Financial Reporting Council – John Stewart and Sir Brian Bender have been appointed to the board. Stewart is chairman of Legal & General Group and has held many senior roles in financial services in the UK, Europe and Australia. Bender is a former permanent secretary at the Department of Trade & Industry/Business Department and has held many other senior roles in UK government, including head of the European Secretariat at the Cabinet Office. He is currently chairman of the London Metal Exchange.Alternative Investment Management Association (AIMA) – Jack Inglis is to take over as chief executive at organisation on 1 February. He will replace Andrew Baker, who has served as chief executive since January 2009 and announced last year that he would be stepping down. Inglis was previously with Barclays, where he was a member of the Global Executive Committee for Prime Services. Before then, he was chief executive at Ferox Capital. He also spent 16 years at Morgan Stanley, where he was co-head of European Prime Brokerage.Sackers – The UK law firm for pension scheme trustees and sponsors has strengthened the finance and investment group with the appointment of Sebastian Reger, a senior derivatives lawyer, as an associate director. He joins from Freshfields Bruckhaus Deringer, where he focused on structured finance transactions. Legal & General Investment Management, Mercer, Lord Hutton, Redington, Ontario Teachers’ Pension Plan, Financial Reporting Council, Alternative Investment Management Association, SackersLegal & General Investment Management – Emma Douglas has been appointed head of DC Solutions. She joins from Mercer, where she was head of Mercer Workplace Savings at partner level. Prior to Mercer, she worked at Threadneedle Investments, where she was head of DC pensions and institutional client relationships, and BlackRock, where she was head of DC Sales.Redington – Lord Hutton, former secretary of state for work and pensions, has joined the London investment consultancy as an adviser. He will be working with the firm’s consultants and ALM team to design defined contribution pensions solutions. He will also help grow RedStart, the firm’s charitable financial-education programme. Ontario Teachers’ Pension Plan – Iain Kennedy has joined the London office as a director in the Teachers’ Private Capital team, focused on making direct long-term equity investments in “high-quality, growing” companies. He previously spent 16 years at Duke Street, a UK mid-market private equity fund. Prior to Duke Street, he worked for Price Waterhouse and Gresham Private Equity.
The Irish Association of Pension Funds (IAPF) has tacitly endorsed a mandatory pension system as the least complex and costly reform option if the current government wishes to boost participation rates.The industry body also suggested that a shift towards an auto-enrolment or a compulsory pension savings system could warrant the launch of collective defined contribution (CDC) funds, and said government should let the private sector operate any scheme unless it felt the need for a provider of last resort.In its response to the Universal Retirement Savings Group (URSG), which launched an informal consultation with stakeholder groups following its launch in February, the IAPF did not explicitly endorse a mandatory system and said it accepted the “political reality” that auto-enrolment may be easier to deliver.Despite this admission, the IAPF said complexities arising from an auto-enrolment approach would easily fall away if the government chose compulsion, suggesting there were “clear advantages” to a mandatory system. “Overall, it should be less complex and costly to administer, there is less need for compliance checking and establishing who should be included and when.”The IAPF’s words echoed those chosen by the OECD when it reviewed Ireland’s pension system in 2013.The think tank’s report backed compulsory saving and suggested auto-enrolment was a second-rate policy, with the former a “less costly and more effective” means of increasing coverage.In a letter to the URSG, IAPF chief executive Jerry Moriarty said the association had “some difficulty” in answering the consultation, as it did not set out a clear objective for the proposed Universal Retirement Savings Scheme (URSS).“We believe that if this had been done and the population of likely participants established it would be much easier to look at issues such as operation and investment,” Moriarty said.The response said the Irish government should play no role in operating the URSS outside of regulation, noting the importance of establishing a trusted system, and contrasting this with the government’s 0.6% pensions levy and the use of the National Pensions Reserve Fund to support struggling banks during the financial crisis.“That said, there may be a need for a provider of last resort that would be able to take on low contributions on an uncommercial basis,” the consultation said, in a likely reference to the UK’s launch of the National Employment Savings Trust.The consultation also suggested the reform could see the launch of CDC funds, as these could be more appropriate than individual accounts. “If a collective DC arrangement was established it could provide more equity across generations and therefore more certainty of achieving the desired goals.”The IAPF alos said any investment strategy would need to take an appropriate amount of risk to meet agreed objectives, in an absence of a pre-determined replacement ratio for the URSS.It also argued that there should only be limited investment choice, with a default fund a necessity.Asked about the timeline for its introduction, the IAPF said it preferred a “big bang” approach, allowing for the system to establish scale “sooner, rather than over generations”.The URSG has previously said that it would look to table its proposals by the end of the year, but minister for social protection Joan Burton has not given any indication of when the system would be in place, insisting there would be a “very gradual” rollout once economic factors allowed for the launch.
Lithuania’s second and third-pillar pension fund results took a pounding in the third quarter as a result of heavy equity market losses.According to the Bank of Lithuania (BoL), the sector’s regulator, second-pillar nominal losses in the third quarter averaged 4.28%.The five high-risk funds, which can invest up to 100% in equities, posted the highest losses, of 9.27%, followed by the nine medium-risk funds (with equity limits of 50-70%) at 5.36%, and the four low-risk funds (25-30% equity investment) at 1.86%.Only the eight conservative bond funds generated a positive return, of 0.46%. The latest results wiped out the strong growth made earlier in the year by the equity-focused funds, dragging the total year-to-date average down to 0.11%, from 7.55% at the end of the first quarter.Nine-month losses averaged 0.39% for the high-risk funds and 0.27% for the medium-risk ones, compared with gains of 13.28% and 8.52%, respectively, at the end of the first quarter.However, there was a wide variation in performance, with two of the high-risk funds and four of the medium-risk ones making positive returns as of the end of September.The low-risk and conservative funds generated nine-month returns of 0.77% and 0.90%, respectively.Audrius Šilgalis, senior specialist at the financial services and markets analysis division of BoL’s Supervision Service, said: “The sharp decline in stock prices in China’s market and turmoil in the European and global financial markets resulted in the value of a major part of the second-pillar pension funds’ units to decrease in the third quarter.“However, due to a particularly successful beginning of the year, the return on second-pillar pension funds over the nine months of this year is positive.”Over this period, assets continued to grow, by 7.2% to €2bn, due to continuing inflows from contributions.Although the system is voluntary, around 80% of the workforce has signed up.The results for the third-pillar funds were even worse.Third-quarter losses averaged 6.03%, compared with a positive return of 9.16% at the end of March.Losses ranged from 9.34% for the highest equity structures to 4.86% for medium-risk plans and 0.58% for bond/minimal equity funds.For the nine-month period, the three conservative funds generated a small positive average return of 0.66%, while the five high and four medium-risk funds made losses of 1.4% and 0.22%, respectively.Assets over the nine-month period grew by 9.8% to €52.1m, driven by a 13.9% increase in membership.
Last year was also characterised by continued positive growth outlooks but diminishing confidence in the financial markets, as well as heightened insecurity and risk aversion, it noted. Central bank monetary divergence was also a theme.In 2015, the largest share of Belgian occupational pension funds’ assets was invested in bonds, at 45%, followed by equities at 34%. Real estate accounted for 5%, liquid assets (cash) 3% and ‘other’ assets 13% (mainly insurance infrastructure, own funds and convertible bonds).The 4.4% average return figure is based on a sample of 40 pension funds with €14.16bn in total assets. Just over half of the funds have assets of more than €125m, with an average of €591m. Fourteen participating funds have assets in the €25m-125m range, while the remainder are smaller than €25m.Annual returns generated by the pension funds in the sample ranged from less than 1.62% to more than 6.12%, according to PensioPlus.Over 10 years, Belgian IORPs have on average returned 4.75% on a nominal basis, or 2.85% net of inflation, a presentation from the association shows. The real return for 2015 is 2.86%.FaceliftPensioPlus is the new name of what was formerly called ABIP (Assocition Belge des Institutions de Pensions), with the organisation having last year decided it was time to rebrand.Its new name is intended to better reflect its work as the association for supplementary pensions, as well as its aim to bring “added value” to its members, the association said.“The slogan ‘Smarter together for better pensions’ reminds us that we, as a member association and in collaboration with all stakeholders and political decision-makers, want to and can offer better pension solutions and insist on the importance of the second pillar,” said PensioPlus. Belgian second-pillar pension funds returned an average of 4.4% in 2015, down from 11.06% the previous year, according to a survey carried out by the country’s renamed occupational pension scheme association, PensioPlus.The survey shows that pension funds and insurers need to invest in the “real economy”, according to a presentation from the association.This is so they can obtain adequate yields of at least the 1.75% minimum guarantee, and to protect against inflation. Investing in the real economy is also necessary because bonds are no longer a “safe haven” and increasingly volatile, the association said.
UK pension funds could be reaching a “tipping point” into cashflow-negative status, data from the Office for National Statistics (ONS) suggests.The ONS recorded a net disinvestment of £15bn (€17.3bn) by pension funds and insurance companies in the third quarter of 2016.It was only the fifth time in 30 years the ONS’s survey of institutional investors recorded net outflows but the second time in three quarters after a net disinvestment of £3bn in Q1 2016.Sorca Kelly-Scholte, head of the EMEA pension solutions and advisory group at JP Morgan Asset Management, said the data was “a marker of pension funds becoming more mature”. “There are two reasons for the disinvestment,” Kelly-Scholte said. “One is a tactical play: Investors see toppy valuations and a reflationary environment coming back, and they think they have got to have cash while this plays out.“This doesn’t explain it all. Either [pension funds] are not reinvesting income, or they’re selling assets. That money is coming out of the long-term asset pool. It will be very interesting to see if it’s a tipping point.”#*#*Show Fullscreen*#*# While similar patterns were observed in the ONS’s data at times of market stress – the bursting of the tech bubble and the peak of the financial crisis, specifically – the 2016 figures were not fully offset by a switch into cash and short-term assets.The ONS data showed net withdrawals of £11bn from overseas equities and £8bn from UK equities.Meanwhile, an aggregate £2bn was invested in short-term assets.UK corporate bonds saw £4bn of net investment.“Net disinvestment at a total level is unusual and may be influenced by changes in investor confidence in the economic environment,” the ONS said in its MQ5 statistical release.However, the ONS said a “very limited number” of respondents to its survey had cited Brexit as a factor in their Q3 decisions.The UK voted to leave the European Union on 23 June, making Q3 the first set of investment data from the ONS post-referendum.Kelly-Scholte said: “A lot of moves post-Brexit would have been tactical. I’m not sure we can point to Brexit as the main cause of flows.”Instead, she pointed to asset class trends such as a continued collective move into alternatives, such as infrastructure and real estate.The ONS’s statistical release is available here.
Faith Ward, Brunel Pension PartnershipDaniel Summerfield, co-head of responsible investment at USS Investment Management, the in-house manager for the £60bn (€68.1bn) Universities Superannuation Scheme;Faith Ward, chief responsible investment officer at the Brunel Pension Partnership, a £30bn local government pension scheme (LGPS) asset pool;Janice Turner, founding co-chair of the Association of Member-Nominated Trustees;Michael Marshall, director of responsible investment and engagement at LGPS Central, another of the new LGPS asset pools; andSimon Siu, deputy head of finance at the BT Pension Scheme.Asset managers are represented by:Amra Balic, managing director in BlackRock’s investment stewardship team for the Europe, Middle East and Africa region;Andrew Cave, head of governance and sustainability at Baillie Gifford;Ben Yeoh, senior portfolio manager of global equities at RBC Global Asset Management;David Gorman, head of research at Castlefield Partners, a Manchester-based investment group;Leon Kamhi, head of responsibility for Hermes Investment Management; andNatasha Landell-Mills, head of stewardship at Sarasin & Partners. The group is intended to serve several related purposes. The FRC said it would provide a regular forum for it to engage with representatives from across the investment chain on various issues, including its strategy, new policies and standards, on governance, stewardship, reporting and audit matters.The watchdog said the group would also help it “to better understand the investment community’s views of FRC effectiveness”.The establishment of the investor advisory group comes as the FRC faces a government-commissioned independent review following criticism of its role in the collapse of contractor Carillion. Some parties – including the Local Authority Pension Fund Forum – have called for the organisation to be shut down.The FRC is due to publish a revised version of the UK’s corporate governance code this summer. It is also reviewing the stewardship code, and a formal consultation on changes to this could be published later this year.Who’s who?The five pension fund representatives include public and private sector schemes: Carine Smith Ihenacho, Norges Bank Investment ManagementCarine Smith Ihenacho, chief corporate governance officer at Norges Bank Investment Manager, the manager of Norway’s sovereign wealth fund, has also been appointed to the group.The other members, from rating agencies, proxy advisory firms and the sell-side, are:Kazim Razvi, global head of accounting research and policy at Fitch Ratings;Laurie Fitzjohn-Sykes, corporate governance lead for HSBC’s global research;Paul Marsland, senior analyst in the environmental, social and corporate governance team at broker Kepler Chevreux;Nathan Leclercq, head of UK research at proxy advisory firm Institutional Shareholder Services; andMohammed Amin, representing retail investor associations UKSA and ShareSoc.The membership can be viewed here. The UK’s audit regulator has appointed a 17-strong committee of investors to help inform its future work on issues such as governance and stewardship.The Financial Reporting Council (FRC) initially intended to appoint 12 members, but expanded the size of the investor advisory group after receiving more than 30 applications.The FRC, which is also responsible for the UK’s corporate governance and stewardship codes, said it would use the group as “a formal way of understanding key areas of concern and emerging risks from the perspective of investors”. Its first meeting is next month.The advisory group includes representatives from five pension funds, six asset managers, and the corporate governance chief of Norway’s giant sovereign wealth fund.
“More than half of the unlisted green asset funds identified by Novethic are dedicated to renewable energy, with assets under management totalling over €26bn,” Novethic said. “These funds may offer lower returns as they rely on the refinancing of mature assets, such as onshore wind farms.“The most financially attractive products are those involved in the early stages of a project’s finance chain, or those that position themselves around more innovative investment themes, such as smart cities.”Macquarie and BlackRock dominated the green sector in terms of assets under management, with Copenhagen Infrastructure Partners in third with €3.2bn, predominantly run for Nordic institutional investors such as PensionDanmark.Top five ‘green’ asset managersChart MakerHowever, Novethic said demand for green alternative investments was small, despite the trend towards private assets among institutional investors.“Investors are not very demanding about the quality of environmental reporting, whether they refer to avoided emissions or installed capacity, with the exception of the European Investment Bank (EIB) and some public investors with strong climate engagements,” the researchers said.Novethic concluded: “The implementation of the European Commission’s action plan on sustainable finance is expected to bring new developments to this emerging market.“The publication of a standardised classification system for green activities will better direct financial flows towards the energy and ecological transition. This assumes that investors are moving towards defining their green strategies and reporting requirements at a larger scale.“These actors should be encouraged to do so under new transparency requirements on ESG criteria and climate risk management.”This article was updated on 27 March to amend the survey size in the second paragraphFurther reading More than €57bn is now invested in unlisted ‘green’ funds, across infrastructure, private equity, private debt, real estate and forestry, according to research from Novethic.The French research firm surveyed more than 500 unlisted funds and identified 223 that it considered to be “environmental” in some way. More than half were dedicated to investing in renewable or sustainable projects.Green funds breakdown by theme (% of funds)Chart MakerNovethic said that the data demonstrated “the push felt by investors since the signing of the Paris Agreement in 2016”. A record €12bn was raised by 35 green funds last year. Green finance: Financing environmental benefits Green finance is drawing huge interest in light of climate change, but it needs to be about more than financial returns, writes Susanna RustEU sets out plan for investor sustainability disclosure rules The European Parliament and EU member states have reached a political agreement on the so-called disclosure regulation that forms part of the European Commission’s sustainable finance planMoody’s: EU disclosure rules could benefit asset manager ESG leaders “For asset managers that have the appropriate infrastructure, expertise and product range, the rules will likely lead to increased inflows into sustainable strategies, given increasing demand for ESG products”
Investors should not be formally assessed on the outcomes of investments made in line with the UN’s Sustainable Development Goals (SDGs), according to one of the world’s biggest asset owners.Norges Bank Investment Management (NBIM), manager of Norway’s NOK8.9trn (€919bn) sovereign wealth fund, said it did not support adding outcome-based reporting on the SDGs, in a written response to the Principles for Responsible Investment’s (PRI) reporting review.NBIM argued in a letter to the PRI Association that it was difficult to measure an investor’s direct impact on the SDGs, and that the inclusion of outcome-based reporting was drifting away from the PRI’s founding principles.In the letter, NBIM’s Carine Smith Ihenacho, chief corporate governance officer, and Wilhelm Mohn, head of sustainability initiatives, wrote: “To attribute ownership of an outcome, an investor would ideally need to be able to demonstrate additionality, ie that any positive impact would not have happened without their investment. “Establishing such a relationship is challenging, given that a minority investor has only a marginal influence on a company’s funding cost and on its strategic direction, and is not involved in operational decisions. Investors’ efforts may be several steps removed from real-world outcomes on sustainable development.”NBIM also said that, for many investors, achieving the SDGs was not necessarily part of their mandate and so they should not be expected to report potential outcomes of their investments in this way to the PRI.#*#*Show Fullscreen*#*# Dutch asset managers APG and PGGM have assessed the ‘investability’ of the SDGs“Finally, including outcome-based reporting in the PRI Reporting Framework is drifting away from the PRI’s founding principles,” Smith Ihenacho and Mohn said. They added that the PRI’s signatories were financial investors committed to incorporate environmental, social and corporate governance (ESG) issues into their decision-making, while delivering on their investment mandate.“Most investors’ mandate is to maximise financial returns for their beneficiaries,” they said. “Responsible investors who do not have in their mandate to achieve specific social or environmental goals, or to contribute to policy goals, should not be expected to report on such potential impact under the PRI Reporting Framework.”The PRI has said that reporting how companies incorporated ESG factors not only encouraged positive change in financial markets, but also gave signatories an opportunity to compare their performance with peers, allowing for feedback and improvement.NBIM said this was not the first time it had objected to the concept of outcome-based reporting, having previously highlighted problems in the fund’s response to the PRI Blueprint, created in 2017.The PRI is surveying signatory investors and service providers about their views on the organisation’s reporting framework as part of a review it committed to in 2017.It wants to force signatories to report how they have considered specific climate change risks in their portfolios, beginning in 2020.Launched in 2012, the framework is, according to the PRI, “the largest global reporting project on responsible investment”.
At the same time, the MSCI World index fell by 1.6% amid geopolitical concerns over the UK’s withdrawal from the EU and the US-China trade dispute.FTSE 350 DB scheme assets and liabilitiesChart MakerCharles Cowling, actuary at Mercer, said the decision by UK prime minister Boris Johnson to suspend parliament from next week made a no-deal Brexit look “increasingly likely”.“Facing a potential sterling crisis and a spike in inflation, trustees and sponsors would be wise to prepare for political volatility and very difficult financial markets,” Cowling said.“Combined with downward pressure on interest rates, as president Trump increases pressure on the Federal Reserve to cut rates far more aggressively, the months ahead could see serious implications on scheme finances and risk. “Trustees will also be looking nervously at to see how employer covenants are affected by a no-deal Brexit. Against a very uncertain backdrop, trustees will have real challenges in making effective decisions. It’s important that they examine the risks they are taking and work through various scenarios to establish whether their schemes face material dangers.“In particular, trustees should look at the investment risks they are running. Many schemes should consider putting in place pragmatic mitigating measures and investment de-risking at the earliest opportunity.” UK DB pension schemes – funding level (%)Chart MakerDutch pension funds were also affected by market volatility in August, making cuts to benefits more likely from next year. The aggregate funding shortfall across the UK’s biggest listed companies’ pension schemes rose by a third during August’s volatile markets, according to Mercer.Data from the investment consultancy showed FTSE 350 companies’ defined benefit (DB) schemes had a combined deficit of £67bn (€73.4bn) at the end of August. This marked an increase of £16bn since the end of July – the biggest month-on-month increase this year.The shortfall was the largest recorded for nearly two years, according to Maria Johannessen, partner and corporate consulting leader at Mercer. She added that under-hedged schemes “took the lion’s share of the deficit hit” as currency market volatility hit the value of sterling.The combined funding ratio declined less dramatically, from 94% to 93%, as assets rose to £847bn and liabilities reached £914bn. During the month corporate bond yields fell by 0.3%, pushing up the value of fixed income assets but also driving up liabilities.
Denmark’s two biggest pension funds ATP and PFA have invested in the new Climate Awareness Bond (CAB) issued by the European Investment Bank (EIB), saying the move is at least in part to support the bank’s work to push the green agenda.The bank said it timed the €1bn bond issue was timed to coincide with the European Parliament’s (EP) approval of regulations on the establishment of a framework to facilitate sustainable investment, the EU Sustainability Taxonomy.In announcing the bond issue, the EIB also revealed its decision to extend the eligibility of its CAB to two additional lending activities – to research, development and deployment of innovative low carbon technologies, and to electric rail infrastructure and rolling stock, and electric buses.Lars Dreier Kristensen, senior portfolio manager at ATP, said that as a long-term sustainable investor, the pension fund promoted accountability and comparability in green finance. As part of this, he said that back in April 2019, the fund had put in a strong order for EIB bonds when the bank began CAB-documentation that was tuned to the EU’s taxonomy regulation.“With today’s extension of CAB-eligibilities, EIB is again spearheading best practice. Therefore our renewed support in the primary market,” Dreier Kristensen said.PFA said it invested DKK360m (€48m) in the EIB issue, while Dreier Kristensen told IPE that ATP – which now invests DKK26bn in green bonds overall – had made “a substantial investment” in the new bonds, without giving a figure.Christian Storm Schubart, senior portfolio manager ESG and Patrick Gorm Nielsen, portfolio manager at PFA Asset Management, said: “We are very supportive of the work that EIB is doing to push the green agenda as we are continuously looking for good investment opportunities where we can contribute to the transition to a low carbon economy.”AFP signs deal with eVestment, extending US data firm’s Nordic business gainsNorwegian private sector pension fund AFP has picked US data firm eVestment to provide services to help it monitor external managers and handle its data collection and review processes more efficiently, according to the US firm.This is the second Nordic pensions contract win flagged up by this month, following the gain from Sweden’s AP1 in early June.Frode Veiby, senior portfolio manager at the pension fund – which currently manages around $4.2bn (€3.7bn), according to eVestment – said AFP was “very excited” to use the eVestment platform.He said the provider had enough breadth and depth in its coverage, as well as the proprietary data and tools to make sure AFP could identify appropriate strategies to manage the fund.“Finding and monitoring institutional asset managers locally and around the world is important to our success in serving our pensioners,” he said.Jean-Philippe Quittot, the US firm’s managing director for EMEA, said pension funds increasingly needed to find managers locally, regionally and around the world that could meet their return, risk and asset mix expectations, and provide transparency in asset management selection and monitoring to their stakeholders.The US firm has said it is currently making particular efforts to increase sales in the Nordic region.PFA extends IT contract with NNIT as digitalisation growsIn other news on PFA, the fund has signed a new five-year deal with Copenhagen-based firm NNIT for IT infrastructure, operations and consultancy, according to the tech company.Morten Bruun Steiner, director of data and IT at the DKK688bn (€92.3bn) pension fund, said: “The new agreement creates a good foundation for our desire for increased standardisation of our infrastructure and thus supports our journey towards becoming even more digital and efficient in the way we work with customer experiences.”The new contract replaces the existing deal due to expire at the end of 2023, said NNIT which originally started providing services to PFA in 2009.The IT firm said the contract was estimated to be worth “a medium triple-digit million amount” in Danish kroner.Looking for IPE’s latest magazine? Read the digital edition here.