He said that, while too risky an approach to investment could see funds incur “significant” losses, too large an emphasis on matching assets could also see the fund’s ability to achieve returns impaired, which would “restrict long-term growth vital to deliver the promised pensions”.The IAPF also found that 75% of respondents had either already reviewed or were in the process of reviewing their asset allocation in light of the risk-reserve requirements, coming into force from 2016.Moriarty said that, as 45% of respondents had conducted detailed investment policy reviews and a further 27% had coupled the review with an examination of funding policies, it demonstrated the “significant impact” of the risk-reserve policy.“The risk reserve is a laudable belt and braces concept,” he added, “but the timing couldn’t be much worse. The requirement seems to be having a significant impact on these schemes and could question their long-term viability.”Results also showed that smaller funds usually had a larger exposure to return-seeking assets, with funds up to €25m in size investing 58% of assets in the more volatile asset classes.However, on average, there was little difference in allocations between young and mature schemes – with average return-seeking allocations only 7 percentage points higher, at 50%, for younger funds.Iain Brown, partner at EY, speculated that smaller schemes simply did not possess the resources to devote to de-risking.“Nevertheless, we would expect the trend towards achieving a more matched, liability-driven investment portfolio, which relies less heavily on outperformance from return-seeking assets, to continue over time,” he said. The chief executive of the Pensions Board, Brendan Kennedy, previously voiced concerns that many defined benefit funds were only de-risking “begrudgingly and at the minimum rate possible”. The volume and consistency of regulatory change facing Irish pension funds has been identified as the single-largest risk to the industry, according to a survey conducted for the country’s pension association.More than two-thirds of the 50 respondents identified regulatory change as one of the biggest risks to good scheme governance, while 67% also raised concerns about the level of trustee education.The survey, conducted for the Irish Association of Pension Funds (IAPF) by EY, also found that many funds had yet to de-risk their portfolio, although larger schemes are more likely to have a conservative asset allocation.Jerry Moriarty, the IAPF’s chief executive, noted that the balance between return-seeking and matching assets was a “much debated point” – especially in light of recent changes to the minimum funding standard (MFS) and the future introduction of a 10% risk reserve to offset market shocks.
The letter is in response to plans from the European Commission (EC), supported by the Council, to impose budget cuts and freeze staff member numbers across the ESAs.The chairs said this would reduce the “capacity to continue to deliver on the objectives set out in the ESAs’ regulations and tasks” set down by legislators.The letter adds: “These cuts do not reflect the fact that, in 2015, the ESAs will still be in a ‘growing phase’, which – as acknowledged by the Commission in its overall approach to European Agencies – should be reflected by additional resources.”The ESAs were set up in 2011 in response to the financial crisis and have seen remits and legislative agendas grow over the years.EIOPA is currently finalising the standards and guidelines for Solvency II requirements on insurers, while also contributing to IORP II, designing pension fund investment stress tests and consulting on solvency requirements for pension funds.The letter did welcome the Council’s view that ESA resources should be adequate in relation to growing responsibilities, but said there was an urgent need to identify a “more robust and long-term solution to the financing of ESAs”.It added: “The review should be used to discuss possible solutions, be it funding through an independent budget line in the general budget of the EU, financing by industry or a combination.”The incoming Commission president, Jean-Claude Junker, has given the financial services commissioner, Jonathan Hill, a mandate to overhaul the financing of the ESAs – with expectations that EIOPA’s funding will fall on the pensions and insurance industry.EIOPA is currently funded through a combination of EU taxpayer money and contributions from national regulators.The proposal for taxpayer-independent funding is favoured by Bernardino, and backed by European parliamentarians on the economic and monetary affairs (ECON) committee.Proposals aside from funding also included only allowing ESAs to operate one stakeholder group, flying in the face of EIOPA’s separate insurance and pensions groups.EIOPA chair Bernardino recently told IPE he fully rejected this idea and personally saw the merit in keeping the stakeholder entities separate. The European Supervisory Authorities (ESA) have hit out at planned budget and staff freezes from the legislative bodies, suggesting financial curbs would hamper policy implementation.In a joint letter to the president of ECOFIN, the collective of EU finance ministers, and the secretary general of the Council of the EU, the ESA chairs decried budget cuts and called for a more long-term solution to financing.The ESAs consist of the European Insurance and Occupational Pensions Authority (EIOPA), the European Banking Authority (EBA) and the European Securities and Market Authority (ESMA).Gabriel Bernardino, Andrea Enria and Steven Maijoor chair the authorities, respectively.
Danish labour-market pension fund PensionDanmark said it is investing in Angel Trains, the largest train leasing company in the UK, as part of a consortium led by infrastructure specialist investment manager AMP Capital.AMP Capital, which already owned a 25% stake in the rolling stock company before the deal, is leading a consortium including PensionDanmark, a subsidiary of the Abu Dhabi Investment Authority, an Asian institutional investor, and Swiss Life Asset Managers.The group of investors has agreed to buy what AMP Capital described as “a significant additional stake” in Angel Trains from Arcus European Infrastructure Fund 1.As part of the sale by the fund, Canada’s Public Sector Pension Investment Board (PSP Investments) is buying an extra stake in Angel Trains, raising its holding in the company to 30% from 16% before. PensionDanmark said this was the first time it had invested in this type of asset.Claus Lyngdal, head of alternative investments at the pension fund, said: “This is a new type of investment which will add to diversification and ensure a broader spread of risk within our infrastructure portfolio.”The UK company has around 4,500 train vehicles which it leases to train operating companies in the UK.Lyngdal said the lease terms were long, and this secured a stable income for Angel Trains and therefore a good return for PensionDanmark’s members over a many years.Following the deal, AMP Capital said it would own a majority stake in the UK company on behalf of its managed funds and clients.Boe Pahari, global head of infrastructure equity at AMP Capital, said: “We have come to know the asset very well during our seven years of ownership and we and our investors like its long-term contracted revenue, stable cash flows and strong growth opportunities.” Angel Trains was the largest asset held by AMP Capital’s Global Infrastructure Fund, which was launched in October 2014, he said.PensionDanmark has DKK18bn (€2.4bn) invested overall in direct and indirect infrastructure investments, and total pension assets under management of DKK180bn.AMP Capital was advised by CMS Cameron McKenna on the legal side of the deal, by PriceWaterhouseCoopers on financial and tax matters, SDG on commercial and technical issues and by Macquarie Capital for mergers and acquisitions.Meanwhile, legal adviser to Arcus European Infrastructure Fund 1 was Freshfields Bruckhaus Deringer, the financial and tax adviser was Ernst & Young, technical adviser was Interfleet and the commercial adviser was Quasar Associates.
Infranode – Ingemar Skogö, former director-general of the Swedish Road Administration and the Swedish Civil Aviation Administration, has joined Infranode as senior adviser. Skogö will help develop the company’s role as a Nordic-focused infrastructure investment platform.UBS Global Asset Management – Oliver Abram has joined the UK real estate business in London. Abram will focus on investment acquisitions and asset management in the UK and report to Howard Meaney, head of global real estate for the Triton Property Fund. Abram joins from Knight Frank Investment Management.Catella – Xavier Jongen, previously director of the Bouwfounds European residential funds business, has joined Catella to launch a European residential property platform. Jongen joins the board of Munich-based Catella Real Estate. Keva, European Insurance and Occupational Pensions Authority, Pemberton, Intermediate Capital Group, Infranode, UBS Global Asset Management, CatellaKeva – The new chief executive of Finnish local government and church pension fund Keva, Jukka Männistö, 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 local government, the state, the Evangelical Lutheran Church of Finland and benefits agency Kela. Keva said Männistö had handed in his letter of resignation to the board of directors on 30 September.European Insurance and Occupational Pensions Authority (EIOPA) – Gabriel Bernardino’s term as chairman has been extended until 2021. EIOPA said the decision to offer Bernardino a second five-year term was due to his successes since the supervisor was launched in 2011. Carlos Montalvo Rebuelta, who has been EIOPA’s executive director since 2011, will not be seeking a second term as executive director.Pemberton – Mike Anderson has been appointed head of investor relations. He joins from Intermediate Capital Group, where he was most recently responsible for investor relations across the UK and the Middle East, and global consultant relations. Before working in investor relations, Anderson was in the mezzanine investment team at ICG.
Examples include “portfolio choice in the presence of a time-varying investment opportunity set” and “the measurement of liquidity and optimal portfolio selection in the presence of differentially liquid assets”.The project will be led by Monika Piazzesi of NBER Research Associates; Joan Kenney, professor of economics at Stanford University; and Luis Viceira, George E Bates professor at Harvard Business School.Several aspects of the Government Pension Fund Global’s (GPFG) asset allocation are under review at the moment, but IPE understands that there is no direct link between this and the NBER project.The Norwegian government recently commissioned a review of the GPFG’s equity exposure, and it has before been urged to expand the fund’s remit to include infrastructure and a potential higher exposure to real estate.Effectiveness of engaged ownership A second funded project, to be carried out by London Business School (LBS), will investigate the effectiveness of engaged ownership.This will be done by analysing “the extent, impact and value of engaged ownership” by Standard Life Investments (SLI).Professors Marco Becht of the Université libre de Bruxelles, Julian Franks of LBS and Hannes Wagner of Bocconi University, Milan, will run the research, which will study the private and public actions of SLI based on data from 2004-14.SLI is understood to have been chosen because it is a leader in corporate governance and stewardship matters and has a wealth of data to which the researchers were given access.Norway’s oil fund is an active owner, and the LBS project is understood to tie in with its interest in moving to more data-focused research into engaged ownership and environmental, social and governance (ESG) investment considerations.NBIM said the NFI research programme reflected Norges Bank’s “long-term commitment to strengthen the scientific foundation of the management of the fund”.Under the programme, Norges Bank is currently inviting submissions of research proposals on the financial economics of climate change. The deadline is 31 March. Norway’s sovereign wealth fund has awarded two research grants, one for a project on portfolio choice for long-term investors and another for an investigation of the effectiveness of engaged ownership.The grants are for three years and were awarded as part of the Norwegian Finance Initiative’s (NFI) research programme.US-based National Bureau of Economic Research (NBER) has been granted funding to carry out a series of research conferences on topics within long-term asset management. Norges Bank Investment Management, which manages the Norwegian oil fund, said the NBER’s project would “support and disseminate research on central challenges facing long-term investors”.
However, seen on its own, the funds’ investment in PPPs abroad has fallen by 8% over the two-year period, according to the survey, which takes in responses from 16 pension companies representing 75% of total Danish pensions assets.Per Bremer Rasmussen, chief executive at F&P, said: “The industry would like to invest more in Denmark, but our members are calling for better framework conditions and more suitable projects.”Asked to name the barriers to investment in PPPs, the obstacle most frequently cited by respondents in the survey was the dearth of projects available to invest in, with 98% of pension companies citing this, up from 94% in 2013.In 2015, Danish pension investors were putting 62% of their total PPP investment into domestic projects and 38% into projects abroad, with the domestic portion having risen from 50% in 2013 and 44% back in 2011, the F&P data showed. Bremer Rasmussen said the poll showed the Danish market for PPPs had now matured in relation to markets abroad, which previously attracted the lion’s share of investment money.“Our members are finding it is still difficult to invest in PPP projects at home,” he said.Apart from improved framework conditions underlying the projects, the pension funds also called for better knowledge and understanding of PPPs at the state, municipality and regional level, as well as better communication with public authorities, he said.“It could be useful to have a central PPP unit in Denmark to facilitate all of this, where people can share knowledge and experiences and coordinate things between the public and private sides,” Bremer Rasmussen said.PKA, PensionDanmark and Sampension previously joined forces and launched a “one stop shop” for Danish PPPs, earmarking DKK5bn for projects being proposed by local authorities.Separately, Nordea Life & Pension Denmark announced yesterday that work was finally beginning on the big PPP office building project on Kalvebod Brygge (quay) in Copenhagen, a deal signed in October 2014.Nordea Life & Pension Denmark is the lead investor in the partnership in which the Danish pension fund for education practitioners (Pædagogernes Pensionskasse) and the pension fund for doctors (Lægernes Pensionskasse) have also invested.The new building will provide 60,000sqm of space and house government bodies including Rail Net Denmark (Banedanmark) and the Danish Transport Authority (Trafikstyrelsen). Anders Schelde, CIO at Nordea Life & Pension, said: “We are pleased to collaborate with the government and other stakeholders, and we hope to expand on this with several similar projects in the future.”The total construction cost of the project was approximately DKK1bn when the deal was signed. Pension funds in Denmark are keen to invest more in infrastructure and real estate via public/private partnerships (PPPs), and their investments in these projects have increased by 50% on home territory between 2013 and 2015, according to a survey.Results of the Danish pensions and insurance association Forsikring & Pension’s 2015 survey into the country’s pension funds and their attitudes towards investment via PPPs also showed the funds were now putting more of their PPP investment into Denmark than abroad, reversing the situation seen in 2011.According to the survey, Danish pension funds now have DKK11bn (€1.5bn) invested in Danish PPPs, almost 50% more than in 2013. Including foreign PPP investments, Danish pension funds now have DKK18bn invested, the figures show, 20% higher than in 2013.
Willis Towers Watson has strongly criticised the value of many Diversified Growth Funds (DGFs), a staple investment for many UK pension schemes and now “a huge market”, saying many managers displayed “low skill” and “destroyed alpha”.The comments were made in a report urging investors to consider alternatives to DGFs.Sara Rejal, senior investment consultant at Willis Towers Watson, said DGFs had grown from “an improved one-stop-shop solution over traditional balanced portfolios to what is now a huge market.”Asset managers in this market “are just capitalising on the popularity of this strategy by growing assets under management and launching more similar products”, she added. The consultancy set out to analyse whether DGFs delivered on what they promised, and made some strong conclusions.It said many DGFs provided benefits and that investors had experienced “a good ride” with the funds since 2008, but it also made some strong criticisms.“Not only have the managers of most (not all) funds exhibited low skill in tactical asset allocation, many have also destroyed value in their attempts to deliver alpha through idiosyncratic trading,” said WTW.“In a world of more moderate returns, which we expect for the medium term, we fear many DGF managers will be shown to have limited skill.”Other “limitations”, according to the consultancy, include that many DGFs have “high fees and significant expenses, making them poor value and even less likely to give investors good returns”.WTW recommended investors consider alternatives to the traditional DGF model, such as a focus on strategic asset allocation with index-tracking implementation, “high-quality alternative smart betas” or “genuinely differentiated and diverse manager skill across the spectrum of alternative asset classes”.It said these options were particularly suited for investors with investment or implementation constraints, as is the case for UK defined contribution schemes.DGFs evolved from traditional so-called balanced equity/bond funds and met with strong demand, particularly in the wake of the 2008 financial crisis, according to WTW.Assets under management in multi-asset funds grew sixfold in the 10 years up to 2015, according to figures cited from a Henderson 2015 global investors report.“In the UK, at least,” the WTW report says, “we have observed a growing demand coming predominantly from DC pension schemes, which are relatively more constrained in terms of the level of illiquidity and charges they can accept.”In September, a report from research firm Spence Johnson predicted the DGF market would grow by 75% by 2019, as UK defined contribution schemes grew and allocated more to the products. See IPE magazine’s December issue for a special report on DGFs
ATP, Nordea Asset Management, PFA, AFG, Rothschild & Cie Gestion, Russell Investments, Pemberton, GE Capital InternationalATP – Denmark’s statutory pension fund has poached the head of Nordea Asset Management, Christian Hydahl, to step into the shoes of chief executive Carsten Stendevad, who is leaving at the end of this year to return to the US for family reasons. Hydahl was promoted within Nordea to become head of the asset management division in January 2015, filling the gap left by Allan Polack, who was leaving to become chief executive of the country’s biggest commercial pensions provider PFA.PFA – Nina Groth has been appointed as a director at Denmark’s PFA, with responsibility for client and pension service activities. She comes to the pension provider from banking group Nordea, where she was head of retail operations. At PFA, she will head up administration and operations, including pension payments, agreements and development work. She will take up her new role on 2 January 2017.AFG – The French asset management association has appointed Jean-Louis Laurens as its ambassador. The role is about promoting French asset management within professional bodies and to major international investors. Laurens takes on the assignment after having been the managing partner and chairman of the management committee of Rothschild & Cie Gestion since 2009, when he became the worldwide head of the group’s asset management activities. He is the former deputy chief executive at AXA Investment Managers and was also chairman and chief executive at AXA IM France, Benelux, Italy and Spain. Before AXA, he was at Dresdner Kleinwort Benson, Morgan Stanley and HSBC, in that order. Russell Investments – Mirjam Klijnsma has been appointed head of implementation services for the EMEA region. She has been with Russell since Feb 2008, most recently as director of transition management for the EMEA. Her previous experience includes working for NN Investment Partners has head of fixed income and derivatives trading.Pemberton – Nicole Gates has been appointed as a partner and deputy credit officer. Prior to joining Pemberton, Gates spent 10 years at GE Capital International, where she was head of restructuring. Before then, she held positions at Dresdner Bank and Kleinwort Benson.
The UK government is facing a legal challenge over its veto on local authority pension fund investments.The government says these funds, steered by local councillors and worth more than £200bn (€238bn) in total, must follow national foreign policy.The Palestine Solidarity Campaign (PSC), the organisation making the challenge, is fearful the government’s veto will curtail pension funds’ ability to act in their members’ best interest and has applied for a judicial review of the powers.The trade union Unison has previously called on its 1m members in local government to campaign for divestment from companies involved in the Israeli occupation of the West Bank. The government says a judicial review is unnecessary and that the powers exist to prevent local authorities from pursuing a political, non-financial agenda with members’ savings.The PSC’s challenge argues that the UK government veto could contravene EU law, which prohibits governments from directing where pension schemes put their money.The UK government claims local authority pension funds are exempt from this law because town hall workers, unlike private-sector pension schemes, are guaranteed retirement benefits regardless of whether their savings in the pension fund do well or badly.Government minister Marcus Jones, speaking in Parliament in November, said benefits were guaranteed by statute.This claim is repeated in a legal response from the government to the PSC’s lawyers.But the claim is disputed.The Scheme Advisory Board, which monitors the entire £200bn Local Government Pension Scheme, has legal opinion that there is no statutory guarantee from central government.The PSC has now hired the same lawyer who gave that opinion, Nigel Giffin.Peter Wallach, head of the Merseyside Pension Fund, one of the largest in the Local Government Pension Scheme, said: “There is no legal underpin to LGPS benefits. It is purely an assumption.“I do not worry overly about this, but, at the same time, we cannot dismiss the possibility that this could be an issue at some point in the future.”Cllr Kieran Quinn, chair of the UK Local Authority Pension Fund Forum and executive leader of Tameside Borough Council, is also fairly relaxed about the intervention power.In the January issue of IPE magazine, Quinn writes: “While I agree there is a greater scope for central intervention in theory, I remain relaxed about what this will mean in practice.“Pension funds can often do better than the likes of the Foreign Office in both identifying investment opportunities abroad and realising when it is prudent to step back, and, in my experience, the people who are the quickest to accuse pension funds of playing politics are almost always unable to provide specific examples to support their argument.”
The Pensions Regulator (TPR) has fined the London Borough of Barnet £1,000 for failing to submit pension scheme information on time – the first such regulatory action against a public sector fund.The £906.3m fund failed to submit its 2016 scheme return, which ensures the regulator has up to date information about a scheme’s membership and funding position, as well as contact information for the individuals responsible for the scheme.Nicola Parish, TPR’s executive director of frontline regulation, said: “It is the legal responsibility of trustees and managers to submit a scheme return by the deadline. This is one of the most basic regulatory requirements for trustees and managers and it is vitally important that we have up-to-date information about schemes so we can carry out our role effectively.“We are also concerned if it is not submitted, as this may signal further problems within the administration of the scheme. Good scheme governance is a key factor to achieving positive outcomes for members. The action we took in this case demonstrates our commitment to this. “We have shown that where managers and trustees are failing with their basic duties, including in large public service schemes such as this one, we will use our powers to intervene.”TPR issued a formal notice to Barnet Council in July last year, requesting the scheme return be filed by 12 August 2016. Barnet failed to comply and also failed to respond to subsequent communications.TPR said it was “continuing to engage with local authority staff” regarding the scheme’s governance and administration.A spokesman for Barnet Council said: “The council recognises that this is totally unacceptable. Due to a specific resourcing issue, the 2016 annual scheme return was not filed in time by our supplier. The fine has been paid by them and steps taken to ensure this will not reoccur.”The Barnet scheme has one of the poorest funding positions of the 89 local government pension schemes in England and Wales: it was 57.7% funded at the end of March 2016 according to its most recent annual report. The unfunded deficit was £665.6m.Pension freedoms withdrawals hit record highUK individuals withdrew nearly £1.9bn from their defined contribution pension funds in the second quarter of 2017, according to statistics from HM Revenue & Customs (HMRC).The UK tax authority’s data showed 200,000 people used their right to take their pension savings as cash between April and June.Since April 2015 UK pension savers have been granted more flexibility regarding what they can do with their money at retirement after the government removed the requirement to buy an annuity.HMRC said £3.5bn was withdrawn in the first half of the year, and £5.7bn during the whole of 2016.In a review of the post-retirement market published earlier this month, the Financial Conduct Authority reported that consumers accessing defined contribution pension pots early had become “the new norm”, with most opting for lump sumps rather than regular income.Over half of pots accessed were fully withdrawn, but of these, over half (52%) were moved into other savings and investment products, partly due to a lack of trust in pensions, the regulator said.It warned that this could result in bad outcomes for consumers, as they could pay too much tax, miss out on investment growth or lose out on other benefits.Stephen Lowe, group communications director at post-retirement product provider Just, said: “We still lack evidence to know whether this level of withdrawal is healthy or should be worrying.“The FCA’s research found many people who thought they were doing the right thing by taking pension money had a ‘penny drop’ moment and questioned their decision when confronted with facts about life expectancy and the size of fund needed to deliver even a basic retirement income.”Engineering firm shuts DB schemeEngineering company GKN has closed its UK defined benefit pension scheme to existing members.The £2.3bn scheme was closed to future accrual effective July 1, according to the company’s half-year results statement.The group has also agreed a one-off contribution of £250m to be paid into the scheme in the second half of the year in an effort to plug a funding shortfall. This will be funded from the proceeds of a bond issued earlier this year.The company said it expected to “reduce slightly” its annual deficit payments, currently £42m, following a formal valuation.