This is the whole idea behind this type of investment, he said.PensionDanmark said it now had DKK9bn in direct infrastructure investments and expected to double this over the next four years, with most of the new investment being made in energy-related infrastructure.The investment in NGT should be seen as complementing its existing investments in wind farms and biomass facilities, the fund said.NGT consists of around 470 kilometres of offshore pipelines with a daily gas capacity of about 42m cubic metres.The pipelines carry gas from the Dutch sector of the North Sea to a treatment terminal on the north coast of the Netherlands, where the fuel is then distributed through the Dutch gas network, PensionDanmark said.France’s GDF Suez E&P operates the pipelines.The overall NGT system comprises not only the pipelines but also two offshore platforms, as well as a treatment terminal.NGT is also owned by GDF Suez with a 38.57% stake, XTO Energy with 10% and Rosewood Resources with 11.43%.TAQA bought its stake in the pipeline system from Royal DSM in 2009.Completion of the deal now depends on EU approval, as well as other factors, PensionDanmark said.Ancala Partners advised PensionDanmark on the transaction. PensionDanmark, the first Danish pension fund to invest in Europe’s gas supply network, has bought a 40% stake in Dutch gas pipeline system Noordgastransport (NGT) for DKK1.3bn (€174m).The labour-market scheme, which manages more than DKK145bn, said it bought the equity stake from Abu Dhabi-based energy company TAQA.NGT owns an offshore pipeline network carrying natural gas from fields in the North Sea for treatment in the Netherlands.Torben Möger Pedersen, chief executive of the fund, said: “This investment is attractive because it generates an attractive inflation-linked return with a very low correlation to the business cycle and PensionDanmark’s other investments in equity and fixed income.”
French pension fund Agirc-Arrco has awarded Russell Investments a mandate to restructure one of its euro-zone equity portfolios.The scheme enlisted Russell’s help to shift the portfolio to a number of euro-zone SRI equity funds.It is not the first time the French scheme has awarded the asset manager a transition mandate.Philippe Goubeault, financial director at Agirc-Arrco, said: “In 2012, [we] had already used [Russell] as a transition manager to restructure part of our euro-zone equity investments. It seemed useful to extend this first experiment.” Dominique Dorlipo, chairman at Russell Investments France, said: “For the 2012 operation, we were asked for a partial or total liquidation of assets, so we only focused on best execution for a list of securities for sale. This operation was different, as it required us to act as a responsible asset manager of the assets, with a special approval from the AMF.”In 2013, Agirc-Arrco shifted approximately €230m out of a CCR AM fund, distributing €150m to a number of SRI funds and investing the remaining €80m in an actively managed EDRAM equity fund.“Using a transition manager is worth the effort in a low-yield environment, where every basis point helps improve final performance and thus protect pensions,” Dorlipo said. “Two different euro-zone equity portfolios are likely to have 20-40% of their assets in the same stocks. For European equities, an institutional investor could typically pay a transaction cost of 12-20 basis points or more.”Such costs are avoided when a transition manager orchestrates securities transfers between old and new managers without selling and buying them back, he said.
“If I think about the UK pension system, if I talk to my colleagues in PensionsEurope, there is a huge amount of regulation and legislation applied in those countries around the governance and security of pension provisions within those countries.“We mustn’t kid ourselves. We mustn’t think for one moment we are starting from a position of zero – and there is a risk that, in this debate, when we talk about Solvency II arrangements for insurance companies versus what might be in the communication tomorrow from commissioner Barnier for IORP, is that we are starting from a position of zero, which we absolutely are not.”Segars, also the chief executive of the UK’s National Association of Pension Funds, the single largest occupational pensions market affected by the potential for capital requirements, said solvency rules would in fact undermine security.“It could decrease the amount of security, decrease the amount of adequacy and decrease savings in pensions,” she said. European solvency requirements for the Continent’s IORPs could only be applied if all countries were starting from “a position of zero”, Joanne Segars, the chair of PensionsEurope has insisted.Continuing the war of words over the introduction of solvency requirements for pension funds at a conference to mark the second anniversary of the European Commission’s White Paper on Pensions, Insurance Europe’s director general Michaela Koller argued that, while not every industry providing pension promises needed to be subject to the same regulatory framework, there remained a need for ‘same risk, same rules’.The conference – which saw the internal market commissioner Michel Barnier indicate that, while he had postponed the publication of pillar I legislation detailing capital requirements, it remained an issue his successor would examine – also saw Segars continue the group’s fight against a solvency framework for the sector.She said: “There’s a risk that the debate starts from the point that there are no rules that sit around the funding requirements and the solvency requirements of IORPs – and that, of course, isn’t the case.
Calculations conducted by the authors found that those who contributed the legal minimum for 30 years would have seen a replacement rate prior to cuts of 109%, if one included payments from other state pension benefits.However, after cuts, the replacement ratio would have only declined to 103% – the 6-percentage-point decrease significantly lower than the 29-percentage-point decline to 70% suffered by those who would have contributed the largest possible amount for 30 years.“It goes without saying, these people who contributed more were also the ones who supported the Greek pay-as-you-go system and sustained a steady level of cash-flow from the insured to the pensioners,” the report says.It finds that, while benefit reductions “are not per se prohibited by law”, circumstances call for a re-evaluation of the situation.“Certain concessions,” the paper argues, “have to be made to protect the rights of the pensioners directly affected by law.“While the principle of social solidarity is accepted as justifying the large differentiation between the reductions adopted on the pensioners that contributed the minimum and the maximum amount to the self-employed fund, the national legislator should take into consideration the principle of equivalence and proportional equality alongside with the principle of social solidarity under certain conditions.” Cuts to Greek pension payments disproportionately hit those who had the foresight to pay into the system, a paper co-authored by a member of the country’s actuarial society has alleged.The paper, which examines the changes made to the Greek public pension fund for the self-employed (OAEE) in the wake of the country’s bailout, said it proved “beyond the shadow of a doubt” that there was a disparity in the way benefit reductions affected OAEE members depending on their contribution history.In the paper, authors George Simeonidis of the Hellenic Actuarial Authority, Dafni Diliagka of the Munich-based Max Planck Institute for Social Law and Social Policy and Anna Tsetoura of the University of Leuven said they found that savers who were willing to set aside greater amounts of money had “come into a far greater reduction in both their gross and net incomes than the ones who chose to save only the mandatory amounts”.The authors contended that those who paid the highest contribution rate into the pay-as-you-go OAEE saw their final benefit decline by three to eight times more than those who paid the minimum amount.
EIOPA said it would continue to focus on three main priorities in financial services: enhancing supervisory convergence, reinforcing preventive consumer protection and preserving financial stability.The regulatory organisation said: “Supervisory convergence is key in a period where effective implementation of Solvency II is both a challenge and an opportunity. EIOPA is committed to delivering quality regulation and supervision to further build and facilitate common European supervisory culture.”EIOPA also said consumer trust in financial services, including insurance and pensions, needed to be enhanced further, and that it was targeting a range of measures as key contributors in achieving this.A shift in EIOPA’s focus will be reflected by a stronger emphasis on convergence in the supervision of conduct of business.Regulatory developments in this area will, among other areas, focus on good product oversight and governance, fairness and transparency, and reinforcing cross-sectoral consistency.“Overall,” EIOPA said, “the focus on better and smart regulation will create more scrutiny on the regulatory agenda and will put more pressure on post-evaluation to access cumulative effects and unintended consequences. The review of Solvency II will be a critical project.”It reiterated its ultimate goal of continuing to bring added value to European financial supervision and, consequently, contributing to financial stability, while addressing the needs of European citizens.“Insurance companies and pension funds will continue to face a challenging economic and financial environment, with persistent low interest rates contributing to a search for yield behaviour,” said.“Simultaneously, insurers and pension funds will be called to provide further funding to the economy and will play an important role in the emergence of a capital markets union.“These developments call for an active and engaged supervisory community.”The SPD can be accessed here The European Insurance and Occupational Pensions Authority (EIOPA) has published a work plan outlining the strategic direction of its activities over the next three years, from 2017 to 2019. The strategy is set out in a single programming document (SPD), developed in accordance with European Commission requirements to enhance consistency and comparability across European Union bodies.The SPD specifies the tasks EIOPA is mandated, and required, to undertake, as well as its strategic objectives and priorities for 2017.It also sets out in detail the organisation’s revenues, expenditures, staffing and organisational structure.
Much pension fund regulation operates on a “disclose if you consider ESG” basis, giving the impression stewardship and ESG integration are optional, according to a report on responsible investment regulation by the Principles for Responsible Investment (PRI).The organisation responsible for the UN-backed principles said the report found that investors were still sceptical about whether responsible investment regulation was driving “real change”, even though they believed some of it was useful in terms of increasing awareness of environmental, social and governance (ESG) factors.The report has forewords from high-profile politicians and regulators, such as Valdis Dombrovskis, the financial services European commissioner with responsibility for the EU executive’s Capital Markets Union (CMU) project, and Frank Elderson, executive director of the Dutch pension fund supervisor De Nederlandsche Bank (DNB).The report is the outcome of an analysis of almost 300 policy instruments covering pension fund and corporate disclosure rules, with the authors also deciding to assess the impact of voluntary stewardship codes. The PRI also carried out interviews with policymakers, investors and stock exchanges across the world, focusing on investors’ perceptions about the impact of regulation on investment practice.The report said it was “the first global study to analyse the impact of responsible investment-related public policy initiatives”.In a statement, the PRI said “the analysis suggests that, while regulation is having an impact, regulatory frameworks aren’t fully aligned with sustainable development. Underpinning this is a belief that governments are failing to clearly signal the importance of ESG issues.”The authors of the report note that few of the “highest-profile government sustainability commitments […] articulate the role investors are expected to play”, and that they therefore excluded these.Out of “thousands of individual environmental or social-protection regulations” that exist around the world, their analysis focused on those with an investment component.The report said “many regulations fail to send a strong enough signal and position responsible investment as a voluntary activity, or conflate financially material ESG issues with beneficiary preferences”.It examined corporate disclosure regulations and investor regulation.With respect to the former, it found that government-led mandatory ESG reporting improved corporate risk management and said voluntary disclosures were “a useful stepping stone towards more formal rules”.Pension fund regulation and stewardship codes are correlated with better ESG risk management by companies, but “we can’t prove that regulation is responsible for the result”, according to the PRI report.Problematic poor policy designThe report picked out some shortcomings in policy design – for example, stating that much pension fund regulation operates on a “disclose if you consider ESG” basis, and that financially material ESG issues were conflated with the ethical preference of members.“While it’s right that regulations give flexibility to funds to respond to their members’ ethical preferences, this is separate and distinct from the requirement to consider financially materially ESG issues,” said the report.The way in which rules are worded can also have an impact by potentially giving investors “easy opt-outs”, according to the PRI.This could happen if terms are poorly defined or phrases such as “give consideration to” are used without guidance on what this means.Nathan Fabian, director of policy and research at the PRI, said: “Too often, the drafting of ESG regulation treats ESG as an optional add-on, which investors can ignore if they so choose.”The PRI also said it found little monitoring of policy with ESG-related clauses, and that, even in those markets where individual investors were held to account, investors “remained extremely sceptical of the impact – they didn’t feel they’d seen their peers and competitors change behaviour”.The report adds: “Interviewees openly questioned whether ESG issues were a priority for the government, suggesting ESG clauses were introduced just to respond to pressure from civil society – or even debated whether the clause in question existed.”The PRI is calling on policymakers – which it distinguishes from regulators – to “make the crucial link between sustainable development and the finance industry”.As part of that, they should “build the evidence base on investor practice” – that is, collect and publish more information about how investors contribute to or undermine sustainable investment objectives.
UK defined benefit (DB) pension schemes could halve their aggregate deficit with an alternative approach to longevity risk, according to PricewaterhouseCoopers (PwC).The accountancy and audit firm claimed scheme sponsors could save up to £30bn (€35bn) a year by addressing life expectancy of members differently. Future payouts factored into DB calculations – many of which will not fall due for decades- don’t need to be prefunded by holding assets today, it argued.PwC’s Skyval index, which monitors the funding positions of the UK’s pension schemes, estimated that the total shortfall across the sector was £470bn at the end of 2016.Raj Mody, PwC’s global head of pensions, said: “One particular challenge for pension fund trustees is forecasting future life expectancy for their members. This is notoriously difficult to predict. Because of that, and the requirement for trustees to be prudent when coming up with a target for funding purposes, they typically make an allowance for life expectancy to continue to improve a very long time into the future. “However, these pension payments are not yet a commitment – they are just a prudent expectation of what might unfold over the next few decades. Asking companies to stump up the cash over a short-term period, in case of that eventuality, seems over-prudent.”Instead, Mody argued that trustees could focus on funding shorter-term liabilities while keeping life expectancy developments under review.“They can react accordingly over time depending on emerging and continuing trends,” he added.Meanwhile, the chair of the environment and resource board of the Institute and Faculty of Actuaries (IFoA) has argued that current discount rates are not fit for purpose and called for actuaries to “modify [their] techniques” to respond to the challenge posed by climate change.Writing in the IFoA’s inaugural “inter-generational fairness” newsletter, which focused on climate change, Nico Aspinall said: “Climate change and related resource and environment issues are the predominant challenge of the 21st century and look set to damage capital and hamper growth.”Actuarial science is “well placed” to help society face up to this challenge, but “we will have to modify our techniques for the new environment”, he said.Aspinall said: “Use of positive discount rates is dominant at present, because it has always been true before, making the future essentially worthless and incentivising policymakers to kick the can of climate change mitigation down the road into the future, where it is assumed to be more affordable. “A change to negative discount rates will be shocking to many in the financial community, but would send out a signal in terms of the timeframe in which changes to our economy must be made.”Elsewhere, workers’ unions are in dispute with the government about its handling of the pension schemes for the nuclear sector.Workers for the Atomic Weapons Establishment (AWE) are striking in protest at the decision to close its DB scheme. Unite, one of the unions involved in discussions, said members want it to become part of the civil service pension scheme under the Ministry of Defence.A new defined contribution pension scheme is to be introduced for AWE employees, with worker contributions of 3-8% and employer contributions of 9-13%.The DB pension scheme was linked to former government operations that were privatised in the 1980s. AWE is now run by Lockheed Martin, Jacobs Engineering, and Serco. Unite claims the government made “iron-clad” promises to maintain benefits when AWE was privatised.Separately, unions are fighting a plan to change the Nuclear Decommissioning Authority’s (NDA) pension scheme from a final salary arrangement to career average.The government wants to bring the NDA’s scheme – the Combined Nuclear Pension Plan (CNPP) – in line with public sector schemes, which made a similar switch in 2014.The Prospect union argued that the CNPP was not a public sector pension fund and so should not be subject to such a change. It has also raised concerns about how the consultation regarding the change was conducted.Representatives of several unions met with UK energy minister Jesse Norman last week and “agreed to further discussions”, according to Prospect’s deputy general secretary Dai Hudd.
“Last spring, NN indicated that it would prefer to place our administration with its subsidiary AZL, but we declined,” said Schuil. “As a result of the tendering process, we had specifically opted for DLPS rather than AZL.”Schuil said DLPS had more modern systems, adding that the scheme was also impressed by the provider’s communication systems and portals.Besided Delta Lloyd’s own pension fund and its new general pension fund Delta Lloyd APF, Houtverwerkende Industrie is the first and only external client of DLPS. The company emphasised that it was open to new clients.DLPS is to replace Syntrus Achmea Pensioenbeheer following the latter’s decision to stop servicing mandatory industry-wide pension funds, as its new IT system could not cope with their arrangements.According to the scheme’s chair, it is still possible that the pension fund will have to transfer its administration to AZL in 2020. In this case the new merger company NN-Delta Lloyd would carry all costs.Last spring, Houtverwerkende Industrie also signed a letter of intent with Delta Lloyd Asset Management, which is to replace Achmea Investment Management.A spokesman for NN said that investors would receive clarity about the integration plans of NN and Delta Lloyd at the end of November.VLEP to outsource administration to AZLIn contrast, the €2.5bn pension fund for the cold meat sector (VLEP) has chosen NN subsidiary AZL to be its pensions administrator. VLEP is another of the 22 schemes affected by Syntrus Achmea’s exit from mandatory sector scheme provision.In addition, the scheme said it had selected Woerden-based pensions consultancy Actor to provide support to its board, effective from 1 September.The pension scheme said it wanted to separate its pensions provision and board support, both of which had been implemented by Syntrus Achmea.VLEP has approximately 23,000 participants and pensioners affiliated with almost a thousand employers.For a full review of the fallout from Syntrus Achmea’s decision and a summary of how pension schemes have reacted, look out for the September edition of IPE.Pharmaceuticals scheme awards LDI mandateMeanwhile, the €250m Pensioenfonds Brocacef has renewed its asset management contract with NN Investment Partners (NNIP).The asset manager said that the scheme’s €130m liability-driven investment mandate would be invested in NN’s Duration Matching Range funds, “which provide a safe and effective way of interest hedge without mandatory additional payments”.Johan Eeken, chairman of the Brocacef scheme – the pension fund of pharmaceutical group BENU – said the new mandate enabled the pension fund “to cover its liabilities in a predictable way” and that it had been offered “flexibility in anticipating changes”.Bart Oldenkamp, head of integrated client solutions at NNIP, said that the asset manager had a long history and “excellent track record” of managing fixed income portfolios.“Flexibility, ease and transparency are key to the implementation of our matching strategies,” he added. The €508m pension fund for the wood-processing and yacht-building industries has chosen to stick with Delta Lloyd as its administrator, according to the fund’s chairman.Peter Schuil said the scheme would not make a change despite the provider being taken over by NN Group last spring. NN has its own administration provider, AZL.Last April, the sector scheme (Houtverwerkende Industrie) picked Delta Lloyd Pensioenfonds Services (DLPS) as its new administration provider, effective from 2018.Schuil told IPE’s Dutch sister publication PensioenPro that it had agreed with both Delta Lloyd and NN that it could keep on using DLPS until at least 2020.
PFA said the consortium it was leading represented more than 2m individual savers – more than a third of Denmark’s population.Under the deal, PFA will make the largest investment in Nykredit, paying DKK6.9bn for a 10.03% equity interest, while PensionDanmark and PKA will each take a 2.4% stake for DKK1.65bn.Meanwhile, AP Pension will buy a 1.63% interest for DKK1.1bn and MP Pension will take a 0.44% stake for DKK300m.The pension funds will buy 10.9% of shares in Nykredit, worth DKK7.5bn, from Forenet Kredit – the Nykredit customer association which owns the bulk of the company.They have also entered into agreements with minority Nykredit shareholders Industriens Fond and Østifterne to buy part of their holdings.Allan Polack, PFA’s group chief executive, said: “In the consortium, we are very pleased that we reached an agreement with Forenet Kredit to join Nykredit’s group of owners.“We have had an ongoing dialogue and are happy that we have made a solution together, which represents both an attractive investment for us as well as a good solution to Nykredit’s long-term ownership and capital structure.”PFA said the new investors had made the offer because of the company’s strong market position and the clear management strategy for continuing the development of Nykredit and its subsidiary Totalkredit.“Hence, the consortium is confident that Nykredit will continue to realise its commercial potential going forward, which will ensure a stable and competitive return for the consortium’s pension savers,” Polack added.Nykredit said that, as part of the deal, the pension funds have also undertaken to contribute capital in future, should such need arise.The agreement is subject to the approval of Forenet Kredit’s committee of representatives and relevant authorities. A group of five Danish pension funds led by PFA Pension have signed a deal with the owner of mortgage giant Nykredit to buy a 16.9% stake in the lender, parties to the deal have confirmed.The pension funds in the consortium – which will make a joint investment of DKK11.6bn (€1.56bn) – are PFA, PensionDanmark, PKA, AP Pension and MP Pension.Nykredit, Denmark’s main mortgage lender, said yesterday it was considering stepping back from preparations to list on the Copenhagen Stock Exchange.Today it confirmed that it had concluded a conditional sales agreement with the pension funds instead of pressing on with an IPO.
“While there are some interesting developments taking place, such as the Cost Transparency Initiative in the UK, investors will only benefit if the data is sufficiently granular and specific.”Kathryn Saklatvala, head of investment content, bfinanceKathryn Saklatvala, head of investment content, bfinance, said: “The reductions in average fees across various asset classes are welcome news for investor clients. Yet there are still significant barriers to price competition across the asset management industry.”She said these barriers included a lack of visibility on actual fees or total costs, or the reality that manager selection methods may not facilitate and maximise competition on pricing.She concluded: “While there are some interesting developments taking place, such as the Cost Transparency Initiative in the UK, investors will only benefit if the data is sufficiently granular and specific.”WTW urges EMD implementation rethinkSeparately, a report from Willis Towers Watson (WTW) has argued that investors buying simple, benchmark-focused EMD managers often fail to justify the management fees charged, and struggle to access the most interesting corners of the opportunity set.The asset class is becoming more strategically important both in global markets and in investor portfolios.But with under half the universe achieving positive returns above benchmark even before fees, most investors have been disappointed by active investing.WTW said that instead of treating EMD as a single asset class, investors should see stronger overall returns by selecting the best manager in each region and asset class – local currency sovereign debt, hard currency sovereign debt and hard currency corporate debt – and with specific knowledge and skills. “EMD is not a single opportunity so it cannot be captured by a single, broad mandate,” said Chris Redmond, global head of manager research at Willis Towers Watson.“We believe investors need to consider a shift in focus is needed towards specialist implementation, building a portfolio comprised of a ‘master’ in each area of the market.” Median quoted fees for a US$100m (€90m) mandate currently sit at 55 basis points (bps), with reductions particularly notable for the lower quartile, where fees have fallen from 51bps in 2013 to 46bps in 2016 and 42bps in 2019.Larger fee reductions are seen in global emerging market equities, with fees down 13% since 2013 and 6% since 2016. The median quoted fee for a US$100m mandate is now around 74bps, with considerable scope for downward negotiation, according to bfinance.Emerging market debt (EMD) pricing, which bfinance said proved exceptionally resilient until 2016, has since fallen, with a 10% drop in median quoted fees. The position of investors was strengthened by last year’s outflows.For private markets, the paper said that unpacking pricing movements was challenging, because of the complexity of fee structures. But it highlighted evidence of declining fees in certain asset classes such as European core open-ended real estate (fees down 12%) and US direct lending strategies targeted at non-US clients (median management fees down by over 20%).It said that overall, fund managers in private markets had been under less pricing pressure than their public market counterparts, due to a strong fundraising climate.Across the asset classes analysed, funds of hedge funds fees registered the biggest fall over the past year, dropping by 28% over the period from 80 to 58bps.A key driver of continuing fee reduction for this asset class, according to bfinance, is the emergence of less expensive models for delivering similar strategies, such as funds of sub-advisors.The report also pointed out that European fund of hedge funds managers are more likely than their US counterparts to state upfront that fees must not exceed a certain level, while US managers tend to prioritise overall value. There have been substantial reductions in external manager fees for asset classes including global equities, emerging market equities and hedge funds, according to new research from bfinance.Fee compression has been driven by factors including the rise of cheaper competitors, increasing transparency on costs, and expansion of the manager universe, said the research paper.Figures were based on real fees being quoted by asset managers for real mandates, and not surveys or “rack rates”, which bfinance said tend to be inflated.According to the consultancy, for active global equity mandates fees have fallen by 7% since 2013 and 4% since 2016.