The European Commission should require asset managers launching European Long-Term Investment Funds (ELTIF) to disclose the social impact of all investments, asset manager Mirova has suggested.Gwenola Chambon, head of infrastructure funds at the Natixis Asset Management subsidiary, said she was “amazed” there seemed to be little interest in enshrining the notion of fostering socially and environmentally sustainable growth as part of ELTIFs’ investment goals, despite the responsible investment (RI) emphasis of the Commission’s Green Paper on Long-Term Investing.She told IPE all parties involved in the development of ELTIFs at first seemed “very enthusiastic” about the inclusion of an RI emphasis.“Now we have ended up with something that is clearly a long-term investment tool, but does not anymore have anything related to that aspect, which is to me very surprising,” she said. “We end up with a European tool that is there to foster the economy, there to channel long-term funds, yet has nothing to say on that aspect [sustainable investment], which is too bad.”The initial legislative proposal for the ELTIF regulation, published in June last year, noted that “sustainable, smart and inclusive growth” was key to fostering European economic growth less susceptible to systemic risks.Chambon said the least the industry should expect from the Commission was for the regulation to be amended to include a requirement for asset managers launching ELTIFs to disclose their approach to socially responsible investment.“Any asset manager should at least explain how he wants to commit through that tool to social and responsible investment responsibilities – whether it has no particular objective, or whether it has – and if it has, to be very concrete on what it wants to do and what it wants to implement,” she said.She said infrastructure, and particularly social housing, were assets forming the building blocks of a society.“We are creating assets that will have an impact on several generations,” she said. “We can’t afford not to think about the social and responsible impact on our environment and the economy in general.”PensionsEurope has previously suggested the European Investment Bank should offer both capital guarantees and its own expertise to assessing infrastructure projects backed by ELTIFs.
He said the industry group questioned “what had driven EIOPA to come up with new proposals”, lacking a formal request from the European Commission.Kloosterboer also noted that the period for the industry to comment on EIOPA’s recommendations, as well as the amount of time the supervisory authority would have to flesh out technical specifications, would be very short – particularly “given its intention to introduce new regulation in early 2015”.But Clifford Chance’s Van Meerten claimed the suggested frameworks were of “sloping strictness”, varying from a “Solvency II-ish” regime to an alternative in which the HBS could by deployed as a risk-management tool.“The introduction of the last and least strict model doesn’t even require new European legislation for capital requirements,” he said.“In the last model, the HBS is part of the governance and risk-management of pension funds.”Van Meerten acknowledged that EIOPA’s six frameworks were not appropriate for purely defined contribution schemes, including the Dutch pensions vehicle PPI, and said the advisory body would come up with additional proposals for this category.The legal expert also argued that the fact EIOPA wants assets and liabilities to be discounted against market rates, rather than just liabilities, is a positive.“Such a balanced approach seems much more logical,” he said.“As a result, Dutch funds might no longer be allowed to calculate their contributions against expected returns.”He also noted that the higher buffer requirements in the initial HBS proposals – previously criticised by the Dutch pensions sector – had now been forced on pension funds through national legislation, including the new financial assessment framework (FTK) in the Netherlands.He said the delegated competence for the European Commission to issue additional rules might have been removed from the revised IORP proposals, but he added that the debate over the issue was not over.“The important European Principal Treaties grant the EC the competence to issue detailed rules, which could also apply to prudence requirements for pension funds,” he said. EIOPA’s new principles-based approach to the proposed holistic balance sheet (HBS) is a positive development, as its central thrust is to increase “clarity” for pension funds’ participants, according to Hans van Meerten, an expert in European pensions at law firm Clifford Chance.He argued that all six of EIOPA’s suggested frameworks for the HBS focused on providing clarity on the composition of pension assets, when and how rights cuts are permitted, and how the principle of solidarity is shaped.The Dutch Pensions Federation, however, was sceptical.Its spokesman, Gert Kloosterboer, said: “We are not yet convinced of the benefit or the necessity of an HBS approach combined with quantitative rules.”
The TRW Pension Scheme has transferred £2.5bn (€3.1bn) in liabilities to Legal General (L&G) in an uncommon partial-buyout arrangement that breaks the UK record for a single transaction.The scheme, sponsored by service provider to the automotive industry TRW Automotive, transferred around 78% of its liabilities in the all-pensioner buyout.The £3.5bn scheme has around 46,000 members, transferring the plans of 22,000 pensioners to the insurer and retaining £1bn of liabilities, mainly deferred members.Neil Marchuk, chair of the trustee board, said the deal was a material de-risking process providing security to the insured members. Joseph Cantle, CFO at TRW Automotive, said the partial buyout significantly improved the company’s balance sheet, transferring the liabilities to L&G.A partial buyout is where pension schemes transfer liabilities in their entirety to an insurer but do not wind down. A buy-in is the exchange of liabilities for an insurance contract against future payments held as an asset by the scheme.The scheme and its advisers had been working towards the deal for some time, running other risk-reduction exercises such as pension increase exchanges (PIEs) and enhanced transfer values (ETVs).Insurance quotes remained in the scheme’s favour given the deal’s record size and the intensely competitive bulk annuity market – particularly since the Budget reforms in March.James Mullins, partner at consultancy Hymans Robertson and adviser to the scheme, said its complex investment hedging had been beneficial in securing the timing and pricing of the deal.The PIE exercise, accepted by just under 40% of members, had made quoting simpler for L&G, as the scheme indexed using the consumer prices index (CPI), a notoriously difficult index to hedge.A PIE exercise sees the member accept an inflated initial pension payment in exchange for the waiving of annual index increases.“This deal could be the catalyst for partial-buyout,” Mullins said. “This scheme was not exceptionally funded, so a buyout looked a long-way off. But the series of steps undertaken meant they have been able to partially buy out two-thirds of the scheme.”The deal represents L&G’s second record-breaking deal of the year, after it insured £3bn of liabilities in a buy-in with the ICI Pension Fund.Managing director of L&G Retirement Kerrigan Procter said: “We have worked with the scheme over many years as they moved from index funds to liability-driven investment, and now to buyout with L&G.”The insurer has now dominated 2014, writing more than £8.3bn in bulk annuities, more than the entire 2013 market.The 2014 market is now expected to break the £11bn mark, with consultancies reporting hundreds of millions worth of transactions before year-end.Mercer’s David Ellis, lead adviser to the pension scheme on selecting L&G, said while it would be pleased with its 2014 performance, other insurers would not be feeling the pinch.“The year before, Pension Insurance Corporation (PIC) did very well, and Rothesay Life bought MetLife, which was a multi-billion deal as far as it is concerned,” he said.Mullins added: “Next year will be great as well, with L&G and Prudential and others even more keen to transact to make up for falling individual annuities sales – which is great for competitive pricing.”Bulk annuity pricing power is expected to “see-saw” between insurers and pension schemes as a variety of market and competition factors take hold, according to consultancy LCP.
European Union member states must promote “collective” pension savings vehicles, the European Commission has urged.Releasing its annual growth survey, the European executive also praised efforts by a number of countries in reforming their first-pillar pension systems, arguing that a majority of member states had amended systems to “better withstand” the impact of increased longevity.It noted, however, that the reforms could result in further “challenges” and insisted that, to ensure the success and continued support of state pension reforms, steps needed to be taken to maintain retirement income levels, extend working lives or provide other sources of income through “complementary” pension savings vehicles.“Member states,” the report continues, “need to support the development of collective and individual pension plans to complement public pension schemes, including by removing obstacles at European level.” Social partners, it says, also have an important role to play, depending on the circumstances.The reference to collective and individual pension plans is likely to be an attempt to present both second and third-pillar pension saving as viable ways of increasing income on retirement.Olivier Guersent, the most senior civil servant within the Financial Stability, Financial Services and Capital Markets Union directorate general, recently suggested the pan-European pension product developed by the European Insurance and Occupational Pensions Authority (EIOPA) could play an important role in developing pension saving where occupational systems were not in place.At the same event, EIOPA chairman Gabriel Bernardino suggested there was space for a pan-European occupational defined contribution system.The Commission’s report comes only a few months after social affairs commissioner Marianne Thyssen argued in favour of greater supplementary savings, while acknowledging the “limited” ability of many households to contribute to such systems.
PNO Media is to begin drawing contributions for its defined benefit pension plans from the average age of participating companies’ workers rather than charge an average contribution per worker.With the move, the €5bn, non-mandatory sector-wide scheme said hoped to prevent its participating companies from shifting their pension arrangements to insurers that base premiums on workers’ average age by default.As a result, smaller companies with predominantly younger workers will pay substantially lower contributions, according to Nelly Altenburg, the scheme’s chair, and Jeroen van der Put, director at MPD, the pension fund’s provider. Altenburg said companies with a relatively high proportion of older workers would see their premiums increase but only in phases and by no more than 1 percentage point next year. PNO Media will also begin offering the option of individual or collective defined contribution (DC) arrangements, considering DC plans as “essential” to attracting new companies.Van der Put said the collective DC plan would be variable and that the accrued pension’s level would be determined annually.“If the pension becomes more expensive, the accrual percentage will be lowered,” he said.Altenburg said PNO Media aimed to add 5,000 new participants to the current number of 15,000 over the next three years.The pension fund, which boasts 450 member companies, is the second industry-wide scheme in the Netherlands to add DC plans to its DB arrangements, with the €20bn sector scheme PGB recently confirming that it would expand its offering.
The UK’s National Employment Savings Trust (NEST) has hired Amundi to oversee its push into emerging market (EM) debt, but it would not be drawn on when it will begin allocating towards an asset class that has recently seen significant volatility.Mark Fawcett, CIO at the £690m (€936m) defined contribution fund, said it had not yet begun investing, noting the decision would be reached down the line by its investment committee.He explained that the decision on when to invest would be based on how NEST perceived the opportunity compared with its other asset classes, which include EM equity and property.“I would expect the emerging market debt weighting to be in a range of 0-10% – our modelling was suggesting that would be a typical range – and we will slowly build up to a level somewhere in the middle of that.” Fawcett emphasised he did not mean the fund would immediately head for a 5% allocation but that it was instead a rough estimate.The actively managed Amundi mandate, tendered in September last year, will allocate to corporate and government debt across around 25 local and hard currencies without hedging the fund’s currency exposure.The mandate comes as part of NEST’s push into single-asset mandates. “We wanted a manager that could take advantage of the opportunities where they lay,” Fawcett said, explaining the decision to opt for an actively managed mandate.“I don’t view it as our job, certainly at our current size in the state of evolution, to make the call on hard currency versus local, versus corporates.”Amundi was positive that the current low oil price would not see the number of sovereign defaults markedly increase, although its global EM strategist Abbas Ameli-Renani said the company was “extremely concerned” about a potential default by Venezuela as soon as this year.“That’s very much the exception, as far as sovereigns are concerned,” he said, noting the importance in the resurgence of flexible exchange rates“We are seeing more and more currencies in EM allowing floating exchange rates – countries such as Kazakhstan and Azerbaijan – which were previously fixed exchange rates to the dollar.”Ameli-Renani said exchange rates acted as an “adjustment valve” for oil-rich nations, and that, as a result, many had been able to avoid declines in fiscal balances.Fawcett said that his initial estimates for an exposure of up to 10% to EM debt referred to the growth phase of NEST’s default fund.But he said the foundation phase – roughly the first five years of a member’s working life – would see some exposure to the asset class.He contrasted the approach with the absence of emerging market equities from the foundation phase, arguing that the region’s stocks were too volatile.The fund’s foundation phase targets a long-term volatility of 7%, compared with up to 12% for the growth phase, and is only expected to keep pace with inflation.
Stock market turbulence caused Latvia’s 12-month second-pillar pension fund returns for the end of the first quarter 2016 to fall to -3.07%, from 9.5% a year earlier, according to the Association of Commercial Banks of Latvia (LKA).The eight active, equity-weighted plans suffered the biggest hit, returning -4.05%, in contrast to 2015, when they generated 11%.The returns of the four balanced funds fell from 9.2% to -3.17%, and those of the eight conservative bond-weighted funds from 5.9% to -0.64%.The improved year-to-date returns – of 0.57% for the conservative plans, -0.07% for the balanced funds and -0.75% for the equity ones – reflected the global stock market rebound in February and March. Changes in asset allocation strategies since the end of 2015 varied depending on the class of fund.The active funds maintained their cash holdings at 15%, one of the highest shares for this asset class for more than five years, and that of equity and equity funds at 26%, while the bond and bond fund share declined by 2 percentage points to 48%.The balanced funds’ portfolio structure remained virtually unchanged, with bond and bond funds accounting for 70%, equity and equity funds 17% and free cash 9%.The conservative funds markedly increased their liquidity, with the cash holding growing by 5 percentage points to 14%, and that of bank deposits by 1 percentage point to 9%, while the share of bonds and bond funds fell by 6 percentage points to 77%.Euro-denominated assets accounted for 92% of all second-pillar assets, followed some way behind by the US dollar at 6%.Geographically, the most significant shift was a 3-percentage-point drop in Western European holdings, to 13%.Latvian assets accounted for the bulk, at 43%, followed by Eastern Europe at 21%, global assets (13%), North America (5%) and Asia (4%), while only 0.4% were invested in Russia.Second-pillar assets grew by 11.6% year on year to €2,408m, of which an estimated €400m is net investment income, while membership increased by around 15,500 to 1.26m.Voluntary third-pillar returns also declined over the year, from an average 10.28% to -3.27%, with the active plans returns falling from 14.85% to -5.41%, and those of the balanced plans from 8.41% to -2.28%.Asset allocation remained relatively similar to that at the end of 2015.The main change was a 1-percentage-point fall in the equity and equity fund share, to 9% for the balanced funds and 33% for the active ones, in favour of bank deposits.As in the case of the second-pillar funds, most (91%) of the assets were euro-denominated and invested in Latvia (32%).Over the year, assets increased by 9.5% to €332m, and membership by 18,415 to 258,670.
The official listing on the Nasdaq Copenhagen exchange took place on 9 June, and in early trading the shares had risen 10% from the offer price.Before the offering, which saw all shareholders selling a combined 17.4% of their holdings in DONG Energy, ATP held 4.9% in the energy company, US banking group Goldman Sachs held 18% via its subsidiary New Energy Investment, and Denmark’s largest commercial pension fund PFA held a 1.8% stake.After the offering, ATP’s stake shrank to 4.0%, and Goldman Sachs’ holding to 14.7%.The Danish state continues to be the majority shareholder after the IPO, and now owns 50.4% of DONG Energy.A PFA spokesman said the pension fund did not comment on individual investments.ATP said it had paid in all DKK3.2bn for its stake in DONG Energy, which it took two years ago, with DKK2.2bn of this as direct equity investment and the rest held indirectly.At the introduction price, its gain on the investment would have been 130% or around DKK3.5bn, but following the 10% market rise in the share price, that gain swelled to DKK4bn, it said.Asked to say how ATP’s work had contributed to the large investment return, Stendevad said that alongside Goldman Sachs, it had been very active in processing the deal but that in the boardroom of DONG Energy, Claus Wiinblad — ATP’s senior vice president, Danish equities — had been part of the process.“We have a history of being active owners and we have been more active here than we have normally been, given the size of the investment,” he said.“But clearly the credit for today goes to the employees of DONG Energy,” he said.Despite market and political turmoil, the staff had kept their focus on the business, Stendevad said.The part-privatisation of the company was controversial at the time, largely due to opposition to Goldman Sachs’ involvement in the deal. The Socialist People’s Party (SF) withdrew from then-prime minister Helle Thorning-Schmidt’s centre-left coalition government in protest.Stendevad said it was extraordinary what the company had achieved, and this was notable in comparison to some energy companies in the sector in other countries.“This has required a business and execution plan, but it has also required capital — other companies have gone on a different path,” he said.“When we entered this process, there was broad consensus from outside that capital was needed, and very few investors were willing to put in the capital.“In the end, we believed in the management and the plan they had,” he said, adding that in order to make a good return, investors had to be willing to put in the time and energy. Denmark’s ATP has made a profit of around DKK4bn (€537m) on its investment in the country’s DONG Energy following its IPO on 9 June, and cited the fund’s unusually active approach to the investment, but mainly staff at the company itself, as factors behind the investment’s success.Carsten Stendevad, chief executive of the DKK705bn statutory pension fund, told IPE: “In a moment of need for this company, we came in with a sizeable direct capital infusion and today we have both contributed to the growth of a leading global sustainable energy company and made DKK4bn for our members.”The company success was part of a green energy story, he said.DONG Energy yesterday announced the result of its initial public offering (IPO), with a final offer price of DKK235 per offer share.
Field said: “We hope and expect we will never again see a company like BHS be able to come up with a 23-year recovery plan for its pension fund, and certainly not that it would take the regulator two years to really begin to do anything about it.”Among the committee’s proposals are:“Nuclear deterrent” powers for TPR to fine employers three times a pension fund’s deficit if it refuses to engage with trustees;TPR to be given powers to intervene in corporate actions if they are perceived to threaten a pension fund;The establishment of an “aggregator fund” to take on small pension funds – potentially to be run by the PPF;An overhaul of the “regulated apportionment arrangement” framework to make it easier for schemes to separate from employers where appropriate;The introduction of a form of conditional indexation to allow stressed schemes to reduce liabilities;An extension of DB members’ ability to take their benefits as lump sums.“To prevent another BHS, we need to have the means to nip inevitable disasters like this one in the bud,” Field added. “We hope the government will consult on the package of measures we propose, which would go a long way, without resorting to any new reams of red tape, towards doing just that.”Next year, the government will publish a green paper aimed at pension reform, according to the pensions minister Richard Harrington.TPR criticismThe committee’s report criticised TPR’s approach to stressed schemes and anti-avoidance, arguing that it seemed “reluctant” to use some of its powers.The committee added: “We get the impression [TPR] can be somewhat aloof in dealing with trustees when it is well placed to provide timely, informal guidance.”TPR has announced a review of its regulatory approach.Chris Martin, an independent trustee and chair of the BHS trustee board, told the committee: “I have a definite sense that there is sometimes a reluctance to use the powers because it might provoke challenge. To my mind, a regulator should be challenged. It develops [the] use of its powers by being challenged.”Lesley Titcomb, TPR chief executive, said: “We note [the] recommendations and will consider them carefully. We continue to discuss options with the Department for Work and Pensions for the legislative and regulatory framework for workplace pensions, and how this might be improved, ahead of the green paper, which will consider the future of pension funding, the regulatory framework and TPR’s powers.”Intervention powersTPR should be able to intervene and stop corporate-level activity by a scheme’s sponsor if it is judged to be a threat to the funding of the scheme, the report said. This would include mergers, acquisitions and dividend payments.Given such powers, the politicians argued, TPR could have prevented the sale of BHS last year without a plan to fund the pension scheme.However, in her evidence to the committee, Titcomb warned that such powers would have “resource implications” for the regulator.“Granting TPR the power to block a corporate transaction was ‘superficially attractive’, but the situations in which it applied would need to be ‘very tightly defined’,” the report said.The regulator should also be “tougher” on schemes’ deficit-recovery plans, the report said – “it should not be shy or slow in imposing a contribution schedule when a sponsor is not taking its responsibilities seriously.”The committee added: “There is clear evidence many sponsors could give greater immediate support to their pension schemes.”The PPFAlso among the committee’s recommendations was the introduction of an “aggregator fund” to aid small schemes that struggle to get access to buyout.The report said there was a “very strong case” for creating a vehicle to consolidate such schemes, potentially to be run by the PPF.As well as Harrington, former pensions ministers Steve Webb and Baroness Ros Altmann backed the concept.Harrington said the fund would not cut pension payments (as the PPF does with non-retired members), and would provide benefits of scale and “a chance of getting better returns”.Alan Rubenstein, chief executive of the PPF, told MPs his organisation was willing to take on the task if requested.However, he warned that the details of an aggregator fund would be difficult to iron out because of differing funding levels and the need for deficits to be closed.Joanne Segars, chief executive of the Pensions and Lifetime Savings Association (PLSA), backed consolidation plans. She said: “As the committee recognises, creating consolidators is a complex task where the details matter. We are actively investigating the pros and cons of the spectrum of consolidation options including an aggregator fund or funds model.”The PLSA’s DB Taskforce is to publish its own recommendations in March.Responding to the report this morning, Rubenstein said: “We’re pleased to see that a number of our suggestions have been taken on board, particularly around anti-avoidance fines to improve oversight of corporate transactions.“The recommendations of this considered report are timely and will hopefully set the standards for companies to ensure their pension scheme members are protected now and in the future. We will give full consideration to those recommendations which relate to the PPF.”The full report is available on the committee’s website. A group of British politicians have called for radical reform of the defined benefit (DB) sector to avoid future scheme failures.The Work and Pensions Committee has called for a series of new powers for the Pensions Regulator (TPR), including “nuclear deterrent” fines to force employers to confront their pension shortfalls.The proposed reforms come as TPR is attempting to resolve the future of the British Homes Stores (BHS) pension scheme, and the saga formed the backdrop to the inquiry.Frank Field, chair of the committee, argued that many of the proposals would have prevented the scheme from developing a large deficit and facing being absorbed into the Pension Protection Fund (PPF).
Rossi added that a small number of funds may alter their benchmarks in order to ensure they were verifiable and appropriate for the new fee structure, but emphasised that there would be “minimal” changes.Fidelity runs roughly $170bn (€144.6bn) in equity assets at the end of June, the company said, all of which will become eligible for the new charge structure under the company’s plans. The group runs more than €264bn worldwide across all asset classes according to IPE’s Top 400 Asset Managers survey.In a statement, Fidelity said: “Where we deliver outperformance net of fees we will share in the upside and in the case that clients experience only benchmark level performance or below, they will see lower fee levels under this new model. The fee that clients will pay will sit within a range and will be subject to a pre-determined cap (maximum) and floor (minimum).” Fidelity International has introduced a variable management fee across its entire equity offering, which will see charges fall if funds underperform.The group is to introduce a new range of share classes for equity funds with a reduced base annual management charge and a “variable management fee”, also referred to as a “fulcrum fee”, that is “symmetrically linked” to fund performance.It will mean that the annual management fee will rise if a fund outperforms its benchmark index, but will fall if the fund underperforms.Any rise or fall would come irrespective of whether the fund posts a gain or loss in the period charged, global CIO for equities Dominic Rossi told reporters this morning. Therefore, if a fund lost money but beat its benchmark it would raise its fee, and if the fund made money but underperformed its index it would lower its fee. Fidelity’s proposed fulcrum fee equity charging structure. Source: Fidelity InternationalSubject to discussions with local regulators, the new share class is expected to launch in the first quarter of 2018, Fidelity International president Brian Conroy said. The exact level of fees, as well as the floor and ceiling, would be agreed with fund boards, distributors and regulators in the next few months, he said.Conroy claimed the new fee structure would “more closely align the performance of our business with the performance of our clients’ portfolios”. In addition, Fidelity has bucked the industry trend on investment research costs by introducing a ‘client pays’ method. However, the group insisted this would be more than compensated by the other fee changes.The group will use research payment accounts and commission sharing agreements to explicitly disclose the cost of investment research to clients, in compliance with MiFID II rules coming into force in January.Fidelity said it also intended to extend its range of passive funds to provide more options to clients “who simply want to drive down costs and do not want to pay for the active approach”.Note: This article has been updated to correct the equity and total assets under management figures.