Pension funds must be aware of the widening duration mismatch in their portfolios as a retiring membership clashes with the prevailing low-yield environment, according to Axa Investment Managers.In a paper on longevity, the manager said two trends – the low-yield environment and retiring baby boomers – were “superimposing” on the coming problem posed by a globally ageing population.The research noted that the instinctive choice of many on retirement was to invest in fixed income, an approach at odds with current bond yields.“In order to pay additional annuities in the short term, pension funds need to invest in higher-return assets such as equities or real estate,” it noted. “With increased pressure on the short-term horizon of their liability and a chase for yield that delivers in the longer term, pension schemes are caught in a duration mismatch that keeps widening as the new demographic steady-state, post baby-boom is getting closer.“So changes in mortality tables and structures of age pyramids imply radical changes in the temporal profile of liabilities for public and private pensions alike, which must adapt their [asset-liability matching] strategic choices accordingly.”The research said an increased equity exposure should be considered to “satisfy the need for higher shorter-term yields”.“Tilting the balance towards equities would hopefully compensate for depressed bond yields,” it continued. “This is a noteworthy move, as it departs from an old habit.”It noted that the strategy had been one pursued by UK pension funds.The paper also said there was a risk a rising dependency ratio in countries could lead to deflation among the developed nations, pointing to past experience of rising old-age ratios in countries such as Japan.“But an ageing population could well turn into inflationary forces if an unsustainable rise in government debt led to its monetisation,” it added.“When old-age dependency ratios reach the levels forecast by the UN in only a decade’s time, this would mean inflation next to zero or even turning into outright deflation.”
”This acquisition continues our strategy of acquiring development and redevelopment opportunities in the north west.”At present, property investments make up approximately 6% of GMPF’s £13bn portfolio, of which two-thirds are in direct holdings and one-third in funds.Morris said that GMPF’s planned target allocation to property in the medium-term is 10%, delivered in various ways.He added direct property holdings were expected to be in the range of 4 to 8% of the total portfolio. But the fund will continue to develop other means of obtaining its property exposure, such as GMPVF. The Greater Manchester Property Venture Fund (GMPVF) has moved to acquire Chorlton Shopping Centre in a £10m (E12m) deal from Development Securities.GMPVF invests in property development and redevelopment opportunities in North-West England on behalf of the Greater Manchester Pension Fund (GMPF)The shopping centre has 16 retail units, a supermarket, offices and a car park. Existing tenants include travel agency Thomas Cook, newsagents Martins, Heron Foods, Quality Save and a large number of independent quality retailers.Peter Morris, director of pensions, GMPF, the largest scheme for local authority workers in England & Wales, said: “This is a long-term investment. We will develop a plan that will see the centre improved over time, respecting the diversity of operators there.
Deutsche Asset & Wealth Management – Claudio Siniscalco is joining Deutsche Asset & Wealth Management in the newly created role of global co-head of co-investments. He will work alongside fellow co-head Francesco Rigamonti and report to Carlo Pirzio-Biroli, global head of private equity. Siniscalco was most recently with HarbourVest Partners, where he was a principal and co-head of the London direct investment team. Jason Sambanjuhas been appointed head of Asia secondaries – another newly created role at Deutsche Asset & Wealth Management. He will be based in Hong Kong and also report to Pirzio-Biroli.Unigestion – Rachel Greenway has been appointed senior vice-president at Unigestion and a member of its institutional clients team. She comes to the asset management firm from Energy Alpha Strategies, where she was head of investor relations and sales.AXA Investment Managers – Deborah Shire has been appointed head of structured finance at AXA Investment Managers. She will take up the role on 1 September and be based in Paris. Shire will report to John Porter, global head of fixed income and structured finance. She is replacing Laurent Gueunier, who has decided to leave the company after 12 years. Shire is currently global head of business development at AXA Real Estate, a member of the management board of AXA Real Estate and in charge of corporate finance, investor relations and marketing and communications. She first joined AXA in 1996. UBS Global Asset Management – Philip Brides has been hired by UBS Global Asset Management as senior portfolio manager for asset allocation and currency. He comes to the role from BlackRock, where he was most recently in charge of GTAA strategies in the firm’s multi-asset strategies group. He worked at BlackRock and predecessor firms for 12 years. Brides will report to Andreas Koester, head of asset allocation and currency at UBS. Sackers – UK pensions-specialist law firm Sackers is promoting five of its lawyers. Ralph McClelland is being made associate director at the firm, while Anna Copestake, Tom Jackman, Ferdinand Lovett and James Bingham are becoming senior associates. The promotions will take effect on 1 August. Aquilaheywood – Jörg Frotscher has been appointed business development executive Europe at pensions software company Aquilaheywood and is to lead the firm’s expansion into Germany, where it now has an office in Düsseldorf. Pensions Management Institute – Kevin LeGrand has been elected as vice-president of the UK’s Pensions Management Institute (PMI) in the 2014 council elections, while Jane Murray has been elected as a member of the council. LeGrand is currently principal and head of pensions policy at Buck Consultants and director of Buck’s professional trustee company. Murray is managing director of technology and administration solutions business at Towers Watson. Meanwhile, Susan Smith will stand down by rotation as vice-president but will stay on the council until July 2015. Gerry Degaute will continue as joint vice-president for a second year until close of the AGM in 2015. Paul Couchman has been elected for a second one-year term as president. TOBAM, SPF, Pension Fund for Pharmaconomists, Deutsche Asset & Wealth Management, Unigestion, AXA IM, UBS, Sackers, Aquilaheywood, PMITOBAM – Rudyard Ekindi has left the French asset manager by mutual consent after seven months with the firm as head of marketing. Based in Paris, Ekindi joined TOBAM in June last year after leaving a position with UK government-backed DC master trust National Employment Savings Trust (NEST), in London. A spokesman for TOBAM said the firm would continue to recruit to support its growth but declined to comment on whether a direct replacement for Ekindi was being recruited.SPF – The €13bn railways scheme SPF has appointed Gerard Groten as its independent chairman. He has been deputy chair since the premature departure of Kees Linse last February. Linse left after just eight months on the job, due to a of lack of time and other priorities.Pension Fund for Pharmaconomists – Niels Hamborg Jensen has been appointed a member of the trustee board of the Danish labour-market fund Farmakonomer, the Pension Fund for Pharmaconomists, replacing Per Wijngaard. Hamborg, a pharmacist at Helsingør Stengades Apotek, is one of the two trustees appointed by the Danish Pharmacists’ Association (Danmarks Apotekerforening), the other being Henrik Lintner. Pharmaconomists are pharmaceutical experts in Denmark, and a separate professional group.
Towers Watson is reorganising its manager research team, appointing a new global division head following the promotion of Craig Baker.The consultancy said Luba Nikulina, its long-standing global head of private markets, would take over as global head of manager research with immediate effect.Baker, Nikulina’s predecessor, was named global CIO in June, at the same time the firm promoted Chris Mansi to global delegated CIO, a role he previously held for the consultancy’s European division.Nikulina has worked at Towers Watson since 2005, both in the company’s London and New York offices, and was previously deputy head of capital investment at Russian mining company Norilsk Nickel. She also spent five years as an investment manager at Probusinessbank in Moscow.The promotion of Nikulina will trigger a restructuring of the consultancy’s manager research business, according to Baker.He noted that Towers Watson had long been asset-class agnostic, with an emphasis on asset returns over individual classes.“The new structure will enhance our ability to compare mandates of a similar nature, such as long-only equity and long/short equity, or, indeed, public and private equity,” he said.“It will also create better alignment between our research efforts and portfolio construction process.”The new structure will see the creation of three global research teams – equity, credit and diversified strategies.Jim MacLachlan will continue to lead the equity research department but with additional responsibility for long/short equity hedge funds and private equity funds.Chris Redmond will remain in charge of credit but additionally cover fixed income hedge funds and illiquid credit.Damien Loveday, former head of the hedge fund research team, has been named head of the diversified strategies team, which will cover macro hedge funds, reinsurance, multi-strategy and real assets, such as infrastructure, property and farmland.
As many as 70% of pension funds surveyed for the latest CREATE-Research and Amundi AM paper on quantitative easing (QE) are calling on regulators to “reconsider what ‘risk-free’ investments” are.Another 50% want “technical provision” rules to be more flexible.And Amin Rajan, chief executive at CREATE-Research, agrees.Speaking at the IPE Conference in Barcelona, he said: “We need to move from ‘technical provisions’ to a ‘best endeavour rule’ provision, where pension funds are facing the challenges the best way possible. “You do not want to plan your route on the old navigation system that is no longer working.”Rajan said QE was “the only option” the federal banks had to cope with the scale of the financial crisis in 2008 and argued that it helped to avert a full-scale crisis and stabilised the system.He added, however, that QE had still failed to promote global growth and that its “unintended consequences were quite frightening”.He said the US Federal Reserve’s exit strategy was creating “enormous uncertainties”, leaving pension funds in a “state of paralysis”.According to Rajan, “pension funds have been hit by a double-whammy – the low interest rates on the one hand and rising liability maturity on the other”.He said the whole industry was on a journey into the unknown, “much like Christopher Columbus, who did not know where he was going when he set out and did not know where he was when he came back”.One major question, for example, is whether long-term bond rates will increase along with short-term rates, against prior experience.“There are no golden rules in investing today – only an increased amount of common sense,” he said.Rajan even went so far as to say that “conventional investment wisdom on risk, return and diversification has been weakened and turned on its head”.Investing is “turning into a loser’s game, where the person making the fewest mistakes wins”.But he applauded the pensions industry for “trying out new things”, both on the asset management and the “liabilities” side.He called for a stronger alignment of interest between pension funds, asset managers and consultants and said ‘one-size-fits-all’ models had to be thrown overboard.Rajan pointed to a “huge convergence of asset allocation in pension plans” because of QE and said the majority of pension funds think the measures have worsened their funding situation.The central banks’ measures have also accelerated the personalisation of risk in pensions, shifting it “from people who can no longer manage it to people who do not understand risk”.This, he said, was “leaving a stain on the industry’s reputation”. See Amin Rajan and Pascal Blanqué’s latest article, ‘The perils and promise of financial repression’, in IPE magazine
Eight English local authority funds have agreed to pool £35bn (€47.7bn) worth of pension assets, creating the largest asset pool confirmed to date.The partnership, announced by the largest participating local government pension scheme (LGPS), the £11.5bn West Midlands Pension Fund, will aim to set up a multi-asset pool by April 2018, according to a statement.“The collaboration,” the statement adds, “will aim to deliver cost savings and to build on the individual participating funds’ strong investment performance by providing scale, increased resilience, knowledge sharing and robust governance and decision-making arrangements.”Five of the eight participants – the Cheshire Pension Fund, the Nottinghamshire Pension Fund, the Shropshire County Pension Fund, the Staffordshire Pension Fund and the Worcestershire County Council Pension Fund – were last month part of a joint procurement exercise that saw seven schemes award Legal & General Investment Management £6.5bn in mandates. The Derbyshire County Council Pension Fund and the fund for employees of the West Midlands Integrated Transport Authority will also join the asset pool.The joint statement said individual funds would retain their separate identities, in line with the other pooling proposals announced to date, and that it would give each fund access to internal and external investment managers.The West Midlands Pension Fund already runs more than 40% of its assets internally.In its most recent annual report, it estimated that its current in-house team led to savings of nearly £25m a year, and said a new internal active global equity mandate would be in place by the end of the 2015-16 financial year.At the end of March 2015, West Midlands had equity holdings worth £6.7bn, of which the passive UK and overseas holdings were managed internally.The Midlands asset pool is the largest announced to date, followed by the London CIV.Nine funds in the South West of England are also planning an asset pool worth more than £20bn, but only the Midlands venture and the London CIV so far comply with the £25bn target for pooling set by the Department for Communities and Local Government as part of its attempt to create scale among the 90 LGPS in England and Wales.
Dutch pension funds, instead of blaming the European Central Bank (ECB) for their woes or demanding more flexible rules, should accept their losses and focus on the new pensions system, according to the regulator.Speaking at the recent EY congress, Bert Boertje, supervisory director for pension funds at regulator DNB, argued that the current “turmoil” was largely the result of low long-term interest rates and pension funds’ high risk profiles, rather than just the ECB’s decisions.He noted that the funding levels of some schemes were still above the required level.Boertje conceded that rights discounts in 2017 were likely but highlighted that the actual scale of cuts would be limited, as they can be evened out over a 10-year period. “The year 2020, however, will be an annus horribilis if current conditions don’t change,” he said.Boertje said he did not support any “easing of rules” for pension funds, or raising the discount rate for liabilities “artificially”.“We must let the new financial assessment framework (nFTK) do its job, which will create space to smooth out the pain,” he said.In his opinion, the pensions sector should adopt a new pensions system as quickly as possible.He argued that the ability to differentiate risks per age cohort would be the main advantage of the envisaged system of individual pensions accrual combined with some degree of risk-sharing.He warned, however, that, in such a system, deficits “would not vanish”, and that pension funds with a funding shortfall at the moment of transition would have to “take their losses”.He further explained that, under the expected new rules, pensioners would be able to block off their risks, while younger participants could increase their risk exposure to make up for indexation in arrears.Boertje also warned pension funds against “sweeping their problems under the carpet” by using, for example, the highest allowed assumptions for future returns in their new recovery plans.He also urged pension funds to increase their communication efforts, “as participants still have too high expectations about their future purchasing power, as well as pensions promises”.
Unlisted equities generated a 15.4% return in the nine-month period, up from 9% in the same period last year, and private equity produced 8.1%, just under the 9% reported for the comparable year-earlier period.The pensions provider said it made good returns from fixed income investments thanks to falling interest-rate levels and lighter credit-risk pricing, with the asset class returning 4.2%, up from a 0.2% loss.Real estate, meanwhile, ended September with a year-to-date loss of 0.4%, down from the 2.3% positive return in the year-earlier period.Property investments were hit by write-downs made in response to renovations and changes in the market situation.Varma’s total assets grew to €42.8bn at the end of September from €40.8bn 12 months before.Its solvency capital increased to €10.1bn from €9.5bn, and the solvency ratio stood at 31% at the end of the reporting period, up slightly from 30.6% at the same point in 2015.Murto warned that low interest rates would be particularly challenging if they continued for long.He said investment returns had been at a good level since the financial crisis, although the investment environment had been “highly exceptional” in this period, notably in terms of interest rates. “It is especially important to note that zero interest rates have not yet had a negative effect on pension investors’ returns,” he said.“If the interest-rate level remains at zero for a long time, however, achieving good returns on accrued pension assets will be a major challenge.” Varma, the €42.8bn Finnish pensions insurance company, saw its investment returns bounce back in the third quarter, bringing the year-to-date return to 3.1% by the end of September after posting a loss of 0.3% at the half-year stage.Risto Murto, Varma’s chief executive, said: “By the end of September, Varma’s investment returns had made a clear recovery from the post-Brexit market shock.”The 3.1% return compares with the 1.1% return produced for the same period last year.Unlisted equity investments and private equity funds generated the highest returns in the period between January and September, Varma said, adding that, in a zero-interest environment, fixed income investments had also produced very good returns.
Dutch regulator De Nederlandsche Bank (DNB) can now fine pension funds half a million euros or more if they fail to apply the prudent person principle or do not comply with management requirements.At the request of the regulator, social affairs minister Wouter Koolmees decided that the level of fines would rise from €10,000 to a “basis amount” of €500,000 as of 2019.DNB said that the maximum of €10,000 was too low given the importance of what was at stake, and that the low amount could give the impression that the violation was less serious.The watchdog fined the Pensioenfonds Vereenigde Glasfabrieken for investing “too much” in gold in 2012, while the Pensioenfonds Slagersbedrijf was also penalised as, in DNB’s opinion, it had used regular pension assets to pay early retirement arrangements. De Nederlandsche Bank’s headquarters in AmsterdamDNB has issued fines to many pension funds – including PNO Media, the pension fund for marine pilots, and the company scheme for Alcatel Lucent – for submitting their quarterly figures too late.Although the potential fine of €500,000 already applied to these violations, DNB ultimately charged Alcatel Lucent and PNO Media €5,000 and €22,500, respectively.The regulator has the discretion to increase or decrease fines by 50% depending on the seriousness of the violation, and can also double the fines in case of repeated infringement.If fines are expected to negatively affect a pension fund’s members, DNB can reduce the amount by 75%, or even fully waive the punishment if a scheme is in a particularly weak financial position.The Bavaria and GSFS pension funds also avoided €500,000 fines despite breaches. Bavaria paid €10,000 because it had illegally increased its risk exposure while it was still in recovery, while in 2017, the scheme of asset manager GSFS – a specialist in dividend arbitrage – paid a similar amount for implementing other tasks than just pensions provision.However, employer GSFS was charged with a €5,000,000 fine at the time for this infringement. Although DNB lost both cases on appeal from the pension funds, Pensioenfonds Hunter Douglas – now merged with metal scheme PME – received a €20,000 fine for violating two articles of the Netherlands’ Pensions Act.
“The uncertainty comes with the pools, and the extent to which these might come under fiduciary definitions,” he said. “Pooling is still a work in progress. A substantial amount of assets has moved on board and the range of services they will offer is still in development.”Walker said further clarification was required from the Pensions Regulator as to the definition of fiduciary management, to give clarity regarding how individual LGPS funds should interact with the investment pools they have created.The CMA has defined fiduciary management as the delegation of investment decisions to third parties, and now requires these to be subject to a competitive tender. The LGPS asset pools have been set up to select asset managers but asset allocation decisions remain with individual funds.In addition, Walker said some LGPS funds would have to reassess their relationships with consultants and independent advisers. “One of the potential changes that has brought uncertainty [is] the expansion of regulated advice,” he said. “There needs to be greater clarity about what would constitute regulated advice.“LGPS funds will need to understand what relationships they have and what the separation of advice is, and make sure they are taking proper regulated advice when it’s required.” UK local authority pension funds have been included in new rules regarding the monitoring of investment consultants and fiduciary managers, having been exempt throughout the consultation process.Consultancy group Hymans Robertson has called for regulators to provide clarity about requirements being placed on funds in the Local Government Pension Scheme (LGPS) system, after the Competition and Markets Authority (CMA) finalised rules aimed at improving competition and transparency earlier this month.LGPS funds will have to set clear objectives for their consultants and any relationships with investment companies that are deemed to be fiduciary management contracts, in line with private sector schemes. The rules take effect from 10 December.David Walker, head of LGPS investments at Hymans Robertson, said setting objectives for investment consultants should be straightforward for public sector funds, but other elements of the new rules could prove more challenging.