The focus on headline pension deficits and, in particular, the speed with which companies can bring them under control, is driving companies to ignore the risks, the report added.Clive Fortes, head of corporate consulting at Hymans Robertson, told IPE: “There may well be a story of two halves to the landscape, with the FTSE 350 being the one half and the rest of UK companies being the other half.“Although a pension deficit might be a concern for a minority of the FTSE 350, 90% of companies in the FTSE 350 have deficits that are less than 10% of market cap. That is hardly a life-threatening situation. The position for the rest of UK companies is probably less rosy.”But nor, he said, should sponsors rush headlong into pouring money into a scheme.“I don’t believe companies should pay to close these deficits as a matter of urgency,” he said. “There is no magic to being 100% funded as opposed to, say, 95% funded or indeed 105% funded.“After all, these liabilities are set to run for 60-80 years, with the bulk of the liabilities payable over the next 20-30 years, and one thing we do know is that the assessment of the liabilities will be wrong.”Dan Mikulskis, a director with investment Redington, told IPE he endorsed this view.“I would agree neither pouring money into a fund nor closing it are necessarily the only or even the most effective ways to reduce risk to the sponsor,” he said.“The key to managing a risk and getting on top is to set clear goals and objectives for the level of return and risk the pension scheme will target.“Among these will be a clear determination of the amount of risk a sponsor (and trustees) can carry.“You also need to review progress against these objectives regularly and instigate the necessary calls to action if they are not being met.”As for the wider thrust of the Hymans Robertson’s report, Mikulskis said his experience of the market was consistent with its findings.“Overall, in a relatively short space of time, if you directly address the risks in the pension scheme, including interest rates and inflation, you can really get on top of the issue and make a lot of progress toward reducing deficit volatility. A study by consultants Hymans Robertson has challenged the view UK corporates are facing a bill for defined benefit (DB) pension provision that in the long term will prove unsustainable.In a series of findings that fly in the face of the popular view that DB pension deficits are spiralling out of control, Hymans Robertson observed that a typical FTSE 350 company has a deficit of just 1% of its market cap.What’s more, 90% of companies have a pension deficit of less than 10% of market cap.In the foreword to the report, ‘FTSE 350 pensions analysis: Putting Pensions in Context’, the consultancy writes: “FTSE 350 companies do not have an overwhelming pension deficit problem. Instead, companies are exposing too much shareholder value to pension risk.”
Switzerland’s CHF30bn (€24.4bn) first-pillar pension fund AHV has returned 2.8% over the course of 2013, performing well below the Swiss national average of 6%. Explaining the results, Marco Netzer, chairman of the board, pointed out that the fund had been compelled to invest “a large part of its assets” in fixed income due to the social fund’s low-risk profile.AHV also manages money for invalidity compensation scheme IV (CHF4.7bn) and EO, the scheme for people in military service or on maternity leave (CHF600m).As per year-end 2013, the fund had 52% in bonds, mostly domestic, another 13% in loans and 26% in equities. The remainder was invested in real estate (5%) and commodities (2%).“Unlike in previous years, these fixed income investments contributed negatively to the performance, while equities achieved a two-digit return,” Netzer said.To better cope with the duration risk in the fixed income segment of its portfolio, the AHV has added a “cash” position to support its duration risk overlay, he said.This will be kept in place for 2014 – other possible changes to the asset allocation will be published “later in the year”.“In the scope of a possible further diversification of the portfolio despite the extensive need for liquidity, we have started an analysis and a specific project,” Netzer said.He also pointed out that the AHV and its subfunds had changed their name to ‘compenswiss’ to better reflect their multi-lingual participants, as AHV/IV/EO are abbreviations in German.Analysts have warned of financing problems for the first-pillar fund in the coming decades due to demographic developments and government plans to increase the VAT in order to increase contributions to the AHV under its Altersvorsorge 2020 proposal. Towers Watson, meanwhile, has published the results of a survey among Swiss company executives, most of which fear that their companies’ pension plans are “not fit for 2020”.Almost half of survey respondents said their pension plans would require adjustments in the near future, and nearly all acknowledged that this would entail higher costs.Around one-third cited demographic changes as the major challenge for the second pillar over the next decade.
Any potential merger between PME and PMT, the two large pension funds covering the Dutch metal industry, will depend not on any material challenges or obstacles but rather their board members making a “mental switch”, according to Hans van der Windt, PME’s outgoing director.Speaking at a recent conference on the topic of consolidation, Van der Windt said his scheme and the €60bn PMT had already been “dancing together”, and that it was up to the social partners and trustees to overcome any remaining psychological barriers.The metal schemes already have the same pension plan and contribution arrangements, while they are together the main clients of the €105bn asset manager and pensions provider MN.Van der Windt, a former official at union FNV, said the merger of the two schemes would be good for the stability of the Dutch metal sector. Koos Haakma, a partner at transition manager Mastermind, echoed Van der Windt’s views that nothing was “blocking such a move”.He said a merged scheme would attract other smaller industry-wide schemes from related sectors, as well as company schemes exempt from participating in the mandatory industry-wide metal schemes.“This could lead to a large scheme for the technical industry,” he said.Jos Brocken, a board member at both PME and PMT representing the FNV, underlined the importance of any merger for employers and workers.“Currently, value transfers for staff moving jobs within the metal sector cause a lot of unnecessary hassle,” he said.“Moreover, a large scheme can offer more flexibility in pension arrangements.”In his last public speech, Olaf Sleijpen, director of pension-fund supervision at regulator DNB, also highlighted both schemes’ readiness for a merger. “During recent separate discussions with the boards, they both mentioned the same date when I asked them,” he said.However, Sleijpen, who is to be succeeded by Bert Boertje on 1 May, declined to be more specific.Van der Windt is to be succeeded by industry veteran Eric Uijen this summer.Uijen is currently director of the notaries pension fund SNPF, which is itself preparing a merger with the pension fund for notary employees, SBMN.During his 10 years at the helm at PME, Van der Windt increased assets under management by more than one-third, chiefly via pension funds joining the scheme.
“The expected high price of CO2 emissions will come at the expense of investment returns.”According to Spaargaren, investors could contribute to energy transition through impact investing.As a successful example, he cited the issuance of green bonds for this target by asset manager EDF Suez, “which saw institutional investors take up 63% of the issued paper”.“And by investing in solar panels within its residential housing portfolio,” he added, “the €65bn metal scheme PMT created a fourfold ‘win’ position: fighting climate change, improving its portfolio, lowering tenants’ energy bills and providing employment for its participants.”Vicki Bakhshi, F&C’s head of governance and sustainable investments, suggested that changing to “less exposed low-carbon index funds” could be an acceptable alternative to divesting fully from fossil fuels.Among the fossil fuel-producing companies, some are much more exposed to carbon risk than others, she said, adding that gas was a “good transition fuel, compared with much more polluting coal and oil”.“If a pension fund divested from fossil energy, it would not only lose its voice within the company but may also create an imbalance within its own asset mix, while increasing its risk profile for the short term,” Bakhshi said.“A sudden and full divestment may also risk being at odds with the fiduciary duty towards the participants.” Institutional investors re-considering their stakes in fossil fuels should engage with companies on the issue instead of divesting, whilst at the same time investing in the transition to clean energy, experts have argued.Speaking at a recent F&C sustainability seminar in the Netherlands, Daan Spaargaren, sustainability policy adviser at institutional investor platform Eumedion, stressed that investors needed more clarity from traditional fossil fuel companies about their exposure to new climate policy.“Transparency on the issue could have a significant impact on the business model of companies such as Shell,” he said.“Because climate change is on the agenda at international organisations such as the UN and G7, both of which could set binding measures, climate policy is to become a real risk for investors.
The Pensions Infrastructure Platform (PIP) has made two senior hires as the organisation looks to step up its process to become an approved investor.The platform, backed by the National Association of Pension Funds (NAPF) and seven founding pension fund investors, is seeking authorisation from the UK Financial Conduct Authority (FCA) to become a registered investor.It has hired Ed Wilson as investment director and Paula Burgess as COO.Wilson joins from Lloyds Banking Group, where he was in the commercial banking arm focusing on renewable energy, infrastructure, utilities, debt solutions and capital markets. Burgess was head of assurance at CCLA, the Church of England’s investment and property management company.At CCLA, Burgess oversaw compliance, risk management and internal audit functions after she had spent 10 years at Russell Investments.Mike Weston, chief executive of the platform, said the arrival of the pair would accelerate the PIP’s investment management ambitions.As a platform, it has helped channel more than £500m into a public/private partnership equity fund via its founding investors and partner schemes.It also supported partner asset manager Dalmore Capital, part of the winning consortium for a £4.2bn London infrastructure project.Speaking earlier this year, Weston said it was essential to have appropriate people within the company for FCA authorisation.He also said he would recruit a head of risk and an investment analytics team.The PIP is set to launch a multi-strategy infrastructure fund, pending FCA authorisation.In February, Weston said: “It is important we do everything we have to do in describing this novel concept [to the FCA].“We should benefit by the fact we are investing in very simple products – real tangible assets, not complex structured derivative instruments.“We might lose in consideration by [the PIP’s] being a new, different structure with founding investor pension schemes backing the concept.”
The mandate involves investment-grade bonds only (AAA/Aaa to BBB-/Baa3).For bonds rated higher than BBB+, the maximum allocation is 5% per debtor, and 3% per debtor where the rating falls between BBB+ and BBB-, except where there is more in the benchmark.Higher allocations of up to 100% are allowed for sovereign bonds, up to 10% for canton-issued bonds and 25% for bonds issued by Pfandbriefinstitute.The investor listed various types of bond investments that would not be allowed in the mandate, including convertible bonds and units in collective investment schemes.Knowledge and experience with Swiss institutional funds or institutional clients would be an advantage in the competitive tender, the investor said.Within responses, performance data should be supplied to 31 August, gross of fees.The final closing date for responses is 22 September.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 Swiss institutional investor has launched a manager selection process for a Swiss bond mandate involving at least CHF250m (€230m) of assets, according to a search on IPE Quest.Applicants should have at least CHF2.5bn under management in the same strategy – Swiss bonds – across different funds or mandates, as well as a track record of at least five years.The mandate should be managed using an active style, with the manager being able to adapt to market conditions.The benchmark is to be the SBI Domestic AAA-BBB TR.
Greater Manchester Pension Fund (GMPF), the UK’s largest local authority fund, has appointed three managers to a £750m (€970m) credit framework agreement.The appointments follow a tender last year, which saw the £17.4bn GMPF seek managers for a £650m multi-credit portfolio and a £100m high-quality credit portfolio.The £650m mandate, which will target a LIBOR outperformance of 4-6%, will seek to invest in higher-yielding debt opportunities, including private placements, the fund said.The second, £100m mandate, which would have the potential to grow “significantly” over time, would target higher-rated debt instruments, with an average credit rating of A across the portfolio. As a result, the GMPF said it would target a LIBOR outperformance of 2 percentage points.“The aim of this mandate,” it added, “is to build a portfolio of assets that can generate cash flows to form part of a liability cash-flow matching strategy.“It is anticipated the mandate will invest in a number of shorter-dated, credit-related opportunities, including loans and high-yield debt.”GMPF said a dozen managers had been shortlisted for the framework agreement but that only KKR, Oak Hill Advisors and Stone Harbor Investment Partners had been appointed.None of the three managers was employed by GMPF, according to its most recent annual report, and the fund could not be reached for comment on which, if any, had been seeded.At the end of March 2015, UBS Asset Management was in charge of £6.4bn of GMPF’s £16bn in externally managed assets, while Legal & General Investment Management was responsible for a further £6.1bn.Capital Group was in charge of a £2.2bn securities portfolio, while Investec managed £667m in assets for the fund.The remaining £600m in external assets, invested in real estate, were largely overseen by LaSalle Investment Management, while GVA was in charge of £86m.
The International Accounting Standards Board (IASB) is to consider possible changes to its pensions accounting rulebook following growing public interest in hybrid-risk plans. A pensions accounting research project aimed at considering the issue has been added to the watchdog’s official workplan, it emerged as an updated workplan was released on 19 July during its monthly meeting round.The project, not expected to start until early next year, will investigate a possible change to the board’s pensions accounting rulebook, International Accounting Standard 19, Employee Benefits (IAS 19).A research project is typically the board’s starting point ahead of any decision to mount a formal standard-setting project. IASB research director Peter Clark said: “The objective of the research projects is not to do the standard setting – it is to gather the evidence. “We expect to concentrate just on the active projects this year and not to dilute focus by starting any of the pipeline projects, certainly before the end of this year.” The board has recently mounted a low-key review of IAS 19.Although the board opted against launching a pensions project on the back of that review, feedback to its recent public agenda consultation suggested support for it to add a narrow-scope feasibility study to its research pipeline.The approach that the board will now consider adds up to a possible solution to the accounting challenges presented by some hybrid-risk plans, which seek to balance the risks between defined benefit and defined contribution schemes.The approach, known as the ‘capped’ ultimate-costs-adjustment model, would apply to pension promises that vary according to the level of returns on specified assets.It works by capping the cash flows included in the measurement of the pension liability.One potential advantage of the approach is that it does not require the board to revisit plan classification under IAS 19.The new research project does not commit the board to make any amendments to IAS 19.
Alecta, Sweden’s largest occupational pension provider, made a 5.0% loss on its equity investments in the first half of this year, dragging returns down on both its defined benefit (DB) and defined contribution (DC) products.Alecta’s DB pension product returned 0.1% in the six-month period, down from 5.1% in the same period last year, while its DC product — Alecta Optimal Pension — made a 1.8% investment loss, down from a positive return of 7.8% in the first half of 2015, the provider reported.In its interim report for January to June 2016, Alecta said: “The comparatively weak performance in the first half was mainly due to a relatively low return on the equities portfolio.”It was partly the case that the portfolio had dipped lower following several years of very strong growth of its holdings, and partly that the relatively high proportion of Swedish and European stocks put it at a disadvantage in the first half, the pensions provider said. While equities made a 5.0% loss for Alecta on both DB and DC sides, fixed-income investments returned 3.5% on the DC side and 3.4% on the DB side, while property returned 3.3% on both sides.This compares with the first half of 2015, when equities returned 10.5%, fixed-income produced 0.4% and property returned 7.8%.The vast majority of Alecta’s assets under management relate to its DB product, at SEK672bn (€70.8bn) at the end of of June, compared to SEK60bn for the DC product.Alecta’s group assets rose to SEK761bn at the end of June from SEK750bn.Magnus Billing, chief executive, said the first half had been marked by big falls in global interest rates and equity markets, which bounced back in the second quarter after a weak start to the year, but which then fell sharply in relation to Brexit.Premiums rose to SEK16.1bn in the first half from SEK14.7bn in the same period last year. Billing said the growth in premiums was due to the continued good development of Alecta Optimal Pension.“Growth has been very strong and bodes well for Alecta’s continued success,” he said.As a group, Alecta made an SEK41bn loss in the first half, compared to its SEK47bn profit in the same period last year.He said Alecta’s results during the first half of 2016 had also been hit by higher technical provisions due to the lowering of the interest rate curve used to determine the level provisions needed to be.“Our financial position shows that the company is well positioned to handle the continued uncertain market conditions and the continuing extremely low level of interest rates,” he said.Alecta’s solvency ratio stood at 154% at the end of June, down from 171% at the same point last year.
Hungary’s private pension funds have assumed more investment risk over the last 12 months, according to the latest figures from the Hungarian National Bank (HNB).The allocation to directly held equities rose markedly over the period, from 11.6% at the end of June 2015 to 15.2% a year later.The second-quarter figures released by the HNB showed the funds’ portfolios had an aggregate market value of HUF223.4bn (€704m) at the end of June this year, up by 1.7% from HUF219.6bn at the end of June 2015.However, there was a slight dip from the end of March 2016 total of HUF225.8bn due to lacklustre investment returns over the second quarter. Specific returns figures, however, are not published.As of the end of June 2016, most of the assets (54.6%) of private pension funds were invested in debt, practically all in government bonds.A further 23.6% was held in investment fund units.Pension fund membership continued to decline, to 58,400 members at the end of June, down by 1% since the end of the second quarter this year, and by 2.5% year on year.Besides the four private pension funds, aggregate figures were published for 42 voluntary pension funds.There are also much smaller amounts invested in 29 health and mutual aid funds.Voluntary pension fund portfolios had an aggregate market value of HUF1,190.7bn as of the end of June 2016, up by 4.1% from HUF1,143.3bn year on year and slightly up on the end of March 2016 figure of HUF1,187.4bn.Most of the voluntary pension funds’ assets (65.3%) were invested in debt, with the vast majority in government bonds.A further 24.2% was held in investment fund units, and 5.1% directly in shares, a slight increase on the previous year.At the end of June, voluntary pension fund membership stood at 1.14m, down by 0.3% since the end of March, and by 1.4% year on year.In other news, Hungary’s Pannónia Pension Fund has completed the acquisition of a 10% stake in MKB Bank, the formerly state-owned bank put up for sale by the central bank earlier this year.The sale was completed in late June.The Hungarian National Bank had previously bought MKB from Bayerische Landesbank in 2014.The total sale price was HUF37bn.The other members of the winning consortium were Luxembourg-based Blue Robin Investments (BRI) and METIS Private Capital Fund, both private equity funds, which each purchased a 45% stake in MKB.Recent press reports, however, suggest BRI has since sold one-third of its holding (a 15% stake) to MKB’s employee stock-ownership programme.