help close funding shortfalls, and thereby avoid – or at least forestall – the need to raise participant contributions or cut benefits.“Pension funds are increasingly asking governments to make up for shortfalls, which in turn forces those governments to cut spending on public services or raise taxes, or both,” says Crane. “The more pension funds can improve net investment income, the less pressure they need to put on governments to cut services or raise taxes. One way to improve net investment income is to reduce fees.”CalPERS’s move illustrates a broader trend in the institutional market, according to Stephen Ellis, a director at Morningstar Equity Research. Pension funds and other institutional investors “are generally seeking to cull their list”, he says in a report on The Carlyle Group LP. “Some institutional investors may have hundreds of managers to oversee, which means substantial monitoring expenses, and funds want to reduce oversight costs.” The trend favours large managers with diverse strategy offerings, Ellis says, as pension funds today “generally prefer to place funds with established managers where they have existing limited partner relationships”.A CalPERS spokesman confirmed that eliminating some external managers will help the fund improve its overall economic position. Last year, it paid external investment managers $1.6bn, $400m of which was a one-time payment to certain real estate managers, according to a CalPERS spokesman. In a conference call about the matter, CalPERS CIO Theodore Eliopoulos said the fund was “taking the next step in what we see as a multi-year effort to reduce risk, cost and complexity so we can deliver the investment returns that are necessary to meet our obligations”.For more on CalPERS and fees, see the July issue of IPE magazine
JLT Employee Benefits – Nick Buckland has been appointed as a senior investment consultant. He joins from Dorset County Council, where he was chief treasury and pensions manager for the pension fund. Buckland played a key role in the foundation of the Brunel Pension Partnership, the asset pool being implemented in the South-West of England by funds including the Environment Agency Pension Fund and the Buckinghamshire and Oxfordshire Pension Funds. Hermes Investment Management – Robert Wall has been appointed infrastructure partner, reporting to Peter Hofbauer, head of infrastructure. Based in London, Wall joins from the Canada Pension Plan Investment Board, where he has worked for the past nine years in Toronto and London.International Integrated Reporting Council (IIRC) – Richard Howitt, a member of the European Parliament, has been appointed chief executive of the global corporate-reporting organisation. He is to succeed Paul Druckman on 1 November. Howitt has been rapporteur on corporate reporting-related issues, including social responsibility, for many years. He has also acted as a volunteer IIRC ambassador for the last five years.M&G Investments – Nas Islam has been appointed head of investment risk. He joins from Henderson Global Investors, where he was head of investment oversight. Before then, he held analyst, risk and performance roles at Morley Fund Management, now known as Aviva Investors.Vontobel Asset Management – Ludovic Colin has been appointed head of the global flexible investment team at Vontobel’s fixed income boutique. Colin will take over as lead portfolio manager of Vontobel’s absolute return bond strategies. He joined Vontobel in 2015 from Goldman Sachs, where he was a cross-asset macro specialist.Old Mutual Global Investors – Cristiano Busnardo has been appointed to the newly created position of country head for Italy. He joins from Allfunds Bank’s Italian branch, where he was deputy general manager. Before then, he worked at Société Générale Asset Management Italia.AXA IM-Real Assets – Andrew Stainer has been appointed to the new role of head of Northern Europe. Stainer will oversee all transactions and business operations within the UK, Germany, the Nordic region, Switzerland and Central and Eastern Europe. Joining from Carters Hill Group in Sydney, Stainer has also worked for Goldman Sachs, JBWere and Deutsche Bank. Aviva Investors, Rogge Global Partners, Standard Life Investments, Hermes Fund Managers, Schroders, PIMCO, AXA Investment Managers, JLT Employee Benefits, Dorset County Council, CPPIB, International Integrated Reporting Council, M&G Investments, Henderson Global Investors, Vontobel Asset Management, Old Mutual Global Investors, AXA IM-Real AssetsAviva Investors – Rémi Casals has been appointed head of European institutional client solutions, joining from Rogge Global Partners, where he was head of global distribution. He previously held positions with AXA Rosenberg, Barclays Global Investors and Andersen Corporate Finance. Nigel Cosgrove was appointed head of European institutional client relationships and service, joining from Standard Life Investments, where he was an investment director. Jennifer Stillman was appointed global head of consultant relations, joining from Hermes Fund Managers, where she was director of consultant relations. Lastly, TJ Voskamp was appointed head of European wholesale client solutions, joining from Schroders, where he was head of the global financial institutions group. PIMCO – Frank Witt has been appointed chairman of the board of PIMCO’s Germany entity, PIMCO Deutschland, effective 1 September. Witt joined PIMCO in 2002 and was most recently managing director in the Munich office, with responsibility for the asset manager’s German and Austrian business. Before joining PIMCO, he held various positions at Goldman Sachs and Deutsche Bank. Ryan Blute is leaving PIMCO Germany’s board, although he will continue as managing director for EMEA global wealth management.AXA Investment Managers – Two new members have been appointed to the management board. Amélie Watelet has been appointed global head of human resources and a member of the board effective 1 November, replacing Anne-Sophie Curet. Laurence Boone, head of research and investment strategy at AXA IM and chief economist for AXA Group, has also been appointed to the board. Bettina Ducat, meanwhile, has been promoted to global head of product, retail and institutional development.
The widescale reform will establish 18 new counties in Finland, as well as shift responsibility for the provision of services to new healthcare regions and away from more than 300 local governments.“Now there is every reason to take up the challenge brought about by the health and social services reform in earnest,” Kietäväinen said.If this did not happen, there was a risk that progress already made on extending working life in the public sector would come to a halt, he warned.‘Reasonable’ first-quarter lossIn its first quarter results Keva reported a 0.4% investment loss for the period, which it said reflected stock market uncertainty.At the end of March, total investments were worth €51.2bn, down from €53.1bn at the end of December.Kietäväinen said the investment performance was reasonable given the challenging market environment.Among asset classes, the top performer for Keva in the first quarter was private equity funds, which generated a 2.2% return, followed by hedge funds with a return of 1.1%.Property produced a 0.9% return and fixed-income investments returned 0.6%.Listed equities and equity funds, however, made a 2.5% loss in the period.At the end of March, fixed income accounted for 42.1% of Keva’s portfolio, while listed equities and equity funds made up 37.7%.Private equity, hedge funds and real estate had allocations of 7.6%, 6.4% and 6.2% respectively.The pension fund runs pensions for local government and state employees, for the Evangelical Lutheran Church and staff of social insurance institution Kela. Early retirement costs in Finland could become unmanageable as an unintended consequence of major local government reform, according to Finnish public sector pension fund Keva.Releasing its first quarter results, Finland’s largest pension fund warned that steps needed to be taken by government to make sure current employees continued working.The €51.2bn fund said it was preparing for the health, social services and regional government reform taking place in Finland, and was concerned about the position of employees in relation to the overhaul.Keva’s chief executive Timo Kietäväinen said: “The work capacity of employees needs to be maintained at all levels to ensure that costs arising from premature retirement do not spiral out of control.”
The European Commission has opened infringement cases against 17 EU countries in relation to the transposition of IORP II, the new EU pension fund directive.The infringement proceedings relate to “non-communication cases”, meaning a member state has failed to communicate measures that fully incorporate into national law the provisions of an EU directive by the transposition deadline.IPE understands that it is fairly routine for the Commission to initiate such proceedings.According to its website, so far this year the Commission has made decisions relating to 217 active infringement cases for “non-communication” of transposition measures across all policy areas. A policy official at one national pension fund association told IPE she was more surprised by the speed at which the Commission had acted in the case of the IORP II directive.In January the Commission had said it would “carefully examine” how each member state had implemented the directive. The deadline for incorporating IORP II into national law was 13 January.The infringement proceedings were launched in late March, with the dispatch of a “letter of formal notice” requesting further information. The countries are supposed to send a detailed reply within a specified period, usually two months.According to the European Commission, as at the beginning of this month, 11 member states had achieved “full transposition status”.Of the 17 against which infringement procedures have been launched, five had communicated “partial” transposition measures: Bulgaria, Czech Republic, Germany, Latvia and the Netherlands.A further 12 had not communicated any transposition measures: Cyprus, France, Greece, Ireland, Luxembourg, Malta, Poland, Portugal, Romania, Spain, and Sweden. Although Germany’s law to transpose IORP II came into force on the transposition deadline day IPE understands that a regulation was still outstanding as of a couple of weeks ago.In France, meanwhile, the “loi Pacte”, the legislation paving the way for transposition of IORP II, was definitively adopted in parliament last week. It was already clear last year that the country would not meet the IORP II transposition deadline, with a lawyer telling IPE at the time that the risk of a fine seemed limited if transposition was in effect during 2019.In Sweden, the implementation of IORP II has been scheduled to take effect in July.Further reading IORP II: How the EU directive has reshaped the pensions industry IORP II, the European Union’s sweeping reform of pension fund legislation, came into force on 13 January. Here’s how different member states have adapted their national rulebooks. Ireland misses 80% of target dates in pension reform plans The Irish government had failed to deliver on 80% of the deadlines it set out in its pensions roadmap for reform as of the end of January, according to the IAPF. This included a number of changes linked to implementing IORP II.Dutch cross-border questionsIPE’s Dutch sister publication Pensioen Pro asked Commission staff for more information about the infringement case against the Netherlands, but they declined to provide details, citing confidentiality.Hans van Meerten, pensions lawyer and professor of European pensions law at Utrecht University, said he suspected that the infringement procedure was focused on the additional conditions the Dutch government had set for cross-border bulk transfers.Last September, the government amended legislation implementing the directive to introduce higher thresholds for the approval of schemes switching jurisdiction, after it emerged that one scheme’s funding level rose by 11 percentage points since its move from the Netherlands to Belgium.Pieter Omtzigt, MP for the Christian Democrats, received broad support in parliament when he argued that the funding improvement was the result of “supervisory arbitrage”.Cross-border transfers must now be approved by at least two-thirds of a scheme’s membership.Wouter Koolmees, the Dutch minister for social affairs, has insisted that the additional condition is not at odds with European legislation.However, Van Meerten and Erik Lutjens, pensions lawyer and professor of European pensions law at Amsterdam’s Free University, have both suggested that the change was illegal.
The closed end fund must be in the format of an investment foundation for Swiss pension funds under Swiss law.The deadline for applications is 14 February at 5pm UK time.The IPE news team is unable to answer any further questions about IPE Quest, Discovery, or Innovation tender notices to protect the interests of clients conducting the search. To obtain information directly from IPE Quest, please contact Jayna Vishram on +44 (0) 20 3465 9330 or email firstname.lastname@example.org.Border to Coast evolves multi-asset credit fund searchBorder to Coast, one of the UK’s eight local government pension scheme asset pools, has opened for applications from managers to run specialist single asset credit strategies for its multi-asset credit fund.The pool is looking to award mandates in high yield bonds, leveraged loans, emerging market debt and securitised credit.Last month Border to Coast announced it had chosen PIMCO as the core manager for the multi asset credit fund. IST Investmentstiftung, a Swiss investment foundation set up by and for pension schemes, is looking for an investment manager for a new infrastructure debt closed-end fund.According to search QN-2592 on IPE Quest, which the investor is using for its search, IST is expecting to have a mandate of €100-200m to award.The focus is on pan-European infrastructure private loans. Investments can be in euros and sterling from investment grade issuers in western Europe.Eligible sectors are electricity and energy, transportation, social infrastructure, water management, and telecommunications, with each allowed to account for a maximum of 30%. Nuclear power, military infrastructure, ships and coal investments are not allowed.
At LPP, Rule was co-CIO alongside Mike Jensen until late 2017, when the latter left to transfer to Lancashire Country Council, LPP’s other founding shareholder. Local Pensions Partnership (LPP) has given Chris Rule the permanent role of chief executive officer, a job he was carrying out on an interim basis since the departure of Susan Martin in May.Richard Tomlinson has been promoted to the role of chief investment officer of LPP’s authorised investment manager, LPPI, taking over from Rule.Rule has worked for LPP since 2016, although he was at London Pensions Fund Authority (LPFA), one of LPP’s founding clients, before that.Before joining LPFA he held several senior positions, including head of alternatives at SEB Investment Management and principal at Old Mutual Asset Managers, where he founded and co-managed the multi-strategy team. Chris RuleTomlinson has been in LPP’s investment team since 2017, joining from Albourne Partners, where he was head of portfolio advisory for the EMEA region. He also worked at Old Mutual Asset Managers, as head of multi-strategy. Michael O’Higgins, chair of LPP, said he was confident Rule and Tomlinson “will deliver on our objective of building a strong business which maximises our collective ability, in order to generate the best outcomes for our clients and their members”.As at the end of 2019, LPP had £18.8bn (€22bn) in assets under management, including GLIL Infrastructure, a collaboration with the Northern LGPS, another local authority pension asset consolidation group. Royal Country of Berkshire Pension Fund officially joined LPP in 2018.