However, Henk Brouwer, ABP’s chairman, noted that the scheme’s funding needs to increase by another 0.9 percentage points to reach the required minimum level of 104.2% by year-end.“Although the danger of a rights discount has decreased, it has not disappeared altogether,” he said.Meanwhile, the coverage ratio at €134bn healthcare scheme PFZW, due in part to a quarterly return of 1.2%, rose to 107% at September-end.Peter Borgdorff, PFZW’s director, said: “With this level of funding, it seems our recovery target is feasible.”However, he stressed that the financial position at the end of this year would be the criterion for any future measures.“The financial markets still fluctuate significantly, causing a recovery in fits and starts,” he said.“This underlines the importance of new pension arrangements that allow for better smoothing out of large fluctuations.”Even the pension fund for the building sector, bpfBouw, remained cautious, despite its funding rising to 109.7% and its announcement that a rights discount was off the cards for next year.“Interest rates and financial markets are not stable enough yet to be confident of a permanent recovery,” it said.BpfBouw reported a quarterly return of 1.1%, with equities returning 3.8% and real estate 0.1%.It said it lost 0.1% on its fixed income portfolio and 0.6% on alternatives.In addition, it generated a negative result of 0.9% on its interest hedge, following rising rates.Although the €32bn metal scheme PME saw its funding improve by 5.3 percentage points to 101.9%, it is still 1 percentage point short of its mapped out recovery to the minimum required coverage of 104.3% by year-end.As a result, the possibility of a second rights cut is still real, the pension fund conceded.PME already had to apply a 5.1% discount in 2012.It said it returned 0.8% on investments over the last quarter, with positive returns on equity (4.6%), property (0.2%) and alternatives (2.6%), and a loss of 0.3% on its fixed income investments.Despite a funding increase of 5.2 percentage points to 101.5%, the €48bn metal scheme PMT is still 1.3% percentage points short of its recovery path.Guus Wouters, PMT’s director, said the scheme was already anticipating a second rights cut, following a discount of 6.3% last year.He said the pension fund was trying to improve its coverage ratio through cost cutting, adding that it had already driven down asset management costs to 0.49%.The metal scheme reported a quarterly return of 0.5%, taking its year-to-date return to -0.4%.The Pensions Federation also warned against “unfounded optimism” and underlined that any discounts would depend on pension funds’ financial position at 31 December.Referring to the political situation in the US, Gerard Riemen, the federation’s director, said: “The financial markets are not stable.” The large Dutch pension funds remain cautious and are refusing to exclude rights cuts at year-end, despite a significant improvement of their financial position over the third quarter.On the back of rising long-term interest rates – causing a reduction of liabilities – as well as positive returns on investments, the schemes saw their coverage ratios increase by approximately 6 percentage points.With a quarterly return of 2.1%, the €293bn civil service scheme ABP reported the best result, leading to a year-to-date return of 3.7%.ABP’s funding rose by 6.2 percentage points to 103.3%.
“It has been seen that a public entity – Keva, that is – can look after pensions for smaller cost and in a more just manner. In addition, their investments have yielded more than those of private pension insurance companies.“A public monopoly would serve the interests of pension savers better than the current setting, where competition is only nominal.”Kataja also argued that the current system wastes resources on high management costs and paying bonuses to the companies that switch insurance companies.“A single institution would be easier to supervise than a system consisting of several players,” Kataja said.“One large actor would also have the best chances to perform well in terms of investment returns.”Suvi-Anne Siimes, managing director at Tela, responded to Kataja’s proposals by pointing out that the main task of the occupational pensions system was to secure pensions for current and future pensioners.Tela represents all statutory earnings-related pension insurance institutions in Finland.“There is a strong basis for the current, diversified model in Finland, the most important duty of which is to secure statutory pensions,” Siimes told IPE.“In the Finnish occupational pension system, unlike in so many other countries, pension assets are kept separate from the state budget.“This means the funds cannot be used for anything else except paying out pensions – for example, for balancing state or municipal economies in harder times, unlike in some other countries in Europe, as seen recently.”The current structure also reduces investment risk, as each institution follows its own investment strategy, Siimes said.“In a more centralised system, investment portfolios would also be more centralised, which would increase investment risk in the whole system,” she added.“In the current system, if one investment fails to perform well, another one will balance it.”In early 2013, the Finnish Centre for Pensions published a study comparing the costs of the Finnish occupational pensions system with corresponding systems in other countries.It found that the operating costs of the Finnish system were the lowest in the Nordic region, and that the pensions landscape comprised fewer institutions than in other countries researched. The Finnish Pension Alliance (Tela) has criticised the recent suggestion of Sampsa Kataja – a local MP and former chairman of Finland’s local government pension institution Keva – that the country’s pensions landscape should be simplified into a monopoly of one public pension institution.Kataja, currently serving as an MP for the centre-right National Coalition Party, told Finland’s national public service broadcasting company last week that the current system, which consists of several institutions for statutory pensions, should be dismantled and a public monopoly established instead.According to Kataja, supervising a single and public institution would be easier and more profitable than the current setting of several public and private bodies for statutory pensions.“Pensions and contribution rates are defined in the law, meaning there is no real competition in the market in any case,” he said.
IST added that it would consider all infrastructure sectors – excluding investments in nuclear and military projects, as well as prisons – but would view high-risk sectors as less suitable.Managers should answer a questionnaire available through IPE-Quest, covering information about the firm and the team being submitted to manage the assets.The search added: “In a second round, some applicants will be asked to provide a broader set of material. In the third round, the final adviser will be selected out of a shortlist.”Interested managers have until 28 February to apply, stating their performance to the end of December.The IPE.com news team is unable to answer any further questions about IPE-Quest 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 7261 4630 or email [email protected] Switzerland’s IST Investment Foundation is looking to appoint an infrastructure manager to a CHF120 (€97m) fund targeting assets across all OECD countries, using IPE-Quest.The foundation, jointly owned by a dozen Swiss pension funds and with CHF6.1bn in assets under administration, said the aim of search QN1383 was to appoint a non-discretionary secondary infrastructure fund manager.“The goal of the mandate is to achieve stable, predictable current income from day one with a conservative risk profile,” IST said, noting that managers should aim for a balanced, diversified investment approach across stable OECD nations.Additionally, managers should be aware they would be subject to an as-yet undecided limit to how strongly the assets can be leveraged.
Swedish pension investors must increase their focus on climate and ethical investment issues or face new regulation, a governing party’s environment spokesman has said.Johan Hultberg, MP in prime minister Fredrik Reinfeldt’s conservative Nya Moderaterna party but not a government minister, told IPE that the financial sector had recently shown increasing commitment to issues of sustainability, but that more work was needed.“I believe that we will see more action from pension funds and other investors as a result of increasing pressure from customers and the public,” he said.“An increase in voluntary consideration of environmental, climate and ethical aspects is preferred but greater political control can’t be ruled out.” The MP’s comments come after he co-authored an article in a Swedish national newspaper with financial markets minister Peter Norman, a former head of AP7, which called on the industry and the state’s buffer funds to be more proactive.The article stressed that there was no contradiction between being a socially responsible investor and building a portfolio aimed at achieving long-term returns.Hultberg went on to repeat the article’s praise for Sweden’s AP funds, but said that the system, with over SEK1trn (€108bn) in assets, still had large holdings that were “dubious from an environmental or ethical standpoint”.“I believe that greater transparency of the AP Funds will lead to an increased public pressure to invest sustainably,” he said. “We’ll also need to have a political discussion around the possible need to tighten up the guidelines for the AP funds.”Arne Lööw, head of corporate governance at AP4 and chair of the buffer fund’s Ethical Council, stressed that considering the sustainability of its portfolio was not new for the buffer fund.“It is an important question and the different AP funds have been and are working to address it in different ways,” he said.Lööw pointed to the work undertaken by the various AP funds over the years, such as highlighting the carbon footprint of investments, which AP2 published in its annual report from 2009.AP4, meanwhile, has sought to contrast the performance of its tailored low-carbon equity portfolio with that of more mainstream benchmarks.At the end of 2013, the fund had around 7% of its global equity holdings committed to greenhouse gas-efficient investments.
INVERCO continued: “Debt markets were no exception, and government bond yields rebounded sharply, with a corresponding fall in the price of fixed income assets, with higher falls for long duration bonds.”But the commentary concluded: “Nevertheless, during the preparation of this report in July, pension fund portfolios recovered all of June’s correction, following the news of the solution to the Greek problem.”Average annualised returns for Spanish occupational funds were 8.08% for the three years to 30 June 2015, and for the five years to that date, 5.99%.At end-June, total assets under management for the occupational pensions sector stood at €35bn, slightly lower than at end-March, but up by 3.4% on June 2014. Total pension assets, including those in individual plans, now amount to €102.5bn.The number of participants has increased slightly, at just over 2m.For pension funds as a whole, most assets are invested domestically – 62.1% of portfolios, slightly down over the past three months. Non-domestic holdings have also declined, from 20.5% at end-March to 19.4% at end-June.There has also been a further slight shift from fixed income to equities. Overall, 56.3% is now invested in fixed income, compared with 21.4% in equities (8.3% in Spanish and 13.1% in non-domestic shares).This compares with 57.7% in fixed income and 22.4% in equities (9% Spanish, 13.4% non-domestic) at end-March 2015. The biggest single component of pension fund portfolios – 32.9% – is still invested in Spanish government bonds, with a further 17.1% in Spanish corporate bonds.However, cash holdings have risen over the past three months by over two percentage points, to 9.6%. The continuing uncertainty over Greece’s debt problems has played havoc with recent investment returns of Spanish pension funds, according to figures from the country’s Investment and Pension Fund Association (INVERCO).However, they said values recovered in July, once again approaching pre-crisis levels.Spain’s occupational pension funds made average returns of 5.57% for the 12 months to end-June 2015. The results are in marked contrast to the 10.61% returns for the 12 months to end-March 2015, and 10.25% for the 12 months to end-June 2014.INVERCO said: “The general uncertainty about Greece increased market volatility in June, causing widespread falls in all equity indices, especially in European markets. Together with corrections in April and May, it prompted declines in value on pension fund portfolios during the second quarter of the year.”
“This is something we have worked on in good time, and we are positioned with a robust and agile portfolio,” Stendevad said, adding that the pension fund was, and would be, able to meet the strong guarantees given to its members.He said it was possible the Danish kroner could come under pressure in these circumstances but that ATP had complete confidence in the country’s central bankers in standing up to this.“We are absolutely convinced the Danish central bank will hold the peg, and you can see in our quarterly reports that our euro and Danish kroner exposure has been stable,” he said.Meanwhile, Henrik Olejasz Larsen, CIO at Sampension, said the initial market reaction to the referendum result primarily reflected an increase in the risk premia required in investment – not a substantial fundamental negative impact on growth outside the UK. “Thus, we will not reduce investment risks but may take advantage of relative mis-pricing as evaluated against long-term fundamentals,” he told IPE.Olejasz Larsen said Sampension had seen noticeable upwards pressure on the kroner. “However, we do not think the peg to the euro is at risk and will rather opportunistically take advantage in moving against such a pressure – thus likely alongside the Danish central bank – either in currency or in relative interest rates,” he said.In the short term, the pension fund’s investment team will react to Brexit by evaluating opportunities in relative pricing to take advantage of any mis-pricings, he said.“In the longer term, I’m sure we will devote even more attention to the development in European political discourse and integration, for example, with an eye to risks in relation to the structurally weaker European countries currently supported by the [European Central Bank] and the willingness of other EU countries to lend credibility,” he said.Ahead of Friday’s Brexit news, Sampension had a balanced and measured level of risk in its investment portfolio, said Olejasz Larsen.“But, as always, we would have acted differently if we in advance had known the outcome with certainty,” he said.Looking ahead, Olejasz Larsen said: “We hope the UK and EU will work constructively to keep trade and other economic transactions between the two unions as free of transaction costs and regulatory burdens as possible.” At PenSam, investment director Benny Buchardt Andersen told IPE the fund’s investment strategy had been allocated neutrally before the referendum, due to the high level of uncertainty about the outcome.It also reserved risk budget or capacity to enable it to increase investment risk tactically, he said.“We are in control and sticking to the long-term investment strategy,” he said. “So far, we have no conclusions on the tactical view.”Looking ahead, Buchardt Andersen said PenSam would consider its investment construction as the UK moved towards an EU exit.“In this change, where the UK will leave the EU over the next two years, we will need to look into the fundamental building blocks of how we construct our investment,” he said.For example, he said, the fund would need to consider whether euro swaps were still a proxy hedge for Danish kroner rates, and so on. As Danish pension funds consider the implications of the UK’s vote to leave the European Union (EU), the largest of them, ATP, says the result of the referendum adds to the weakness in European growth and employment.Carsten Stendevad, chief executive of the DKK705bn (€94.8bn) statutory pension fund ATP, told IPE: “This is making things considerably worse for the European economy.“All this just adds to the considerable weakness we already have in European growth and employment, and to the issues of the refugee crisis and geopolitical risk.”But he added that, for those investors that were well prepared, now was not the time to adjust their portfolios.
The UK economy needs other solutions to its economic troubles beside the type of increased monetary stimulus announced by the Bank of England yesterday, which is deepening defined benefit (DB) pension fund deficits, experts say. The UK central bank said it would halve interest rates to 0.25%, expand its quantitative easing (QE) programme by £70bn (€81.9bn) – via £10bn in corporate bonds and £60bn in Gilts – and launch a “Term Funding Scheme” to ensure banks pass the interest-rate cut onto individual and corporate borrowers.Former pensions minister Ros Altmann said the Bank of England’s statement completely ignored the pension impact of its policies, and that the monetary easing would mean more pain for UK pensions as QE worsened deficits and increased annuity costs.“Both defined benefit and defined contribution pensions have become more expensive as rates keep falling,” she said, adding that consultancy Hymans Robertson estimated deficits of UK final salary-type schemes post-Brexit had grown to £935bn. “A further fall in interest rates as a result of (yesterday’s) Bank of England announcement will see this figure increase further towards the £1trn mark,” she said.“This damaging side-effect of monetary policy means bigger burdens on UK employers. The consequences of rising deficits are that employers struggling to support these schemes face pressure to put in more money.” If the Bank of England ignored the effect of monetary policy on pension schemes, the government and the Pensions Regulator need to take the issue more seriously, Altmann said. “So far, very little has been done to address the stress on employers,” she said.Amlan Roy, a senior research associate at the London School of Economics (LSE) and a guest finance professor at London Business School (LBS), said there were limits to monetary policy effectiveness, and that this was just one reason why fiscal policy measures, as well as structural reforms, were necessary to tackle economic weakness.Roy said all three “arrows” – fiscal stimulus, monetary easing and structural reforms – put in place by Japanese prime minister Shinzo Abe to revive the economy after December 2012 were needed all over the world.“Parallels to the Great Depression gloss over market linkages, sophistication and heterogeneity,” he told IPE.“Creating jobs and fiscal policy with structural reforms as complementary is a must, in my view.”Altmann said trustees of DB schemes were caught between a rock and a hard place, needing to take on more risk while being expected to take less.“Trustees of pension schemes, whose deficits keep rising, are facing almost impossible investment dilemmas,” she said.“If the scheme deficit has risen, trustees need to consider asking the employer to put more money in to fill the shortfall, but if the employer has already put huge sums in or cannot afford to do more at the moment, then trustees ideally need to find other ways to reduce the deficit.”Meanwhile, Nigel Green, chief executive of financial consultancy deVere, said the Bank of England’s package of measures designed to cushion the UK from recession were not the answer to the country’s economic troubles.“Monetary policy alone is not the magic wand to reduce the ills of the economy,” he said.Slashing the key interest rate to historic lows and extending the QE programme to £435bn in total was going to unleash more “catastrophic damage on pensions, pension funds and, potentially, the UK’s long-term sustainable economic growth,” he said.“A different solution – a more direct way of boosting growth – rather than forcing Gilt yields lower, has to be found by the Bank of England,” he added.
Management costs at Sweden’s AP funds have come in for heavy criticism after the country’s parliament argued a nearly 10% year-on-year increase in fees was unsustainable.A report by the Riksdag’s finance committee said it had been “highly critical” of costs across Sweden’s buffer fund system for a number of years, and that costs had reached SEK1.8bn (€196m) in 2015, an increase of SEK149m compared with the previous year. The criticism came after the Swedish Social Insurance Inspectorate earlier this year criticised the funds for their lack of fee transparency, a charge the four main buffer funds strongly rejected, arguing they were both transparent and cost-efficient.The parliamentary report noted that, once performance-related fees were included, the overall cost of managing the SEK1.2trn in assets across the AP fund system stood at SEK2.2bn last year. Parliamentarians said that, while a recent change to the way performance-related fees for unlisted assets are captured had seen a downward revision of overall costs, it argued cost transparency was still lacking.They called for further revision of the way costs are recorded in time for next year’s annual statements in an effort to improve transparency.Comparing costs across the funds, the report notes that AP2 has the highest overall management costs of 0.18%, which includes performance-related costs, compared with just 0.11% at AP4, amounting to an overall difference of SEK200m.Costs increased by nearly 10% over the last four years, the report adds, an increase it deems unsustainable.Lawmakers urged the AP funds to reduce costs by collaborating with each other, boost returns and strengthen confidence in the buffer fund system.The Swedish government last year abandoned plans to reform the buffer fund system after a backlash from the funds, employer groups and others who argued that the changes risked “political micromanagement” of AP fund assets.The funds themselves argued that the estimated SEK50m in savings identified as part of the reform, which would have seen the closure of one of the buffer funds and the merger of private equity vehicle AP6 into AP2, would have been far outstripped by the costs associated with transitioning to the new arrangement.Read IPE’s recent interview with Tomas Franzén, chief investment strategist at AP2
For securities markets ESMA will initially focus on the costs and performance of UCITS funds.“In that context, we will also look into the differences between active and passive investing, and the impact on costs and charges, and long-term return,” Maijoor said.For a couple of years now the Commission has been saying it would ask the EU supervisory authorities to work on the transparency of long-term retail and pension products. Maijoor’s comments indicated the Commission has followed through with this. Brussels-based lobby group Better Finance last week urged EU policymakers to take up this work if they really wanted to close the pensions savings gap. Maijoor also spoke about Brexit in his speech. Repeating comments made to EU lawmakers last week, he said ESMA had requested contingency plans from credit rating agencies and trade repositories to mitigate risks associated with the UK withdrawing from the EU.However, “the UK will not become your average third country,” he said. “It is worth remembering that today the UK makes up about two-thirds of EU equity trading, while representing around a tenth of the EU’s population.“This will not change in the near future, and business ties with London and the rest of the world will remain.”He said he therefore welcomed the Commission’s proposals “for EMIR 2.2 and the ESMA regulation in relation to the centralisation of third country supervision”. The arrangements proposed under the former were too complex, however, he said. In the summer the Commission proposed that any euro clearing house deemed systemically important would become subject to regulation by ESMA, and that any such organisation considered to be especially important would be required to do business in the EU.More recently, it issued a set of proposals to reform the European supervisory authorities, which included enhancing ESMA’s powers.Maijoor said: “ESMA can play a strong, central role in the future as a single access point for third country entities and ensure consistent supervision of those entities across the EU.” EU regulators are embarking on a large-scale study of costs and performance reporting of retail investment products, the chair of the European Securities and Markets Authority (ESMA) said today.Opening ESMA’s first conference, its chair Steven Maijoor said it would be working on the study with the other two European supervisory authorities, based on a mandate from the European Commission.The aim of the study was to increase investors’ awareness of the net return of investment products, and the impact of fees and charges.Implementation of MiFID II and the regulation on EU packaged retail and insurance-based investment products provided the right framework for the study, said Maijoor.
After a decade-long battle the UK pension fund of bankrupt Canadian telecoms company Nortel Networks is to exit the Pension Protection Fund (PPF) due to a £550m (€628m) windfall from the group’s liquidation.The payment will bring the total recoveries for the scheme to £1.2bn, according to the Nortel Networks UK Pension Plan’s trustee board.The trustees said today they would seek a full insurance buyout of the fund to ensure members received benefits higher than they would have received had the scheme entered the PPF, the UK’s lifeboat fund for defined benefit schemes.Members would be offered the opportunity to transfer out of the scheme – which is not possible in the PPF – or to take a “pension increase exchange”, which involves individuals sacrificing future inflation-linked uplifts in exchange for a higher nominal annual benefit. “Preliminary discussions have been held with a number of insurance companies to obtain indicative quotations which will be firmed up as members make their decisions re options,” the trustees said. “The [board] expects to choose an insurance company late summer 2018.”The scheme has been in the PPF’s assessment period since Nortel went bust in 2009. Since then the trustees and the PPF have worked to secure cash and assets from the liquidators of Nortel in the US and Canada.In 2016 a landmark legal ruling put the company’s pension funds on a par with bondholders. The UK scheme was Nortel’s biggest single creditor.“The opening and middle game period have come to an end after nine long years and we have reached the beginning of the end.”David Davies, chair, Nortel Networks UK Pension PlanJonathon Land, head of PwC’s pensions credit advisory practice and an adviser to Nortel’s UK pension trustees, said the ruling was a “turning point in the scheme’s fortunes”.“The trustees should be very proud of their achievements and this excellent result,” Land added. “They could easily have stepped back when the group entered insolvency, but instead were determined to have an equivalent seat at the table to other stakeholders and secure a better outcome for the schemes’ members.“It is particularly pleasing that the many years of hard work will enable extra money to be placed into the pockets of pensioners, who helped to generate Nortel’s assets.”David Davies, chair of the trustee board, said: “In chess parlance, the opening and middle game period have come to an end after nine long years and we are now in the end game – we have reached the beginning of the end.”The scheme said it expected to exit the PPF’s assessment process formally in October.A spokesperson for the PPF said: “We have been closely working with the trustees and other parties since 2009 to reach an outcome that was in the best interests of scheme members and our levy payers. During this time Nortel pension scheme members have had the reassurance that they have been protected by the safety net of the PPF.“We are pleased that a settlement was agreed that provided sufficient recoveries to offer members benefits above PPF compensation levels and ensure no claim on the PPF.”The Nortel UK scheme had a buyout deficit of more than £2bn at the time of the insolvency, and catered for 40,000 members. The trustee board pursued litigation in Canada, the US, France and the UK to secure recoveries from the so-called “lockbox” of Nortel assets, worth an estimated $7bn.