Members will receive not only the mandatory, uniform pensions statement that cites gross yearly income but also an overview of net monthly income in real terms.Winkels, however, pointed out that the amounts given would be estimates that could fluctuate.“But at least it will allow people to compare apples with apples,” he said.The Towers Watson PPI will be the tenth on the Dutch market. The others operate solely in the Netherlands, although Nationale Nederlanden and Robeco have expressed a desire to expand cross-border.The same is true for Towers Watson.“We have the ambition to spread our wings outside the Netherlands,” Winkels said.The first product offering is to arrive by 2015 at the earliest.Winkels said Towers Watson would need to explore further in which countries a PPI would have value.“There are more possibilities to create economies of scale,” he said.Towers Watson had to await regulatory approval for its PPI application for more than nine months, as the regulator wanted guarantees the consultancy “wouldn’t pull the plug after one or two years”, Winkels said. Dutch regulators De Nederlandsche Bank (DNB) and the Financial Markets Authority (AFM) have approved a request for a licence to operate a PPI, a Dutch pensions vehicle for defined contribution (DC) schemes, from Towers Watson.Ton Winkels, director at Towers Watson Pension Services, said the PPI would operate independently from the consultancy. Towers Watson is to work together with Dutch pensions provider Syntrus Achmea on administration and asset management, elipsLife on insurance, State Street Global Advisors on asset management and Financial Life Support on financial planning.In its proposition, the consultancy said it would focus on providing on insight on retirement income.
Institutional investors have increased their exposure to senior bank loans over the past six months, and will continue to do so, according to interviews conducted by ING Investment Management (INGIM) with 84 pension funds around the world this year. These findings agree with IPE’s latest Focus Group survey of 22 European pension funds and fiduciary managers, with average assets of €8.8bn. Senior bank loans are extended to non-investment grade companies and traded in a private secondary market; are generally secured by a borrower’s assets; and first in priority in receiving payments when a borrower is servicing its debts. Investors have favoured them over recent months as yields have been comparable to those available from high-yield bonds for a position higher in the borrower’s capital structure.Four of the respondents to IPE said that they already invested in syndicated loans and five reported exposure to direct lending. One more is considering syndicated loans and five more are thinking about direct lending. More findings from this survey on alternative credit investments will appear in the May 2014 issue of IPE.Another attractive feature of senior bank loans in today’s low-interest rate environment is the fact that payments are generally set at Libor plus a spread, with an average rate-reset period of about 60 days.INGIM said that this makes the income earned from a senior loan portfolio generally very responsive to changes in short-term interest rates.This is reflected in the INGIM survey findings. Asked what is the most attractive benefit of senior bank loans, the highest proportion (29%) of respondents cited their diversification benefit within fixed income portfolios.The paper’s risk-adjusted returns were cited by 19%, low default risk by 14%, and protection against rising interest rates by 10%.When asked what the main benefit of investing in senior bank loans is, 29% of pension funds said diversification of a fixed income portfolio, followed by 19% who said attractive risk adjusted returns.One in seven said it was because the default risk is low.“Senior bank loans offer an excellent balance of income and security, and these characteristics have fuelled strong demand for this asset class over the last couple of years,” said Dan Norman, group head of INGIM’s senior bank loans team.However, IPE’s Focus Group survey also revealed that investors were evenly split about whether or not they were confident that the asset management industry could provide suitable syndicated loan products in sufficient size for pension funds. They also expressed deep scepticism that their consultants would be able to assess managers’ competence in the asset class.The respondents saw direct lending as an even bigger challenge on these fronts.Furthermore, not everyone is persuaded that loans are good protection against rising interest rates.“It seems to me in the current interest rate environment the Federal Reserve and many investors believe Libor is likely to stay low for an extended time period, and long-term rates are expected to rise much more,” said Phillip Schaeffer, senior portfolio manager at Scott’s Cove Management, a US long/short credit manager with a specialism in high-yield. “The interest rate protection you think you have will not occur until Libor starts going up.”Moreover, Schaeffer noted many loans have a LIBOR floor set at 1% or more, meaning the coupon would not increase until Libor passes that level.“A Libor floor would further lengthen the time period before which the coupon on a leveraged loan increases,” he said. “A lot of people do not appreciate the risks they are taking that long-term rates increase before Libor increases.”INGIM’s survey found that 42% of pension funds believe their peers’ exposure had increased recently, against just 2% that thought it had fallen. Over the next 12 months, 40% of the interviewees expect institutional investors to increase their loans exposure against 8% who expect it to fall “slightly”
The government said it would continue with auto-enrolment, set up an equivalent to a National Employment Savings Trust (NEST), maintain the protection provided by the Pension Protection Fund (PPF) and set up its own pensions regulator, albeit mimicking the current UK system.However, Wilson said: “There would be an opportunity for an independent Scotland to consolidate and codify all the rules and regulations around workplace pensions and, at the very least, not have the same number of pages we have to grapple with at a UK level.”Malcolm Paul, chairman of JLT Employee Benefits Scotland, agreed, saying the Scottish system could begin with a “fresh start”.He said an independent Scotland would also be free to decide to use one regulator for workplace pensions compared with the two currently used in the UK, a system often criticised.“One potential advantage of independence would be the fresh start,” he said. “Scotland could take the best ideas rather than being hamstrung by what is already in place.”The independent country would also not face as many hurdles in setting up a government-backed pension provider used within auto-enrolment, he said. The UK faced a long legal battle with the European Commission over the creation of NEST, as it contravened rules on state aid for companies operating in a private sector market.Eventually, it was agreed the UK government could loan NEST funding, which would have to be paid off over a number of years, with restrictions placed on NEST’s operations.Wilson said a Scottish NEST would not face as many hurdles, nor would it need such significant financing.“One would think a Scottish NEST would not need the same amount of set-up funds, but the mechanism could be comparable to NEST,” he said. “Scotland would not automatically be a member of the European Union, so it could provide state aid to any business it saw fit to.“But the government would need to consider its aspirations, which is to be a European Union member state.”Aside from creating a new regulatory regime, further detailed information on the future of Scotland’s financial systems remains illusive.Lawyers previously warned that defined benefit members were at risk of losing pension protection over issues arising from setting up a lifeboat fund in an independent Scotland. A ‘yes’ vote on Thursday’s referendum to determine whether Scotland will leave the United Kingdom could see a newly formed Scottish pensions industry being regulated by a simpler and more digestible set of rules, consultants have said.JLT Employee Benefits head of technical John Wilson said independence and the need to create and copy an entire regulatory system would allow Scotland to “consolidate and codify” rules and regulations around workplace pensions.The debate comes as the vote on independence nears, with residents of Scotland expected to take to the polls on 18 September.The current Scottish government and other advocates for independence set out their plans for a future Scottish pensions industry in a paper published in September 2013.
The pension funds warned that this would lead to the dissolution of the system.The government would acquire some HUF200bn (€651m) in assets, although this has not apparently been factored into the 2015 Budget.On 25 November, several thousand took part in a Facebook-organised march from the Ministry of National Economy to the Parliament building.Prime minister Viktor Orbán’s increasingly illiberal government first took aim at the mandatory pension funds in 1998 by freezing contributions.In 2001, membership of the system became voluntary.On his return to power in 2010, he threatened those who refused to opt back into the state system with the loss of their state pension.Although the move proved unconstitutional, the damage was done.According to data from the National Bank of Hungary, some €12bn of assets were transferred to the state, while the number of members shrank to some 100,600 in 2011 from more than 3m the previous year.As of the end of September, membership stood at 61,523 and assets at HUF205.4bn. What little is left of the former Hungarian mandatory pension system is under threat again.Under a bill submitted to Parliament by economy minister Mihály Varga, the four funds still in operation – Budapest Magánnyugdíjpénztár, Horizont Magánnyugdíjpénztár, MKB Nyugdíjpénztár and Szövetség Magánnyugdíjpénztár – must prove that at least 70% of their 60,000-odd members have been paying regular fees for at least two months over a six-month period, or face closure.The law, if passed, could go into effect as early as January 2015.Varga argued that the lack of inflows had resulted in the pension funds being unable to generate sufficient retirement income for their members, who would be better off forwarding all their contributions to the first pillar.
SEI – Cai Rees has been appointed director of the institutional advice team for the EMEA region. He joins from Deloitte, where he was head of investment strategy. Before then, he spent two years at the Universities Superannuation Scheme, where he was an asset liability specialist and deputy head of investment risk. He has also held investment research and consulting positions at BlackRock and Mercer Investment Consulting.Redington – Nick Samuels has been appointed to lead equity-manager research. He joins from SEI Investments, where he led UK, European and global equity-manager research. He was also a member of its global manager research committee. Samuels began his investment career in 2000 at Schroders, where he worked on the Asia and emerging market equity teams, before moving into manager research roles at Stamford Associates, Momentum Global Investment Management and Dart Capital.AZL – Marcel Verheul has been appointed to the executive board at pensions provider AZL, a subsidiary of NN Investment Partners. As director of client relations, he will be responsible for service provision and client acquisition. He will also be responsible for the new ‘general pension fund’, or APF, that AZL is setting up with its parent company.Petercam – Francis Heymans, a partner, has decided to leave the Belgian asset manager following the merger of Petercam and Bank Degroof. Heymans has been working at Petercam for 22 years – in New York from 1991 to 1995 and subsequently in Belgium. He has been a board member at Petercam SA, Petercam L Fund, Petercam Horizon L Fund and Petercam Multifund B, as well as head of international business development.Deutsche Asset & Wealth Management – Deutsche AWM has added two equity market investment specialists to its UK active asset management business with the appointment of Hilary Aldridge and Alex Sloane. Aldridge joins from Barclays Global Investments Solutions, where she was most recently a fund-of-funds manager. Sloane was an equities analyst specialising in food producers at Société Générale in London.bfinance – The investment consultancy has made two appointments to its investment advisory and research teams. Geraint Morgan joins as director of portfolio monitoring, while Gwenaëlle Rose joins as an analyst in public markets research. Morgan was previously co-head of quantitative research at Skandia Investment Group and most recently held analyst positions at Old Mutual Global Investors and Friends Life. Gwenaëlle joins from CRRC, the Chinese state-owned China South Locomotive and Rolling Stock Corporation, where she was an investment manager.Mercer – Terri Lucas has been appointed UK client growth leader, overseeing client management and sales. She joins from Hymans Robertson, where she has held various roles since 2006. Her last role saw her responsible for advising the partners on strategy and customer insights.Eurizon Capital – Gabriele Miodini has been appointed head of sales and client management. Miodini was previously head of institutional business at ERSEL Asset Management. Investment Association, Keva, BlackRock, Robeco, SEI, Deloitte, Redington, SEI Investments, AZL, Petercam, Deutsche Asset & Wealth Management, Barclays Global Investments Solutions, Société Générale, bfinance, Mercer, Hymans Robertson, Eurizon Capital Investment Association – Daniel Godfrey, chief executive of the UK asset management association, has stepped down following reports that M&G and Schroders were to let their membership lapse. Godfrey, who has been chief executive since December 2012, will step down with immediate effect. Current director of risk, compliance and legal Guy Sears will take over as interim chief executive until a permanent replacement is found.Keva – Jukka Männistö, the new chief executive of Finnish local government and church pension fund Keva has resigned suddenly due to a “crisis of confidence” between him and the management board, the fund announced. Keva, which has €41.5bn in investment assets, manages pensions for employees of the local government, the state, the Evangelical Lutheran Church of Finland and benefits agency Kela. Keva said Männistö handed in his letter of resignation to the board of directors on 30 September.BlackRock – Monique Donders has been appointed head of institutional client business for the Benelux region. She joins from Robeco, where she has served as chief risk officer for the last 13 years. From 2000 to 2009, she was a professor of financial management at the University of Maastricht. Before then, she held a number of roles at MeesPierson/Fortis, the Institute for Research and Investment Services and Erasmus University. Until recently, she was a member of the supervisory boards at PFZW and APG Treasury Centre.
The UK’s £1.9bn (€2.3bn) Royal County of Berkshire Pension Fund is to invest £15m in a new fund aiming to direct institutional capital into the commercialisation of UK university research.The local authority pension fund committed the £15m to the British Innovation Fund (BIF), launched on 1 December by Future Planet Capital and Milltrust International Group.The fund has received commitments of £30m so far.Berkshire pension fund, administered by the Royal Borough of Windsor & Maidenhead (RBWM), is making the investment as part of a broader overhaul of its private equity portfolio, according to Nick Greenwood, pension fund manager of RBWM and chair of the BIF Investment Committee. The private equity portfolio has been redesigned to focus on three core themes, one of which is technology, he said.“We considered a range of investment possibilities in the US, South East Asia and elsewhere before deciding to focus on the UK university sector, which represents a massive un-tapped opportunity,” said Greenwood.“The valuations are also more attractive in the UK than they would be in Silicon Valley, and the investment industry around university research is less well-developed.”BIF recently secured a stake in Oxford Sciences Innovation as part of a £230m funding round for the firm, in which investors such as the Singaporean sovereign wealth fund Temasek and the Oman Investment Fund also participated.It plans to acquire other stake in companies focused on the commercialisation of UK university research and invest directly in start-ups reaching growth stage.The fund is structured as an Irish Collective Asset Vehicle (ICAV).Greenwood said the fund’s evergreen structure made it “a better fit” for this type of investment than the traditional venture capital model.“A standard VC fund has a fixed lifespan, forcing inefficient exits and liquidation of stakes in companies that are still being developed,” he said.“An ICAV structure gives us the opportunity to nurture investments appropriately.”Future Planet and Milltrust Agricultural Investments (MAI), a subsidiary of Milltrust International Group, are the sub-advisers to the new fund.The investment committee will also include members of the Future Planet and Milltrust Agricultural Investments teams, including Douglas Hansen-Luke, chair of Future Planet, and Griff Williams, CIO and co-founder of MAI.Hansen-Luke said there was “huge potential” for intellectual property commercialisation in the UK university sector, and that £400m in new long-term funding provided by the British Business Bank showed the UK government had recognised this gap.Simon Hopkins, chief executive at Milltrust International Group, said the BIF provided “a direct response” to concerns that Brexit would jeopardise funding for the development and subsequent commercialisation of research output from leading UK universities. Future Planet is a company aiming to build a “global university platform”, providing access to investment in top innovation centres. Milltrust is a global investment organisation located in Singapore and London, offering investment advice focused on emerging markets, liquid investments and real assets investments. During 2015-16, Berkshire pension fund increased its exposure to private debt and private equity funds – for example, in new emerging market infrastructure but also UK middle-market infrastructure and other private market investments in the UK, such as the private rented sector, private debt and technology.
Swedish buffer fund AP4 made a 10% return on its investments in 2016 with real estate contributing a gain of more than 25%.Its overall annual return compares with a 6.8% gain in 2015.Real estate was the stand-out strongest performing asset class for AP4 in 2016, producing 25.9% in returns before costs, followed by Swedish equities with a 12.4% return.Real estate accounts for 7% of the overall portfolio, and Swedish equities make up 19%. Meanwhile, global shares – which make up 39% of AP4’s total portfolio – returned 7.3%, and fixed-income investments generated 2.0%.Niklas Ekvall, chief executive, said AP4’s historical results were largely due to the ability its mandate gave it to exploit degrees of freedom – particularly relating to its long investment horizon.“AP4 intends to further intensify its ambition to establish an investment philosophy and build an investment portfolio that takes full advantage of the opportunities that our mandate and mission offers,” he said.Among other things, the pension fund would try to strengthen its global grip on the overall portfolio and broaden its expertise in order to become more able to generate investment opportunities with a long or medium time horizon, Ekvall wrote in AP4’s annual report.The buffer fund said it had commissioned a report by independent consultants CEM into the cost effectiveness of its operations compared to those of peers internationally.“The result shows that AP4’s capital is managed at a significantly lower cost than the average for comparable pension funds globally,” Ekvall said.The pension fund reported that its fund capital increased to SEK334bn (€35.3bn) by the end of December, up from SEK310bn at the same point 12 months earlier.Over the past 10 years, AP4 averaged a 6.7% annual return after expenses. Adjusted for inflation, this equated to a real return of 5.5% above the fund’s long-term target of 4.5%.In 2016, AP4 paid out SEK6.6bn net of fund capital as a contribution to the national pension system, to cover the deficit between payments and receipts.
The €200m pension fund of Dutch brewer Bavaria has been issued a €10,000 fine by supervisor DNB as it illegally raised its risk profile while it had a funding shortfall.The watchdog said the scheme had dropped its interest rate hedge on its liabilities from 72% to 56% in 2014, while not reducing investment risk in other asset classes to compensate.It described the issue as a “serious, long-lasting and culpable violation”, as underfunded schemes are not allowed to increase their risk profile.The Pensioenfonds Bavaria has hardly benefited from the hedge reduction, which was meant to improve its position when interest rates rise. As the interest rate has dropped further during the past few years, the reduced hedge had a negative effect on returns, causing a loss of 1.2% over 2015. Although the scheme’s board didn’t agree with the fine, it indicated that it would not appeal because of the ensuing costs as well as the fact that it is in a liquidation process.Bavaria said the fine won’t affect the scheme’s financial position nor the collective value transfer to the general pension fund (APF) of insurer Centraal Beheer, scheduled for 1 April.Elsewhere, SBZ, the €5.3bn pension fund for the care insurance sector, said 16 financial firms with approximately 400 workers joined during the past six months.This fits its plan to grow in order to increase its sustainability. SBZ, a non-mandatory industry-wide pension fund, expects that larger companies will follow suit.Last year, the pension fund said it would start looking actively for employers in the financial sector who could potentially join, as part of a policy similar to the strategy of funds such as PGB, PME, and PNO Media.Adri van der Wurff, the scheme’s independent chairman, said that SBZ was in touch with banks as well as insurers.Companies with relatively small schemes were keen to place them into larger entities elsewhere, van der Wurff said.A new inflow would compensate for the falling number of active participants at SBZ, which loses approximately 5% of workers annually.“This way, we can make sure that the costs per participant will remain the same,” explained Van der Wurff.The pension funds that have joined SBZ are predominantly small insurers, with the 80-staff Zurich Benelux being the largest employer.SBZ now services almost fifty employers, with 11,500 workers in total. Its funding stood at 105.9% at the end of 2016.
S&P Global Ratings is taking steps to clarify how environmental, social and corporate governance (ESG) considerations feed into its credit analysis.The credit rating agency is phasing in the incorporation of ESG sections in its corporate rating reports. It started doing so for the oil and gas and utilities sectors and is now rolling this out to all major companies across every sector, and to smaller companies in the sectors most exposed to ESG factors that may be relevant to ratings.It expected around 40% of the corporates it rates to be covered by an ESG section by the end of the year, it indicated. According to the Principles for Responsible Investment (PRI), credit rating agencies needed to explicitly signpost credit-relevant ESG risks and opportunities in rating reports. Michael Wilkins, S&PIn a report rounding off the first phase of the ESG and credit risk initiative, the PRI said progress had been “remarkable”, especially by the large credit rating agencies.Carmen Nuzzo, PRI senior consultant on the initiative, said the largest agencies had “embarked on a race to the top”.Last month Fitch launched ESG “relevance scores” to show how ESG factors affected the agency’s individual credit rating decisions.Moody’s has also taken steps to be more clear about how it incorporates ESG issues into ratings. In November 2017 it announced it had expanded its ESG-dedicated teams and resources as part of this effort.Work in progressMy-Linh Ngo, head of ESG investment risk at BlueBay Asset Management and chair of the PRI advisory committee on credit ratings, said: “This PRI-led initiative has been instrumental in advancing thinking and practice in terms of incorporating ESG into debt investing.“With the growing momentum and engagement from the industry, we are very excited about the next phase.”This next stage would include extending the initiative to include bond issuers, the PRI indicated, with a view to advancing understanding of the materiality of ESG factors to credit risk, as well as promoting engagement, developing common terminology, and enhancing data disclosure.Nuzzo said more work was needed to assess the link between sustainability and credit quality.The PRI has compiled a list of recommendations to improve the process and output of ESG consideration in credit risk analysis, targeting investors and credit rating agencies.Recommendations for investors included that they set up internal frameworks to make ESG consideration more systematic and “not confuse the purpose of credit ratings and ESG assessment services”.Steps that both groups needed to take included to: categorise ESG factors by type, relevance and urgency;conduct regular retrospective analysis to assess how their relevance evolves;use sector, scenario, sensitivity and stress-testing analysis to monitor long-term risks, incorporate uncertainty and focus on drivers of potential outcomes; andengage with issuers on ESG topics to improve awareness, disclosure and transparency.The PRI said some “advanced investors” had made visible progress on many aspects of the recommendations, which were intended to be treated as best-in-class practice rather than a one-size-fits-all approach. The PRI has been working with credit rating agencies and investors since 2016 in a bid to improve consideration of ESG factors in credit risk analysis and promote better understanding of the practice.The PRI found that some “disconnects” between fixed income investors and credit rating agencies were due to a lack of investor awareness of agencies’ improved ESG-related focus and analytical resources. They could also be misconceptions linked to the two groups’ different objectives, PRI said. Michael Wilkins, managing director and head of sustainable finance at S&P Global Ratings, said: “We have long incorporated ESG considerations into our credit analysis. What we aim to do now is to more clearly underline to industry bodies, investors, and stakeholders how we do so.”
The European Parliament and EU member states have reached a political agreement on the so-called disclosure regulation that forms part of the European Commission’s sustainable finance plan, it was announced today.According to a statement from the EU Council, the EU member states body, the text that was agreed today requires institutional investors to disclose:the procedures they have in place to integrate environmental and social risks into their investment and advisory processes;the extent to which those risks might have an impact on the profitability of the investment; andwhere they claim to be pursuing an environmentally friendly strategy, information on how this strategy is implemented and the sustainability or climate impact of their products and portfolios.The Council said the proposed regulation “should in practice limit possible ‘greenwashing’, or “the risk that products and services which are marketed as sustainable or climate friendly in reality do not meet the sustainable/climate objectives claimed to be pursued”. The rules would “encourage investors to be more aware of the impact of their business on the environment”, it added.According to the Commission, the regulation is about more than disclosure. It said the new regulation set out how financial market participants and advisers must integrate environmental, social or governance (ESG) risks and opportunities in their processes. This was in addition to rules about how those financial market participants should inform investors about their “compliance” with the integration of ESG risks and opportunities.Next stepsEU ambassadors must now endorse the political agreement, and after that the European Parliament and Council will be called on to adopt the proposed regulation at the first reading.An EU press officer told IPE the agreement was a provisional political one, and that further technical work was required on the text to finalise drafting. The text should be made available when it is confirmed by the EU ambassadors.The disclosures regulation is the second of the Commission’s sustainable finance legislative proposals for which there is now political agreement. Last month agreement was reached on a low-carbon benchmarks regulation proposal.‘Delegated acts’It is not clear what was agreed, if anything, with regard to whether the regulation should allow for delegated acts under the new EU pension fund legislation, the IORP II directive.The European Commission’s proposal for the regulation, unveiled in May last year, provided for this, but the EU pension fund industry has lobbied against it.The European Parliament went into negotiations with the Council having stuck with a provision for delegated acts under IORP II, while the member states dropped it from their version.The EU press officer could not say what had been agreed about this.According to the Commission, the regulation covered five financial services sectors, including investment funds, private and occupational pensions, and individual portfolio management. It also indicated the rules were for “manufacturers of financial products and financial advisers towards end-investors”, while the Council statement referred to “financial companies” and “institutional investors, such as asset managers or insurance companies”.Aba, the German occupational pension association, argued that occupational pension funds, which have a social purpose and regularly act as users of financial market products, should not be included in the definition of financial market participants under the regulation.It has also said that pension schemes should not be defined as financial market products because they were embedded in national social and labour law. The Commission said the rules introduced ”a disclosure toolbox to be applied in the same manner by different financial market operators”.The European Insurance and Occupational Pensions Authority and the other two European supervisory authorities, plus a joint committee of these three bodies, would “ensure further convergence and harmonisation of disclosures in all the sectors concerned”, it said.