PensionsEurope has expressed alarm about the recent amendments to Bulgaria’s Social Insurance Code enabling members of the second-pillar pension system (the Universal and Occupational pension funds) to switch fully to the public pay-as-you-go (PAYG) system.In a recently issued press release, the Brussels-based lobbying body warned that the changes jeopardise the country’s multi-pillar pension system.PensionsEurope is disturbed by the legal change stipulating that, in the case of members who choose to transfer to the second pillar, the decision is irreversible.In a statement, it says: “This reform in Bulgaria is remarkable, as employees are made to choose between two systems of retirement provision that are non-comparable by nature – a PAYG and a fully funded system.” The organisation also noted that, because Bulgaria’s first pillar does not run individual accounts, the funds would be swallowed up in the PAYG system.According to Matti Leppälä, PensionsEurope secretary general, the current Social Security Code on the table undermines the role of funded pension schemes in the pension system and the economy.“Universal Pension Fund (UPF) members will have to choose whether to continue their parallel participation in a pension fund or to participate only in the public system and transfer all accumulated assets,” Leppälä told IPE.“Bulgaria faces severe demographic challenges. Those challenges cannot be overcome alone by the PAYG pensions and public finances in the long run. In the proposed reform, the PAYG and funded pillars would not be complementary to each other, but would be in opposition to some extent. Bulgaria needs both PAYG as well as funded pensions.”Recent proposals by the Finance Ministry to amend the new law have not provided much reassurance.“The government is looking for other decisions in the same direction,” said Leppälä.For example, the Ministry’s proposal to have second-pillar funds relocated to the Silver Fund rather than the PAYG system does not, according to PensionsEurope, offer a solution to the issues arising from the adopted legislative changes.Furthermore, with the country now actively debating the pension reform, other proposals may come forward.Leppälä described the Bulgarian changes as part of a worrying development among some Central and Eastern European member states that had adopted mandatory funded pensions prior to EU enlargement. “That member states take over pension funds runs counter to the long-term policy on adequate, safe and sustainable pensions adopted by the EU and its member states,” he told IPE.“Taking money out of pension funds will undermine citizens’ trust in funded pensions.”See Carlo Svaluto Moreolo’s roundup of recent regulatory changes in CEE pensions in the January issue of IPE magazine
Active management has helped pension funds outperform the market but only by 16 basis points after costs, according to an in-depth study spanning more than two decades.The survey, conducted by CEM Benchmarking, estimated that there was a gross added value of 58bps for pension funds if they actively managed their assets rather than tracking a benchmark.The survey was backed by figures from Europe’s largest asset owner, the Norwegian Government Pension Fund Global, which claimed a 0.25 percentage point outperformance since inception.The firm based its findings on annual survey results dating back to 1992 that captured the performance of more than 1,000 corporate and public pension funds over its 21-year run, with the 2013 sample of 335 schemes managing $6.5trn (€4.7trn) in assets. Alexander Beath, senior research analyst at the firm and the study’s author, noted that pension investors had been “put under the microscope” by regulators since the onset of the financial crisis.“This requires them to justify their investment costs and practices, and this confirms what those in the industry know,” he said. “Investing in investing has paid off.”However, Beath also acknowledged the “small” outperformance of 16bps once the cost of active management had been taken into account.“While [the outperformance] is great news for our clients who need to justify active investing in the face of efficient market adherents, what is really interesting is finding out why they are able to tilt the table in their favour and add value,” he said.The survey found that pension funds increased their net value by 7.6bps for every tenfold increase in assets, and that there was a 22.1bps increase in net value for pension funds that managed assets internally.“While average value added has been positive, individual fund performance around the average varies significantly, with standard deviations of 267bps gross and 265bps net.”The findings come after Swedish buffer fund AP4 credited active management with a SEK1.4bn (€147m) outperformance in 2014.Similarly, the Norwegian Government Pension Fund recently defended its approach to management after reports in local newspaper Dagens Næringsliv alleged Norges Bank Investment Management failed to achieve an outperformance compared with its benchmark since 1998.In a response to the article, NBIM’s chief risk officer Dag Huse said: “To invest is to make choices. Looking back, we will see that some choices were good, and that some were less fortunate.“What counts is that we as a fund manager improve the trade-off between return and risk in the long run.”NBIM argued that its approach to management had seen a 0.25% outperformance since the fund’s inception in 1998.,WebsitesWe are not responsible for the content of external sitesLink to study by CEM Benchamarking
“The investment gap and financial crisis present us with the challenge of solving the tricky equation of maximising economic growth, increasing financial stability, removing barriers to cross-border investment, ensuring consumer protection and enhancing competition all at the same time,” Lamassoure said.For her part, Linklaters’ senior lawyer Silke Bernard flagged up the opportunities in responsible investing for the “exciting” vehicle.She predicted there would be a lot of interest from investors for infrastructure projects considering social and responsible investment matters – such as schools and hospitals.Monica Gogna, partner at Ropes & Gray, said the ELTIF’s approval by Parliament showed Europe was keen to remain “at the forefront of innovation” in the investment management sector.“The development of this regulation and the implementing rules surrounding it will definitely be ‘one to watch’ as the industry starts to map out opportunities where this new structure may be used,” she said. The ELTIF, aimed at both institutional and retail clients, was highlighted by Hill as the first step towards the CMU during the commissioner’s confirmation hearings.Proponents of the ELTIF have long spoken out in favour of its long-term capital being deployed with socially responsible investment (SRI) in mind.Natixis Asset Management previously told IPE it was in favour of enshrining SRI within the fund’s framework, requiring asset managers to comply with certain ESG principles or disclose that they had opted against such an approach. The European Parliament’s approval of the European Long-Term Investment Fund (ELTIF) framework has been welcomed by the industry and parliamentarians as the first step towards building the Capital Markets Union (CMU).The ELTIF, meant as a conduit for patient capital, was first mooted in 2012 when the European Commission considered how it could better channel long-term capital into the economy.Jonathan Hill, commissioner for financial stability, said the vehicle would help fund infrastructure projects “essential for a sustained recovery”.Alain Lamassoure, the French MEP overseeing the framework’s passage, said it would boost both long-term investment and help bring about the launch of the CMU, one of Commission president Jean-Claude Juncker’s cornerstone policies.
The real estate KAG has €650m, a small amount of which is institutional.The new acquisitions will increase Union’s roughly €1bn in institutional assets, mainly for Austrian Pensionskassen, Vorsorgekassen and insurers, to more than €4bn.In a statement, Union said it would expand its institutional business in Austria and seek to gain access to retail investors via the Volksbanken branches.The deal is expected to close in the third quarter, pending regulator approval. German asset manager Union Investment has launched an “integration project” to determine the future set-up of KAG assets recently acquired from Austria’s Volksbanken.Earlier this week, Union announced that it paid an undisclosed sum for the Volksbanken Invest KAG and the real estate manager Volksbanken Immobilien KAG.A spokesman at Union told IPE: “We are just now getting to know the staff and cannot comment on any personnel decisions at the moment.”In total, the Volksbanken Invest KAG, to be run under the Union Investment brand, has €4.75bn in assets under management, as of the end of June.
Investors have turned their attention to Italy’s struggling banking sector following the resignation of prime minister Matteo Renzi.Renzi quit after losing decisively a referendum on a proposed overhaul of the Italian constitution, with 60% voting against his measures.President Sergio Mattarella is expected to appoint Renzi’s successor this week, bringing in a “caretaker” government that will attempt to force through political reform.However, the setback has brought uncertainty over the recapitalisation of Italy’s banking sector. Banco Monte dei Paschi – one of the country’s biggest banks – requires €5bn of fresh capital to meet stringent European rules, and is in talks with private-sector backers today in an effort to hammer out a rescue deal.Azad Zangana, senior European economist and strategist at Schroders, said a “bail-in” of the predominantly retail Monte dei Paschi could be difficult, “especially if a lack of [political] leadership persists for too long”.Alberto Chiandetti, fund manager at Fidelity, said: “Monte dei Paschi last week obtained less Tier 2 debt conversion than expected (€1bn versus the expected €1.5bn-2bn), but now the focus is on whether an anchor investor will materialise or not. If not, Monte dei Paschi needs a plan B, and, in that scenario, bank shares are likely to suffer most.”UniCredit has also struggled to maintain the required capital buffers this year due to non-performing loans, and is due to raise more capital next week.Chiandetti said the post-referendum environment would “no doubt weigh on this upcoming deal and put pressure on UniCredit shares”.However, Roelof Salomons, senior strategist at Kempen Capital Management, said the banking sector’s problems were “only a matter of a fraction of the Italian economy and of the overall Italian government debt”.Darren Ruane, head of fixed interest at Investec Wealth & Investment, added: “In general, the major Italian banks are less threatened by the referendum result because they already hold reasonable levels of capital and have been working through their asset quality problems.”However, shares in UniCredit and Monte dei Paschi were down by 5.8% and 3.7%, respectively, at 1:40pm GMT versus their closing price on Friday.FTSE MIB, the main Italian stock market, was up by 0.36%, having initially spiked by more than 3% in the first hour of trading this morning.Italian government bonds have traded roughly flat today after an initial bout of volatility in early trading.The euro weakened slightly against the dollar and the pound, but most commentators pointed out that markets had already priced in a rejection of Renzi’s proposals.Away from the banking sector, investors voiced concern about Italy’s low growth, which would be exacerbated by political stagnation.“[Italy’s] gross debt is the highest in Europe at 133% of GDP, and the debt servicing stands at 4% of GDP per annum,” said Zangana.“Should interest rates rise in the future, the government will have little choice but to implement more austerity, hurting growth further.”Jon Jonsson, a fixed income manager at Neuberger Berman, said: “From a market perspective, the ‘No’ vote will reduce confidence in the recovery of the Italian economy. It will also likely increase uncertainty stemming from rising euroscepticism across the euro area. Indeed, it will likely negatively impact Italian government bonds and risky assets in Europe.”However, he added that markets “could fully price these developments sooner than expected and reach oversold levels”.He said: “Patience is key, and there may be opportunities to use any substantial sell-off to buy attractively priced assets.”In some corners, the referendum – which for many Italians had become a vote of confidence in Renzi rather than a vote on political reform – has been seen as the first of a string of important political events taking place over the next 12 months.In the wake of Brexit and the election of Donald Trump in the US, commentators had warned of a wave of populism and anti-establishment voting across Europe.However, Eoin Fahy, chief economist and investment strategist at KBI Global Investors, said: “I do not believe this is the start of contagion in Europe. People wouldn’t normally be focused on this kind of referendum.”He added that the European Central Bank – expected to announce changes to its quantitative-easing programme on Thursday – would be able to step in as a buyer if bond markets were affected.
Investment Association – Aviva Investors chief executive Euan Munro has joined the Investment Association board. The appointment follows the announcement in November 2015 that former board member, Invesco Perpetual chief executive Mark Armour, was to retire from Invesco at the end of last year. La Française – The investment manager has reorganised its securities fund-management division, with Jean-Luc Hivert being appointed CIO of fixed income and cross asset, and Laurent Jacquier Laforge CIO of equity divisions. Hivert has been with La Française since 2001. Laforge is responsible for the SRI equity range offered by La Française, small-cap management and the monitoring of partnerships, such IPCM, an extra-financial research firm, Alger and JK Capital Management. He joined La Française in 2014, having before then been head of equities at La Banque Postale Asset Management.Carmignac – The €51bn asset manager has appointed David Older as head of equities. He started at Carmignac as senior fund manager in 2015 and is now responsible for assessing and optimising alpha-generated returns. His responsibilities will extend to all segments of the US equity market, excluding commodities. At the same time, the French asset manager promoted Christophe Peronin as deputy director under Eric Helderlé. He will support Helderlé in managing the company’s strategic development committee, while retaining his responsibility for operational management and risk management.Legal & General Group – Kerrigan Procter, chief executive at Legal & General Retirement (LGR), has been appointed group executive director of the company, with effect from 9 March. Kerrigan has been managing director at LGR since January 2013. He was previously head of solutions with Legal & General Investment Management.BH Global – Julia Chapman has joined the board. In 1999, she was appointed general counsel to Mourant International Finance Administration. Following its acquisition by State Street in April 2010, she was appointed European senior counsel for State Street’s alternative investment business. In 2012, she left State Street to focus on the independent provision of directorship and governance services to a small number of investment fund vehicles. Pensions Infrastructure Platform, PwC, Elo, FIN-FSA, Bank of Finland, Investment Association, Aviva Investors, La Française, Carmignac, Legal & General Group, BH GlobalPensions Infrastructure Platform (PiP) – The investment manager developed by UK pension funds to invest in UK infrastructure has appointed Tony Poulter as chairman. He joins from PwC, where he was global head of consulting and before that head of project finance. He is also senior independent director at the Green Investment Bank and a non-executive board member at the Department for Transport.Elo – Eeva-Liisa Inkeroinen, deputy chief executive of employers’ association Technology Industries of Finland (Teknologiateollisuus) has been elected as chairman of the board of Finnish pensions insurance company Elo. She has been on the board of Elo since the company was founded in 2014 from the merger of Pension Fennia and LocalTapiola Pension, and before that, was a director and member of the audit committee of LocalTapiola Pension. Ann Selin, president of the service sector trade union PAM, is to continue as the first vice-chairman of Elo’s board, while Antti Aho, executive director of Aava Medical Centre, has been elected as the second vice-chairman. FIN-FSA – Samu Kurri has been appointed head of institutional supervision at the FIN-FSA, the Finnish Financial Supervisory Authority (Finanssivalvonta), for a five-year term. He will take up the role on 1 February. Kurri is succeeding Marja Nykänen, who is moving to the Bank of Finland, the central bank, to take up a post as member of the board. Kurri comes to his new head of department job at FIN-FSA from the Bank of Finland, where his role has been head of international and monetary economy policy, a post he has been in since 2009. Before that, he held several positions at the Bank of Finland and the European Central Bank.
It claimed that SLA was “a clear and material competitor of Scottish Widows and Lloyds Banking Group in the UK”.“To suggest otherwise is not credible,” the spokesperson added.The funds’ mandates were due to expire in March 2022 regardless of the merger deal.“We are confident of our legal position and that our actions are in the best interests of our customers,” the Scottish Widows spokesperson said. “We are therefore surprised at the course of action pursued by Standard Life Aberdeen.”Scottish Widows made the decision to withdraw the mandates in February this year, after Aberdeen – which has run the money since buying Scottish Widows’ investment business in 2014 – merged with Standard Life. The combined entity sold Standard Life’s insurance business to Phoenix Group in the same month.At the time, Lloyds said: “Aberdeen has delivered good service and performance and Scottish Widows and [Lloyds] would welcome their participation in the review if Standard Life Aberdeen is able to resolve the competition issue.”SLA said that the move would slash £40m from its 2017 results.“However, revenues from these assets represent less than 5% of our full year 2017 pro forma fee-based revenue,” said Bill Rattray, chief financial officer of SLA, in its 2017 annual report. The failure to reach an agreement with Lloyds Banking Group was “disappointing”, the report noted at the time.IPE’s annual list of the Top 400 Asset Managers showed that the merger between Standard Life and Aberdeen meant SLA managed €393.8bn of European institutional money, and €678.2bn globally (from figures for each company at the end of 2016), making the company Europe’s fifth-largest institutional manager and the world’s 24th-largest asset manager. UK insurance group Scottish Widows is in a contractual standoff with Standard Life Aberdeen (SLA) over its decision to withdraw mandates worth £109bn (€124bn) from Europe’s fifth-largest institutional fund manager.SLA has challenged Scottish Widows’ right to terminate the investment management agreements (IMAs) on the basis that the merger between Aberdeen Asset Management and Standard Life, which completed last year, meant that the combined company was now in direct competition with the Lloyds Banking Group subsidiary.In a statement to the City this morning, SLA said it did not agree that, following the merger, it was in “material competition in the UK with [Lloyds Banking Group] and that, therefore, SLA does not consider that [Lloyds], Scottish Widows or their respective affiliates has the right to terminate the IMAs”.However, a spokesperson for Scottish Widows and its parent, Lloyds Banking Group, said the comments made this morning by SLA were disappointing, “particularly in the light of our position as a major customer”.
The non-governmental organisation (NGO) Shipbreaking Platform – whose data KLP said it has used in its work – said recently that companies sell commercial vessels for the highest profit to beaching yards that disregard worker rights with unsafe working conditions.NGO Shipbreaking Platform executive director and founder Ingvild Jenssen said: “No ship owner can claim to be unaware of the dire conditions at the beaching yards, still they massively continue to sell their vessels to the worst yards to get the highest price for their ships.“The harm caused by beaching is real. Workers risk their lives, suffer from exposure to toxics, and coastal ecosystems are devastated,” she added.The NGO reported that in 2018 at least 35 workers died when breaking apart the global fleet. It also said that NAT, which is listed on the New York Stock Exchange, is the second worst recorded dumper of ships. According to the NGO, the company said it made $80m (€71m) from the sale of eight vessels to beaching yards in India and Bangladesh.Since the exclusion of NAT, KLP has blacklisted five other companies on this basis and said that it has questioned 30 companies in recent years regarding their scrapping practices.The fund also said that from the beginning of 2018, all ships sailing under EU flags must be scrapped in yards on the EU’s white list. The Norwegian pension fund Kommunal Landspensjonskasse (KLP) excluded the Norwegian-led oil shipping company Nordic American Tankers (NAT) from its investments in January in a bid to help prevent the controversial practice of scrapping ships on beaches in Asia.The fund, which has NOK675.6bn (€69.6bn) under management and runs pensions for local authorities, said this latest move had been made as part of over a decade of work it had been doing to prevent the practice, which it says causes not only serious environmental pollution but also gross violations of human rights.KLP said its work on this issue began in the mid-2000s when the pension fund became aware that ships belonging to the companies Odfjell and BW Gas had ended up on beaches in Asia. A 2009 documentary put the problem into sharper focus.Jeanett Bergan, head of responsible investments at KLP, said: “The fact that these ships are continuing to end their lives on these beaches is a declaration of failure. It is the grotesque shadow side of international trade and shipping and the consequences of a philosophy which says profit trumps all – including human dignity, life and enviroment.”
He explained that the Future Fund’s exposure to the energy sector included renewable energy companies, and noted that many of the companies in which it invested were transitioning away from fossil fuels.“At the moment, the data isn’t able to look through that to say how much of this is exposure to fossil fuel-based energy production versus renewables,” he said.“In our case, as data evolves and is more available, it would be easier for us to look at our portfolio. The technology that exists is not very precise. It’s something we’re looking at developing.”“The technology that exists is not very precise. It’s something we’re looking at developing”Raphael Arndt, CIO at Future FundHowever, he appeared to qualify his comment when he added: “As there is no-one trading in and out of the Future Fund as there would be in public equities, for example, the cost and effort of going to that right now, we don’t think are worth the benefit.”He added: “The risks associated with climate change and energy transition are significant, ones that we have to manage alongside other risk that we have to think about.”Arndt said that among the risks were those associated with future pricing of carbon and climate change. “When we’re looking at how we build portfolios with our fund managers, these are the types of things we do discuss with them.”He said this is “not a risk we manage in isolation of all the other risks; it’s one of many risks we think are significant enough to focus on”.The Greens senator then raised the question of BlackRock, which recently announced plans to divest from its thermal coal shares, asking if BlackRock had communicated to the Future Fund directly its intention to get out of coal.Arndt replied: “We have discussed it with BlackRock, yes.” Raphael Arndt, CIO at Future FundThe Future Fund has about 19% of its international equities portfolio invested with four managers, including BlackRock and Blackstone.On how it assesses risks more generally, Arndt told the Senate Committee the fund had different investments, and had been investing in its technology platform.“The system we have built, and continue to build, maps each asset onto a database, and there are certain characteristics we can attach to that,” he said.“We’re able to look into the portfolio, whatever the most recent information is, and look, for example, at what the exposure is to a particular industry.”The system, he said, could pull that data both from listed portfolios, such as equities, and unlisted portfolios, such as private equity.Whish-Wilson asked about the impact of the coronavirus, for example, at the moment, and whether Arndt had been able to access the potential response in Future Fund assets to a wider outbreak.Arndt responded: “The impact of the virus is clearly significant, particularly on the Chinese economy. We’ve had a look at our exposure to the industries that would be exposed to that.“In the case of the Future Fund, of course, we have been speaking for quite a few years now about the importance of understanding risk and the fact that we see risk is rising, and the importance of a diversified portfolio.“At the current time, the Future Fund is highly diversified, and we feel it is very well-positioned for this event.” Australia’s Future Fund is considering developing technology that would allow it to better analyse its exposure to fossil fuels and climate change risks.The possibility has been disclosed by the Future Fund’s chief investment officer, Raphael Arndt, to a Federal Government Senate Committee hearing in Canberra.Arndt had been asked how the sovereign wealth fund was managing climate change risks to its assets, which were valued at A$168bn (€99.5bn) at 31 December 2019.Answering questions from a Greens Senator, Peter Whish-Wilson, Arndt admitted the fund was unable to closely examine its investment exposure to companies producing fossil fuels, or relying on emissions-intensive energy sources.
The UBS (UK) Pension and Life Assurance Scheme has covered the longevity risk associated with the majority of its defined benefit (DB) pensioner members via a £1.4bn (€1.5bn) longevity swap with Zurich Assurance.Until now all the longevity risk in the roughly £3bn DB section of the scheme had been unhedged, according to Richard Hardie, chair of the trustee.He said: “This transaction is an important building-block in our plan to reduce the uncertainties facing the DB section of our scheme as it approaches maturity.“It adds considerably to the security of all DB members’ pensions; the longevity risk attaching to approximately half its liabilities (broadly its pensioners) has been removed.” Suthan Rajagopalan, partner at Mercer and lead adviser to the trustee, said longevity risk management had been on the trustee’s agenda for several years.“This transaction was the result of a thorough review of the scheme’s longevity risk exposures and the options, initially including bulk annuities, for reducing these, complementing the trustee’s ongoing de-risking programme and investment strategy.”Mercer, which acted as the lead commercial and investment adviser to the trustees, said the deal was structured as an “innnovative ‘pass through’” insurance contract, with 100% of the longevity risk reinsured by Canada Life Reinsurance.Greg Wenzerul, Zurich’s head of longevity risk transfer, said: “We adapted Zurich’s large-scheme longevity swap solution to fit the trustee’s requirements for a flexible, long-term insurance solution to hedge the scheme’s longevity risk in a cost effective manner.“The trustee, Canada Life Reinsurance and their respective advisers deserve huge credit for the efficient execution of this transaction during a period of severe turbulence and uncertainty, the nature of which further underlines the benefit and security of using a UK regulated insurer for longevity hedging.”UBS’s deal is the third longevity hedge by a UK pension scheme to be disclosed this year. In January it was revealed that Lloyds Banking Group struck a £10bn longevity swap, the second largest longevity de-risking transaction ever for a UK pension plan, and last week a £1bn longevity hedge by Willis Pension Scheme was reported.According to a Mercer spokesperson, there was another Mercer-led longevity swap for £150m in the first half of the year but the providers and the pension scheme involved have not yet been announced.Last year there were two longevity swaps, and the year before three. The Merchant Navy scheme this year converted a longevity swap to a £1.6bn buy-in, with consultants saying the trend of such conversions is likely to continue.Looking for IPE’s latest magazine? Read the digital edition here.