Investments at Finnish State Pension Fund VER returned 6.4% last year, with equities producing enough profit to offset a 1.8% loss on fixed income holdings.Reporting figures for 2013, the pension fund said the market value of investments rose to €16.3bn at the end of the year from €15.4bn at the end of 2012.VER transferred nearly €1.7bn to the state budget, up from €1.6bn the year before.The contribution was more than the pension contributions received by the fund of €1.63bn, the fund pointed out. The year before, the pension fund had received more than it transferred.Managing director Timo Löyttyniemi said: “VER has moved into the role of balancing pension costs.” This development was assumed to continue, he said.“Over the coming years, VER will increasingly balance the pressure of the rising state pension costs,” he said, as the return on investments in the short and the long term had remained at a good level.The 2013 return undercut the previous year’s 11.3% investment profit.The fund said the strong rise of the equity market was the most important factor contributing to overall profit.On the other hand, the year was particularly hard for fixed income investments, it said, with interest rates low as a result of expansionary central bank policies in the wake of the financial crisis.The fixed income loss of 1.6% compares with a profit of 8.8% generated by the asset class in 2012.Equities produced 18.2%, up from 16.8% the year before.The highest returns within equities came from investments in developed countries, VER said, with Finnish shares providing the highest returns at more than 30%. Returns on emerging market equities, however, finished mostly negative at the end of 2013.VER said it was a big net seller of equities at the end of the year following the strong performance.Allocation to the asset class subsequently stood at 39.9% at the end of December, only slightly higher than the 38.4% share the fund held a year before.
The ruling puts at risk the stability of the casse di previdenza’s accounts unless it significantly reduces benefits for younger members. Employees whose pensions are calculated with the old rules receive an income several times higher as those whose benefits follow the post-reform calculation method. At the same time, payouts to current pensioners are not covered by their past contributions.It is unclear whether the court’s ruling will result in parliamentary-level discussion to change the budget law, which still applies to current pensions. The 20 casse – despite being mandatory, first-pillar schemes – have managed as private entities since 1995 and make their own investment decisions. The state, however, reviews their accounts and can have a say in their management decisions if their financial positions are deemed to be at risk.In other news, it has emerged that Laborfonds, the €1.8bn second-pillar pension fund for employees in the northern Italian region of Trentino-South Tyrol, has left Assofondipensione, the country’s industry-wide pension fund association.In a letter to Assofondipensione, Laborfonds managing director Giorgio Valzolgher said he did not feel the association represented the interests of industry pensions funds adequately. He lamented the excessive pressure industry constituents – namely trade unions and employers’ associations – exerted on the association’s decisions as opposed to pension funds, which are its statutory constituents. Italy’s casse di previdenza must fulfil its members’ accrued right to earn a pension calculated using a contribution-based defined benefit (DB) formula, according to a ruling by Italy’s highest court of appeal, the Corte di Cassazione. As part of former labour minister Elsa Fornero’s public pension reform of 2011, first-pillar pension schemes for white-collar workers were required to switch to a notional defined contribution (NDC) calculation method and demonstrate their sustainability over a 50-year period.The prime minister Mario Monti’s government later introduced, through a budget law, a measure to have accrued pensions calculated with a mixed DB and defined contribution (DC) method. However, a member of the €2.35bn accountants’ cassa di previdenza, CNPR, successfully appealed to the court to have his pension calculated according to the old pure DB formula.
Minimum rating for the non-financials corporate bonds in the portfolio should be BBB-, and bonds from financial issuers should be rated at least A-.Applicants should have at least €1bn under management in this asset class and a minimum of €10bn of assets under management overall.They should also have a minimum track record of six years, although the pension fund stated in the search it would prefer a track record of at least 10.Performance should be stated to the end of June, with figures supplied gross of fees.The deadline for responses is 28 August.The IPE news team is unable to answer any further questions about IPE Quest tender notices to protect the interests of clients conducting the search. To obtain information directly from IPE Quest, please contact Jayna Vishram on +44 (0) 20 7261 4630 or email [email protected] An unnamed German pension fund is looking for an asset manager to take on a €500m mandate to invest in euro-denominated corporate bonds.According to search QN-2103 on IPE Quest, the mandate volume could be split between two managers.Asset managers must have experience with managed or segregated accounts as investment vehicles, and derivatives will only be allowed in the portfolio for hedging purposes.The investment process is to be active, using an 80% Markit iBoxx EUR Non-Fin and a 20% Markit iboxx EUR Financials index as benchmark.
The FD, citing “market sources”, said Orix therefore requested that Munsters resign.Makoto Inoue, chief executive at Orix, has indicated in recent interviews that his company is actively seeking overseas acquisitions, with a view to doubling Robeco’s assets under management.He also confirmed Orix was looking for a US-based asset manager.Before joining Robeco, Munsters served as CIO at the €353bn civil service scheme ABP and the €166bn healthcare scheme PFZW, in addition to holding a number of investment jobs at insurer Interpolis.He has also been chairman at Eumedion, the Dutch industry organisation for corporate governance.The FD, citing “sources near Robeco”, suggested Orix believed that, in light of Munsters’s Dutch background, the cultural shift required in overseeing international organisations – which, “given their complexity”, require “much empathy for other cultures, as well as other management models” – would have been too great.The FD also suggested Orix was mulling a bid for Russell Investments, currently owned by the London Stock Exchange.Last year, Robeco announced that it would set up a London office, focusing on the institutional market, as well as an office in Singapore, which would target sovereign wealth funds and key accounts.The asset manager has offices in Tokyo, Seoul, Sydney, Shanghai and Hong Kong.Munsters said he would remain with the company for a few more months to ensure a “seamless transition”. Roderick Munsters, chief executive at Robeco, has announced his departure after six years at the helm and two years since Japan’s Orix Corporation acquired the €273bn Dutch asset manager from Rabobank.In a statement, Munsters said Robeco was in “good shape” two years after the acquisition, with “solid financial performance and a strong long-term strategy”.“This,” he said, “is therefore a natural moment for me to hand over my responsibilities to new leadership.”However, according to Dutch financial news daily Het Financieele Dagblad (FD), Orix believes Munsters lacks the international experience needed to realise the company’s expansion plans.
This year, Dutch schemes with funding levels between the minimum required coverage and the prescribed financial reserves have the one-off option to change their risk profile, as part of the transition to the new financial assessment framework (nFTK).According to Boertje, one-third of the pension funds are, in principle, entitled to file a request for such an adjustment.Another one-third of the schemes do not qualify because their funding is too low, which would increase the risk of a rights discount, Boertje said.The remaining pension funds with “surplus” coverage do not need to ask for permission, as they already have more leeway to invest, he added.Boertje said both small and large pension funds – as well as schemes with predominantly older and predominantly younger participants – had filed requests to increase of their risk profiles.He pointed out that most pension funds, wishing to avoid cuts to pension arrangements, were looking for solutions to low interest rates within the “triangle” of the pension target, internal finances and risk profile.“Because the steering mechanism of the pension contribution no longer works, adjusting the risk profile is the only remaining option,” he said.“However, it also increases the chances of setbacks.”Boertje stressed that the regulator had no desire to assume the responsibilities of pension funds’ boards, but he made clear that they must be able to illustrate how they had taken the interests of all participants into account.He added that the regulator also wanted to know how far, in the schemes’ opinion, interest rates had to increase in order to make a reduction of their interest hedge meaningful.Boertje said those pension funds that wished to reduce their interest hedge while raising their equity allocation would be asked which scenarios they had in mind.“They expect both interest rates to rise and equity markets to improve, while a rate increase often negatively affects stock markets,” he said. Boertje said DNB also wanted to know whether a board had made the request as a tactical or as a strategic policy measure. The Dutch pensions regulator, De Nederlandsche Bank (DNB), has confirmed that more than 30 pension funds have made formal requests to raise the risk profiles of their investment portfolios.Speaking at a conference organised by IPE sister publication Pensioen Pro, Bert Boertje, supervisory director for pension funds at DNB, said the schemes requested permission to decrease the interest hedge on their liabilities, increase their equity exposure or apply a combination of the two. “We are still busy assessing the requests,” Boertje said.“If schemes don’t have a plausible explanation, we will get back to them with additional questions.”
For pension funds holding Volkswagen shares, the damage has been twofold. They have seen not only a significant loss arising from the share-price fall but they also have the knowledge that one of their investee companies has caused environmental damage and contributed to the ill health of society at large, including their own beneficiaries.ESG factors clearly can be components of investment analysis. There is some academic evidence, and many would argue companies that adhere to high standards when it comes to ESG outperform over the long term. But establishing conclusive proof, as with any other theory in investment, is always elusive, and results are debatable. Irrespective of which side of the debate you are on, the largest pension funds are faced with the problem that they are essentially universal funds, with stakes in virtually all the investable stocks in the universe. Indeed, most have a large indexed core. Such funds have to face the issue that their sheer size may preclude them from disinvesting from large portions of the market. Maximising returns by robbing Peter to pay Paul is meaningless if you own both Peter and Paul.An example would be the poor management and handling of chemicals by one company leading to additional costs to companies associated with the treatment of water – a universal owner would hold both in their portfolio. Moreover, they would also argue that their members are worse off if companies increase their share price through activities that degrade the environment or reduce the quality of life for their members in other ways.Investor lobby group Preventable Surprises issued a report recently entitled “Investors, Climate Risk and Forceful Stewardship: An Agenda for Action”. It advocates pension funds taking a more activist stance based on two key investment observations. First, climate change poses a significant and increasing systemic risk to the global economy and thus to the portfolios of diversified investors, in turn threatening the security and financial well-being of their beneficiaries. Second, institutional investors have a fiduciary obligation to control this risk and prevent it from increasing as much as they reasonably can.The issue for the industry as a whole is that of which entity has the resources and motivation to develop a constructive dialogue with companies. Fund managers can take the free-rider approach and look to benefit from the activities of their competitors in this area without having to contribute resources of their own. Pension schemes themselves have the temptation to become complacent with the strategy of delegating this responsibility to their fund managers. Clearly, universal schemes that have holdings in virtually all stocks would benefit from an activist approach.What is certain is that responsible ownership requires taking a proactive approach to many areas of a company’s activities such as corporate governance, social and ethical issues, and the external environment. Ultimately, the objective of many idealists is that the ESG movement fades away, not because it has been a failure but because it has been such a success in that no distinction can be made between mainstream investment and ESG.Joseph Mariathasan is a contributing editor at IPE Responsible ownership requires taking a proactive approach to many areas of a company’s activities, writes Joseph MariathasanThe United Nations Climate Change Conference in Paris has brought the issue of climate change to the fore in investors’ minds. Environmental, social and governance (ESG) issues such as climate change are certainly becoming more and more mainstream, but ESG as a concept investors should take seriously still has its detractors.Luke Johnson, private equity entrepreneur and Sunday Times columnist, was scathing about corporate social responsibility in his 15 September column this year, declaring: “Corporate social responsibility is an indulgence of affluent societies and rich companies.” He concluded his diatribe by declaring: “The field feels rank with hypocrisy, unrealistic expectations and questionable motives.”Ironically, within a few days, the Volkswagen scandal broke out when the US Environmental Protection Agency (EPA) issued a Notice of Violation of the Clean Air Act to the German automaker. The BBC reported that this was not the first time Volkswagen had attempted to sidestep regulation, having been fined $120,000 (€110,230) in 1973 for dodging similar tests.
The 2015 returns for these were 9.12% and 6.78%, respectively.According to a recent press conference by the Association of Pension Fund Management Companies and Pension Insurance Companies (UMFO), since the start of the pension reform, the second pillar achieved an annual average return of 3.65% in real terms, with models suggesting the system could provide up to 44% of a retired member’s final pension.High returns on sovereign Croatian bonds contributed to 2015’s positive results.These securities account for the biggest share of second-pillar assets, ranging from 48.6% for Category A funds through 71.2% for Category B and 91.7% for Category C.These returns will decline if Croatia maintains the economic growth it recorded in 2015 after six years of recession, forcing the funds to look at alternative bonds.The Category A funds also had high holdings in shares and GDRs – 25% in domestic issues and 12.5% in foreign ones, with foreign equities generating the higher returns.The respective holdings for B funds were 10.5% and 8.6%.Share activity by the mandatory funds in 2015 included participating in major recapitalisations, notably those of the food producer Podravka, Port of Rijeka (the country’s largest port), the postal bank Hrvatska poštanska banka and tanker operator Tankerska Next Generation.The new government, approved this January, appears set to call on the pension fund sector as part of its financing plans.Damir Grbavac, president of the management board of Raiffeisen Mandatory and Voluntary Pension Funds Management Company, said: “We have established contacts with the new government, and it seems we are very much appreciated as potential investors in infrastructure, possible privatisations of listed companies in which the state has minority ownerships, and pending privatisations in general.“Within that framework, discussions about Croatian motorways have been started again, but they are still in a very early phase.”Total membership as of the end of December 2015 grew by 1.5% year on year to 1.73m, and assets grew by 1.2% in Croatian kuna terms to HRK74bn (€9.7bn), of which HRK25bn were investment earnings accumulated since the start of the second pillar.In the case of the voluntary sector, returns for the six open-ended funds ranged from 2.07% to 6.88%.Assets grew by 14.8% to HKR3bn, and membership by 7.5% to 236,948.For the 16 closed-end funds in operation since the start of 2015, the returns ranged from 3.32% to 8.11%, with assets up by 14.3% to HRK681.2m, and membership by 20.3% to 28,776. Croatia’s mandatory second-pillar funds generated impressive returns in 2015 compared with many of their regional peers.The Category B funds, which account for 98.6% of total membership, achieved an annual nominal return of 6.19% last year, albeit down from 11.36% in 2014, according to the Croatian Financial Services Supervisory Agency (HANFA), the sector’s regulator.These medium-risk funds were the original vehicles set up in 2002 when Croatia launched the second pillar, and became the default option for those who did not exercise their choice when the lifecycle system came into effect in August 2014.The new system introduced Category A high-risk funds open to all those with more than 10 years left to retirement, and low-risk Category C funds, open to all but compulsory for those with fewer than five years left to retirement.
For nine years now, Previnet has been in charge of member administration for the multi-country, multi-currency NATO pension plan, just one of the more than 220 pension plans it administers using its bespoke software.Senior manager Martino Braico said: “With the RESAVER IORP, Previnet will include a large set of online functionalities and learning tools, such as risk profilers and country-specific pension projections.”Also at the event in Budapest, KPMG was appointed RESAVER’s external auditor, Deloitte its internal auditor, BDO its accountant and Lydian CVBA its compliance officer.The pension fund said it hoped to have selected an actuary, a custodian and a reinsurer by the end of this month.Gabriella Kemeny, chair at the RESAVER Consortium and director of human resources at the Central European University, said the selection of these providers was a “crucial step in ensuring the programme will fulfil its promise to support pan-European mobility for individuals in research and related fields with a top-quality pension plan”.Thierry Verkest, a partner at Aon Hewitt in Brussels, confirmed that the fund would include a life-cycle model, as well as a model of free choice for individual members.Aon Hewitt had been selected at the beginning of last year to help set up the IORP as a Belgian OFP.Regulatory approval from Belgium’s FSMA is expected this summer.Now that the providers have been chosen, a fee structure is to be negotiated.Kemeny said it was “important to have competitive fees”, adding that, given the possible future size of the fund, the economies of scale would help to keep costs low.Initial contributions are expected to flow into the RESAVER in the autumn from the Central European University in Budapest, the Elettra Sincrotrone Trieste and the Istituto Italiano di Technologia.The other 20-odd members of the consortium that set up the fund are expected to contribute to the fund at a later point.All research institutes – both in the private and public sectors – can join the group and contribute to the RESAVER fund.Carlos Moedas, European commissioner for Research, Science and Innovation, said: “By participating in RESAVER, employers can ensure adequate and fair supplementary pensions for their staff while boosting their international reputation as employers.”The European Commission has pledged to finance the set-up of the fund for four years until 2018, drawing on the Horizon 2020 funds. BlackRock has been selected as the asset manager for the RESAVER pan-European pension plan for researchers following a tender process, while Italy-based administration service provider Previnet is to be in charge of member record-keeping, web services and central reporting.RESAVER is a defined contribution scheme that will provide second-pillar pension benefits to researchers and research institute employees.Speaking at an event in Budapest to announce the scheme’s service providers, Tony Stenning, managing director at BlackRock, said RESAVER’s launch would be a “momentous evolution” and “is the first but not last step” towards more growth in the pan-European pension market.He confirmed the asset allocation details for the fund were “under discussion” but the major challenge would be to accommodate the investment regimes of the various EU member states, as they must be met for each fund member in each country.
The Pension Protection Fund (PPF) has created a new role in connection with the UK lifeboat fund’s move to increase internal investment management, appointing former Barclays banker Ian Scott as head of investment strategy.The appointment comes as the £23.4bn (€29.7bn) fund in-sources more of its liability-driven investment (LDI) and wider investment activity, with its CFO having recently told IPE there would be a focus on buy-and-hold assets, and that internal staff numbers would increase by half a dozen by the end of the year.The PPF said Scott would be responsible for advising on tactical trade ideas and medium-term shifts away from the strategic asset allocation.Scott has worked for more than 20 years on the sell side, most recently at Barclays, as head of the global equity strategy team. Before that, he was at Lehman Brothers and Nomura, the latter having acquired the European and Asian arms of the US investment bank when it collapsed in 2008.Before joining Lehman, Scott had worked in buy-side positions, initially in fixed income and then in multi-asset strategy.Barry Kenneth, the PPF’s CIO, welcomed Scott to the role.“He brings with him a wealth of expertise and will help build our capabilities in strategic and tactical asset allocation,” said Kenneth.“Attracting professionals of Ian’s calibre to join our award-winning team is an endorsement of where we are going.”Scott said that, “in its relatively short history, the PPF has established a well-deserved reputation for innovative fund management”.He added: “I am looking forward to building on and enhancing that, especially in the areas of strategic and tactical asset allocation.”The PPF began building its in-house management team last year, a key appointment having been the hiring of Trevor Walsh, who joined the fund in October 2015 as its first head of LDI.The PPF has explained its move to grow its in-house management in terms of a desire to better control the fund’s portfolio.In another move by a large UK institutional investor to strengthen in-house investment capabilities, RPMI Railpen, the £24bn asset manager for the Railways Pension Scheme (RPS), today announced that it has hired Anna Rule for the new position of head of property.Joining from Aviva Investors, Rule will be responsible for developing Railpen’s in-house property investment capabilities.
Employers seeking to exit industry-wide schemes could be permitted to postpone so-called ‘section 75’ debt payments under draft rules from the UK’s Department for Work and Pensions (DWP).In a consultation published on Friday, the DWP said companies should not have to pay all their obligations towards multi-employer schemes immediately when withdrawing. Currently, if a company seeks to exit a multi-employer scheme because it has no active members left, it must pay a lump sum to cover its remaining pensioner and deferred member liabilities.This sum can also include contributions to other companies that previously left the scheme or went bust, known as ‘orphan liabilities’.The rule affects some of the UK’s biggest pension funds, including the Universities Superannuation Scheme, RPMI Railpen, and the Merchant Navy Officers’ Pension Fund. The DWP said: “The government proposes to introduce a new option for employers in multi-employer schemes to defer the requirement to pay an employer debt on ceasing to employ an active member. This deferred debt arrangement would be subject to a condition that the employer retains all their previous responsibilities to the scheme and continues to be treated as if they were the employer in relation to that scheme.”The proposal was initially consulted on during the previous government in 2015.Alistair Russell-Smith, scheme actuary at Hymans Robertson, said the proposals provided “much-needed relief” for employers, “many of whom allow further defined benefit risk and liability to build up so as not to trigger punitive exit debts”. “This deferral is the easement we advocated when responding to the 2015 call for evidence and strikes a better balance between scheme security and employer sustainability than other options on the table such as weakening the basis of the exit debt,” Russell-Smith said. “However, employers do need to be aware that this is not a silver bullet for managing the cost and risk of multi-employer schemes. The lack of influence and certainty over future funding costs and the need to fund orphan liabilities both remain real concerns.”Joe Dabrowski, head of investment and governance at the Pensions and Lifetime Savings Association, said the consultation was “vital”, as it affected some of the UK’s largest schemes as well as many charity pension funds.“The proposals could make the system more sustainable by allowing employers to better manage their risks – in the same way that employers participating in single employer schemes can,” he added. “However, there is little question that in a non-associated multi-employer scheme a departing employer must cover its liabilities to the scheme. So we will need to look carefully at the details of the proposed changes to ensure that the right balance of member protection and employer flexibility is achieved. The strength of the ongoing relationship between employers and the scheme is essential to ensuring this.”The relaxing of the rules comes as support has grown for greater consolidation of small pension schemes. One barrier to consolidation in the UK is the perceived regulatory difficulties of combining schemes, and how their liabilities would sit alongside each other.The DWP’s consultation is open until 18 May and can be accessed here.