Denmark’s giant ATP pension fund produced a return of 14.5% on its investments last year, helped by a 52% gain on listed domestic equities.The fund also said it managed to carve out more room for manoeuvre on investments through a major bout of bond selling and other market operations carried out late last year.ATP’s chief executive Carsten Stendevad said 2013 “was a good year for ATP’s members”.“We increased pensions for current pensioners and generated a healthy return on our investment activities,” he said. The ATP Group reported a profit of DKK11.6bn (€1.55bn) for 2013 and distributed a bonus of DKK2.5bn to current pensioners. ATP’s investment activities generated DKK12.2bn, equating to a 14.5% return on its bonus potential. The profit increased reserves to DKK93bn from DKK 84bn, the fund said. All five of ATP’s risk classes ended the year with positive returns, with listed domestic equities producing the highest return at 52%, or DKK6.5bn in absolute terms.The fund said it worked on its hedging strategy last year, adopting a new discount curve for the valuation of its pension liabilities.“Consequently, in Q4, ATP engaged in extensive market operations, selling government bonds and other financial instruments subject to an overall interest rate risk equivalent to DKK20bn,” Stendevad said. “This reduced our interest rate sensitivity by 25% and enhanced our investment flexibility.”ATP uses hedging activities to protect its pension guarantees against changes in interest rates.In 2013, ATP said it made a loss on its hedging portfolio after tax of DKK42.3bn, reflecting the shrinking of guaranteed benefits by DKK42bn – mainly due to the rise in interest rates.Total group assets fell to DKK677bn at the end of December 2013 from DKK794bn the year before.Looking ahead to this year’s investment return prospects, ATP said that, despite signs of recovery in the global economy and financial market optimism, uncertainty remained.“This, in combination with significantly lower payment for assuming risk, means ATP will retain its focus on risk diversification and active risk management,” the fund said.The overall strategy was to make sure ATP got its fair share of the continued gains in the financial markets, while always being able to meet its guarantees, it said.
Monthly Archiv: September, 2020
An undisclosed European institutional investor has tendered a $500m (€395m) senior secured corporate loan mandate using IPE-Quest.According to search QN1460, the institution is seeking corporate loan investments in core European economies, the UK and the US.It said the corporate loans should be focused on medium and large companies, with maturities typically lasting 3-7 years.Managers can run the mandate on a discretionary basis, but within some guidelines and respecting its loan eligibility criteria. The investor said it had no current requirements regarding track record, performance, fees or assets under management, either at the firm or fund level.However, managers should have experience investing along its stated criteria and in the geographies stated.Interested parties should respond by 17 October.If you have any questions regarding this search, please email [email protected] Queries will not be accepted after 14 October. For full information, please go to http://www.ipe-quest.com/search.htm.
Official forecasts for the UK economy suggest the country’s defined benefit (DB) pensions sector will be fully funded by the end of the decade.But the same forecasts imply a £500bn (€634bn) cumulative shortfall in the supply of index-linked Gilts over the next decade, leaving pension schemes with a huge headache over how to lock-in those funding gains or pass the liabilities on to a specialist insurer.The findings, presented in a report issued in partnership with buyout specialist Pensions Insurance Corporation, assume UK growth averages at 2.25%, inflation stays close to the Bank of England’s target of 2% and the UK achieves a primary budget surplus of 3% of GDP by fiscal year 2018-19 – as detailed in the Office of Budget Responsibility’s (OBR) 2014 Fiscal Sustainability Report.Updated forecasts published in the chancellor of the Exchequer’s Autumn Statement on 3 December broadly agree with these assumptions, only pushing the return to primary surplus back by one year. Feeding these assumptions into its Long-Horizon Asset Allocation model, Fathom forecasts that nominal Gilt yields would hit 4% by the end of this decade and 5% shortly thereafter.The precipitous fall in the value of UK DB liabilities from their current total of around £1.5trn implies that the universe in aggregate would reach fully funded status before the end of the decade – with 50% at buyout funding level just two or three years later, according to economic consultancy Fathom.Even by 2050, the forecast would be for no more than 5% of schemes to end up supported by the Pension Protection Fund (PPF).At the launch of the research in London, Fathom’s chief economist Andrew Brigden said: “These forecasts imply that pension funds become fully funded very quickly, which will mean they will want to lock that in with purchases of index-linked Gilts. But the government, back into budget surplus, will be buying debt, not issuing more.”Given the OBR forecasts, and assuming the UK Debt Management Office maintains index-linked issuance at its current share of 25% of the UK’s debt, Fathom calculates that the market value of all Gilts will begin to fall well within two years.Factoring in demand from full-funded DB pension schemes, it further calculates that there will be a £500bn shortfall in index-linked Gilts over the next 10 years – a figure larger than the current value of outstanding issuance.Danny Gabay, a director at Fathom, said: “If the OBR is right, pension funds will be in a lot of trouble, even though its forecasts look, on the face of it, to be great news for scheme funding levels.“It struck us as such an incredibly rosy scenario and that there must be a catch. Well, this is the catch.”David Collinson, head of strategy at Pension Insurance Corporation (PIC), added that this shortfall would also act as a limiting factor on the capacity that buyout specialists can offer the DB sector, as they will be unable to hedge the liabilities they assume and will face prohibitively high capital charges to hold alternative inflation-sensitive cash-flow assets – the supply of which would only make a small dent in the overall shortfall, in any case.Launching the report, Fathom and PIC suggested there were only four options to deal with this problem.Pension schemes could decide not to hedge liabilities and opt to take on inflation risk; the government could decide to issue more index-linked debt; pension schemes and buyout specialists could persuade members to exchange their inflation-linked pensions for higher but fixed-rate pensions; or the industry could dismiss the OBR forecasts as over-optimistic and instead model an environment in which bond yields remain lower.But of course, the implications of the fourth option are arguably even worse than the Gilt shortfall implied by the official forecasts.Fathom calculates that, if yields return only to 3% over the long term, 20% of UK DB schemes would end up going to the PPF, rather than the 5% currently assumed.“You don’t have to believe in secular stagnation,” Gabay said, “to believe the PPF will have a much bigger role to play than currently implied in either the OBR or the PPF’s own forecasts.”
The three largest pension funds of KLM began investing in residential mortgages last year in order to diversify, as well as extend the maturity of fixed income holdings. Each of the schemes – for cockpit, cabin and ground staff – allocated approximately 7.5% of their fixed income portfolio to mortgages, their respective annual reports revealed.Earlier, the €7.3bn pension fund for ground staff (the Algemeen Pensioenfonds KLM) said that it expected “above average returns against a low risk”.Whereas many other schemes are divesting their private equity holdings, the three large KLM schemes said they also continued to build their portfolios, which amounted to €29m, €11m and €34m respectively at year-end. The ground staff scheme reported an annual result of 14%, whereas the €7.8bn pension fund for pilots (‘Vliegend Personeel’) concluded 2014 with an overall result of 10.9%.The €2.6bn scheme for cabin staff (‘Cabinepersoneel’) posted a 17.3% profit, and said that 6.4 percentage points were thanks to the interest hedge on its liabilities.All schemes reported an under-performance of up to 1 percentage point, which they largely attributed to their tactical choice to invest in US high yield and emerging markets debt at the expense of euro-denominated government bonds.With returns of more than 15%, property was the best performing asset class of the KLM schemes. They cited low finance costs as a consequence of the low interest level.Their fixed income holdings generated between 9.4% and 12.6%, while their equity portfolios delivered results varying from 10.6% to 11.8%.The KLM schemes have outsourced both their pensions provision and their asset management to Blue Sky Group.The pension funds for cockpit, cabin and ground staff said they incurred administration costs of €504, €267 and €189 per participant respectively, while their asset management costs totalled 0.68%, 0.67% and 0.61% respectively.They added that they would start mapping out the rising costs of external supervision, which they can’t control.The Pensioenfonds Vliegend Personeel KLM granted all of its 5,275 participants a 1% indexation, whereas the Pensioenfonds KLM Cabinepersoneel gave its active participants 0.11% and its pensioners and deferred members 0.68%.The Algemeen Pensioenfonds KLM only granted its deferred members and pensioners an inflation compensation of 0.4%.At June-end, the (official) policy funding of the KLM schemes stood at 127.7%, 114.2% and 115.2% respectively.
One of the drivers for preserving the system is the growing role of NSPFs in corporate and long-term infrastructure investment as access to international financing dries up.This has since been overtaken by more pressing economic events.This year, Russia’s oil-dependent economy slid into its first recession since 2009, with a further contraction forecast for 2016.The government is currently drafting the 2016 Budget, which projects a deficit of RUB2,184bn (€31bn), equivalent to 2.8% of GDP.The 2016 moratorium would contribute around RUB344bn towards the PFR’s RUB576bn deficit, with the budget plugging the remainder.The Budget has to be approved by the Russian legislature and president Vladimir Putin.Financial industry opponents of the freeze, such as the banking, securities and depositary associations, have already sent letters to Putin expressing their concerns.Vedomosti previously cited Bank of Russia governor Elvira Nabiullina as opposing the extension.Separately, Sergey Svetzov, first deputy chairman of Bank of Russia, announced yesterday at a conference in New York that the central bank was looking to develop a revised pension system that would be unveiled in November.The Bank of Russia had reportedly asked the World Bank for advice in devising an alternative three-pillar system that would be less costly.Svetzov questioned whether some of the existing pension funds would be able to continue generating profits for their shareholders, given that the ongoing moratoriums undermined their original business model of regular incomes, and whether they should instead consider consolidating.Consolidation has been one of the recent trends in the Russian pensions market, with increasing numbers of funds becoming part of larger conglomerates.The O1 Group, founded by financier Boris Mints, has bought up StalFond, Telecom-Soyuz and Blagosostoyaniye (Welfare), since renamed Budushcheye (Future).The latter will be merged with StalFond in 2016.The B&N Group is planning to merge its five NSPFs (European Pension Fund, Raiffeisen, Regionfond, Doveriye and Obrazovanie i Nauka) into a single platform called “Safmar”.In September, in the first transaction of its type, the European Pension Fund won the auction held by Russia’s Deposit Insurance Agency to take over the assets of the Podolsky NSPF, which went bankrupt in 2013.Contraction of the NSPF market is also being propelled by the central bank’s continuing crackdown on rogue pension funds.Since September, it has cancelled the licences of two NSPFs and imposed a six-month ban on some activities of a third. Russia looks set to extend the moratorium on pensions contributions to the second pillar for a third year, with the monies once again being diverted to the Pension Fund of the Russian Federation (PFR), the first pillar.The decision, as reported by Russian news agencies, was announced on 7 October by PFR head Anton Drozdov following a meeting of Russia’s social and labour relations tripartite commission.The news confirms reports at the end of September by the Russian daily Vedomosti that prime minister Dmitry Medvedev had approved the freeze on diverting 6% of wages to non-state pension funds (NSPFs), first introduced in 2014, into 2016.The decision marks a U-turn for the government following April’s announcement by Medvedev that the contributions moratorium would be lifted in 2016.
The pension fund specifies that there should be no exposure to emerging markets.It also has a preference for managers with experience with institutional clients based in the Netherlands.The assets are to be managed actively, with a core style, and the benchmark for the mandate is to be the MSCI World Index.Applicants should have at least €750m in assets under management (AUM) for this asset class and a minimum of €7.5bn in AUM overall.Performance should be stated gross of fees to the end of September.A strict requirement for responding asset managers, according to the details of the Quest, is compliance with regulatory reporting and solvency (VEV) calculations as demanded by the Dutch Central Bank (DNB) under the new financial assessment framework (nFTK), which went into force at the beginning of 2015.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 3465 9330 or email [email protected] A pension fund subject to Dutch law is searching for an investment manager to run a €60m all/large-cap equities mandate, according to a search on IPE Quest.The search has a deadline of 23 October at 5pm, just one week from today.The pension fund is located in Europe, the search shows, though additional information supplied shows managers responding will have to comply with Dutch law.The mandate is for global developed-market equities.
The Dutch government, which holds the rotating presidency of the Council (at the time of writing, only for a few more hours), has since published the text of the draft directive following calls from its parliamentarians that they debate the law. The Council’s agreement with the European Parliament was approved today by the Permanent Representatives Committee, the final stage of decision-making on the Council of Ministers side.Provisional agreement had been reached with the parliament on 15 June, the date of the sixth political trialogue on the recast directive.The Council said the directive was expected to be approved by the European Parliament at first reading, and that it would then be submitted to the Council for adoption.The parliament’s first reading is understood to be scheduled for a plenary session in early September. Member states will have two years to transpose the directive into national laws and regulations.The PLSA, the occupational pension fund association in the UK, noted that the implementation period was a “modest extension” from the 18 months in earlier drafts.Amid the uncertainty triggered by the recent UK vote to leave the European Union, lawyers and other pension experts have noted that current UK law, incorporating a substantial amount of EU pensions law, continues to apply just as it did before the referendum until changes are made, which will be a matter for the government and parliament. Commenting on the final text of the revised IORP Directive, the PLSA said: “Note that we can expect some consultation from [the Department for Work and Pensions] or [the Pensions Regulator] on the precise details of implementation in the UK, so schemes will have only a short period in which to adjust their arrangements to ensure compliance.” UK-based campaign organisation ShareAction has welcomed the revised Directive’s mention of stranded assets and its broad focus on environmental, social and governance (ESG) risk. Cross-border, governance, transparencyIn its announcement, the Council said the revised IORP Directive was aimed at “facilitating the development of IORPs and better protecting pension scheme members and beneficiaries”.It added: “The directive will improve the governance and transparency of IORPs and facilitate their cross-border activity.”The directive has four objectives, according to the Council: Clarifying cross-border activities of IORPsEnsuring good governance and risk managementProviding clear and relevant information to members and beneficiariesEnsuring supervisors have the necessary tools to effectively supervise IORPsThe European Parliament, in its statement on the IORP II agreement, highlighted as achievements that the overhauled directive clarifies the cross-border transfer of pension fund portfolios and what happens in the event of underfunding when pension schemes engage in cross-border activity.Brian Hayes, Irish MEP and the rapporteur for IORP II, said: “We have achieved the right balance between respect for difference but also ambition for new cross-border activity. “In changing the rule on how cross-border schemes are established, on how pension schemes are transferred and how schemes can be funded, we have brought certainty to the process.”The Parliament also said the revised directive enhanced protection for members and beneficiaries, including via the introduction of a Pensions Benefit Statement.The requirement for pension funds to consider ESG risks, meanwhile, is “a new measure of its kind for a financial services directorate”, it said. The Council of the European Union confirmed it has reached an agreement with the European Parliament on the revised EU directive for occupational pension funds, which it said would “reinforce their role as institutional investors and help channel long-term savings to growth-enhancing investments”.The statement by the Council today, 30 June, is the first official announcement of the agreement on the final proposal for the revised IORP II Directive. The European Parliament also today announced that a deal had been reached.IPE obtained a leaked copy of the compromise text last week.
“If the majority of the NTL members are to be equally well off or better off after a change, the savings rates in the new system must exceed the proposed five percent in yearly savings,” it added. “Even so, a shift will create winners and losers making the transformation process complicated.”The report, which is based on the proposed new pension model described in a December 2015 report from the Ministry of Labour and Social Affairs, said that the pension effects of working longer would be far stronger in the new solution than in the old one.Meanwhile in Denmark, JØP and DIP — the professional pension fund for lawyers and economists’ and the fund for engineers — reported investment returns of 6.4% and 6.7% respectively for 2016, before pension returns tax.The two funds have been gradually merging operations over the last few years and recently announced they would pursue a full merger.JØP said corporate bonds and listed equities had contributed particularly well last year. JØP returned 7.5% on corporate bonds and 7.2% on real assets.“It was best to own shares in emerging markets countries as well as in the US, while European shares slowed somewhat and Japanese shares went down to zero,” it said.It said that in comparison with other Danish pension funds, JØP’s result for last year was expected to be around the middle of the league table, a couple of percentage points from the top.DIP’s best performing asset classes last year were equities with an 8% return and real assets, which gained 6.6%.Danish commercial mutual pensions provider AP Pension reported 2016 returns of between 7.2% and 10.7%, depending on age profile.The firm’s CIO Ralf Magnussen said: “It was a wild year on the financial markets.”Looking ahead, he said AP Pension would continue to be “offensive, active, and to invest globally” in 2017.The firm was still cautiously optimistic about the global economy, he said.“Many people are talking about what [US president] Trump means, and if he can succeed in carrying out his economic policy, it will be good for the markets,” Magnussen said. “On the other hand it would be bad if he starts a real trade war, but we believe he is too clever to do that.” Norway’s draft reform of the workplace pension for public sector staff would create winners and losers, with older workers in particular losing out, according to a new analysis of the proposed changes.In a summary of the report from research organisation Fafo and actuarial firm Lillevold & Partners, and commissioned by NTL (Norwegian Civil Service Union), Fafo said: “Many NTL members are expected to have relatively long working careers, and several can get just as good a pension under the proposed new system at 65 years and 67 years.“On the other hand there are some, particularly among the elderly, who have shorter careers and will lose pension in a new system.”A significant portion of scheme members want to retire relatively early, Fafo said, adding that these people could therefore experience a pension loss in the future under the proposal.
The UK government’s forthcoming white paper on defined benefit (DB) pension reform could be the “last chance” to make large-scale changes to the sector, according to the Department for Work and Pensions (DWP).Charlotte Clark, director of private pensions and stewardship at the DWP, said her team was aiming to publish the document by the end of February 2018.Speaking at the Pensions and Lifetime Savings Association’s annual conference today, Clark said the paper would not lead directly to legislation but instead would aim to set out a “direction of travel” for changes to the DB system.“One of the things I impress upon myself and my team is that I think this is probably our last chance to make changes to the DB sector,” Clark said. L-R: Frank Johnson, PLSA DB Council; Charlotte Clark, DWP; Chris Hogg, Royal Mail Pensions Trustees; Lesley Titcomb, TPRClark and fellow panellists Chris Hogg, outgoing CEO of Royal Mail Pension Trustees, and Lesley Titcomb, chief executive of the Pensions Regulator, all echoed the government’s stance that there was no widespread crisis in the DB pension sector, despite public scrutiny of several high-profile schemes.Earlier this year in response to the DWP’s paper, the PLSA argued that two groups of schemes deemed to have the weakest sponsor covenants had only a 50% chance of reaching fully funded status in the next 30 years. The weakest group had only a 32% chance. These schemes accounted for three million members, the PLSA said. “Ten years from now, any white paper on DB is going to be quite a different beast. [We are] taking the time and really thinking through the issues, not just those we’re facing now, but what we believe this sector will look like in 10 years time and beyond. What are the things we can do to secure members’ benefits and ensure the sector is sustainable going forward? That is where our focus is.”The paper will build on a wide-ranging report released by the DWP under the previous pensions secretary, Richard Harrington. The report explored ideas and challenges for scheme consolidation, changes to indexation, and how to make it easier for stressed employers to restructure their schemes.
Natixis Global Asset Management has changed its name to Natixis Investment Managers to better highlight its multi-affiliate business model.Natixis Asset Management, a Paris-based affiliate of Natixis Investment Managers, is also rebranding and will be renamed in 2018.All other affiliates of Natixis Investment Managers – of which there are 26 – will retain their current brands.In conjunction with the name change Natixis Investment Managers launched a platform around a new brand, Active Thinking. It has also established the Natixis Investment Institute, which will take advantage of new developments in data analysis and visualisation to study the relationships between investor sentiment and investment decision-making. H2O Asset Management, an affiliate of Natixis IM, recently announced it had acquired a stake in Poincaré Capital Management, a global equity asset manager based in Hong-Kong.Aktia joins forces with UniversalFinnish fund manager Aktia Asset Management and fund platform Universal-Investment have formed a partnership to bring Aktia AM funds to Germany and other European countries.The first product available in Germany will be a frontier markets local currency fund. Aktia, an emerging markets specialist, said it intended to launch a range of emerging markets funds for European investors.Katja Müller, member of the board of directors and head of sales and relationship management at Universal-Investment, said her company was experiencing “increasing demand from international players” to join the distribution platform.Universal-Investment has launched more than 600 mutual funds with a combined volume of €27bn.BNP secures Caple for SME platform BNP Paribas Asset Management has acquired a 10% stake in Caple, an originator of loans to small- and medium-sized companies (SMEs), as part of an initiative from the manager’s private debt and real assets investment group.BNP Paribas has establihsed an open architecture platform to source loans across multiple origination channels in Europe, including banks and fintechs, and distribute them to institutional investors such as pension funds and insurance companies.Caple is one of the partners the manager will tap for loans for its platform, which will focus on senior unsecured fixed-rate loans of between €500,000 and €5m.SME Advanced Solutions, as the platform is called, will initially target SMEs in the UK, Germany and the Netherlands, and plans to broaden out more widely within Europe after that.BMO commits to cost transparency for LGPS clients BMO Global Asset Management has signed up to the UK local government pension scheme’s voluntary code of transparency. The code aims to provide a standardised method of reporting investment costs. There were 23 signatories listed at the time of writing.Berenberg questions performance-fee-only pricing Analysts at German private bank Berenberg have questioned the potential value of so-called “fulcrum fees” – management charges that vary according to performance. Fidelity and Allianz Global Investors have recently begun introducing such a pricing model on some equity funds. Last month Fidelity announced it had introduced a variable management fee across its entire equity offering, which would see charges fall if funds underperform.Berenberg’s analysts focused on Allianz’s US equity fund, which bases its performance-based fee on rolling 12-month returns, and suggested that there was unlikely to be much difference between the old and new pricing models after all costs had been factored in.The analysts claimed that, under this model even a passive fund based on the S&P500 index with a beta of more than 1 – implying slightly more volatility than the S&P500 itself – would have generated performance fees in 74% of 12-month periods in the past 25 years.“Applying the same approach on a three-year rolling basis (i.e. the methodology that Fidelity plans to adopt) implies performance fee generation in 67% of all 12-month periods,” the analysts added.Once other fund charges were applied, this passive fund could have a total expense ratio of around 80bps, which was in line with the current average for active equity mutual funds in the US. The costs would be higher still if the strategy delivered any alpha, the analysts said.