IPE Awards Seminar: Asset managers must act on ‘societal need’ for risk-based investment products

first_imgHe quashed the suggestion the board was surrendering control over investments, noting that they were granted “maximum control” over the approach and that the triangle model of governance still left the board with independent verification of risk and returns.He said the model was, in a way, “back to the future”, harking back to investment approaches before the invention of modern portfolio theory.Economou said, 60 years ago, “investing was earning more than cash and not losing money”.He said CERN’s new approach was a way of expressing an expected return target and a risk budget.His view was shared by Pascal Blanqué, CIO of Amundi Group, who told delegates the traditional asset allocation approach was “a poor way” to invest.“It is a poor way to diversify,” he said. “This applies to most categories – emerging versus developed, credit versus equities.”José Suarez Menendez, currently director of the Dutch VPTech and a former board member at metalworker fund PMT, also noted that, in the wake of the crisis, it was important to better understand risk exposure.“We started to look through the asset allocation and look at risk factors underneath – so risk exposure – not in the sense of which kind of assets do we have in place, but what risks do I have on my portfolio by the assets I have in place,” he said.The importance of risk-based investing was also emphasised by Ronald Wuijster, chief client officer at Dutch pension manager APG.“Essentially, the way to make good [products] for our clients is a better return on risk – that’s what it’s all about,” he said.Economou said the CERN model was based around precisely idea that investment staff should be focused on the risk exposure, and argued that the asset management industry should now aim to fill the void.“Please, do come up with products and approaches that can help those smaller pension funds that don’t have the resources to go through that on their own address the real, fundamental challenge they are addressing,” he said.The chief executive said that, without such a change by the asset management industry, many pension funds would in a decade’s time have problems paying benefits.“There is a real societal need for the industry to step up to the plate and offer the skill set to those smaller players who need it,” he said.,WebsitesWe are not responsible for the content of external sitesLink to Journal of Investment Consulting article written by Théodore Economou The asset management industry must act on a societal need and devise products allowing small pension funds to invest based on risk desires, rather than simply rely on traditional asset allocation models, according to the chief executive of the CERN Pension Fund.Théodore Economou told delegates at the IPE Awards seminar in Noordwijk that a governance model implemented by the scheme in 2011 allowed investment staff at the fund for the employees of the Large Hadron Collider in Geneva to allocate assets guided by the singular constraint of overall portfolio risk.He said overall portfolio risk was decided between the board and the investment staff on a yearly basis, with a risk budget and return target agreed.“In order to implement that, the staff is given full flexibility,” Economou said.last_img read more

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PensionsEurope decries CEE ‘attack’ on second-pillar pension systems

first_imgThis continued as Poland, which saw its president sign off on a Bill, radically changing its second pillar due to what the government described as the “ballooning costs” of the system.The payment of retirement funds to members would be taken over by the country’s first-pillar system, with all Polish sovereign investments transferred earlier this year.Further to this, the Czech Republic is to close its second-pillar system by 2016, as one of the prime minister’s long-standing objectives, which would see the pillars merged.After years of decline in second-pillar provision across the area, PensionsEurope said this – particularly in light of a review hinted at by the Romanian government – was getting out of hand.It said the transfer of assets was detrimental to longer-term economic and social sustainability, and that more funded retirement provision was needed, not less.Chair of the lobby group, Joanne Segars, called the developments worrying and said the European Commission could do more, suggesting a CEE focus would be more “value added” than its current work.She said: “There are some quite worrying developments going on there, and they are the sort of ‘value added’ issues the Commission used to pay attention to.“Severe demographic challenges cannot be countered by the public finances on the long run. These reforms have severe consequences, notably for old-age poverty in the near future, and undermine the trust people have in retirement savings.”Secretary-general Matti Leppälä said the long-term damage, given the equity and fixed income investments from second-pillar funds, were serious.“Member states will be damaged on the long run,” he said. “There is a need to act now to prevent more damage, for both the future pensioners of member states and the EU economy.”The OECD has also spoken out against the reforms, suggesting Poland’s move to nationalise the second pillar undermines trust in pensions, and investment restrictions would cut income replacement rates.Poland’s reform are also set to be challenged by the employers confederation on the belief it breaches several articles of the constitution. PensionsEurope has slammed governments in Central and Eastern Europe that have begun dismantling their second-pillar systems, warning of poverty and damage to their economies.The contentious issue has long caused concern among second-pillar advocators, with funds being raided to prop-up government books, or help alleviated under-capitalised first-pillar systems.It also called on the Commission to intervene, as concerns over contagion of second-pillar raiding increase as time goes on. In recent years, the government in Hungary effectively closed down the country’s funded pensions pillar by indefinitely extending a freeze on contributions, resulting in the closing down of several schemes due to cost pressures.last_img read more

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​Irish government sidesteps questions on funding reform

first_imgThe comments come after the country’s High Court recently found in favour of the trustees of the Omega Pharma DB plan, which requested a €2.2m sponsor payment prior to wind-up despite being fully funded under the MFS.Martin Clarke, partner at LCP, last month said trustees were realising the MFS was an “unreasonably low” guarantee and suggested the standard might need to be revised.However, the DSP spokeswoman said both administrative and legislative changes in recent years had been implemented to allow sponsors and trustees to “address the funding difficulties facing many schemes”.“The Pensions Authority is working with the trustees of defined benefit pension schemes, particularly schemes in a weak funding position, to help them achieve a sustainable funding position,” she added.The spokeswoman also did not say whether the DSP would ask the Pensions Council, soon to be in charge of regulatory matters following changes to the regulatory architecture, to review the MFS.She said the up to 12-strong Council would be in place “in the near future”, and that applications for its membership were currently being considered.The DSP previously told IPE that 56 applications to fill the remaining 4-8 seats on the Council had been received.The remaining members will be drawn from the DSP, the Department of Public Expenditure and Reform and the Central Bank of Ireland.Minister for Social Protection Joan Burton earlier this year put forward Jim Murray, former director of the European Consumers Organisation, as her nominee to chair the Council.His appointment has yet to be formalised. Ireland’s Department of Social Protection (DSP) has stressed the responsibility of employers and trustees to ensure defined benefit (DB) funds are sustainable, thereby sidestepping questions about the need for reform of the regulatory framework in the wake of a recent High Court ruling.Asked by IPE if the minimum funding standard (MFS) was in need of review, despite only being amended in 2012, a department spokeswoman declined to answer directly.Instead, she said the existence of the MFS should not be seen as the “central issue in relation to whether a scheme is properly funded”.“Rather, the responsibility rests with the employer and the trustees for ensuring the scheme is properly funded and managed,” she said. last_img read more

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UK appoints government’s head of private pensions

first_imgThe UK Department for Work & Pensions (DWP) has finally appointed a permanent director of private pensions after more than six months with an interim director.Charlotte Clark has moved over from HM Treasury to take up the role, which she began in late July this year.The DWP confirmed Clark would replace Bridget Micklem, who was appointed interim director from her deputy director role after the sudden departure of Sarah Healey at the end of 2013, who left after only seven months.The DWP role is the key policy director for overseeing government plans for second-pillar pensions, including auto-enrolment, the end of contracting out and the charge cap coming into place in 2015. Clark will also be responsible for overseeing the Pensions Regulator (TPR), which acts as an executive body enforcing the regulations and rules set down by her department.It is understood Clark will be heavily involved in the search for a permanent chief executive at TPR, which has seen Stephen Soper acting as interim chief executive since August 2013, when Bill Galvin departed to take over at the Universities Superannuation Scheme (USS).Clark will also represent the government in a Competition and Markets Authority (CMA) review into legacy workplace pension schemes, some of which have significantly higher charges than schemes set up after 2001.Prior to taking up the DWP role, Clark had been heavily involved in shaping UK pensions policy from previous government positions.She moved over from a head of pensions and savings role at HM Treasury and was responsible for leading the team behind the reforms to defined contribution schemes announced in this year’s Budget.Clark was also head of workplace pension reform between 2005 and 2009.She led the policy team responsible for implementing auto-enrolment legislation and oversaw the creation of the National Employment Savings Trust.last_img read more

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ABP divests from Indian company over nuclear weapon allegations

first_imgThe €334bn civil service scheme ABP has divested its €20m stake in India’s Larsen & Toubro after the company allegedly failed to clarify its involvement in the manufacture of submarines with the ability to carry nuclear weapons. In the pension fund’s opinion, the company failed to respond adequately to allegations of direct involvement in the manufacture of nuclear weapons in defiance of the Non-Proliferation Treaty (NPT).Last April, ABP stated that Larsen & Toubro did not manufacture tailor-made products for nuclear arms systems, and therefore did not violate the NPT definition.Its response at the time was triggered by a survey conducted by a Dutch pressure group against the arms trade. However, a spokeswomen for ABP now says the pension fund had started engagement with Larsen & Toubro through its adviser Sustainalytics, after questions were raised about the company’s exact participation.ABP also announced that it would not invest in Russia’s Motovilikha Plants JSC, “as a survey had shown involvement in the production of cluster weapons”.According to its spokeswoman, ABP has not invested in this company.In line with its responsible investment policy, ABP demands companies act in accordance with the UN Global Compact directive.If there are signs these companies have violated human rights, labour or environmental laws, the pension fund will initiate a dialogue.As a rule, the civil service scheme does not invest in companies that directly participate in manufacturing anti-personnel mines, cluster weapons, chemical and biological arms or – in defiance of the NPT – nuclear arms, it added.last_img read more

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Climate policy at Church of England lacking urgency, critic laments

first_img“The Church has a moral responsibility to speak and act on both environmental stewardship and justice for the world’s poor who are most vulnerable to climate change,” he said. Bishop Nick Holtam, in charge of environmental matters at the Church of England, added that the new policy marked “the start of a process of divestment as well as engagement with fossil fuel companies”. Anthony Hobley, chief executive at the Carbon Tracker Initiative, threw his weight behind the divestment move, and noted the tar sand divestment made financial and environmental sense. “These are incredibly expensive projects that consume a huge amount of finance, and many of the tar sands projects need an oil price somewhere between $80 and $200 a barrel to make a profit,” he noted, well below the current price for oil. The new policy will also allow for divestment from companies with “significant” carbon footprints if they do not consider their responsibilities in shifting to a low-carbon economy. The wording is likely to allow the Church to maintain its stakes in some of the largest listed companies in the UK, including BP, which recently backed a shareholder resolution calling for it to detail how it would transition to a low-carbon economy.Similar resolutions have been tabled for Shell and Statoil’s AGMs, with both companies throwing their weight behind them.The Rev. Dr Darrell Hannah, whose diocese of Oxford last year divested its £65m in glebe funds from fossil fuel, welcomed the new policy but said the Church should “move away from all forms of carbon as soon as possible, and that includes fracking”.He also criticised that the policy did not disclose what the Church would regard as a success in its engagement efforts with companies with a significant footprint. “That kind of criteria is very important,” Hannah said. “Although it uses the words ‘urgent action’, I miss in it the sense of urgency we have to have.” With an eye on alleviating poverty, the policy allows for the Church to invest in fracking, saying it should evaluate the opportunities stemming from growth in the market, “including those for employment in areas of social deprivation”. The Commission in 2013 began asserting ownership over the mineral rights associated with its land holdings, a step that could see it take advantage of fracking should the industry grow in the UK.The UK government earlier this year won a vote that will allow companies to frack on land without permission of the owner, as long as the exploration is more than 300m below the surface.But the policy stressed that any fracking company in which the Church holds a stake would need to ensure that “the range of stakeholder views” was heard prior to exploration.,WebsitesWe are not responsible for the content of external sitesLink to the Church of England’s revised climate change policy The Church of England has agreed to reduce holdings in coal and tar sand across its £9bn (€12.4bn) in pension and charitable funds, but divestment fell short of the full sale of fossil fuels.Critics accused the Church of lacking urgency. Revising its climate change policy, both the £6.1bn Church Commissioners and the £1.7bn Church of England Pensions Board agreed not to invest directly in companies that draw more than 10% of revenue from the production of oil from tar sands or the extraction of coal used for electricity generation – a change that has resulted in a divestment worth £12m. The Rev. Canon Professor Richard Burridge, deputy chair of the Church’s Ethical Investment Advisory Group (EIAG), accepted that climate change was a reality and that investments should be used to assist in the transition to a low-carbon economy. last_img read more

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ECB to ‘act as backstop’ to protect markets from Greek default contagion

first_imgAsset managers remain calm over the risk of contagion from a Greek sovereign default and euro-zone exit, with the credibility of the European Central Bank (ECB) and its quantitative easing (QE) programme providing a backstop to increasing volatility.Negotiations between Greece and the European Commission, International Monetary Fund (IMF) and ECB ground to a halt as the country enters a six-day bank holiday before a referendum on whether to accept its creditors’ proposals.They have been in negotiations with Greece over reforms to the public sector, privatisations, labour markets and pensions.While expectations grow for Greece to default on an IMF loan tomorrow, European investment markets have opened weaker, with the Euro Stoxx 50 down 3.2%. The FTSE100, DAX and CAC40 are all down between 1.5% and 3%.Despite sovereign bond yields in Italy and Spain rising by 25 basis points and 32bps in Portugal, asset managers have cooled expectations that a Greek default and euro-zone exit would lead to equity and bond market disruption, and contagion to other economies.Greek debt yields are up 346bps to 13.94% from Friday – and, should the country vote no on 5 July, a euro-zone exit becomes more likely.Around 80% of Greek government debt now resides with the IMF and the ECB, protecting private markets; Swiss firm Lombard Odier Investment Managers said the central bank would “spring into action” should any damage occur to euro-zone periphery or high-yield debt markets.In the short term, it said riskier asset markets would remain quiet, with shifts to safe-haven assets in German bunds and US Treasuries.“Beyond the next few days, implications for credit (periphery sovereign and corporate) are complicated, as, depending on the damage done by markets, we are likely to see the ECB spring into action,” the manager said.Within equities, the manager said a long-term impact on European stocks was also unlikely despite an increase in volatility over the short term, again due to the ECB’s previous market intervention.Jean-Pierre Durante of Pictet Wealth Management said the main contagion risk remained political.“In equity markets, the firm said short-term investments already exited euro-zone stocks after a [recent] 10% correction, with longer-term investors carrying on in equities based on the impact of QE in fixed income markets,” he said. “We can expect that equity markets should not correct much more than 5%.”Durante said bonds were a market to monitor, and key to it would be contagion risk to other bailed-out euro-zone economies.AXA IM’s head of research and investment strategy, Eric Chaney, said that, while the euro-zone awaited the outcome of a Greek default, volatility would settle in, with the euro down against the dollar by about 5%.“Other markets will decline, though to a lesser degree,” Chaney said.“We see global markets down by around 5%, depending on the stock market beta. As the US will be considered as a safe haven, Wall Street will correct less; other markets will presumably print deeper red numbers (on uncertainty and fear).”He warned Spanish and Italian debt yields could rise by 3 percentage points.However, Brewin Dolphin warned the risk of contagion was being underplayed.“We cannot take the creditors’ claims that contagion will be contained at face value – rather, these statements were made to strengthen their negotiating positions,” it said.“The contagious implications are that any creditors to euro-denominated cross-border loans will be sweating now.“German banks have some $13bn of cross-border exposure to Greece, with US and UK banks holding similar amounts.”However, it added: “Some of this will be secured on euro cash flows, so the exposure looks limited overall – particularly in the context of Lehman Brothers’ nearly $800bn debts. “The economy is stronger and the banking system than those dark days.”last_img read more

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UK pension funds flirting with 40% bond allocation – UBS GAM

first_imgWithin alternative investments, however, there was a shift to private equity within public sector pension schemes, where it now accounts for the majority of the allocation.Within local government pension schemes’ (LGPS) 8.3% average allocation to alternatives, private equity accounted for 55% of portfolios, up from 40% in 2013.Among both private sector and LGPS schemes, infrastructure investment also increased, accounting for 15.6% of alternatives allocations in the former and 11.5% in the latter, both up by approximately 4 percentage points.This suggest that, while pension funds are increasing allocations to private equity and infrastructure, it is at the expense of other alternative asset classes over traditional investments, with overall alternative holdings remaining relatively stagnant.Over 2014, UK Gilts were the best-preforming asset class, returning 26.1%, while the worst returns came in cash at 0.3%.UK corporate bonds returns 12.2%, index-linked bonds and real estate both 19%.UK equities were the second-worst performer with 1.2%, while overseas equities returned 12.3%.Bond allocations have been rising since the global financial turmoil in 2007, which saw a jump from a 24% allocation to 30%, mainly via Gilts.Bond allocations flirted around the mid-30 mark for some years before rising steadily to 38% in 2014 – split 18% 14% and 6% in Gilts, index-linked Gilts and overseas bonds.UBS GAM said the growing bond allocation, from as low as 10% in 1990, could be down to pension funds’ increasing maturity, with bonds being used to match pensioner payments, or accounting standards forcing private sector schemes to match corporate bond yields for discount rates.“None of these developments actually requires pension funds to invest in bonds,” it said. ”However, they act as powerful incentives to do so.“Growing demand for long-maturity bonds in the UK has been sufficient to create a relatively flat yield curve. “It seems likely these pressures will persist as asset allocation moves towards a better match to the maturity structure of pension funds.” The average UK pension fund returned 11.7% over the course of 2014, with real estate and government bonds performance offsetting weak UK equities.The figures, published in this year’s UBS Global Asset Management Pension Fund Indicator report, also showed a slight change in average asset allocation, with bonds now accounting for 38% of portfolios, up from 35% and closing in on previous highs.UK equity allocations dropped to 16% from 18%, while allocations to cash, real estate and alternatives remained relatively static at 3%, 7% and 9%.Non-UK equities fell by 1 percentage point to 27%.last_img read more

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PGGM takes stake in sea lock to port of Amsterdam

first_imgPGGM, asset manager for the €161bn healthcare pension fund PFZW, has taken a stake in a sea lock to be built at IJmuiden, entrance to the port of Amsterdam. It made the investment in the Noordersluis through its joint venture with construction company BAM.The OpenIJ consortium – comprising the BAM PPP PGGM Infrastructure Co-operative, construction company VolkerWessels and infrastructure investor DIF – has been awarded the design, construction, financing and maintenance of the new lock for a 26-year period.Construction is to start next year, and completion is scheduled for 2019. Maurice Wilbrink, spokesman for PGGM, declined to specify the expected returns or scale of PGGM’s stake in the project, citing competition concerns.Last February, the asset manager increased its commitment to the joint venture by €140m to €480m, raising its total committed assets to €600m.The financing of new projects is done on an 80/20 basis across the two players, with PGGM taking the larger stake and BAM the smaller.PGGM entered the joint venture in 2011 to generate stable and inflation-related long-term returns.It also cited the ability to invest in infrastructure directly, and to increase its “grip” on its own portfolio and the criteria for socially responsible investment.Wilbrink said the sea lock was the joint venture’s seventh infrastructure project in the Netherlands.Previously, it participated in the renovation of the office of a former ministry, as well as the construction of a new office for the Hoge Raad, the Netherlands’ most senior legal college.Since 2011, the BAM PPP PGGM Infrastructure Co-operative has invested in 25 projects, including schools and courthouses in Ireland, roads in Germany and Ireland, two rail projects in Belgium and a hospital in Germany.Its participation varied from acquiring 50% of concessionary rights for management and maintenance of a German motorway to the design, construction, financing and maintenance of a secondary road in Ireland.last_img read more

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Revamped British Steel scheme reports £2.2bn accounting surplus

first_imgThe restructured British Steel Pension Scheme (BSPS) has reported a £2.2bn (€2.5bn) “non-cash accounting surplus” following its restructure, which completed at the end of March.Tata Steel, the Indian conglomerate and ultimate sponsor of BSPS, banked a £1.6bn “exceptional gain” on the back of the improved funding position, it said in its financial results on Wednesday.Tata said the surplus would allow the company to “continue to support the pension scheme, allowing it to run its required low-risk investment strategy protecting its members.” “This is an optimal and sustainable outcome for pensioners, current employees and the UK business. The entire process for the UK pension restructuring is now complete,” Tata added. In May 2016, the UK government launched a consultation on the future of BSPS following an admission by Tata Steel UK (TSUK) that the company had lost £2bn over the past five years. Tata threatened to pull out of the UK if it was unable to reduce its pension costs.Following negotiations with the Pensions Regulator, Tata Steel Group agreed to pay BSPS £550m in addition to transferring a 33% equity stake in TSUK into the pension fund.Late last year, members were given a choice of moving across to the revamped BSPS or face being transferred into the Pension Protection Fund (PPF), the UK’s pension lifeboat fund. More than 83,000 members opted to transfer into the new BSPS with reduced benefits – albeit higher payments than those that transferred to the PPF.Questions have now been raised, however, as to whether Tata should move to restore those benefits.On its website, BSPS was clear about the distinction between Tata’s corporate responsibilities and those of the trustees of the scheme.“The way Tata Steel treats its pension arrangements in its own accounts is irrelevant to the way that the trustee looks at the financial health of the BSPS,” it said.However, the National Trade Union Steel Coordinating Committee (NTUSCC) said that it had campaigned for the new scheme on the basis that the alternative was the “inevitable insolvency of Tata Steel UK and the PPF for all members”. NTUSCC added: “The trade unions have always said that if scheme funding allows then Tata and the trustees can and should improve benefits in the future. The surplus for the new BSPS that Tata has reported today is higher than we expected, which we welcome as it strengthens to case for benefits to be restored.” Tata Steel’s Port Talbot plant in Waleslast_img read more

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