The fund’s alternatives portfolio, which alongside its Chinese holdings comprise unlisted real estate, alternative credit and private equity funds, still returned 5.8% over the first six months of the year.During the period, the fund completed an overhaul of its strategic portfolio and investment model, boosting exposure to EM equity and local currency denominated debt.It also said the fund’s in-house team was now responsible for the management of its EM bond portfolio denominated in hard currencies, with external managers left to focus on those in local currencies.The half-yearly report added: “At the same time, the fund has changed the composition of its equities exposure in industrialised countries, reducing the GDP-weighted portfolio, choosing instead to invest in low-risk ‘minimum variance’ portfolios that offer optimum diversification, where exposure is inversely proportional to the equities risk.”Its Swedish and foreign equity portfolios returned 9.8% and 11%, respectively, while fixed income returned 6.5%.Overall, the fund saw returns of 7%, including management costs, significantly up from the 4.3% return for the same period in 2013.AP2 chief executive Eva Halvarsson also sought to prove the value of the current buffer fund system, echoing some of the sentiments expressed by her AP3 counterpart Kerstin Hessius.Halvarsson stressed that AP2 had more than doubled in value compared with the SEK134bn in seed capital granted to each of the four buffer funds.She added that justification for the proposed overhaul of the buffer fund system, now endorsed by the cross-party Pensionsgruppen, was “neither clearly stated nor convincingly argued”.The chief executive instead said changes to the buffer fund system’s investment guidelines should be introduced but without the restructuring of the system that would see ownership of the buffer fund assets transferred to a new agency and its principal.“The important thing is to implement changes in the way that benefits the pension system as a whole,” she said.“The negative consequences of conducting a comprehensive and protracted reorganisation are likely to far outweigh the benefits, proving not only costly but seriously increasing the operational risks for a long time ahead.” AP2 has overhauled its investment strategy in early 2014, growing emerging market (EM) exposure and transferring responsibility for nearly all such mandates from external asset managers to its in-house team.The Swedish buffer fund, which manages SEK280.3bn (€30.5bn) worth of assets, said in its half-yearly report that the changes came despite initial weak returns from its EM holdings during the first quarter.Nevertheless, it said its EM portfolio staged a “strong” recovery from March onwards but singled out its Chinese equity holdings for its negative returns.It said the value of its listed holdings in the country was now “very low”.
The letter is addressed to Martin Schulz, president of the European Parliament, and Matteo Renzi, president the Council, which represents EU national governments.The Commission’s revised plans for occupational pensions were included under a list headed by the words “review of pending proposals”.According to the letter, the CPW aims to produce a work programme that focuses on “the main projects”.It also seeks to cover “withdrawals of pending proposals (WWPs), applying the principle of ‘political discontinuity’ as appropriate”.An aim of the letter – dated 7 November and seen by IPE – is to see the adoption of the WWP on 16 December in Strasbourg.It describes this deadline as “ambitious” but demonstrating a “determination to generate early momentum.”Major initiatives for inclusion in the CWP are described as having political guidelines to boost jobs, growth and investment. The European Commission has described the proposed IORP II Directive as “aiming at improving governance and transparency of the funds, at promoting cross-border activity and helping long-term investment”.The main subject areas to be promoted in the CWP, as listed in annexes to the letter, are labour mobility and a “review of the Posting of Workers Directive”, as well as a capital markets union and proposals to deepen the European Monetary Union.Also listed are a connected digital single market, copyright modernisation, a new European energy union and other proposals, including a new policy on migration. Under review, along-side the IORP II, are a VAT standard return form, and the European Foundation Statute. The European Commission’s proposal for a revised IORP Directive, which will replace the occupational pensions Directive passed in 2003, has now been listed as “under review” in Brussels.The decision was announced in connection with the Commission’s new Work Programme (CWP) for 2015.The proposal for the revised version of the Institutions for Occupational Retirement Provision (IORP) Directive came out in March this year after a number of notable delays.The latest development emerges in an annex to a letter signed by Jean-Claude Juncker, president of the European Commission, and Frans Timmermans, first vice-president.
Swedish buffer fund AP3 has set sustainability targets for the first time and plans to more than treble green bond holdings over the next three years.The targets come after the fund signed the Paris Pledge for Action on 24 November before the UN climate change conference (COP21) in the French capital last month.The targets are to be reached by 2018 and due to be monitored yearly.The SEK304bn (€33bn) AP3 fund is aiming to halve the carbon footprint of its holdings in listed equities and credits, compared with that in 2014. The fund is also calling for improvements in disclosure by companies, “urging” them to issue reports regularly on their carbon footprint by 2018 at the latest.AP3 sold all its shares in coal mining companies in May last year to reduce the carbon footprint of its portfolio, despite its being “climate-neutral”.It has specified that it will more than treble holdings in so-called green bonds by the end of 2018, from SEK4.5bn to SEK15bn, to help develop that market “in accordance with COP21”.It also aims to double its strategic sustainability investments, including in water treatment, from SEK10bn to SEK20bn.AP3 first invested in green bonds in 2007, according to the fund. As at 30 June, nearly 40% of AP3’s investments were in fixed income, including index-linked bonds. Green bond holdings of SEK15bn would represent 13% of this asset category. The fund is also setting its sights on sustainability in real estate, saying it would work with Vasakronan, Scandinavia’s largest real estate company and in which AP3 has a 25% equity stake, to ensure it would “continue to lead the way in sustainability in the real estate sector in Sweden”.Other real estate companies in which the fund is invested, such as Hemsö, Trophi and Regio, should also adopt ambitious sustainability policies as they mature, said AP3.The announcement of its sustainability targets comes after Sweden’s buffer funds reached agreement on how they would report the carbon footprints of their investments.The targets are the latest output of AP3’s focus on sustainability over the last 15 months or so, according to Mårten Lindeborg, AP3 deputy chief executive and CIO.“First in order, in 2014, was to calculate the fund’s total carbon footprint – i.e. establish the current situation,” he told IPE. “The result was satisfactory because the total CO2 footprint was more or less zero, as AP3’s listed equity holdings’ negative impact was neutralised by a positive contribution from AP3’s timberland.“However, we want to improve because a more sustainable portfolio can improve both the return and the risk profile of the fund.“Setting targets and working toward them will gradually achieve that objective.”The targets could also influence other investors to be transparent about their sustainability strategy, he added.
Tata Steel is to consult with unions on the closure of the British Steel Pension Scheme (BSPS) and the introduction of a defined contribution (DC) fund.The proposal forms part of a wider plan agreed with three workers’ unions to keep the company’s Port Talbot plant operational.Tata Steel has agreed to keep the plant operational for a minimum of five years, avoid compulsory redundancies and invest £1bn (€1.2bn) into the site over the next 10 years.However, the plans are conditional on the “structural de-risking and de-linking of the British Steel Pension Scheme fund from the business”, Tata Steel said in a statement. This is set to include the closure of the fund to future accrual.If the proposals are agreed, it is less likely that BSPS will enter the Pension Protection Fund (PPF), which only admits pension schemes when their sponsors go bankrupt.The PPF declined to comment on the proposals, but, in June, it told a government consultation that the pension scheme should not be permitted into the lifeboat fund if it severs ties with its sponsor.The Pensions and Lifetime Savings Association has also opposed this option.The BSPS has argued it would not pose an excessive threat to the PPF.The joint statement from unions Community, Unite and GMB welcomed the pledges on investment, job protection and steel production but said the proposed closure of the BSPS to future accrual was “clearly of serious concern to all members”.“After a detailed discussion, union reps have agreed to ballot all members on the proposal in the new year,” the statement said.The new DC scheme would have an employer contribution rate of up to 10% and an employee contribution rate of 6% maximum, the unions said.Tata Steel initially proposed contributions of 3% each from employer and employees.Earlier this year, the BSPS reported deficit of £1.5bn, but this was almost completely offset by investment gains over the summer to just £50m on a technical provisions basis as of mid-October.A spokesperson for the Pensions Regulator said: “We note today’s announcement regarding the future of Tata Steel. We continue to engage with the trustees, employer and government on the issues facing the British Steel Pension Scheme. We will only comment in more detail if and when it is appropriate to do so.”While the proposals announced yesterday relate to the Port Talbot site, Tata Steel also operates two other UK steel factories.One site, in South Yorkshire, is to be sold to Liberty House Group.The future of the third site, in Hartlepool, is uncertain.Roy Rickhuss, general secretary of workers’ union Community, said: “We will continue to work hard with the companies involved to secure the investment necessary to ensure those businesses grow and that our members are protected.”
David Blake, director of the Pensions Institute, said: “The difference between the potential value of negotiated benefits and PPF benefits represents a significant loss to members, sponsor organisations, PPF levy payers, and society as a whole. Instead, seeking ‘the greatest good for the greatest number’ would prevent the destruction of billions of pounds in economic value. It would also produce a more equitable distribution of benefits for younger members who stand to lose much more on insolvency because of the way PPF benefits are calculated. But fortunately, we find that most companies can afford to make their pension contributions.”The institute’s report agreed with the government’s assertion that there was no affordability crisis across the DB sector in the UK, as stated in the Department for Work and Pensions’ green paper earlier this year.However, it argued that the government “should establish a statutory minimum contribution rate for all sponsors with schemes in PPF deficit”, except where this would threaten a company’s solvency. It also called for a streamlined process for the regulated apportionment arrangments that have been used in recent cases involving stressed schemes and sponsors. The full report is available here.Government shelves pension reformsIt appears the government has pushed reviews of pension policy off its immediate agenda.Yesterday morning saw Queen Elizabeth II give her traditional speech to the UK parliament, which is written by the government and outlines its policy agenda. Despite manifesto promises from the Conservative Party, there was no mention of changes to the state pension or of measures designed to follow through on any of the areas covered by the government’s DB green paper.Jeremy May, PwC’s UK pensions leader, said: “This suggests that at least the initial evolution of the next stage of pensions regulation will be based within the existing legislative framework.”Regulator rules on DB transfersThe Financial Conduct Authority (FCA) has set out new rules for advice on transferring out of a DB scheme.The number of people requesting “transfer values” and exiting DB schemes to move to defined contribution (DC) schemes has risen sharply in the past two years due to the “pension freedoms” introduced by former UK chancellor George Osborne. These allow DC scheme members to choose what to do with their pension savings at retirement, rather than being forced to buy an annuity.In addition, offering “enhanced transfer values” has been seen as a viable part of a wider derisking strategy, as it allows funds to offload liabilities as well as assets.The FCA yesterday proposed rules requiring transfer advice to be provided as “a personal recommendation”. The regulator also wants providers to give members a clear picture of their transfer value and what it would mean to gove up a DB guaranteed.Christopher Woolard, executive director of strategy and competition at the FCA, said: “Defined benefit pensions, and other safeguarded benefits such as guarantees, are valuable so most consumers will be best advised to keep them. However, we recognise that the environment has changed significantly, so we want to ensure that financial advice considers the customer’s circumstances in full and recognises the various options now available to them.James Walsh, EU and international policy lead at the PLSA, said providing a clear picture was key to the project’s success. “Defined benefit pensions provide scheme members with a guaranteed income for life – irrespective of how long their retirement might be. Therefore, it is essential that this guarantee is not given up without serious consideration and that appropriate financial advice is taken before any decisions are made,” Walsh said. Many UK workers will not receive their full defined benefit (DB) pension in full as their employer will go bankrupt before their scheme reaches full funding, according to a new report from the Pensions Institute.The institute – part of the Cass Business School in London – said the government needs to recognise this danger and shift pension policy accordingly.“As highlighted by the BHS and Tata Steel cases, many DB pension scheme sponsors could collapse under the current policy which obliges scheme sponsors to adhere to the binary outcomes of either ensuring schemes can pay benefits in full or risk leaving the scheme underfunded if the sponsoring company goes bust,” the institute said.It called for a policy of “second best outcomes” to provide more scope for DB schemes to pay benefits at a lower level than originally promised, but higher than privided by the Pension Protection Fund (PPF).
Swedish pension buffer fund AP1 recorded a 5.2% investment return for the first half of 2017, up from the 3.5% generated in the same period in 2016, according to interim data.The fund’s assets swelled to SEK322.9bn (€33.2bn) by the end of June, from SEK310.5bn at the end of December. It passed SEK3.7bn on to the Swedish pension system in the six-month period for the payment of state benefits.Johan Magnusson, AP1’s chief executive, said: “Naturally we are delighted to have helped strengthen the Swedish pension system for so many years, but the outlook for being able to [continue] delivering a high real return is more demanding. “The market conditions with long-term low interest rates are the primary factor that has increased returns and asset prices in such a way that it is realistic to expect a period of lower returns than normal for most classes of assets.” The pension fund said that it had been particularly active in its real estate investment activity in the reporting period, making several direct investments.These included increasing its holding of retail properties in Secore Fastigheter, the continued expansion of its investment in real estate company Willhem, as well as a new joint venture with Finnish pensions insurance company Elo.The Swedish fund said its return outperformed its strategic benchmark by 1.2 percentage points in the January-to-June period, which equated to SEK3.6bn.Magnusson said that as one of the referral bodies, AP1 would be familiarising itself with the details of the proposal for revised investment rules for the AP funds that the government recently presented.“Generally speaking, however, we welcome the proposal as it brings our current investment rules up to date,” he said.More modern, flexible rules could give AP1 a better foundation to achieve its return target in the long term, Magnusson said.
A Dutch pension scheme’s accountability body has filed a court case to assess the functioning of its management board, the first time any Dutch fund has taken such action.The management board of the ailing pension fund for dental technicians (Tandtechniek) warned that the court referral could “seriously delay” the scheme’s plan to join giant healthcare scheme PFZW.Accountability bodies, known as VOs, represent the interests of scheme members. Tandtechniek’s VO has taken the unprecedented action in the corporate court (Ondernemingskamer) of Amsterdam’s Court of Justice, seeking an assessment of whether the board had been responsible for “culpable or apparently improper” management during the past few years.In addition, the VO has asked the Ondernemingskamer to replace the board with a temporary administrator during the course of the requested assessment. According to Hans van Meerten, spokesman for the VO, a lack of communication from the board had caused a troubled relationship between the two parties in recent years. The VO felt it had not been consulted sufficiently or sometimes at all on important issues.This applied for example to the board’s decision to join the €186bn PFZW on 1 January, as agreed in July.The board of Tandtechniek said it would listen to criticism, but that it regretted the method chosen by the VO to settle the conflict.It warned that the transfer of pension rights to PFZW and the implementation of its pension plan could be seriously delayed as a result of the legal procedure.Rob van Leeuwen, the current chairman of Tandtechniek, said he was not worried about the outcome of the court case.He said that the board’s decision to liquidate and transfer pension rights to PFZW was supported by its independent internal supervisors (RvT).“And our annual reports have always been approved by both the RvT and the external accountants,” Van Leeuwen added.Three years ago, the VO accused the previous board of “substandard performance”. This included relying too much on its pensions provider and asset manager Syntrus Achmea, and waiting too long to introduce a strategic interest-rate hedge and a dedicated risk committee.At the time, it noted that the combination of rights cuts and indexation in arrears had caused participants to lose 30% of their pension rights.At the end of last July, funding of Tandtechniek stood at 88.8%. As a consequence, the scheme’s participants are likely to face another significant rights cut when Tandtechniek joins PFZW.In the pension fund’s annual report for 2016, the VO made clear that, in its opinion, the board still lacked accountability and paid insufficient attention to limiting costs and good governance.
BNP Paribas Asset Management (BNPP AM) has entered into a strategic partnership with CODE Investing, an alternative finance platform, to boost the French investment group’s ability to invest in loans to small and medium-sized businesses.BNPP AM will now be able to tap into loan opportunities through CODE, which is the UK’s institutional marketplace for small and medium-sized enterprise (SME) debt.The arrangement with CODE, which originates loans, will provide the asset manager with direct lending access to unsecured SME loans of between £500,000 and £5m.“Given the structural shift in the way that SMEs access financing, we are very pleased to have entered into a partnership with CODE Investing as part of the development of our SME alternative financing franchise,” said Stephane Blanchoz, head of SME alternative financing at BNPP AM. “As BNPP AM expands its SME lending capability in the UK and in continental Europe, the partnership will be key in originating loans to enable us to provide clients with an attractive investment offering.”Ayan Mitra, CEO and founder of CODE Investing, said: “CODE aims to deliver a more streamlined, certain and user-friendly experience to SMEs in search of growth capital. With our emphasis on institutional – rather than retail – lenders, we believe CODE’s marketplace will ultimately be able to provide SMEs with an aggregate view of financing available to them in the market.”In a separate move, BNPP AM has signed up to a code of transparency sponsored by the UK’s Local Government Pension Scheme (LGPS).Introduced in May 2017 by the LGPS’s scheme advisory board, the code is designed to increase transparency of investment costs and charges for local authority pension funds, with the data provided in a standardised format.At present, the code is voluntary but the aim is for it to be adopted across £260bn of local government pension scheme assets as “the gold standard for cost transparency”, BNPP AM noted.Disclosure templates drawn up by the LGPS informed the work of the Institutional Disclosure Working Group, whose recommendations on displaying asset management costs won the backing of the UK regulator yesterday.More than 55 asset managers have signed up to the LGPS disclosure code.FRR keeps Russell Investments on transition management dutyRussell Investments has won a new global portfolio transition management mandate for FRR, France’s €36bn pension reserve fund.The mandate will allow FRR to manage portfolios through transition periods under the auspices of Russell Investments Implementation Service. Russell said the transition process would include carrying out buy and sell orders on financial instruments that originate from FRR’s asset managers.Dominique Dorlipo, president, Russell Investments France, said: “Our clients in France and globally have come to expect consistency in the quality of our service from our dedicated team. Our transition management value proposition is strong, and we’re very pleased to serve the FRR through this renewed mandate.”The move represents the third consecutive mandate awarded to Russell Investments by FRR since its appointment in 2010.
Andrew Formica Janus Henderson Investors has appointed Dick Weil as its sole CEO, ending the co-chief executive leadership structure that had been in place since its merger completed last year.As a result, Andrew Formica, co-CEO of the group and previously chief executive of Henderson Global Investors for nine years prior to the merger, is to leave the company, the manager announced today.He will remain with the company in an advisory role until the end of the year.Formica and Weil have been co-CEOs of the group since US-based Janus and UK-based Henderson merged in 2017, creating a €302bn asset manager. Weil led Janus as CEO since joining in 2010 from PIMCO. Dick WeilAndrew Formica added: “It has been a pleasure to work with Dick in the creation and formation of Janus Henderson this past year. I am also proud of what we achieved at Henderson over the 10 years I was CEO.“Janus Henderson is an outstanding business with a fantastic and talented workforce. I wish Dick and the team the very best going forward”.The company reported a severance pay package for Formica of “approximately $12m” (€10.3m), including long-term incentive payments.Janus Henderson said its global head of distribution Phil Wagstaff would also leave the company to “take a career break”.Gillingwater said Wagstaff had been “instrumental” to the development of the group’s distribution team.Janus Henderson Investors was the 38th largest European institutional asset manager, according to IPE’s Top 400 Asset Managers report, running €43.2bn. “Now that our integration plans are significantly progressed, our board has determined that the co-CEO structure has achieved its goals, and now is the appropriate time for Janus Henderson to be led once again by a sole CEO,” said Richard Gillingwater, chairman of Janus Henderson’s board of directors.
Despite increasing moves in China towards environmental responsibility at many levels, the country will stick to coal as a source of energy and heat production, experts from China told delegates at the IPE Conference in Dublin.Robert Li, senior vice president and investment strategist at China Asset Management, said: “I think those in the international community who really understand the situation in China must acknowledge that in no foreseeable future will China be able to survive without coal.”Li was responding to a question from Dennis Gadsby, trustee of the UK’s Industry-Wide Coal Staff Superannuation Scheme on China’s use of coal.The strategist said it was important to differentiate between a necessity and something where an alternative was being sought. “When the earth was created, China did have a very strong concentration of coal compared to a lot of countries,” he said. “When you think about coming from an energy independence perspective, China will need coal, but from our perspective, how can we make it better than the status quo?”He said that, over the past few decades, the business community had come to understand the problem, and moves to create “infrastructure technology to optimise these kind of efficiencies are under way”.Li gave the example of one Chinese company that was working to extract excess heat from electricity generation processes to warm up households, reducing the need for direct coal heating.“These are new technologies that we think will generate very good returns going forward,” said Li.Meanwhile fellow panellist Yan Hu, member of the advisory board of Vermilion Partners in China, agreed that “we can’t ban coal heating instantly, overnight”.Environmental think tank Global Carbon Project this week cited increasing coal use in China as one of the main causes of a spike in carbon emissions this year.