Month: September 2020

Emerging market allocation loses 9.3% at SPW scheme

first_imgSPW, the €8bn pension fund for Dutch housing corporations, has lost 2.2% on investments over the second quarter, with emerging markets and commodities faring particularly badly.The scheme reported negative returns for nearly all asset classes, due to a combination of falling markets and rising interest rates.Investments in emerging markets and commodities generated losses of 9.3% and 7.7%, respectively, it said.The pension fund attributed the “disappointing” emerging market return – which underperformed its benchmark by 9.1 percentage points – to the US central bank’s suggestion that it would scale back its tapering policy. “As a consequence, investors started divesting from emerging market equity, bonds and currency,” SPW said, citing disappointing growth in China and turmoil in Egypt as contributing factors.It attributed its commodities losses to negative returns in oil, metals and agricultural.It also reported losses of 2.1% and 0.2% on credit and government bonds, respectively, as well developed market equities (-0.7%) and property (-0.3%).With a return of 1.9%, private equity was the best returning asset class.Hedge funds and infrastructure generated returns of 0.4% and 0.5%, respectively.SPW said rising interest rates – and their impact on its interest hedge – contributed 1.4 percentage points to the scheme’s quarterly loss.By contrast, its currency hedge generated a positive result of 0.6%.last_img read more

Pensions Caixa commits to role as active indirect shareholder

first_img“Following this exercise, we will start looking for providers that have the scope to engage with the managers of our funds.”The fund – pension provider to the employees of La Caixa and the eight other financial institutions to merge with the savings bank since 2010 – currently invests almost all its assets through funds of funds.Canals argued that it would be “beyond the skills” of any single asset manager – VidaCaixa in this instance – to manage a globally diversified portfolio from Barcelona.Discussing the fund’s future approach to engagement, he added: “We aim to become active indirect shareholders, thereby fulfilling the second principle of the UN-backed Principles for Responsible Investment.”For more on Pensions Caixa 30, see How We Run Our Money in the current issue of IPE. Spain’s €5bn Pensions Caixa 30 plans to become an active indirect shareholder – fulfilling one of the UN-backed Principles for Responsible Investment – upon completion of a three-year assessment of its portfolio.Antoni Canals, chairman of the board of trustees, told IPE the defined contribution (DC) fund decided several years ago that its then “limited” socially responsible investment (SRI) needed to make way for a “comprehensive” global policy.“We felt having 3-5% of our portfolio dedicated to SRI investments was no longer the right way to address this space,” he told October’s How We Run Our Money.“In 2010, we asked an external provider to create an environmental, social and governance (ESG) rating of our portfolio, and we are now approaching the end of the three-year assessment period of the project to see how the evolution of the SRI portfolio has affected returns and other things.last_img read more

Draft of UCITS V aims to tighten rules for custodial services

first_imgThe Council of the European Union has agreed on a draft for an amendment to the UCITS Directive that would tighten rules for delegating custodial services.The Permanent Representatives Committee of the Council said amendments on UCITS had become necessary because the interpretation of the current directive had had “consequences that came to the fore following the Lehman bankruptcy and the Madoff fraud case”.The Council said: “The depositary is liable for losses suffered as a result of a failure to perform its duties, though the precise contours of those duties is defined by the laws of the member states.“As a result, different approaches have developed across the EU.” In the most recent draft of the Directive, the Council states: “It is necessary to clarify that a UCITS should appoint a single depositary having general oversight over the UCITS’s assets.”Only certain custodial services such as the physical safekeeping of the assets can be outsourced under UCITS V, but other services such as the actual oversight of sales and evaluations can no longer be delegated to third parties.“In order to ensure a harmonised approach to the performance of depositaries duties in all member states irrespective of the legal form taken by the UCITS,” the Council continued, “it is necessary to introduce a uniform list of oversight duties that are incumbent on both a UCITS with a corporate form (an investment company) and a UCITS in a contractual form.”Another point clarified in the draft was the outsourcing of certain services to securities settlement system (SSS).Some commentators had argued that the AIFM Directive had opened a loophole for banks to evade liability for assets in custody by using central securities depositories (CSD) in which they would still hold the assets under custody directly.According to the AIFMD, delegating custody services triggers liability, but analysts disagreed on whether using an SSS would also qualify as a delegation. The draft on a new UCITS Directive now clearly states “entrusting the custody of securities of the UCITS to a CSD, or to a third-country CSD, should be considered a delegation of custody function”.The Council noted the “revised compromise, as set out in document 17095/13, is now supported by a strong qualified majority of delegations” and would now be put before the European Parliament.However, the Council added that “some isolated concerns” remain in relation to sanctions, depositary liability and eligibility of entities to perform depositary functions.last_img read more

Nearly all of UK’s larger companies now comply with auto-enrolment – TPR

first_imgAlmost all of the UK’s largest employers are now complying with the automatic enrolment workplace pensions regime having reached their deadline, and individual opt-outs have proved to be rarer than expected, according to the Pensions Regulator.In its annual report on auto-enrolment, it said 10,817 employers completed their declaration of compliance between April 2013 and March 2014, and that all large businesses had now passed their staging dates – the deadlines for pension schemes to go live.This means 99% are now compliant, it said.Charles Counsell, the regulator’s executive director for automatic enrolment, said: “The past year saw near universal compliance, with many employers actively embracing the changes with innovative communications to ensure their workers understood the benefits of a workplace pension.” Research among large employers by the Department for Work & Pensions (DWP) found the average opt-out rate of eligible jobholders that were automatically enrolled was 9%.This was less than anticipated and had prompted the overall auto-enrolment opt-out rate to be revised down to 15% from 30%.The regulator said the compliance rate achieved was testimony to the success so far of its preventative approach.“We will continue to undertake proactive compliance drives into identified areas of potential non-compliance,” it said.In the report, it said there had been 785 potential non-compliance cases referred for investigation during the 12-month period.However, it noted that what breaches there had been were mainly technical and had been put right after talking to the employer. Of cases closed in the period, it said 78% had needed no further action because the employer had became compliant shortly after its intervention.The firms that are now compliant have a total workforce of 15,385,000, of which 3,241,000, or 21%, have been automatically enrolled, the report showed. The majority of the total workforce – 51% – were already enrolled in an occupational pension scheme, and 25% were not included for a variety of reasons, such as being under 22, above state pension age or not usually working in the UK.Some 24% of compliant employers said they were using defined benefit (DB) or hybrid schemes for automatic enrolment, and 72% said they were using a defined contribution (DC) scheme.According to the report, 56% of employers using a DC trust-based scheme opted for a master trust.Thousands of medium-sized employers are currently reaching their staging dates for auto-enrolment, and small employers, with fewer than 50 workers, are due to automatically enrol their eligible workers next summer.last_img read more

CEE roundup: Russia, Poland, Czech Republic

first_imgThe targeted companies include Rosneft, the largely state-owned oil giant, whose investment programmes include the strategic development of the country’s Arctic oil fields.Rosneft was recently given leave to seek financial assistance from the National Wealth Fund, and others are set to follow.The RUB3.1trn fund, financed by oil revenues, was set up partly to finance future state pension deficits.These are being exacerbated by a shrinking working-age population, a low but politically sacrosanct retirement age (60 years for men, 55 for women) and, most recently, by the annexation of Crimea, which adds further pensioners to the system.In other news, Poland’s second-pillar pension fund (OFE) system also faces further predations, with the so-called “slider” now in effect.Under the slider, OFE assets of those citizens with 10 or fewer years left to retirement are being transferred incrementally to the Polish Social Security Institution (ZUS).Poland’s Finance Ministry recently announced that the transfers would amount to PLN4.7bn (€1.1bn) in 2014 and PLN3.8bn in 2015.The package of reforms, including the removal of all government bonds in February, has shrunk net assets from PLN296bn at the end of January 2014 to PLN147bn by end-July, according to the latest data from the Polish Financial Supervision Authority.For the pension management companies, the only current source of new contributions, aside from those switching from rival funds, are new entrants to the workforce.However, this cohort has been indifferent to the second pillar, with only one in 10 choosing to join this year.The Constitutional Tribunal has yet to rule on aspects of the reform law.In late August, it received another submission, from Poland’s Human Rights Ombudsman.Lastly, in the neighbouring Czech Republic, the pension reforms introduced by the previous government continue to unravel.While the newly introduced second pillar is set to be abolished, the new third pillar is set for massive consolidation.The new third pillar replaced one-size-fits-all “transformed” funds with “participation” funds.Licensed pension companies can offer, alongside a compulsory conservative fund, programmes with a range of risk profiles.One of the legal requirements was that each of the new non-compulsory funds accumulated a minimum CZK50m (€1.8m) in capitalisation within two years of being licensed by the Czech National Bank. In total, 33 funds have been licensed, but around 60% of the membership has opted for conservative structures, leaving many of the riskier funds undercapitalised and the eight providers set to merge their less popular offerings. Russia’s second-pillar mandatory system faces another year of withheld contributions, with the monies going instead to the first-pillar Pension Fund of the Russian Federation (PFR).However, the PFR’s gain enabled the government to reduce transfers to the Fund from the state budget for 2014, and again in 2015.Finance minister Anton Siluanov has announced that next year the state will save some RUB309bn (€6.2bn), of which some RUB100bn will be diverted to a newly created anti-crisis fund to aid those companies affected by EU and US sanctions in the wake of Russia’s support of separatist rebels in Ukraine.The Ukrainian crisis has longer-term implications for future state pensions.last_img read more

ATP sets sights on non-traditional asset classes with new unit

first_imgATP has set up a unit dedicated to non-traditional assets to identify opportunities currently overlooked by its peers, CIO Henrik Gade Jepsen has said.The Special Situations unit, headed by Niels Christian Wedell-Wedellsborg, will invest in assets that do not sit neatly within the fund’s current investment structure and are therefore at risk of being overlooked – such as opportunities with a combination of equity and debt.“We are very consciously looking at assets that may be hard to fit into traditional asset classes, as they will be the least sought after by the average investor,” Gade Jepsen told the current issue of IPE.He added that the new unit would improve co-ordination between ATP’s subsidiaries, which manage its private equity, real estate and venture-capital holdings. “Today, we have a much closer collaboration between the headquarters and the subsidiaries,” he said.“It is more necessary now than it was 10 years ago when we created the structure because it’s much more difficult today to find good investments.”The CIO also said he was reviewing ATP’s approach of placing assets in five risk classes, rather than more traditional asset buckets.The system, in place since 2006, has seen the fund divide holdings into equity, inflation, credit, interest rates and commodity risk classes, but Gade Jepsen said he was unsure where a change in strategy could take the DKK641bn (€86bn) investor.“I’m not scrapping anything before I know what the answer to the question is,” he said.“We are keeping the five risk classes until we have something new. You need a simple anchor for your thinking in day-to-day life.”For more on Henrik Gade Jepsen’s attempt to future-proof ATP, see How We Run Our Money in the current IPElast_img read more

Bulgarian Parliament adopts pension committee report

first_imgBulgaria’s ad-hoc pensions parliamentary committee has recommended lower fees, improved investment and ownership disclosure and shored up resources for the pensions regulator.The eight-member cross-party committee, whose report was adopted by Bulgaria’s National Assembly (parliament) on 14 May, was set up in February in the wake of the backlash following the government’s controversial changes to the Social Insurance Code at the end of 2014.These changes included giving members of the universal and occupational pension funds one, irreversible choice of moving fully to the first pillar.Over two months, the committee held 10 meetings, with hearings from Ivailo Kalfin, deputy prime minister for demographic and social policies and minister of labour and social policy, finance minister Vladislav Goranov, the Financial Supervision Commission (FSC), the Bulgarian Association of Supplementary Pension Security Companies (BASPSC) and the National Revenue Agency (NRA), the country’s tax and social security contribution collector. The meetings were open to the public, media and stakeholders.The committee recommended that pension returns, currently published annually, should be reported monthly.In the current dispute between the FSC, the industry’s regulator, and BASPSC over yield-calculation methodology, the report did not side with either party but recommended the regulator and market participants (pension companies, asset management and investment firms) reach a consensus shortly.The issue of beneficial owners and related parties has also been controversial and was highlighted by the European Commission (EC) in a recent report on Bulgaria.While the Social Insurance Code restricts individual shareholders’ investment to a single pension company, and bars pension funds from investing in securities issued by the owner of the pension company, or companies related to the owner, the ownership structure is not always transparent.As the EC noted: “The current legislation, while generally sound, has shortcomings in the area of related-party and connected exposures, which involve a significant risk for the profitability of the funds, their clients’ future pensions and, more broadly, the efficient allocation of resources in the economy.”The committee acknowledged that the current law needs to be amended and proposed that its members draft a legislative initiative.The committee’s proposal to reduce fees by some 40% echoes similar recommendations made by the FSC in 2012.The report noted that fee income continued to rise, increasing by nearly 15% year on year in 2014.It reasoned that, after 12 years of operations, the pension funds and companies were stable enough to weather the reduction, while pension fund members’ accounts, and eventual pensions, would increase.Other proposals included improving transfers from the NRA to the pension funds, and strengthening the FSC’s supervisory capacity, including more human resources, training programmes, new IT systems and an electronic platform for the funds and other supervised entities to submit information.Sofia Hristova, chief executive and chairman at Allianz Bulgaria Pension Company, told IPE that while she would have welcomed more specific and precise findings, the committee has helped the pensions industry highlight issues that have been stifled for many years.“The public is already much more aware of the gist of pension reform discussions among the industry, legislator and supervisor,” she said.The committee did not make recommendations concerning the recent changes to the funds’ mandatory status.These are the subject of a number of proposed amendments made by the Finance Minister in late January, which have still to be debated by Parliament.last_img read more

Hertfordshire pension fund selects Shires’ ACCESS asset pool

first_imgThe £3.5bn (€4.4bn) Hertfordshire County Council Pension Fund has opted to join the ACCESS asset pool, a collaboration of 10 local government pension schemes (LGPS) in the central, eastern and southern Shires in England.The county council yesterday unanimously voted to back the pension committee’s recommendation, a spokesperson confirmed.The ACCESS grouping was one of three pooling options reviewed by Mercer for the Hertfordshire pensions committee.The other two options considered were the London collective investment vehicle (CIV), the asset pool for the 32 London boroughs and the City of London Corporation, and the London Lancashire Pensions Partnership (LLPP), a joint venture between the London Pension Fund Authority (LPFA) and Lancashire County Pension Fund (LCPF). A report outlining the findings of the review was presented to the pensions committee at a meeting in early March, with the committee agreeing with Mercer’s choice for ACCESS as the preferred pooling option because of the strength of its governance structure and its being a strategic fit for the Hertfordshire Pension Fund.“[T]he Committee agreed the degree of ‘like-mindedness’ and similar governance structures across pool members provided a strong foundation for developing a solution to pooling that would be in the best interests of the Hertfordshire Fund,” according to meeting minutes.Other positives cited by the committee include that the ACCESS pool already has £25bn in assets under management, the minimum required by the government, and that it uses external managers.The positives outweighed negatives such as that the ACCESS arrangement was “less well developed” than the other two options, with the future structure and set-up costs unknown, according to a report.The Hertfordshire pension committee’s decision to go for the ACCESS LGPS pool is subject to the latter’s meeting the government criteria for pooling.A report notes that the pool faces a “tight timescale” to deliver a proposal to the government.In addition to scale, the government’s criteria for assessing the pool proposals relate to governance, costs and “value for money”, and an “improved” capacity for investing in infrastructure.The local authorities have to deliver detailed submissions on the proposed pools to the government by 15 July.The pension funds already collaborating on the ACCESS pool are from the following counties: Cambridgeshire, East Sussex, Essex, Hampshire, Isle of Wight, Kent, Norfolk, Northamptonshire, Suffolk and West Sussex.ACCESS is one of eight pools that have emerged since the UK government instructed all 89 LGPS funds in England and Wales to form half a dozen asset pools. The Lancashire-LPFA arrangement is in discussions with the so-called Northern Powerhouse of Greater Manchester, Merseyside and West Yorkshire Pension Funds.The Hertfordshire pensions committee described the potential merger as “increasing future unknowns”.Berkshire Pension Fund has also been considering whether to join the LLPP.last_img read more

Wednesday people roundup

first_imgInternational Commodities and Derivatives Association, Swiss Trading and Shipping Association, itarle, LGIM Real Assets, Fizzy Living, The Crown Estate, Centerview PartnersInternational Commodities and Derivatives Association (ICDA) – Two members have been appointed to the board of directors – Stéphane Graber, secretary general at the Swiss Trading and Shipping Association, and Paul Lynch, chief executive at itarle, a provider of multi-asset algorithmic trading and analytics services. The ICDA’s members include global brokers, bankers, investment fund managers, commodities trading firms, market information providers and service companies, as well as exchanges and clearing houses. LGIM Real Assets – Adam Russell has been recruited from Fizzy Living as residential transactions manager. Russell was head of acquisitions. He has also worked at Savills as an associate director for funding and development in residential capital markets. Russell will work with Mike Powell, who joined as residential transactions manager last year from Barratt Homes. The Crown Estate – Robin Budenberg has been appointed chairman. Budenberg’s appointment follows the retirement of Stuart Hampson. Budenberg is London chairman of Centerview Partners and a non-executive director for Charity Bank and the Big Society Trust. He is also a former chairman and chief executive of UK Financial Investments, whose responsibilities include managing the UK government’s shareholdings in The Royal Bank of Scotland and Lloyds Banking Group. Prior to joining UKFI, Robin was at UBS (previously SG Warburg).last_img read more

Study: Decarbonisation limited buffer against ‘material’ carbon price risk

first_img“Pension funds in particular and any asset owner need to protect themselves against the future price of carbon. How do they go about doing that?”Using baseline, moderate and aggressive forecast scenarios for climate warming trajectories and carbon prices, the study found that “carbon price does pose a material performance risk to equity portfolios” by way of the impact on companies’ PBT.The impact could be material in four high-emission sectors, according to the study: utilities, basic materials, energy and industrials.It found that, under the baseline “business-as-usual” scenario, which assumes a warming trajectory of 3-4 degrees Celsius and a carbon price of $7-18 across the six core carbon markets (excluding Japan), companies’ annual PBT could be reduced by 1.5-15.3% by 2020.The study back-tested three approaches by which investors can address the risks presented by emerging carbon-pricing policies – the “low carbon” method, a “profit before tax hedged” method and a “Smart carbon hybrid” method.The first is designed to minimise a portfolio’s overall carbon footprint, the second to hedge the risk of carbon price fluctuations to reduce potential financial losses, and the third combines the former two approaches.The study found that the low-carbon method reduces the carbon emission of a benchmark portfolio by more than 60% but “only buffers about 22% of the PBT potential loss”.This, according to the study, “indicates that reducing the carbon footprint of the portfolio does not necessarily reduce the carbon financial risk of the portfolio”.The “profit before tax hedged” method offers better protection but comes with a tracking error of 2.3% per annum and an annual turnover of more than 160%, which “can be at odds with institutional investors’ typical long-term investment horizons and the standard annual review of their strategic asset allocation”.The “hybrid” method offers “the advantage of immediate carbon reduction and insurance against carbon price movements” and could be “a stepping stone for institutional investors on the path to the full decarbonisation of their portfolios”.As noted in the study, many pension funds and other asset owners are concerned about climate change and the implications for their portfolios and investment actions.Measuring a portfolio’s carbon footprint and subsequent action to reduce it – decarbonising – has been a focus for many, with various approaches taken.Attention is also increasingly being paid to being positioned to take advantage of the opportunities posed by the transition to a low-carbon economy.A new fund launched by Legal & General Investment Management and used by HSBC Bank UK Pension Scheme, for example, has a carbon-footprint reduction element while also being designed to increase exposure to companies generating “green revenue”. Reducing an equity portfolio’s carbon footprint on the basis of companies’ absolute emissions does not necessarily reduce its carbon financial risk, according to a study by BNP Paribas Securities Services and Singapore-based consultancy Avalerion Capital.The companies developed a stress-testing approach to assess the impact of several climate change mitigation-related policy factors on companies’ profit-before-tax (PBT), as a proxy for a firm’s value, and investor equity portfolios.They initially focused on carbon pricing as a “key policy lever” to measure the impact on PBT.Trevor Allen, product sales specialist at BNP Paribas, told IPE: “We started with a very simple premise, and that premise is that carbon is an underpriced risk.last_img read more