“At the moment, the annual accrual at SPF is 2.15% of the salary, but, under the new FTK proposals, it won’t be possible to achieve an accrual of 1.875%.”In his opinion, the current premium of 20% of the pensionable salary would need to rise by several percentage points to meet the maximum allowed accrual.The union representative said the board of SPF was still looking at the combined financial effects of the adjustment of the tax-friendly accrual and the FTK, and that it was still too early to discuss alternatives for a premium increase.However, he already indicated that his union would not welcome an increase of the franchise, the part of the salary that is exempt from pension accrual.SPF declined to comment on Berghuis’s assessment.The negotiations between employers and unions on the pension arrangements for the railways sector are scheduled to start after this summer.In other news, a spokeswoman for the Dutch Treasury has indicated that a further rise of the target retirement age to 68 in 2016 was no longer likely.Last April, Eric Wiebes, state secretary for the Finance Ministry, had hinted in a letter to the Senate that he expected such an increase would be introduced on 1 January 2016. The spokeswoman said Wiebes’s wording in the letter was ill-chosen, and that the most recent prediction of Statistics Netherlands (CBS) did not support the need for a further increase of the target age for retirement at the moment.Such a rise must be announced a year in advance.On 1 January 2014, the government raised the target age from 65 to 67. SPF, the €13bn pensions fund for Dutch railway workers, cannot lower its contribution level, despite the reduction of the tax-facilitated annual pensions accrual from 2.15% to 1.875%, according to a union leader.Speaking with IPE sister publication FD PensioenPro IPN, Roel Berghuis, sector leader for transport at union FNV Bondgenoten, cited tighter rules for establishing premiums in the new financial assessment framework (FTK).“Currently, as a well-funded scheme with a coverage ratio of 123%, SPF can charge a smoothed cost-covering contribution based on expected returns,” he said.“However, the proposals for the new FTK won’t allow this in its current set-up, as inflation must also be taken into account.
The proposed CIV, which so far has the support of 28 of the capital’s 33 boroughs, hopes to be making its first investment this time next year.The report added: “Given that infrastructure is relatively expensive, and the London CIV may look at this next, the fund should focus on private equity ahead of any decisions on infrastructure that are likely to be the subject of better value vehicles.”Although the report said the fund should consider private equity, as it was largely cash neutral at present and would be able to cope with the illiquid nature of the investment, Mascarenhas sounded a note of caution.“The committee should also be mindful of the government’s aim to reduce investment costs and investment into expensive asset classes,” he said.“Ultimately, the fund is interested in investment returns after fees.”The Department for Communities and Local Government has recently concluded a consultation examining a complete shift to passive mandates for all listed investments, as well as launching a number of national CIVs.Mascarenhas also noted the existence of the Pensions Infrastructure Platform (PIP), backed by the National Association of Pension Funds, as a way of investing in infrastructure.However, he said it “[looked] likely that this product does not offer the right return profile for us”.Pension funds worth more than £65bn that initially backed the launch of the PIP – funding launch costs as well as earmarking £100m in initial capital – distanced themselves from the vehicle earlier this year.The London Pension Fund Authority at the time expressed dissatisfaction with the PIP risk/return profile, while the BT Pension Scheme said it preferred to focus on its direct investment strategy. One of London’s local authority funds is holding off on building up its infrastructure exposure, as it expects a proposed collective investment vehicle (CIV) will be able to achieve better value.Camden Council said infrastructure had recently been a “very popular” asset class, but noted that said popularity was one of the reasons it was now hesitating.A report prepared for the borough’s pensions committee by director of finance Nigel Mascarenhas said: “Its popularity may have meant it is now in demand and so at the very least is fairly priced to over-priced.”The report went on to note that, due to the UK government’s interest in promoting infrastructure investment, it was “possible” that one of the next asset classes to be offered by the proposed London-wide CIV would be infrastructure.
Two of the UK’s largest insurers have announced buy-ins and buyout deals, continuing growth in the bulk annuity market that will likely see a record volume of transactions.Legal & General (L&G) completed a £129m buy-in with the Uniac Pension Fund, part of Unilever, as demand from schemes continues amid favourable market conditions.Rothesay Life meanwhile agreed a full buyout with the UK Panasonic Pension Scheme, but the total size of the transaction for the 600-member scheme was not disclosed.Both deals come amid predictions of unprecedented transaction levels, with market activity by the end of June 2014 close to exceeding 2013’s £7bn in transactions. Rothesay said its business pipeline for the remainder of the year was full of buyout deals.Likely factors include the general increase in scheme funding and the adoption of insurance company-matching investment strategies since 2008, when the current record of £8bn in transactions was set.Despite recent rising price volatility in the bulk annuity market, consultancy Aon Hewitt’s latest report said schemes holding UK Gilts would have been able to insure pensioner members at little to no cost.Likewise, Aon Hewitt added, despite annuity prices rising in absolute value terms, schemes with bonds and liability-driven investments (LDI) would have suffered “modest change” in the purchasing power of assets.Predications were made of the 2014 bulk annuity market to reach £10bn, and even with the expected slowdown in Q4, deals seen so far make this likely.Consultancy LCP said with the £6.5bn seen in the first half, an excess of £1bn worth of bulk annuity transactions was likely for the final three months.Alongside pension scheme demand, insurers’ growing appetite for bulk annuity deals continues.L&G recently told IPE the insurer had not seen any pension scheme come to market for which it did not have a desire to quote.Michael Abramson, head of strategic business for bulk annuities at L&G, said the market “was not finished yet”, referring to Q4 transaction levels.He said the insurance market had a growing appetite for longevity risk and asset risks associated with bulk annuity deals, mainly long-term credit.However, while pricing continued in schemes’ favour, the market was at risk of seeing demand exceeding supply, he said.“A sudden spike in demand, could see capacity limited by one of either appetite for longevity or asset risk,” Abramson said.In a recent report, KPMG said it expected the bulk annuity market to reach £20bn a year by 2020.A significant factor behind the growth was insurers’ increasing appetite for longevity exposure after changes in this year’s Budget potentially reduced the size of the individual annuity market.Tom Seechnaran, KMPG’s director of pensions insurance, said: “The supply of insurance providers is increasing as both new entrants and existing insurers seek to write more business following Budget’s reforms.“We envisage that these market conditions will drive year-on-year increases in buyout volumes.”Earlier this year, IPE reported Aviva was looking to expand its bulk annuity operations and fellow insurer LV= enter the market in direct response to the Budget reforms.Read more about the UK bulk annuity market.
Ireland Strategic Investment Fund, International Investment Funds Association, Castle Harbour Securities, Scope Ratings, Delta Management ConsultingIreland Strategic Investment Fund – Donal Murphy, former head of project finance at the Bank of Ireland, has joined the National Treasury Management Agency as head of infrastructure and project finance for the new sovereign development fund. Ronan McCabe, until last month senior portfolio construction analyst at Pioneer Investments, has also joined the ISIF. International Investment Funds Association (IIFA) — Thomas Richter has been appointed deputy chairman of the International Investment Funds Association, at the association’s AGM in Canberra, Australia. Richter is chief executive of the German Investment Funds Association (BVI). Along with Paul Stevens of the Investment Company Institute (ICI), who is the newly-elected chairman of the IIFA for two years, Richter is to focus on a stronger positioning of the investment industry with regard to global regulation initiatives.Castle Harbour Securities — Damien Regnier is joining Castle Harbour Securities to co-manage new fund Pure Global Convertibles. He previously managed Deutsche Asset & Wealth Management’s (DeAWM) DWS Invest Convertibles fund. Before joining DeAWM in 2010, Regnier was head of long-only convertible bonds at Vega-Chi, having been a convertible bond trader at JP Morgan’s investment bank before that. Scope Ratings — Karlo Fuchs, Florian Stapf and Annick Poulain Thomas are among six people to be appointed by the rating agency, following the hiring of Torsten Hinrichs two months ago as chief executive of the company. Fuchs has been appointed as head of covered bonds, having been senior director in charge of covered bonds at Standard & Poor’s (S&P) for the past 15 years, while Stapf is to become executive director in charge of the business development of corporates, banks and bank bond ratings in Germany, Austria, Switzerland and Scandinavia. Stapf comes to the company after 14 years at S&P, where he was responsible for client business management and business strategy for companies and financial institutions. Poulain Thomas has been hired to take over Scope Ratings’ analytical review function and has worked at Moody’s for more than 19 years. Carlos Ignacio Terré has been hired within the structured finance team as executive director, following a role as director of structured finance at Fitch Ratings in Madrid. Michael John Mackenzie is to become a London-based executive director, supporting structured finance business development. Before this, he was in charge of structured finance business development for the EEMEA region at DBRS and S&P in LondonDelta Management Consulting — Bernd Baur and Peter König have set up new investment consultancy firm in the German institutional market Delta Management Consulting, and are the firm’s founding partners. Each has more than 25 years experience in the asset management industry. Baur’s previous roles include equity portfolio manager at Commerz International Capital Management, chief investment officer at Metzler Investment and COO and head of institutional clients at Union Institutional. König, meanwhile, was previously head of asset allocation and currency management at Commerz International Capital Management, worked in product development at Commerzbank Asset Management as well as having been head of Central Europe at Morgan Stanley Investment Management.
She added that the 13 industry-wide schemes on the new list, as well as the company pension funds with a guaranteed pension, would follow soon.Last year, the supervisor produced a list of 60 vulnerable schemes, based on financial, organisational and governance criteria.Since then, 30 of those pension funds have been wound up, while four managed to tackle their problems and have subsequently been removed from the DNB’s list, Goverse said.She said she expected the number and scale of industry-wide schemes that would be liquidated to increase.In 2007, the combined value transfer of pension assets was €2bn. That amount increased to €9bn in 2014, when the number of schemes that liquidated was actually lower, according to the supervisory head.Goverse added that the current pace of 30-40 liquidations a year was likely to continue.She suggested that the requirements of the new financial assessment framework (FTK), the new legislation for pensions communication and the new pensions vehicle APF might also encourage pension funds to wind up.Goverse said even pension funds that were not on the DNB’s initial list had volunteered to take part in the first full discussions, and that all schemes that considered liquidation would be welcome to join the scheduled sessions.At the moment, there are approximately 360 pension funds remaining in the Netherlands. Dutch regulator De Nederlandsche Bank (DNB) has identified another 30 “potentially vulnerable” pension funds, it said.Speaking at an event organised by IPE sister publication PensioenPro, Liesbeth Goverse, the DNB’s supervisory head of smaller pension funds, said the 30 schemes would be invited for a plenary discussion with the regulator and be asked have to submit an analysis on their future.Depending on the outcome, additional discussions with individual pension funds will follow, she said.According to Goverse, the non-reinsured schemes in the group have already been invited for a round-table discussion at the end of March.
“The boards,” LSE said, “believe the potential merger would represent a compelling opportunity for both companies to strengthen each other in an industry-defining combination, creating a leading European-based global markets infrastructure group.”Shares in LSE reportedly rose by more than 17% after the news of merger talks was confirmed, while Deutsche Boerse’s gained some 7%. London Stock Exchange (LSE) is in “detailed discussions” about a merger with Deutsche Boerse, it confirmed today.It made the announcement after media reports about a merger led to “movement in LSE’s share price”. The potential merger would be structured as an all-share merger of equals under a new holding company, according to the LSE statement.Based on the exchange ratio proposed, Deutsche Boerse shareholders would hold 54.4% of the combined group’s share capital and LSE shareholders 45.6%.
If the use of derivatives were “taken away from us”, Van der Struik said, “we would be nothing but a bond fund”.He also pointed to major differences of opinion on what was considered ‘illiquid’ – the insurance-linked bonds PGGM manages, for example, are “much less sought after, as they are less liquid”.Van der Struik added half-jokingly that there must be “no crisis at the end of a quarter, please”, as there was no liquidity in the repo market, which would stoke “fire sales” even further.He also warned that, if the European Market Infrastructure Regulation (EMIR) on collateral for derivatives and mandatory central clearing were applied to pension funds – for the first time – from 2017, they would incur “major costs”.According to PGGM’s calculations, mandatory central clearing could reduce pension payouts from Dutch pension plans by nearly 3% annually and pensions in the UK from second-pillar vehicles by 2.4%.“The pensioner is going to pay a disproportionately large part of the bill for a safe financial system,” Van der Struik said.To the problem of collateral transformation, he said, one solution would be to give pension funds direct access to lenders.This would be “the key” to transforming assets other than bonds into collateral, according to Van der Struik.“I also need my equities to transform into cash for margin requirements,” he said. He said pension funds would not use their direct access to collateral transformation on a daily basis, “but we want to have it just in case”. “A crisis,” he added, “might force pension funds into fire sales because quotas must be fulfilled.” Pension funds could be forced into “fire sales” if regulation on cash collateral for derivatives is upheld, according to Roelof van der Struik, investment manager at the €180bn Dutch pension fund manager PGGM.Speaking at the ISLA conference in Vienna, he claimed there was a “discrepancy” between regulatory requirements and the investment “reality” for European pension funds.“The regulator wants us to hedge our liabilities, so we therefore need to use derivatives,” he said.“But it also wants us to invest in the real economy, so it is not strange to think a significant part of our money is in infrastructure and other completely illiquid assets.”
The technical standards are part of the European Market Infrastructure Regulation (EMIR).A spokeswoman for ESMA, one of the ESAs, explained that, under the inter-institutional process for rule making in the EU, if the Commission decides to ask for amendments to technical standards, the ESAs must produce an opinion, stating their views on the desired amendments.Several weeks later, the supervisory authorities did so, rejecting the Commission’s position and leaving the pensions industry with some uncertainty as to the final outcome.After receiving the ESAs’ opinion, the Commission decides on a final text without consulting them further. In this case, it disregarded the authorities’ objections.A spokeswoman for the Commission told IPE the main areas of change to the draft RTS “relate to a number of improvements to the legislative drafting of the standards and the element related to the requirements applying to pension scheme arrangements for which the European Commission retains the text proposed at the end of July”.In relation specifically on the latter, the Commission said: “While the Commission supports the ESA intention, taking into consideration the costs and risks of foreign-currency mismatches and additional counterparty risks that the application of such concentration limits would entail, the Commission deems it more appropriate to replace the concentration limits by specific management risk tools to monitor and address potential risks, which application should be reviewed after three years of their implementation.”Under the final regulation, collateral of more than €1bn posted by a pension scheme with a single counterparty must be “adequately diversified” (the list of eligible collateral includes a mix of member state sovereign and agency debt).The Commission’s adoption of the rules this week takes the form of a Delegated Regulation and is subject to an objection period by the European Parliament and the Council.It will then be published in the Official Journal, which marks its entry into force.Implementation begins one month later.,WebsitesWe are not responsible for the content of external sitesLink to Delegated Regulation The European Commission has disregarded objections from the European Supervisory Authorities (ESAs) about the removal of a sovereign concentration limit for pension schemes from rules on non-cleared over-the-counter (OTC) derivatives.Under final rules adopted earlier this week, pension schemes posting more than €1bn in collateral with a single counterparty will no longer face a requirement to diversify that collateral so that no more than half is in government bonds from a single country or issuer.This requirement, which pension schemes have fought against, was in draft regulatory technical standards (RTS) the ESAs submitted to the Commission.In late July, however, the Commission called for these to be amended, including by scrapping the concentration limit provision for pension schemes, as this would make them take on foreign currency risk.
The Believer: “Executes ESG integration in a manner that is clearly structured and consistent throughout an organisation. Integral to this approach is a top-down application of general (i.e. not based on security-specific fundamental analysis) assumptions about how certain ESG factors may affect value. It usually focuses on security-level ESG considerations as opposed to macro ESG trends.”The Cautionary: “Seeks to ensure that investment teams consider ESG factors in order to improve risk management, focusing on company-specific research rather than broad ESG trends.”The Statistician: “Uses statistical analysis to identify correlations between historical ESG performance and historical financial performance with the aim of identifying material factors that are likely to generate alpha. This analysis is built into models that are applied to passive or smart beta strategies.”The Discretionary: “Considers ESG factors on an optional basis as a supplement to traditional financial analysis, usually with a focus on idiosyncratic risk management.”The Transition-Focused: “Regards ESG factors as central research inputs, and concentrates to a significant degree on risks and opportunities associated with broad ESG-related economic shifts, ESG thematics and sustainability challenges.”The Fundamentalist: “Aims to integrate ESG factors thoroughly into bottom-up analysis and decision-making by considering company-specific ESG factors as well as macro ESG trends that may affect company’s performance over short- and long-term time horizons.”To define these six ESG personalities, Sustainalytics classified ESG integration approaches along three dimensions:management (for the who of integration);research (what is being integrated); andapplication (how the integration is taking place)Under the management heading, one differentiating factor the research highlighted was the degree of centralisation of ESG functions within an organisation, i.e. whether ESG responsibilities were assigned to dedicated ESG personnel or carried out by portfolio managers and analysts in portfolio management teams.Under ‘research’ were those integrating macro-level sustainability trends and themes, such as climate change and water scarcity, as opposed to certain ESG-relevant characteristics of individual companies and securities.‘Actual’ integration questionableHowever, the actual state of ESG integration was unclear, according to the researchers.“The analysis of investors’ management of ESG integration suggests that there may be less actual integration taking place than expected by the market,” the report authors wrote. For example, some of the investors interviewed were “candid” about their organisations lacking an information trail or reporting system to demonstrate how frontline investment decision-makers use ESG research.“This might mean that portfolio managers are not fully utilising the ESG research that they have access to, even at organisations that have publicly expressed support for ESG integration,” the authors said. It could also be the case, however, that organisations that have not made public commitments to ESG could be implementing “genuine” integration, they added.Investors interviewed for the report also suggested that meaningful integration of ESG information remained fundamentally challenging. Mandate design, meanwhile, could constrain ESG integration, for example if tracking error limits are imposed. The authors expressed hope that these and other findings would “stimulate discussion about the state of the industry and some of the challenges and opportunities associated with ESG integration”. The full report can be found here. The typology generated 64 different types of approaches, but the Sustainalytics researchers narrowed these down to six prevailing approaches to ESG integration, based on a dataset of 70 investors.In Sustainalytics’ words, they are: Are you a Believer, a Fundamentalist, or a Statistician when it comes to environmental, social, and governance (ESG) investing?Understanding the types of ESG investor there are can improve your matchmaking with managers or clients, according to research by Sustainalytics, an ESG research provider.The research – commissioned by the Investor Responsibility Research Center Institute – presented six typologies summarising the approaches to ESG issues across the investment sector.The research could help asset owners better discern and distinguish between asset managers’ approach to ESG integration, and which characteristics are the best fit for them, Sustainalytics said. Asset managers, meanwhile, could use it to review their approaches and decide whether they want to make changes.
Applicants must manage at least £1.5bn of real estate globally, with at least £500m invested in each of Europe and North America, and £300m in Asia Pacific. At least three experienced real estate professionals must be based in each of these regions.The pension fund already invests in UK property via Aviva Investors. According to its most recent annual report the market value of this portfolio stood at £618m as at the end of March 2018.Essex is part of the ACCESS asset pool that has been set up by 11 pension funds in the UK’s local government pension scheme (LGPS).Brunel Pension Partnership, another of the eight LGPS pools, recently announced £340m of commitments to two UK long-lease property funds.Essex’s procurement is managed by Hymans Robertson. The details are available here. Essex Pension Fund, part of the UK’s local authority pension system, is looking for a global property manager for a £250m (€282m) mandate.The £6bn fund said it would consider separate accounts, open-ended funds and closed-ended solutions.It was not necessarily looking to allocate to real estate debt or listed real estate, but said it may allow an allocation of no more than 20% of the mandate.The successful manager must be able to “demonstrate a global perspective on real estate and be able to give objective advice on global real estate markets (private and public) and on investment timing”, it said.