Impact investments should not be viewed as a separate asset class but rather as an approach, and therefore not incur higher than usual management fees, pension investors PGGM and KLP have argued.Speaking at the Global Impact Investing Network Investor Forum in London, PGGM corporate strategy and innovations manager Wouter Koelewijn repeatedly argued that the strategy – housed by the Dutch pension manager within its targeted environmental, social and governance (ESG) portfolio – should not be viewed as separate from other asset classes.Asked about the level of fees he would expect to pay for impact investments, Koelewijn told attendees: “The only difference for a targeted ESG investment is that I want to know what is your impact strategy and how are you going to reach those goals. What problems are you solving?”His view was shared by Heidi Finskas, adviser for responsible investments at KLP, which manages the pensions of local government employees in Norway. KLP has so far only committed $25m (€18.5m) to a micro-finance project, as well as committed to a NOK1bn (€123m) renewable energy joint venture with government-backed development vehicle Norfund.Finskas was adamant impact investing should be viewed as part of a regular investment, attracting the same fees.“The one reason we teamed up with Norfund instead of picking from fund managers is exactly the asset management fees – they were too high for us,” she said.Explaining KLP’s decision to focus on renewable energy, she said: “We saw that developing countries, they are in great need of energy.“Coal, for instance, is a very cheap option, but we would like to contribute that there are cleaner options available.”She also noted that all investments had a societal benefit, as capital was invested in regions otherwise lacking such funding, stimulating the labour market.PGGM’s Koelewijn added that impact investing should always be seen as part of the “same game” as other investments, but that the impact should always be monitored.He said to qualify as an impact or ESG-friendly investment, one had to set “clear” goals.“Since we have diversified and have a large portfolio, we take a broad approach,” he said, noting that PGGM had committed €500m each year to invest in targeted ESG projects.
Nordea’s life and pensions business saw profits surge 52% in the third quarter, as unit-link product volumes grew and traditional with-profits products shrank.Operating profit for the division of the Nordic and Baltic banking group rose 52% to €76m in the three months to the end of September from €50m reported for the same period last year. Profit was 17% from the second quarter.Assets under management climbed 6% over the last 12 months, rising to €52.1bn by the end of September from €49.3bn.Nordea said unit-link, or market return, and risk products accounted for 84% of total gross written premiums in its life and pensions division in the third quarter – 9 percentage points more than in third quarter of last year. The strong net inflow into market-return products continued in the third quarter, rising by €800m, while a net €100m flowed out of traditional products, the group said.The profit contribution from market return or unit-link products climbed by €10m or 33% from the third quarter of last year.Meanwhile, Swedish pensions provider AMF reported an investment return of 5.9% from January to September, with results supported by strong equities growth in the third quarter.The return is just less than the 6.1% produced in the same period last year.Peder Hasslev, deputy managing director and head of investment at AMF, said: “The last quarter was marked by continued strong development on global equity markets.”The company’s managing director Johan Sidenmark said AMF’s focus was on continuing improvement for its savers and to reduce costs where possible.Overall group profit climbed to SEK43.5bn (€4.97bn) from SEK15.2bn, helped by the changes in the discount rate used to calculate liabilities.This change alone contributed SEK19.9bn to the result in the period.Premium income rose to SEK15.8bn from SEK15.2bn, and the solvency ratio increased to 221% from 183%.Assets under management grew to SEK436bn from SEK399bn.In other results news, Finland’s Varma produced a 6.1% return in the first nine months of this year compared with 5.7% in the same period last year.All asset classes gave positive returns, while assets under management rose to €36.9bn.Varma’s president and chief executive Matti Vuoria said: “Despite the economic uncertainty, Varma recorded a strong result for the financial period, and the return trend was at a good level.”Equities produced the highest returns, returning 14.9% in the nine-month period, up from 10.8% last year.Within this, unlisted equities returned 19.9%.Fixed income investments gave a return of just 0.8%, down from 3.5%, Varma said, noting it had reduced the share of these assets in its portfolio during the year.Meanwhile, Finland’s Veritas saw a drop in returns from last year, producing 4.7% on investments between January and September compared with 8% last year.Finnish equities produced a 23.3% return in the period.Niina Bergring, investment director at Veritas, said: “Of all asset classes, equities gave the best return, at 11.7%.”She forecast the stock market upturn would continue for the last few months.“The growth cycle is now back on track, and liquidity is supporting risk taking,” she said. “Stimulus measures will continue in both Europe and the US, and this is creating confidence in the market,” she said.Veritas’ return on its fixed income investments dropped to 0.1% from 8.6%.The company’s asset mix has shifted in the last 12 months towards equities and property.Fixed income investments shrank to 44.3% of the portfolio at the end of September from 52.3%, while equities expanded to 35.5% from 28.7% and property grew to 18.2% from 16.1%.Lastly, 13 pensions and investment firms have formally applied to provide pensions within Sweden’s SAF-LO occupational pension system for blue-collar workers, according to Fora, the company administering the system.Providers applying to offer traditional insurance products are Alecta, AMF and Folksam Liv, Fora said.Those applying to offer unit-linked pensions are AMF, Danica Pension, Folksam-LO fondförsäkring, Handelsbanken Liv, Länsförsäkringar Fondliv, Movestic Liv & Pension, Nordea Liv & Pension, SEB Trygg Liv, SPP Liv Fond and Swedbank Insurance.The pension board, which comprises representatives from the Swedish Trade Union Confederation (LO) and the Confederation of Swedish Enterprise (Svenskt Näringsliv), will now evaluate the applications.According to the conditions for inclusion in the system, pension products must offer savers a high pension with low charges in a financially stable insurance company, Fora said.Products from the new list of providers will be available in the SAF-LO system from 2014.The approval process is expected to be completed by the end of November.
The principle of sharing market risk, such as inflation risk, and intergenerational risk must remain in any updated pensions system in the Netherlands, a number of industry experts have argued.Speaking on a panel at the recent FD Pension Pro IPE congress in Amsterdam, Peter Borgdorff, director of the €140bn healthcare scheme PFZW, said: “There is not a single insurance against market risk.”His view was echoed by Michiel Hietkamp, chair of the youth branch of union CNV and one of the driving forces behind PensioenLab, who said solidarity among generations was “very important”, adding that the debate over the average pension contribution’s redistributive effects must be held anyway.In Hietkamp’s opinion, individual pension rights should be introduced where possible, but a collective approach should be kept where necessary to guarantee a minimum pension. Kees Goudswaard, professor of economics at Leiden University, said Dutch society was facing a fundamental choice between sharing pension risks between generations, and the introduction of individual pension rights.However, he argued that the first option would limit risk sharing if financial shocks were spread out over time – as the new financial assessment framework (FTK) is likely to prescribe – while increased freedom of choice would hamper risk sharing.In Goudswaard’s opinion, future generations should not have to contribute to the rising life expectancy of current participants.He also suggested that a clearer pensions contract would help to prevent possible disputes arising from the discretionary decisions of pension funds’ boards.However, both Borgdorff and Leo Witkamp, director of the €4.4bn pension fund PNO Media, highlighted the importance of this discretionary competence, which they said enabled boards to respond to unexpected developments, and to guarantee a balance in risk sharing among all participants.Borgdorff added: “We can’t leave these decisions to the supervisor or the legislator, as the government can’t be trusted for setting consistent rules.”● Also during the congress, several representatives of the sector underlined the importance of freedom of choice for participants to pick their preferred arrangements.Joep Schouten, retired sector veteran and now a pensioner on the board of metal scheme PMT, pointed at the psychological effect, “as people want freedom of choice, without necessarily using it”.● Asset managers warned that employers that opt for a defined contribution plan with lifecycle arrangements should not let price be the decisive factor, as low costs may come at the expense of the quality of the scheme.As lifecycle plans are currently difficult to compare, the sector is developing a framework to address this problem, according to Tjitsger Hulshoff, strategic adviser at ING IM, who underlined the importance of tailor-made solutions.● Systematically assessing risk management, sticking to a long-term investment policy and buying when the markets are low is the secret of a successful company pension fund, according to Loek Sibbing, until recently director at Univest Company, the asset manager for the 80 worldwide pension funds of food and cosmetics giant Unilever.Previously, Sibbing was chairman of Unilever’s €4.6bn Dutch pension fund, one of the best performers in the Netherlands, with a funding of 106% in real terms.
Asset managers and insurers have applauded a green paper by the European Commission announcing details on the Capital Markets Union (CMU), amid concerns from some MEPs.Yesterday, the Commission began its consultation on creating a single capital market within the EU to “unlock liquidity” for European businesses and infrastructure, and shift reliance from banks to institutional investors.The commissioner for financial stability, Jonathan Hill, presented the proposals, arguing it was a “classic” single market project that would meet the approval of member states, including his native UK. The German Investment Fund Association (BVI), representing €2.4trn of assets, said the Commission’s plan created opportunities for investors. Thomas Richter, the BVI’s chief executive said: “This can improve the framework conditions for the macro-economic function of fund companies as intermediaries between capital offer and demand.”This was echoed by the BVI’s UK counterpart, The Investment Association (IA), where Richard Metcalfe, director of regulatory affairs, said the Commission should “complete” the EU single market with pan-European collective investments.“That may require imagination,” he said. “It certainly needs a consistent approach to investor protection, which does not currently operate to the same high standard for all investment products.”However, German Green MEP Sven Giegold, member of the Parliament’s Economic and Monetary Affairs Committee (ECON) said Hill should use the opportunity to make financial markets compatible with EU-values.“A CMU with a one-sided and short-term focus on shareholder value is exactly what the EU doesn’t need,” he said.Giegold was reluctant to approve Hill’s position as Commissioner over his history as a banking lobbyist, describing his appointment as “provocative”.“The harmonisation of capital markets could function in Europe, if this is accompanied by the strengthening of the EU supervisory authorities. The EU capital market must not lag behind in the supervision of cross-border actors,” he added.He also said the Commission needs to move beyond a “tunnel vision” on the CMU and look at including the possibility for small and prudent banks to support SMEs.Fellow German MEPs Markus Ferber, deputy chairman of the ECON and Markus Pieper said Hill’s initiative should not simply import the “Anglo-Saxon model”.“In regions that are suffering from a dysfunctional bank lending market despite low interest rate policies, Hill’s proposals could be an addition to the existing toolkit,” they added.“In Germany, company loans, which constitutes the majority of SME financing, can and should not simply be replaced.”Hill said the occupational and personal pensions market would be key to moving towards market-based financing – but added prudential regulation within Solvency II could act as a barrier to attracting long-term financing.The UK’s insurers group, the Association of British Insurers (ABI), also welcomed the proposals.Director general Huw Evans said the organisation looked forward to engaging with the Commission given its members were well-placed to provide for long-term projects.Deputy director general of Insurance Europe, Olav Jones, added: “The consultation covers several key areas, a primary example being the prudential treatment of long-term investments.“Insurers are particularly hopeful that progress can be made to reduce barriers and disincentives to making long-term investments.”For more on the role of sustainable investment within the CMU, see IPE’s past coverage of the topic
Finland’s Veritas has reported a weakening in investment returns over the third quarter and said the very strong fluctuations seen in markets over the last year were indicative of a permanent shift in the way the markets behave.The pensions insurance company said it made a 2.4% total return on investments between January and September, compared with 5.6% in the same period last year, according to provisional interim figures.Equities produced 5.3% compared with 8%, and fixed income investments made a loss of 0.5%, compared with a 4.9% profit.Veritas described the overall return as “decent” despite turbulent market conditions, and said the third quarter had been challenging in investment markets, with returns declining in those three months. Investment director Nina Bergring said: “Over the past year, we have experienced several very strong fluctuations in the market, which affected many asset classes simultaneously.”She said all of these swings had been branded historically large and rapid, and predicted that strong market movements were here to stay.“The fluctuations are due to the fact the market’s microstructure has fundamentally changed with increasing digitisation,” she added.“More and more players have started to use the same kind of algorithms for risk management and investment strategies, which makes it all the more necessary to make quick changes to the risk exposure simultaneously.”She said this behaviour had created a snowball effect, and that stronger and faster market movements had presented long-term investors with new challenges.“We have to concentrate even more on following the real economy and analysing our investment targets carefully,” Bergring said.Veritas’s solvency capital fell to €580.9m at the end of September, from €609m at the same point last year, and to 27.3% of technical provisions from 30.1%.Premium income rose to €359.6m from €347.7m, while total investment assets increased to €2.67bn from €2.58bn.
The International Accounting Standards Board (IASB) has received strong support for the reintroduction of the concept of ‘prudence’ into its conceptual framework – but little clear direction on how it should do so.According to a staff summary of comment letters on the board’s recently issued exposure draft, some three-quarters of respondents commented on plans to bring back an an explicit reference to prudence.The IASB removed the concept from the 2010 iteration of its framework.But whatever path the board takes on the issue over the course of its new deliberations, one board member warned it against “playing games” with words. Speaking during the 15 March meeting, Patrick Finnegan said: “The problem we have right now is [that] the definition of ‘prudence’ in a dictionary … is more consistent with asymmetric prudence than it is with the IASB’s proposed definition.“My advice is to describe what you mean more precisely. Don’t use a word imprecisely. Don’t say something is something that it is not. And that’s what we’re doing right now.”His comments came as the London-based accounting rule-maker considered a staff summary of comments on its October 2015 exposure draft.The board announced its conceptual framework project in 2011.A discussion paper followed in July 2013.The project is of keen interest to many long-term investors in the UK arguing that accounting standards should emphasise conservatism and caution.In particular, they want to see more timely recognition of losses and a more cautious approach to assets – especially where there is measurement uncertainty over the availability of an asset.The IASB received 233 comment letters on its latest exposure draft.Staff reported that constituents generally viewed the conceptual framework project as ‘high priority’.In particular, they saw the exposure draft as “a significant improvement on both the existing conceptual framework and the proposals in the discussion paper.”The project is not a fundamental rework of the framework – rather it updates, clarifies and fills in gaps in the existing framework.The early signs are that the board’s new deliberations in the coming months will focus on the tensions between prudence in the form of so-called cautious prudence or prudence as asymmetric prudence.The IASB defined prudence in its exposure draft as caution when making judgements under conditions of uncertainty – but without exercising more caution when recognising gains and assets than losses and liabilities.Under the competing asymmetric approach to prudence, a business would recognise losses sooner than it would recognise gains.Fundamentally, the reintroduction of prudence – even as the IASB has currently defined it – could be expected to lead to the delayed recognition of gains where there is measurement uncertainty.Nonetheless, a leading accounting academic and former IASB staffer slammed the proposals as being essentially meaningless.In a 21 November comment letter, professor Richard Baker from Oxford University’s Said Business School wrote: “This approach is … fundamentally flawed. The reason is that it introduces a ‘concept’ into the framework that is not really a concept at all. At best, this achieves nothing – at worst, it leads to confusion.” He added: “The problem is that prudence is in substance defined in a way that adds nothing to the concept of neutrality. As defined, prudence essentially means ‘make sure to be neutral’.“Given that the framework defines neutrality already, there is nothing to be gained from the introduction of an additional ‘concept’ that has no distinctive meaning.”The UK Financial Reporting Council has also called on the IASB to bite the bullet and adopt asymmetric prudence.The reintroduction to the Conceptual Framework of a specific reference to prudence is very welcome.However, the treatment of it in the exposure draft — as support for the idea of neutrality — is wholly inadequate.“The essence of prudence is the idea referred to in the Basis for Conclusions as ‘asymmetric prudence’ — a lower threshold for the recognition of liabilities and losses than for assets and gains — which is absent from the text of the draft Conceptual Framework itself.”The IASB is expected to fix the future strategy for finalising the conceptual framework project at its April meeting.
As part of its acquisition of Swiss Capital, it launched a private debt and hedge fund platform.It will expand StepStone’s European presence to around 90 professionals across three offices.Swiss Capital’s management team will continue to lead the private debt and hedge fund teams and be responsible for the management of the two businesses.In other news, Allianz Global Investors is to acquire Sound Harbor Partners, a US private credit manager.The firm will be part of AllianzGI’s private debt platform, which will incorporate the Sound Harbor team.The value of the transaction has not been disclosed.Sound Harbor is led by Michael Zupon, a former partner at the Carlyle Group, and Dean Criares, a former partner of the Blackstone Group.Sound Harbor is focused on alternative investments in corporate loans, direct lending, distressed debt and opportunistic credit.The deal is expected to close in the first quarter of 2017.Lastly, Moody’s has changed its outlook on the global asset management industry from stable to negative.It said this was because “the acceleration of flows into low-fee passive products from actively managed funds, and regulatory initiatives constraining sales, have disrupted the industry”.The ratings agency said proposals recently announced by the Financial Conduct Authority “to reshape UK asset management” were credit negative for active managers.In mid-November, the UK regulator published its interim report on its asset management market study, saying that it found weak price competition among actively managed funds. StepStone Group LP, a US private markets and real assets investor, today announced that it has closed the acquisition of Zurich-based Swiss Capital Alternative Investments.The transaction was originally announced in May this year and had been subject to regulatory approvals.Swiss Capital is a private debt and hedge fund “solution provider” with more than $6.5bn (€6bn) in assets, targeting institutional investors primarily in Switzerland, Germany and Austria.StepStone is a global private markets firm with around $28bn in assets and overseeing more than $100bn of private capital allocations.
Several large Dutch pension funds have urged Unilever to refrain from increasing shareholder value at the expense of its long-term policy.In an open letter, the metal schemes PMT and PME, as well as their €114bn asset manager MN, said the multinational company should keep its focus on sustainability and return for the long term.Unilever has said it would investigate how it could increase its shareholder value, after it successfully fought off a takeover bid from US conglomerate Kraft Heinz last week.Kraft Heinz had offered $143bn (€135bn). As of 28 February, Unilever’s market cap on the London Stock Exchange was £114bn (€133.6bn). In the pension funds’ letter, which also received support from the €443bn pension manager APG and insurer ASR, the metal schemes said that “creating real shareholder value meant a long-term focus”.During the past years, Unilever – headed by chief executive Paul Polman – was known for its focus on sustainability.PMT and PME emphasised that, because of this explicit philosophy, the company had been an attractive investment option “as it came with understanding of markets, defining scarcity as well as innovatively responding to changes”.In their opinion, increased annual turnovers and sustainability targets could be combined for lasting shareholder value.However, they conceded that cost reductions as well as divesting less profitable parts of the company could be part of a long-term strategy and sustainability goals.Investors had suggested dividing the company into separate firms for food and household products, the divestment of its margarine division, or a share buyback programme.A spokesman for MN said commenting on specific suggestions would be too early, “as Unilever hasn’t yet announced concrete plans”.Dutch news daily De Volkskrant quoted a spokesperson for ASR as saying: “Sticking to a sustainable course will, based on our experience, lead to equal returns as well a a better world.”An APG spokesman said that the asset manager shared the pension funds’ concerns, but also underlined the importance of a high share value, “as this would make a takeover bid more difficult”.The €199bn asset manager NN IP, which has voting rights of more than 9% in Unilever through preferential shares, declined to comment on the company’s market value.
Chancellor Philip Hammond wants private sector investors to fund half of an £800m (€917m) government-backed Digital Infrastructure Investment Fund to be launched later this year.In his Budget report, announced to the UK parliament’s lower house this week, Hammond said the fund would “accelerate the deployment of full-fibre [broadband] networks by providing developers with greater access to commercial finance”.The chancellor also laid out plans for investment in transport infrastructure, to be backed by a separate government fund.Sir Merrick Cockell, chairman of the London Pensions Fund Authority (LPFA), welcomed the new investments but urged the government to push “large-scale innovative projects that will secure growth and protect our international competitiveness”. He cited Crossrail 2 – a proposed major train line stretching north to south across London – as an example of such a project. Although the speech and report was notable for its lack of new pensions policy, Hammond introduced a 25% charge for transfers to qualified recognised overseas pension schemes (QROPS). The charge was aimed at individuals seeking to reduce their tax bill by transferring pensions overseas.“Exceptions will apply to the charge allowing transfers to be made tax-free where people have a genuine need to transfer their pension, including when the individual and the pension are both located within the European Economic Area,” Hammond’s report stated.Meanwhile, the £46bn BT Pension Scheme – the UK’s largest corporate pension fund – is to play a pivotal role in changes to the structure of BT subsidiary Openreach.Openreach is responsible for the upkeep of the UK’s phone and broadband network and is fully owned by BT, a formerly public-owned telecoms provider. After complaints from competitors, communications regulator Ofcom struck a deal with BT to formally separate Openreach within its corporate structure.This would require new pension arrangements for 32,000 current and former Openreach workers, as well as a clarification as to whether they would be protected by BT’s Crown Guarantee. This is a promise from the government to continue to back the pension scheme even if BT is wound up.A statement from the BT Pension Scheme said: “We are pleased that BT and Ofcom have reached agreement on a long-term regulatory settlement in relation to the Digital Communications Review. Going forward, the Trustee will continue its active engagement with government, BT and other stakeholders to seek to conclude the remaining pension matters in the interests of our members so that these arrangements can proceed.”Elsewhere, the local government pension scheme for the Scottish Borders Council has appointed Northern Trust to provide a range of services for its £550m portfolio.Northern Trust will be responsible for global custody, accounting, performance measurement, cash management and foreign exchange services. The group has mandates with eight of Scotland’s 11 public pension funds.Finally, the Financial Conduct Authority has launched a consultation to update its guidance around redress for missold transfers out of defined benefit (DB) pension schemes.The regulator’s rules have not been updated since the government introduced “freedom and choice”, removing the requirement for members of defined contribution schemes to buy an annuity at retirement, which has made transferring out of a DB scheme more attractive for some individuals. It has also led to a spike in fraudulent schemes.The consultation is open until 10 June and is available here.
Attractive pricing is driving a surge of interest in the mid-size pension buy-in market – with insurers aggressively cutting prices to win new business, according to Willis Towers Watson.The consultancy firm said it had completed two buy-ins in April, each covering £100m (€118.4m) of liabilities, and was advising on a further five deals covering more than £1.5bn of liabilities which they expected to close over the coming weeks.Ian Aley, head of transactions at Willis Towers Watson, said the high level of competition among insurers trying to win business was “great news” for pension schemes.“One notable feature of the current market is the level of competition for deals between £100m and £300m of liabilities – we are seeing seven insurers quoting on many deals, leading to significant competitive tension as the insurers fight to win deals,” he said. The bulk annuity and longevity swap markets had a “relatively modest” start to 2017, Aley said, with just over £1bn of transactions publicly announced at the end of March, despite market commentators predicting a record breaking year. However, he said the figure did not fully capture the level of activity in the market.“The buy-in market is currently very active, perhaps the busiest I have ever known it to be,” he added. “We have observed pricing that has consistently been at levels last seen in the financial crisis of 2008-09, making the case for pensioner buy-ins highly compelling relative to holding a portfolio of gilts and credit.”There were two key drivers for this focus on the mid-size market, Aley said. Reinsurers had recently started to reflect the increased levels of mortality seen in 2015 and 2016 into their pricing. As a result, the cost of longevity hedging for buy-in providers had fallen, feeding straight through to pricing. Secondly, Aley noted there was also a limited supply of suitable high-yielding assets to facilitate attractive pricing for very large bulk annuities, leading to insurers focusing on the mid-size market.Insurers were also enjoying more investment flexibility under Solvency II, which came into effect from 1 January 2016, allowing them to source alternatives to corporate bonds, such as ‘secure income assets’ and lifetime mortgages.In its most recent monthly newsletter, Willis Towers Watson said: “Both of these asset classes can provide a good match to the liabilities of a pension scheme via their secured cash-flow stream, and typically provide a higher yield than corporate bonds due to their illiquidity – a premium the insurer is able to accept given the long-term investment they are seeking.”