The Lloyds Superannuation Fund (LSF) has completed a £40m (€46m) buyout with Pension Insurance Corporation (PIC), fixing the bulk annuity’s price over the four weeks leading up to the premium’s payment.The multi-employer fund providing benefits to workers of Lloyds of London saw its second-largest employer depart, resulting in four weeks of uncertainty as the related Section 75 (S75) debt – the share of the deficit tied to the departed employer – was calculated and settled.Danny Wilding, a partner at Barnett Waddingham, said the firm was pleased to help the fund “avoid a real financial cost in volatile market conditions” by agreeing the fixed price.He added: “We obtained a variety of approaches from different insurers and were able to recommend the flexible mechanism used by Pension Insurance Corporation.” LSF trustee chairman Eric Stobart said his board had a “clear objective” for the buyout, focused around minimising risk. He expressed surprise that no fund had employed the fixed rate before them.“As a ’last man standing’ scheme, any shortfall between the S75 premium and the buyout price would have to be met from the remaining scheme assets,” he said.“Once the exiting employer agreed to work with the trustee on this, we were pleased the hard work and innovative approaches of Barnett Waddingham and Pension Insurance Corporation meant we were able to agree a type of fixed premium mechanism within the short timescale available.”Matt Barnes, a senior actuary at PIC, said the company was pleased to have worked with the fund and Barnett Waddingham to tailor a solution to meet the requirements of the “unusual” transaction.In other news, the £15bn Pension Protection Fund (PPF) has appointed nine new managers to its global tactical asset allocation (GTAA) framework agreement following a tender earlier this year.The GTAA panel – previously only comprising Aspect, Bluecrest, Cantab and Winton Capital, as well as Neuberger Berman and QS Investors – was strengthened, as the GTAA investments needed to be spread more widely, according to executive director of financial risk Martin Clarke.Clarke noted that, when the panel was first appointed three years ago, the PPF was only managing £4.6bn in assets.“This enlarged panel will form part of our alternatives portfolio and provide a flexible approach to the growing needs of the business,” he said.He was also positive about the benefits of GTAA portfolios.“As an asset class, it tends to have enhanced diversification properties, which helps control the level of risk we face, and this fits in with our overall low-risk investment philosophy,” he said.The new panel will now also include AQR Capital Management, Arrowcrest Capital Partners, Bevan Howard, Caxton Associates, Fortress Capital, GMO, Harmonic Capital Parners, Man Investments and Two Sigma Investments
Month: September 2020
The Dutch Pensions Federation has argued against the position of supervisor De Nederlandsche Bank (DNB) that pension funds should adhere only to the principle of ‘one man, one vote’ on their boards. In the DNB’s opinion, the idea that a vote that carries proportionally more weight than other stakeholders’ seats could come at the expense of a balanced assessment of interests and have a negative impact on the dynamics within a board.It said it could also have an impact on the time available for board activities, as well as on the suitability of board members.The supervisor said new governance legislation should not allow weighted votes on a scheme’s board. “The purpose of equal representation is that not one of the parties on a board has a decisive role in decision making,” it said, adding that an exception might be allowed in the case of a vacancy. However, the Pensions Federation claimed that DNB’s view was legally unsustainable and undesirable, as it would hinder a board’s ability to govern effectively and efficiently.The lobbying organisation referred to the Code for Pension Funds, as well as the Pensions Act, which would allow for an exception of the ’one man, one vote’ principle, it said, adding that a number of schemes already worked with such an approach. “Pensions funds should, of course, explain their choice, and also make clear how they have taken a balanced assessment of interests into account,” the federation said. In its opinion, a well-functioning board does not have a fixed scale, and the quality of the board depends on its members.The Pensions Federation said it wanted to resolve the issue with the DNB before 1 July, when all pension funds must comply with new governance legislation.Roos Kuip, the federation’s spokeswoman, said the lobbying organisation did not know the number of schemes that already applied a weighted vote, but added that several pension funds had already pledged their support for the federation’s initiative.
Member numbers stayed roughly the same at 1.1m, but there was an 8% increase in new entrants.László Lehoczky, president at Stabilitas, stressed that the voluntary funds provided attractive yields at low cost for members.“The asset growth of over 10% in the current low-interest-rate environment is a particularly good performance,” he said.“And the 20% growth in individual contributions, with the amount paid in in the last quarter, shows that members are extremely satisfied with the performance of their pots.” Meanwhile, preliminary figures from the Organisation for Economic Co-operation and Development (OECD) show that, at end-2014, total pension fund assets in Hungary made up 4.1% of the country’s GDP, a 0.1-percentage-point rise over the year.The real net investment rate of return for calendar year 2014 was 9.6%, placing the country behind the Netherlands, Denmark and Sweden but ahead of Finland, Canada, the US and Japan, as well as most countries in Central and Easter Europe.The same study showed that, on average, Hungarian pension funds allocate less than 10% of their portfolios to equities, maintaining more than 75% in bills and bonds.This high level of allocation to fixed income is also followed by Hungary’s near-neighbours the Czech Republic, Slovakia and Romania. Total assets within the Hungarian voluntary pension fund system increased to HUF1trn (€3.2bn) by the end of 2014, an increase of 10.5% over the previous year’s figure of HUF913bn, according to Stabilitas, the Hungarian pension fund association.The figures cover savings held by Stabilitas members and account for more than 90% of the voluntary pension fund market in Hungary.Members’ contributions last year amounted to HUF61.2bn, up 20% from 2013, with more than HUF24bn paid in in the fourth quarter alone, double the amount paid in during the last quarter of 2013.Employers, meanwhile, paid in HUF36.4bn over 2014.
PFZW, the €161bn pension fund for the Dutch healthcare industry, is planning to cut the carbon footprint of its investments over the next four years by offloading those holdings producing the most CO2 emissions.After conducting an in-depth study, the pension fund concluded it should focus its assets on companies able to “anticipate a sustainable future”.PFZW said companies that had a bigger impact on the environment than their rivals were likely to underperform over the long term, and that it would divest almost all of its coal holdings before 2020, when it expects to have reduced its exposure to fossil fuel companies by 30%. Divestments will focus on energy, utilities and materials, which account for roughly 70% of the CO2 emissions produced by PFZW’s equity portfolio; the pension fund is to re-invest those proceeds in companies that outperform in those sectors. The healthcare scheme will make the divestments in four, quarterly stages, affecting more than 250 companies.However, a spokesman at PGGM, PFZW’s asset manager, said the cost of the divestments would be minimal, as the pension fund “already has the means to identify the CO2 emissions of individual companies”, while the divestments and reinvestments will simply be part of the “regular flow of portfolio changes”.During the staged exclusion process, the pension fund will engage in extensive dialogue with shareholders, encouraging companies to reduce fossil fuels in their business operations.PFZW added that it would increase investments in “solutions” by four times, to 12% of its entire portfolio, over the next four years. These impact investments – covering such things as water scarcity, food security and healthcare access – aim to address climate problems directly. Peter Borgdorff, PFZW’s director, said the portfolio changes would be a major step towards achieving the goals set out in its responsible investment policy, launched in 2014.“Our participants also want their pension capital to contribute to a better world instead of depleting it,” he said.Both PFZW and PGGM said they would welcome similar initiatives from other long-term investors, “as these are necessary to push businesses towards more sustainable behaviour”.They also called on politicians to reach solid climate agreements in Paris to reduce global carbon emissions.Last month, the €345bn civil service scheme ABP announced that it would reduce the carbon footprint of its investments by 25% over the next five years, largely by cutting its equity holdings from 5,000 to 3,500 companies.It also plans to double its ESG investments from €29bn to €58bn.
Norway’s finance ministry, which decides how the country’s NOK7.5trn (€831bn) sovereign wealth fund invests its money, has been told by consultancy McKinsey that regulatory and political risks of infrastructure investment can be reduced in various ways.In April this year, the finance ministry ruled out allowing the Government Pension Fund Global (GPFG) to invest in unlisted infrastructure, saying that such investments were exposed to high regulatory or political risk. In its report, McKinsey said investors recognised that exposure to political, regulatory and reputational risks was higher for investments in infrastructure than it was for other asset classes, adding that there were significant differences across segments. “To manage risk exposure, investors carefully select which infrastructure segments to invest in – and similarly which segments not to invest in – depending on their desired risk profile, capabilities and ability to mitigate relevant risks,” the firm said. Mitigating risk effectively requires expertise, and investors take different approaches depending on their investment strategies, the report said.“Indirect investors tend to rely on external parties, whereas direct investors tend to mitigate risks through a combination of close collaboration with partners and deep internal expertise,” McKinsey said.The report had been requested by the parliamentary finance committee to help it look further into the risks and challenges of investing in unlisted infrastructure, before reconsidering the matter in the next annual report on the fund.McKinsey noted in its report that it had been asked to give a fact-base for the government, rather than investment recommendations.Jensen also said in April, when the 2015 report on the GPFG was published, that conflicts with the authorities of other countries arising in relation to infrastructure investments would be hard to handle and entail reputational risk for the fund.She said that, as a transparent, politically endorsed state fund, the GPFG would be less suited to bear this type of risk than other investors. While the McKinsey report said investors should be mindful about the reputational risks of association with “dubious actions” by second or third parties linked to their infrastructure investments – for example, where operating partners may have a close link to a previous government with corruption allegations – the firm also said that risk exposure needed to be understood on an asset-by-asset basis.“As infrastructure assets are highly diverse, the exposure to political, regulatory and reputational risks varies from asset to asset,” it said, adding that there were three asset characteristics that explained some of these differences – sub-sector, geography and life cycle stage.The report also outlined three examples of events that damaged the reputation of investors in unlisted infrastructure but commented that this type of example was relatively unusual, and that operating companies seemed to have received most of the negative publicity. “Events with reputational damage mostly occur when investors fail to study risk and take appropriate mitigation measures,” McKinsey said.
The new Dutch financial assessment framework (nFTK) and Solvency II rules encourage pension funds and insurers to invest in the most risky equities, according to quant investors at Robeco.In an article published on Me Judice, a website for economists, they advocated the introduction of financial “buffer” requirements based on the volatility of equity portfolios.Their comments contrasted with common criticism of the Netherlands’ framework, which investors often claim unnecessarily forces pension funds to avoid investment risk – for example, because the supervisor wants trustees to understand all of their scheme’s investments.Sometimes, the consequence is that pension funds refrain from complex or more risk-bearing investments. According to the Robeco quant managers – David Blitz, Winfried Hallerbach, Laurens Swinkels and Pim van Vliet – the cause of the problem was that the nFTK and Solvency II rules only distinguish between equities listed in developed markets and equities from emerging markets, without further details.“As a consequence, investors don’t have to balance risk and return, but can aim for the highest return without taking the financial and economic risks into account,” the quartet argued.In their opinion, it was strange that buffer requirements for equity exposures were unrefined, whereas the conditions for fixed income investments – including corporate bonds – were much more detailed and, for example, subject to credit and interest risk criteria.The authors concluded that current “simplistic” regulations had unintended and damaging effects, with the damage caused by the impact of the buffer requirements on markets.They contended that “if investors manage sufficient assets under this kind of regulation, the price of risky equity will be forced upwards, whereas the price of low-risk equity will be suppressed”.The researchers said that this distortion of the link between return and risk was visible in the financial markets.“As a result, stable companies incur too high capital costs, which destroys value and is damaging to the economy,” they said.In their opinion, the solution should be sought in linking buffer requirements with the volatility of equity categories by, for example, demanding a higher buffer for a small-cap portfolio and a lower one for low-risk equity.
Less than half of pension fund trustees say that moving scheme assets to a commercial consolidator would “significantly improve” the defined benefit (DB) pension landscape in the UK, a survey has claimed.According to Willis Towers Watson (WTW), the consultancy group, just 43% of the 93 UK pension fund trustees canvassed said they backed the efficacy of commercial consolidators.Only 26% of respondents said they would feel “comfortable” about transferring their assets to a superfund.“Many trustees are expecting to be asked by their scheme sponsor to sign off on moving the scheme into a consolidation vehicle, but our research shows that very few would feel comfortable weighing the potential benefits and disadvantages at this stage,” said Gareth Strange, senior director at Willis Towers Watson. “It’s a difficult decision that trustees aren’t used to making.”Superfunds are relatively new to the UK pension fund industry. Earlier this year, the Pension SuperFund – led by CEO Alan Rubenstein, the former chief executive of the Pension Protection Fund (PPF) – launched with the aim of attracting £500bn (€570bn) of pension assets.However, questions remain over the future legislative and regulatory framework for the new vehicles.Earlier this month, the PPF warned in a submission to the UK’s influential parliamentary Work and Pensions Committee of the “significant risks posed by ‘superfund’ consolidators”.The PPF said: “Essentially, if the superfund model gains traction and superfunds achieve sufficient scale, they could pose a systemic risk to PPF levy payers who would essentially be underwriting their investment strategy.”Yet for others, the economies of scale offered opportunities to both cut costs and apply pressure to reduce fund management fees. Earlier this month, WTW launched a defined benefit (DB) scheme management service that it said could provide pension funds with a pathway to joining a consolidator.However, Strange warned that the process was not always straightforward.“The sweet spot for these consolidators is likely to be schemes that are already reasonably well funded and where the employer could inject some extra cash quickly, but in order for trustees to sign off on it, they would have to be confident that the consolidator’s long-term viability is stronger than that of their own scheme sponsor,” he said.“This could result in quite limited take up for superfund consolidation vehicles.”
Assets under management in French PERCO workplace retirement savings plans rose 11% since last year to reach nearly €17bn, according to figures from AFG, the French asset management association. Around 2.7m employees had already made contributions to a PERCO as at the end of June, also representing 11% year-on-year growth.Over six months, gross payments into PERCOs amounted to €1.6bn, up 7% compared with the first half of 2017. Withdrawals amounted to €500m, leaving net inflows of €1.1bn, up 10%.The number of employers offering a PERCO stood at 244,000 following 6% year-on-year growth, according to AFG, with 14,000 companies creating PERCOs in the six-month period. The association also noted that more than half of companies had transformed their PERCOs into PERCO Plus plans, which offer a lower charge on employer contributions due to the incorporation of an SME financing fund. These have to be at least 7% invested in small or medium-sized companies.PERCO Plus funds passed €1bn in assets on the back of 37% year-on-year growth, according to the AFG.Considerable room for growth remained, it added, as only 25% of employees with a PERCO had access to an SME fund.A third of the nearly €17bn assets in PERCOs, belonging to 41% of members, were managed according to the default lifecycle approach, AFG noted.The average amount held in the plans by savers was stable at €6,120.Thumbs-up for ‘proper’ pension savings reformMeanwhile, AFG said pension saving in France should get a boost from the government’s “PACTE” law.One of the main objectives of the law is to harmonise France’s existing retirement savings products, of which there are four, by bringing them under a new wrapper, the Plan d’Epargne Retraite, with some new rules to make pension saving more attractive.The PACTE law heralded a “proper” pension saving reform, according to AFG.Highlighting various provisions in the draft law – tax-deductible voluntary payments, freedom of choice at retirement, access to savings for buying a principal residence, and easier transfers – the association said these would be “strong incentives for savers to further prepare their retirement saving”.The draft PACTE law was recently adopted by the Assemblée Nationale and is due to be voted on in its final form next year. The government wants to see pension saving assets grow from around €220bn currently to €300bn by 2022.
Dutch asset manager and pensions provider Blue Sky Group (BSG) is to decrease the number of investment funds it offers and the number of external managers it uses, in order to reduce complexity and costs.In its annual report for 2018, the provider also said that it would focus on growing its client base for pensions administration, to improve its service provision.In February, the provider announced that it had taken on pensions administration for Loodsen, the €959m occupational pension fund for marine pilots.BSG, which is the provider for Dutch airline KLM’s three pension schemes, said it wanted to merge together funds in which several of its pension clients participated. Blue Sky Group runs assets for KLM’s pension funds for pilots, cabin crew and ground staffIt predicted that new individual products would lead to merging and standardising of administration and asset management. “As a result, providers can only distinguish themselves through personal advice, communication and costs,” the company said.BSG recorded a pre-tax profit of €1.6m for 2018, a significant increase relative to the €400,000 profit for the previous year, which it attributed to a new method of charging costs to its KLM fund clients.The company’s turnover rose from €33.7m to €37.4m, with the results from asset management rising by more than €5m.BSG’s assets under management dropped from €22bn to €21.5bn. The company said it expected collective pensions management to remain the core activity of its pension provision operations for many years to come, but added that the emphasis in a new pensions system would likely be on individual pension arrangements.
The entrance to the FCA’s headquarters in Stratford, London“Here, the financial incentives available to staff for selling non-advised annuities by telephone created conflicts which led to unfair outcomes for some customers. Firms must have controls in place to ensure they are prioritising fairness to customers.”Susan McInnes, CEO of SLA and director of open business at Phoenix Group, said “While this is an historic issue and one we were aware of when we acquired Standard Life Assurance Limited, we would like to apologise to affected customers, all of whom we have already been in contact with as part of the programme of customer redress. We have also reviewed and updated our telephone practices as part of this process.“Whenever we get things wrong, we seek to learn from our mistakes and are absolutely focused on putting things right. Our remediation programme for affected customers is progressing well and we expect it to be completed by the end of the year.”Standard Life Aberdeen has not been subject to investigation by the FCA. However, the company acknowledged in a statement that the failures happened while SLA was owned by Standard Life – now Standard Life Aberdeen – and apologised to customers affected.“Since the FCA investigation commenced in 2016, we have worked closely with and co-operated fully with the FCA,” the company said. The UK’s Financial Conduct Authority (FCA) has levied a £30.8m (£34.4m) fine on Standard Life Assurance (SLA) for failures regarding the suitability of pension annuity sales over the course of eight years.SLA – a former subsidiary of Standard Life Aberdeen that was sold to Phoenix Group last year – “failed to put in place adequate controls to monitor the quality of the calls between its call handlers and non-advised customers”, the FCA said in a statement this morning. As a result, staff failed to inform some customers about other retirement options that may have been more suitable.In addition, it gave phone sales staff financial incentives to sell annuities, “which encouraged them to place their own financial interests ahead of their customers”, the regulator said. Between 2008 and 2016, the FCA reported that more than a fifth of SLA call handlers received bonuses of more than 100% of their basic salary.An ongoing past business review initiated by SLA in 2017 has so far identified more than 15,000 people affected by the practices, and has paid redress totalling more than £25m. Mark Steward, executive director of enforcement and market oversight at the FCA, said: “Standard Life Assurance’s controls needed to place fairness to customers at their heart.