The aba, Germany’s pension fund association, has criticised the EU’s plans to oblige pension funds to establish their own credit-research mechanisms.In August, German regulator BaFin issued a decree implementing EU-level changes to regulations concerning rating agencies.According to the European Commission’s proposals, pension funds are to be required to conduct their own credit-risk assessments in order to reduce their dependence on the larger rating agencies.But the aba, after assessing the proposals in detail, has now issued a position paper in which it criticises parts of these changes. In its paper, it says: “The aba supports the objective to regulate credit ratings to a greater degree and reduce reliance of investors on credit-rating agencies caused by regulatory requirements.”However, it “opposes the call for IORPs to develop their own internal credit-analysis processes”.The aba argues this would “overburden” many investors – particularly IORPs – which tend to have “only limited business operations”.Meanwhile, the BaFin itself has amended its decree to tone down this requirement, stating that credit-risk analysis can “initially” also take the form of checking the plausibility of external ratings – through the rating reports of external agencies, for example.For direct bond holdings, the aba recommends the provision of “minimum standards” for internal credit-analysis processes for IORPs, similar to the BaFin’s recommendations. For indirect investments, the association sees the investment management company or asset manager as being “solely responsible” for credit ratings.Meanwhile, the European supervisory body ESMA has issued its first report on rating agencies.Under the amendments to the law regulating those institutions, ESMA has to report annually on the existing rating agencies and their market share, as issuers are to be required to get assessments from two rating agencies – one being a small provider, with a market share of less than 10%.According to the first ESMA report, the three large rating agencies have a combined market share of 85%.
The UK Pension Protection Fund (PPF) has confirmed a delay in publishing the model for insolvency scores in levy calculations after development with the new provider overran.In an update from its December 2013 statement to levy payers, the lifeboat fund said it was making steady progress with score provider Experian on the new model.However, chief executive of the PPF Alan Rubenstein said development work to create a bespoke model with Experian had taken longer than anticipated.As a result, levy payers will be unable to see their new scores in early 2014 as originally planned. “We are making steady progress with Experian but want to make sure any new model we consult on is robust and fit-for-purpose,” Rubenstein said.Experian will take over the provision of insolvency scores for the 2015-16 levy period after the PPF announced its decision to end its eight-year relationship with current provider Dun and Bradstreet (D&B).Joanne Shepard, senior consultant at Towers Watson, called the delay from the PPF frustrating, as schemes are trying to prepare for the years ahead.“This [model] change has already tied in with the second levy triennium for the framework, where the PPF might change some of the factors used to calculate the levy,” she said.“There are now a lot of reasons why we cannot estimate the 2015-16 levy for clients, which is frustrating and impacts on companies’ planning.“We do not know what the Experian scores will look like compared with D&B’s and will not now have any indication in February as expected. We will just have to wait longer to provide clients with any indication of what the impact will be.”Barnett Waddingham partner Nick Griggs conceded the delay was not ideal, but he said that, given D&B’s failures as a score provider, it was important for the PPF to find a new model.“It is more important that the new rating system be fit for purpose,” he said. “The PPF appears to be aware of levy payers’ concerns, and it is encouraging it has indicated that extra flexibility will be offered during the transition period.”This delay from the lifeboat fund added to an announcement in December from D&B that it would be altering its score-calculation methodology for the 2014-15 levy.Shepard said it was still difficult to know the impact.“Most companies will have already put a budget together for the 2014-15 levy, so the change is a bit too late,” she said. “If there is now a significant move, it could force a band movement, with a significant impact on the levy, which could reach up to 50%.”
“£10 billion flowed from this source in 2013, off a previous estimated base of only £30 billion.”The popularity of DGFs among the DB schemes is set to grow, as inlflows get close to £80bn by 2019, according to SpenceJohnson’s projections. DC schemes are expecetd to be allocating £20bn, up from £6.6bn currently.Much of the increase comes with an implicit requirement for DGFs to provide investors with more alpha, rather than static allocations.“The ‘diversified beta’ portion of a DGF is becoming less valued,” SpenceJohnson said.“This is combined with the emergence of risk factor investing where these sources of beta can be more accurately targeted using smart beta funds.“We believe that there will be an increasing onus in selection on exposure to market returns within DGFs being cost effective.“This will sit alongside DGF managers needing to be more explicit about how they provide alpha.”The current market is dominated by institutional allocations, with a share of 78%, according to estimates that include an educated guess of non-UK allocations coming from pension funds abroad.Dynamic DGFs also dominated the £97bn market, attracting over 60% of assets.Popularity of the dynamic strategy is underpinned by its preference among DB investors who allocate 70% of their own assets to the strategy.Average allocation within DGFs saw equity allocation reach just over 40%, with alternatives creeping over 20%.The data showed fluctuating allocations over the previous years, with the use of equities ranging from over 50% in 2009, to as low as 30% in 2011, before stabalising.Funds had shifted away from alternatives in the last year but placed greater emphasis on cash, with bond allocations also falling.Within the 27 funds analysed, allocations varied dramatically, with equity holdings ranging from well over 60% to as low as 15%.Similarly, the use of cash, and alternatives, also varied depending on the manager, and the targets set by fund.Alternative allocations went as high as 75% in one fund, compared to others that had less than 5% invested in the classes.Within equity portfolios, average allocations to UK equities hit 6% and emerging market equities 4%.The firm also predicted emerging markets would soon account of 15% of DGF allocations.“We believe this to be the case for two reasons. Firstly, the broader trend within UK pensions to diversify away from UK equities. Secondly, the increasingly international investor profile of the DGF market,” the report said.Within alternatives, real estate was still the most common, followed by commodities and absolute return investments. Adoption of diversified growth funds (DGF) by UK defined benefit (DB) schemes was underestimated, after 2013 witnessed £10bn of inflows, new research shows.Data, from market intelligence provider SpenceJohnson, showed the entire DGF market may reach £201bn by the end of 2018, up from £97bn at the end of 2013.It grew £22bn over 2013, with nearly half of all inflows coming from UK DB schemes.“The speed of adoption by DB schemes witnessed in 2013 was much faster and more significant that expected,” the report said.
He described the collapse as a “highly negative event on the Danish stock market” and said there was a strong need to clarify events leading up to it and to determine responsibility.The group of investors includes Danish pension funds ATP, PFA, PensionDanmark, DIP, JØP and AP Pension, as well as the investment arms of PenSam, Lærernes Pension and Unipension.In December last year, a smaller group of Danish institutional investors including seven pension funds launched an investigation into the collapse to see whether there were grounds for a case.ATP and PKA said that investigation focussed on errors and flaws in the company’s IPO prospectus, liability in connection with the offering and the sale of shares plus the management’s liability for OW Bunker’s operations in the time between the IPO and the bankruptcy.The investors are bringing two actions – one about prospectus liability against OW Bunker, relevant former members of OW Bunker’s management and relevant entities of Altor, and the other concerning liability for non-compliance with stock exchange disclosure duties against OW Bunker and relevant former members of its management.Altor is the Swedish investment fund that was OW Bunker’s main shareholder.Anders Damgaard, CIO at PFA Pension, said the whole course of events surrounding the IPO and bankruptcy was regrettable.“It should not be possible for the company described in the prospectus to be declared bankrupt only six months after the IPO,” he said.Because of this, he said it was now crucial to find out what went wrong and whose fault it was – “both in order to obtain the best possible compensation for our clients’ losses, to shed light on the weaknesses of the framework conditions for IPOs, and not least to ensure that something like this will not happen again.”In December, ATP said it had invested around DKK150m in OW Bunker.Engineers’ pension fund DIP put its exposure to the company at DKK16m, while lawyers and economists’ pension fund JØP said it had DKK9m invested.Industriens Pension said it lost DKK15m.Other parties may be involved in the actions if more information is obtained, ATP and PFA said.The legal action will take place through Danish courts, and writs are now being prepared.Law firm Bruun & Hjejle will represent the investors in the proceedings, which will, in turn, be assisted by legal firm Accura and auditors KPMG. Denmark’s biggest pension funds, ATP and PFA, are planning to sue collapsed shipping fuel firm OW Bunker as part of a group of institutional investors aiming to recoup more than DKK800m (€107m) lost just six months after the company’s much-heralded IPO.The two pension funds said the group of 27 institutional investors was now instituting legal proceedings concerning prospectus liability and disclosure obligations under securities regulation.The investors together represent claims for more than DKK800m.Kenneth Joensen, chief general counsel at ATP, said: “It is our duty towards ATP’s members to seek to recover as much as possible of the loss incurred as a result of OW Bunker’s bankruptcy.”
RESAVER, the recently launched pan-European pension project for researchers, is tendering for investment managers for the cross-border IORP it is setting up, according to an EU tender notice.The tender is being conducted using the competitive dialogue process, and is being managed by Aon Belgium, which won a four-year contract to provide support services to the project at the beginning of this year.RESAVER, or the Retirement Savings Vehicle for European Research Institutions, is now inviting expressions of interest from companies interested in tendering to provide pension fund investment services to “a second-pillar occupational DC pension multi-country IORP registered in Belgium”. The contract is proposed to last for five years, with the possibility of extending it to eight years. On the basis of the responses to the pre-qualification questionnaires, RESAVER will shortlist at least three applicants to take part in the dialogue stage.Aon said it was not looking for creative solutions at this stage but was at the dialogue stage instead.To achieve economies of scale, Aon said it was intended that RESAVER Insurance would offer the same investment funds to insurance participants as were offered to IORP participants.It said both the RESAVER IORP and RESAVER Insurance vehicles would have to offer “a comprehensive range of investment funds (…) to support the project multi-country, multi-vehicle, multi-currency specificities”.Since the project is starting from scratch, the investment solution must be suitable for any size of assets, it said, which will involve keeping the organisation simple at the beginning, with only a few investment options.At the same time, the organisation will have to be ready to change in the future, when assets under management and number of participants have grown.RESAVER is also tendering for administration services, as well as custody and audit services.The deadline for requests to participate is 2 November 2015 at 5pm, and decisions on the contracts to be awarded are to be made by 28 January 2016.The costs of setting up the IORP are being covered by the European Commission. Aon has said it will take 15 years for the fund to finance itself.
Allianz Global Investors (AGI) is due to acquire fixed income specialist Rogge Global Partners (RGP) in a bid to grow its fixed income client offering.The transaction involves Old Mutual and RGP management selling the entire issued share capital to AGI, although the terms were not disclosed.The acquisition is designed to further strengthen AGI’s fixed income capabilities, the asset manager said in a statement.RGP gains “a strategic partner that will offer greater distribution potential for its strategies”, it added. AGI had €427bn in assets under management (AUM) as at the end of September, with €167bn in fixed income strategies, up from €109bn four years ago – a 53% increase. RGP has €34bn in AUM, all of which is in fixed income products.Andreas Utermann, global CIO and chief executive-elect at AGI, said the two businesses were “a natural fit – in terms of both product mix and culture”. AGI has made several investments to grow its fixed income business in recent years.Most recently, it appointed Mike Riddell to lead the development of the asset manager’s UK fixed income capability. It also created an Asian fixed income team and developed its emerging market debt team.The RGP team will become part of the global investment platform at AGI.Subject to regulatory approval, the deal is expected to close by the second quarter.
Employee pension schemes in Finland will find it hard to achieve their targeted investment returns in the next few years in the current low-interest-rate environment, the country’s financial supervisor has warned.Releasing data on the financial position and risks of supervised entities, the Financial Supervisory Authority (Finanssivalvonta or FIN-FSA) said the investment return for the employee pension sector was zero in the first half of this year.“A positive return in the second quarter covered the losses generated in the first quarter,” it said.“The solvency position of the employee pension sector weakened, but risk-bearing capacity remained strong.” The investment return for the sector failed to reach the target level in the January-to-June period.“Likewise, in the coming years, it will be difficult to reach the target level if interest rates remain at their current low level,” the regulator added.According to FIN-FSA figures, the average solvency ratio for the employee pension sector fell to 26% at the end of June from 28.6% at the end of December 2015.However, the risk-based solvency position for the sector rose to 2.1 at the end of June from 2.0 at the end of December, the authority said, explaining that the decrease in equity risk in the investment portfolio had been reflected as a decline in the solvency limit.
The decision by Donald Trump to withdraw the US from the Paris Agreement on climate change is unlikely to derail the momentum behind the transition away from fossil fuels, according to investors and observers.They argued that the US in fact stood to lose out the most due to the decision, while China was poised to benefit.In a video address, Philippe Desfossés, chief executive of ERAFP, France’s €27bn civil service pension scheme, said that the decision was “a very sad event”, but large companies would continue to invest in the transition to low carbon.Tom Sanzillo – director of finance at the Institute for Energy Economics and Financial Analysis and a former first deputy comptroller for New York State, where he had oversight of its $150bn-plus pension fund – said Trump had made a “bad business decision” and that the US would lose out on opportunities from the growth of the renewable sector in the US and abroad. Investors should demand new fossil-fuel-free investment products from investment managers and be prepared to deploy them as they see fit, he added. Georgina Laird, sustainable investment analyst at Kames Capital, said it was too late to slow the adoption of environmentally-friendly technologies: “The genie is already out of the bottle in this respect.” “From solar power, to wind power to electric vehicles, momentum has been building for some time,” she added. “Barriers to adoption have been falling and returns on investment improving to the point where subsidies are largely no longer necessary.”In a speech last night, Trump argued he was protecting the US economy by pulling out of the agreement, and said he would seek to renegotiate the deal.The Institutional Investor Group on Climate Change called Trump’s decision “misguided”.Stephanie Pfeifer, CEO, said in a statement: “By opting out, the US administration is failing to recognise what is already an inevitable and irreversible direction of travel away from dependence on fossil fuels and towards a low carbon future – with all the jobs, growth and innovation that this entails,” it said.Nico Aspinall, a consultant and chair of the resource and environment board of the UK’s Institute and Faculty of Actuaries, said backing out of the agreement would amount to Trump “effectively consigning the American century to history, and guaranteeing that they will be on an import-only basis from here on in”.“In the long run this will take the exorbitant privilege from the dollar, and presumably give it to the renminbi,” he said.Others also noted that China – which has been positioning itself as a leader on climate change – stood to benefit from Trump’s decision.China has been “amply filling the US’s shoes on climate change issues”, said Cindy Rose, Aberdeen Asset Management’s head of responsible investing.Karine Hirn, partner and senior adviser at East Capital, an asset manager specialised in emerging and frontier markets, said Chinese companies represented a third of the global universe for environmental protection investment opportunities. Investors’ interest could shift to China after its onshore market was recently opened to foreign investors, she said. The withdrawal mechanicsThere are two main ways in which the US could withdraw from the Paris Agreement, according to Matt Christensen, global head of responsible investment at AXA Investment Managers.One is to withdraw from the Paris accord only, which any party to the deal can do four years after it has become effective for that party.The other option would be to exit the United Nations Framework Convention on Climate Change (UNFCCC), which covers the Paris pact and other treaties. This option “would be faster but more extreme” and is likely to require support from the US Congress, according to Christensen.
Geode Capital Management – which runs index-tracking funds on behalf of Fidelity – has historically backed management with its votes more than the other surveyed asset managers, although there were signs that the firm was becoming more willing to challenge the status quo, according to Morningstar.This year BlackRock and Vanguard supported a high profile shareholder resolution at Exxon Mobil against the board’s recommendation. This year was the first that Vanguard had supported a climate-risk disclosure resolution.The growth in index investing has coincided with … Morningstar’s survey work also found an increased commitment to engagement among index managers.“The research shows that index managers have no intention to free-ride with respect to engagement,” the research firm said. “Many are intensifying their efforts in that area.“They also, and perhaps more importantly, intend to improve the quality of their interactions.”Index managers’ corporate governance teams have grown recently, Morningstar highlighted. BlackRock’s expanded from 20 members in 2014 to 33 today, while UBS was to have 11 dedicated professionals employed by the end of this year, up from four in 2015.… increasing interest in responsible investment Passive investing does not lead to an abdication of stewardship responsibilities, investment research firm Morningstar has said.On the contrary, index managers such as BlackRock, Vanguard, and State Street Global Advisors (SSGA) were increasingly taking an active role in the oversight of investee companies, it said.The firm surveyed 12 providers of index funds and exchange-trade funds (ETFs) with over $12trn (€10.2trn) of assets under management in total.It found that nearly all of the providers applied the same stewardship principles to all their holdings, irrespective of whether these were in passive or active portfolios. Hortense Bioy, director of passive strategies research for Europe at Morningstar, said: “Our research shows the largest index managers have stepped up their efforts in the areas of voting and engagement, as they seek to influence investee companies and help improve ESG standards across the board.“However, practices vary significantly among index managers and firms need to be doing more to enhance disclosure and communication to improve public awareness and understanding of their activities.”The costs associated with voting and engagement activities may lead to more differentiation among the managers’ approaches, Morningstar suggested.Large asset managers with economies of scale should be able to absorb the additional costs, but this may be more difficult for smaller firms. These would have little choice but to either do the minimum required or outsource stewardship activities.The benefits of direct engagement seemed more evident for managers that also had an internal active stock-selection business, and less so for the surveyed managers whose mandates were limited to passive and/or quantitative active strategies, such as Schwab and Geode.Note: A previous version of this article stated that Geode Capital Management ran funds on behalf of Fidelity, Vanguard and BlackRock. This article has been updated to reflect that Geode only runs funds for Fidelity.
AP7’s dominance over Sweden’s premium pension system increased last year with new customers and a better-than-average investment return.The fund – one of Sweden’s national pension funds and the default provider in the country’s premium pension system (PPM) – increased its saver numbers last year to more than half of the total participants in the system.Its balanced fund offering, Såfa, generated an investment return above the average return produced by private providers in the PPM, returning 14.4% in 2017.This compared to the 11.3% average return from funds included in the system’s funds marketplace, according to full-year figures released by the Swedish Pensions Agency. In 2016 Såfa returned 13.9%, compared to the average private sector return of 9.5%.The agency said: “Like the year before, 2017 was a year which – viewed from a premium pension perspective – goes down in history as one of the most dramatic.”The year had included everything from scandals and police investigations to a proposed overhaul of the funds marketplace, it said.The PPM is the funded part of the Swedish state pension where pension savers can make their own investment choices. Contributions can either be put into products from the wide range of private sector investment managers, or invested with state pension fund AP7’s Såfa option, which uses a lifecycle approach.The majority of savers in the system had their savings with AP7 in 2017, with the SEK400bn (€38.9bn) fund’s share of customers rising to 52% from 48% in 2016.However, accounts held with AP7 remained much smaller on average than those held with private sector providers. Assets held with AP7 Såfa amounted to 33% of the total fund capital in the premium pension system last year.The average account balance at AP7 was SEK173,400, while pension savers with their own portfolios with fund marketplace providers had an average of SEK241,200, according to the data.Bengt Norrby, statistician at the Swedish Pensions Agency, said: “An explanation for the difference in savings is that a large part of the capital inflow to AP7 Såfa comes from young savers, who usually have lower incomes and, consequently, lower pension contributions.”At the end of 2017, total managed capital in the premium pension system amounted to SEK1.4trn, up from SEK986bn at the end of the previous year.