Bank J Safra Sarasin – Paul Schulz has been appointed head of fund research. He joins from Notenstein Privatbank, where he was head of fund research since 2008. His previous appointments include fund research at UBS, and equity research at Deka and Dresdner Bank. State Street Global Advisors, Mercer Italy, AXA Investment Managers, Standard Life Investments, Bank J Safra SarasinState Street Global Advisors – Helene Veltman has been appointed as senior solution strategist in the Investment Solutions Group for the EMEA region. Based in London, she will be responsible for Dutch clients and prospects. She joins from AXA Investment Managers, where she was director of liability-driven investment and fiduciary management, based in Paris. Before then, she worked in risk management for equity derivatives and solutions for insurance and pension clients at Société Générale. She has also worked at HSBC and Commerzbank.Mercer Italy – Luca De Biasi has been appointed to Mercer Italy’s management team in Milan as head of investment. De Biasi comes to the consultancy from Banca della Svizzera Italia, part of the Generali Group, where he was senior vice-president, head of multi-management and the fund selection unit.Standard Life Investments – Gerry Rocchi has been appointed a non-executive director of the board, effective 1 March. Rocchi is currently chief executive at Green Power Action, an environmental finance firm based in Toronto that manages Canada’s first carbon-offset credit fund. He left Barclays Global Investors Canada in 2005, where he was chief executive from 1997 to 2004.
Denmark’s PFA group – the country’s largest commercial pensions provider – has made its highest ever investment returns in the first half of this year after Danish shares produced a profit in the period of more than 20%.The total investment return was DKK23bn (€3.1bn) in the first six months of 2014, PFA said.Poul Kobberup, head of bonds at PFA’s asset management arm PFA Kapitalforvaltning, said the highest return achieved in any half-year period before this had been in the first half of 2010, when the return had been DKK18.4bn.In the first half of last year, the investment return had been close to zero, he said, because of the effect of the rise in interest rates during the period. Since the end of this June, investment returns increased further, rising to DKK25.4bn to date.Unit-link pensions produced returns of between 5.9% and 7.7% to date for customers in the first half compared with 3-10% in the same period last year.The investment return for with-profits pension products was 9% on average, up from a loss of 1% suffered in the first half of 2013, when rising interest rates took their toll.PFA’s return on shares was 9.5% in the first half, boosted in particular by a strong domestic equities market, with Danish shares rising by more than 20% in the six-month period, the pensions provider said.Henrik Heideby, head of the PFA group, said: “At the same time, we have also had a really positive development in our alternative investments, which produced a double-digit return in the first half of the year.”PFA’s property investments had generated a 4.3% return in the period.Bonds returned around 5%.“This was driven to a large degree by foreign bonds, where the portfolio has a total value of more than DKK100m,” Heideby said.In turn, foreign bond returns were lifted mainly by the exposure to emerging markets, as well as good performance in the underlying portfolios, which returned almost 7% in the first half.
The body for UK universities is using “dodgy” figures during negotiations over changes to the Universities Superannuation Scheme (USS), a union has claimed.Universities UK (UUK) is currently in negotiations with unions over changes to the £41.6bn (€50.3bn) USS that would see the UK’s largest pension fund close its final salary section and become a hybrid scheme.However, the Universities and College Union (UCU) said the body was using “misleading” figures in its proposals that failed to account for USS members being promoted.Citing work undertaken by the University of Oxford, the union’s head of bargaining Michael MacNeil said: “Modelling done for us and for others demonstrated that staff could see huge sums wiped off their pensions. “We would be more than happy for further independent modelling to be done so USS members can be confident of the information being provided by the employers.”The University of Oxford argued that UUK had failed to account for its staff’s career progression and expected incremental salary increases.The university added: “We feel we should show our staff examples based on a realistic and typical career.”The proposed changes, which have led to UCU balloting its members on strike action, would see pensionable pay for the career average section of the fund capped at either £40,000 or £50,000.The final salary section, previously closed to new members but still open to accrual, would be closed, and all contributions above the defined benefit salary cap would be paid into a new defined contribution scheme.In line with UK law, members would not see any changes to previously accrued benefits.In other news, the UK has seen continued growth to private sector pension saving, as the rollout of auto-enrolment continues.According to new figures released by the Department for Work & Pensions (DWP), 6.7m private sector workers were contributing to a pension fund in 2013, up from 5.9m in 2012.The department also announced that nearly £78bn in contributions had flowed into public and private sector funds, up by more than £4bn from 2012, with nearly £40bn coming from private sector workers.Commenting on the figures, pensions minister Steve Webb said: “Almost 7m people in the private sector are now saving, including many from low to middle-income occupations who have never had their own workplace pension before.“And, surprisingly, it is young people who are the age group leading the way, with almost one in three of those in their 20s putting something by for their retirement.”Lastly, the Pension Protection Fund (PPF) has released updated guidance for scheme valuation, meant in part to reflect changes to which schemes can be classed as money purchase.The valuation guidance update also reflects the correct treatment of demographic hedging arrangements, such as longevity swaps.The revised guidance – which also affects funds entering the lifeboat fund after sponsor insolvency or those seeking to re-enter if they were unable to secure benefits through buyout – can be found on the fund’s site.,WebsitesWe are not responsible for the content of external sitesLink to new valuation guidance by Pension Protection Fund
Finnish mutual pension insurer Ilmarinen saw the value of its investments grow to €34.1bn by the end of September, and indicated it would gradually raise its equity weighting as a result of new freedom granted in the country’s recently agreed pensions reform.Deputy chief executive and chief investment officer Timo Ritakallio said: “The pension agreement will improve the financial markets’ confidence in Finland’s public finances, even though its credit rating fell.”The reform, agreed by government, and employers’ and workers’ representatives in September, would also improve the long-term outlook for the Finnish economy, he said.Changes to solvency regulations for pension companies that were included in the reform would make it possible to increase an investment portfolio’s equity weight to 60%, Ilmarinen said. Ritakallio, who is to become the company’s chief executive next May, said these changes would affect Ilmarinen’s long-term strategy.“We do not expect sudden changes to the equity weight, however,” he said.In its interim report, Ilmarinen said equities and shares made up 41.1% of total investments at the end of September, while fixed income accounted for 43.1% and property has a 10.8% weight.The total return on the company’s investment portfolio for January to September 2014 was 5.7% or €1.8bn, down from 6.5% or €1.9bn in the same period last year, according to the report.The market value of investment assets rose to €34.1bn from €31.5bn. “Equities and shares did particularly well but as a result of declining interest rates, we also brought home good returns from our fixed income investments,” Ritakallio commented.The return on listed equity investments slipped to 8.8% from 14.1% in the same period a year earlier, while fixed income returns were little changed at 3.1% after 3.2% and direct real estate produced 4.0%, up from 3.3%, according to the unaudited figures.Ritakallio said the consequences of the Ukraine crisis had started to have an obvious effect on the economic situation in Russia and Europe, with the economic outlook for both areas having weakened.Though Ilmarinen had few Russian investments, the indirect impact of the Ukraine situation could also be felt in Ilmarinen’s investment portfolio, the insurer said.“The drawing out of the crisis and the economic sanctions are further weakening Russia’s economy and also indirectly affecting the profit outlook of many of the listed companies owned by Ilmarinen,” Ritakallio said.The third quarter figures show Ilmarinen’s asset allocation shift within equities towards European shares and away from the domestic market has continued.At the end of September, European assets made up around 41% of the listed equities portfolio and Finnish assets accounted for around 25%, compared to around 26% and 40% respectively at the end of 2011.Ritakallio said the Finnish economy was not expected to improve for the time being, but he predicted that the weakening of the euro would make Finnish exporters more competitive in the long term.
Avon Pension Fund and Dorset County Pension Funds have awarded infrastructure mandates of £187m (€234m) and £40m, respectively, to IFM Investors, after breaking new ground by sharing their procurement costs three ways.It was the first time either UK local authority pension fund invested in infrastructure, and showed that the asset class is becoming more appealing to schemes as they look for sources of uncorrelated returns to match liabilities, IFM Investors said.Matt Betts, assistant investments manager at Avon Pension Fund, said: “We wanted to diversify our assets, and looked to infrastructure due to its inflation-linked, cash-generating and liability-matching qualities.”IFM Investors’ portfolio and open-ended investment structure – which allows allocations to be made for the long term – were very attractive to the pension fund, he said. “We decided to make a new allocation to infrastructure following a review of our investment strategy in 2013,” Betts said.IFM Investors – which is owned by 30 non-profit pension funds – said the Avon Pension Fund allocation to infrastructure was particularly big and far surpassed the average amount being invested by UK local authorities in the asset class to date.The pension funds were advised by JLT Employee Benefits, which brought three local authority pension fund clients – Avon, Dorset and the City and County of Swansea Pension Fund – together in a joint procurement process in order to save costs.John Finch, head of LGPS (Local Government Pension Scheme) at JLT Employee Benefits, said this collaborative search process had enabled the three funds involved to make significant savings, but still allowed them to make independent decisions on their choice of manager.All three pension funds had been looking to appoint managers for infrastructure, he told IPE.Finch said that, to his knowledge, this was the first time such a collaborative search process had been done.“We did one search for the three of them and split the cost between the three of them,” he said.“It meets what the government had been requiring local government pension schemes to do, in collaborating to save costs.”The Dorset County Pension Fund is believed to have appointed Hermes as a second infrastructure manager, though neither party was immediately available to confirm this.The City and County of Swansea Pension Fund was also unavailable to comment on the status of its search for infrastructure investment managers.Finch said his company would be advising on a second round of procurement for infrastructure investment management on behalf of local government pension funds next year.According to IFM Investors, the Avon fund has £3.58bn in assets and the Dorset fund has £2.2bn.
Only one in five pension investors believe they are managing longevity risk effectively, according to a survey conducted by State Street.The survey of 400 pension professionals globally also found that investors were even less confident they were properly managing any general investment risk, or specifically investment risk, stemming from investments.The survey – ‘Pensions with Purpose: Meeting the Retirement Challenge’ – says “this is a real concern for pension funds, especially as many move into new investment areas that require specialist understanding of different risk types.”State Street pointed to the risks associated with illiquid, often alternative asset classes and said its research found that less than half of its respondents were confident they had achieved “real transparency on the risk associated with alternative assets”. Examining some of the key investment areas in greater detail, the survey found that 21% of respondents said they were confident of their ability to manage longevity risk, while 73% said they were somewhat certain and 6% said they had low confidence in their ability to manage the ageing membership effectively.The lack of certainty was mirrored across other areas of risk – such as liquidity, investment and operational risk – with only 20% indicating that they were certain they were highly effective at managing operational risk, and only one in six respondents saying they were confident of their ability to manage liquidity and investment risks.“As pension funds increasingly recognise the importance of applying more sophisticated risk modelling, the accuracy of the data that feeds those models grows in importance,” the survey adds.“But only 26% of respondents are highly confident in the reliability and accuracy of their risk data.”Oliver Berger, head of asset owner solutions at State Street, said the research also showed pension investors were investing “heavily” to improve the transparency and frequency of reported data, although he conceded there was still work needed in the area.
Weston questioned the need to increase issuance of project bonds, which has been used in the UK in a number of cases, including to guarantee the majority of a £330m (€441m) issuance by the University of Northampton to fund a new campus.“It’s almost a solution that doesn’t really have a problem,” Weston said of project bonds.He said the government, rather than push ahead with more underwritten project bonds, should focus on general guarantees.“There’s no shortage of money for projects,” Weston added, “but what we need are projects that are appropriately structured with the right risk/return balance.”Weston reflected on the willingness of pension funds to invest in the £4.2bn Tideway sewer project, which has attracted funding from a number of UK and overseas pension investors and was aided by government guarantees.Weston added: “From what Theresa May has been hinting, if the deficit will be less of a focus, that to us opens up the Tideway-type structure more widely.”He said all such projects needed someone to shoulder the burden of “very low risk but very high impact” events, a role best suited to a government extending downside protection.Green infrastructureFor his part, Fergus Moffatt, head of public policy at UKSIF, said May’s mention of project bonds marked a “step change” in the way both Cameron-led governments had approached economic policy.“If the money raised is going towards green infrastructure, then we would absolutely support that,” he said. Moffatt said such a focus on green projects could help the UK’s energy trilemma – improving reliability of energy delivery at a lower cost, while reducing carbon emissions.However, Moffatt noted that May’s speech had only referenced two of the three areas, omitting ways to reduce carbon emissions.He added that, following the Paris climate change agreement and the UK’s recent carbon budget – which targets a 57% cut in emissions by 2032 relative to 1990 levels – the infrastructure and energy debate would be linked.Moffatt said he would be “concerned” if no further policies to lower emissions were forthcoming.He argued that the development of carbon capture and storage (CCS) technology had been neglected by the previous government, which cancelled a planned £1bn CCS development competition in November last year, and said it would be one area UKSIF would be happy to see revived.The European Investment Bank (EIB) has been a supporter of project bonds, using them as part of its strategy to attract investors to transport and energy projects. Proposals by the UK’s next prime minister for a greater use of infrastructure project bonds underwritten by the state are a solution where no problem exists, the chief executive of the Pensions Infrastructure Platform has suggested.Commenting on a speech by Theresa May – set to become UK prime minister on 13 June following the formal resignation of incumbent David Cameron – Mike Weston, of the pension fund-owned infrastructure platform, instead urged the UK government to employ more general project guarantees and build on the success of projects such as the Thames Tideway Tunnel.“We struggle a bit to see whether project bonds would be the better or the best way of expanding government guarantees for infrastructure projects,” he said.He spoke to IPE days after May’s only major policy speech during the race to succeed Cameron as prime minister saw her back the greater use of infrastructure project bonds underwritten by the UK’s Treasury.
Schroders has secured £350m (€400m) from a trio of UK defined contribution (DC) pension schemes to launch a factor investing fund with a sustainability tilt.The Sustainable Multi-Factor Equity (SMFE) fund uses a proprietary tool, named SustainEx, to process and analyse data related to company reports and financial performance as well as measures of social and environmental impact.The strategy assesses more then 9,000 companies based on quality, value, momentum, volatility and sustainability factors. It also aims to reduce its carbon footprint by 50% relative to its performance benchmark, the MSCI All Country World index.Companies in sectors such as tobacco, gambling and weapons manufacturing were excluded, but the company emphasised that exclusion and divestment were not a primary feature of the strategy. Ashley Lester, head of multi-asset research and systematic investments at Schroders, said the SustainEx system allowed the asset manager to illustrate the financial impact of its investments. Based on a backtest of the strategy from January 2010 to June 2018, Schroders estimated that its new fund would generate approximately £2.50 of net external societal benefits for every £100 of company sales, through supporting companies paying fair wages and not avoiding taxes, for example.“SMFE combines a scientific approach to ESG measurement with an equally scientific approach to factor investing,” Lester said. “We aim to put the best thinking in both ESG and factor investing to work for our investors, both now and through a measured but continuous process of improvement in the future.”Lester said that the fund rebalanced every month to take full advantage of different factors. Schroders would continue to add data points to the SustainEx framework to develop the process, he added.The UK version of the fund has an estimated ongoing charges figure of 0.24%, keeping it within the country’s auto-enrolment DC charge cap of 0.75%. A global version of the strategy is slated for launch in December.Major UK DC funds including NEST and HSBC have adopted default strategies with sustainable investing tilts in recent years.
The head of fixed income explained that SAMCo had significantly raised its holdings of alternative credit as listed bonds had artificially low yields as a result of the ECB’s quantitative easing policy. Shell Asset Management Company (SAMCo) is considering expanding its alternative investments to include property loans, according to its head of fixed income.At the World Pension Summit in the Netherlands last week, Ben van den Berg said that SAMCo was looking into real estate loans for its Dutch and UK clients as “new and attractive investments” within its alternative credit portfolio.Property loans often have a high rating, as they usually have real estate assets as collateral, he said.However, Van den Berg said that if SAMCo were to proceed with the investments, it would outsource the work to an external manager as his company lacked the necessary expertise. Shell Asset Management is considering entering the real estate debt markets“Therefore, we have been investing in collateralised loan obligations for a while, which have a AAA rating in general,” Van den Berg said. “And during the past few years, we have also started investing in export credit and residential mortgages.”That said, Van den Berg noted that illiquidity premiums on alternative investments weren’t consistent, and that spreads on export credit – loans to businesses involved in international trade – had decreased to 40-50 basis points.“This isn’t enough for us, and therefore we have partially divested our positions in favour of residential mortgages,” the head of fixed income said. “These have a spread of 150-175 basis points relative to swap rates, as well as a rating of at least AA.”SAMCo was also monitoring developments within direct lending, but Van den Berg said that “this market must develop futher before it would become investable to us”.LiquidityVan den Berg explained that the lack of liquidity in fixed income markets continued to be a problem, not only because of difficulties with divesting, but also that it would hamper the asset manager’s ability to benefit from unexpected opportunities elsewhere in the market.“If you put aside assets for 20 years, you can’t deploy them in order to take advantage of market opportunities like the ones that occurred during the financial crisis of 2008/2009,” he said.He added that pension funds should avoid their illiquidity premium turning into liquidity risk: “During the financial crisis some schemes ran into solvency problems, not because of low funding but because of a lack of liquidity.”According to Ido de Geus, head of fixed income at the €215bn Dutch asset manager PGGM, a 25% allocation to illiquid investments was the maximum pension funds could afford.In the past few years, PGGM has more than doubled its stake in alternative investments to in excess of 20%, he said, concluding that the allocation was about to reach its peak.In addition to residential mortgages, the asset manager has invested in infrastructure – including solar and wind farms – and green bonds.
Katie Sims, head of multi-asset growth solutions at WTW, said: “Underfunded DB schemes are effectively counting on a once-a-century equity performance if they’re to wipe out deficits this decade. Simply putting all your eggs in one basket and hoping for unlikely events will not be enough to solve the funding gap.”The required rates of return for equities are almost three times the historic equivalent. UK equities have averaged just 3.1% p.a. above cash rates since comparable records started in 1704. Throughout that time, UK equities have only matched the required 9% annual rate of return over cash in 1-in-20 previous ‘rolling decades’, WTW’s research showed.“Pension schemes need to look outside of listed equities and adopt the mindset of an endowment investor, embracing a broad range of assets including private markets, to improve their return profile,” Sims added.“While caution is partly understandable, year by year this problem gets worse as returns will on average disappoint. Allocations that have such a low chance of delivering the right outcomes might also be seen as a form of denial. Trustees need to reimagine allocations,” she said.She called for pension schemes and other institutional investors to “massively rethink how they anticipate creating the necessary long-term wealth to fund their future obligations”.She noted that listed equity certainly has a place in a pension fund’s investment mix, but asset owners need to think beyond traditional allocations in order to meet the returns they need.The analysis assumes fixed income and liability returns are in line with the UK nominal yield curve at 31 July 2020 and that schemes are fully hedging their liabilities.To read the digital edition of IPE’s latest magazine click here. Underfunded defined benefit (DB) pension schemes in the UK are over-dependent on historically improbable equity returns, if they are to avoid carrying over funding gaps into the 2030s, according to analysis by Willis Towers Watson (WTW).Given current funding levels, and typical asset allocations for UK pension funds, WTW research shows that the average underfunded UK DB scheme requires their equity portfolio to return 9% above cash rates on an annual basis for the whole of the next decade, or significant deficits will continue into the 2030s.Comparing this requirement with historic returns from equities reveals how unlikely current allocations are to lead to full funding before the next decade, it said.The analysis is based on the PPF7800 index funding ratios of underfunded UK DB pension schemes as at 31 July 2020. The funding ratio is adjusted for and assumes that pension funds are targeting full funding on a gilts flat liability basis (a proxy for targeting buyout).