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IPE Views: UK pension industry needs to gear up for significant change

first_imgDalriada’s Adrian Kennett looks at what’s to come after the government’s ‘clear statement of intent’ on reformEarlier this week, the UK government gave its response to the consultation paper ‘Freedom of Choice in Pensions’, which signals a clear statement of intent to the UK pension sector that big changes are on the way.  The response from government is effectively saying it’s “full steam ahead” in terms of implementing the proposed changes initially set out in the chancellor’s Budget in March.Trustees and employers must now get their houses in order quickly, as this clear response enables them to finally start to prepare for the upcoming changes in 2015 with a degree of confidence. Defined benefit (DB) to defined contribution (DC) transfers will remain possible in the private sector and funded public sector, subject to members taking regulated independent advice  – if they have a pot size of more than £30,000 (€38,000). Planning for the forthcoming changes needs to cover a number of aspects, including communications. If they have not yet been contacted, members approaching retirement should be notified of the increased flexibility. Overall, communications should start to be considered for all members over 55, as well as those nearing that age.Data-gathering issues are another important consideration that should raise challenging questions for scheme managers such as what proportion of their deferred membership are over 55 or are approaching 55 in the near future; how big are their funds; what proportion will be able to take advantage of the revised trivial commutation limits.A potentially significant number of transfer out quotations may be sought from DB schemes next year, so scheme managers must also assess if they are suitably geared up for this in administrative terms and whether they have the capability to handle such volumes. Do they have all the data, including AVC fund information, to enable them to do so?  Trustees must also consider the Guidance Guarantee. Though this is provided by external parties, they will be duty bound to signpost the availability of the guidance and need to put in place the required administrative procedures to cover this.Given that the time horizon over which a proportion of members will receive their benefits will change, it is likely to have a material impact on investment strategy, and revisions may need to be considered. A significant amount of cash may be required next year, for example, as the block of those aged over 55 suddenly become able to take their benefits flexibly. Finally, scheme managers need to take a watching brief as to whether the consultation will ultimately provide flexibility through DB schemes rather than necessitating a transfer out to a DC scheme beforehand. Keep an eye out for product developments in the provider market that emerge in response to new legislation such as the flexibility to take cash from a pension at any point following the purchase of an annuity rather than having to wait until retirement as required by the current rules.Adrian Kennett is director at Dalriada Trusteeslast_img read more

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Mandate roundup: Hampshire Pension Fund, RPMI Railpen, Northern Trust

first_imgThe fund is hoping to attract at least five managers to the three standalone tenders, with managers asked to submit all responses by 1 July.According to the fund’s most recent annual report, it had £175m in private equity holdings at the end of March 2014, a further £136m in hedge funds and an estimated £106m in infrastructure assets.In other news, Norwegian public broadcaster NRK is looking to launch a defined contribution (DC) pension scheme.The broadcaster currently maintains a defined benefit arrangement with DNB Livsforsikring, which has more than 4,000 active members but will launch a DC fund by the beginning of 2016.Any pension provider interested in acting as the DC scheme for NRK must have at least an A rating from Standard & Poor’s or an A3 rating from Moody’s, with at least three large Norwegian companies as clients at present.Interested parties have until 26 June to submit proposals.Lastly, RPMI Railpen has chosen Northern Trust as its provider of investment operation outsourcing.The in-house manager for the £21bn Railways Pension Scheme said the move was part of a shift towards the in-house management of assets, with Northern Trust selected to provide trade matching, derivative processing and active collateral management services. The UK’s £4.5bn (€5.4bn) Hampshire Pension Fund is to outsource its investments in hedge funds, private equity and infrastructure, accounting for just shy of 10% of all assets.In a tender notice, the local authority pension scheme said it wished to continue investing in the asset classes, but that it would pick one or more asset managers to oversee the portfolios rather than manage them internally.To this end, it is tendering three 10-year contracts worth a combined £30m to act as the fund’s infrastructure and hedge fund manager, as well as oversee its private equity and illiquid assets.  Although the contracts run for 10 years, Hampshire said it would review them after five years and consider whether it wished to maintain the relationship.last_img read more

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Dutch pension fund Zoetwaren ramps up risk profile after returning 24%

first_imgIt said improved funding levels had allowed the scheme to grant active participants an indexation of 1% and its deferred members and pensioners an inflation compensation of 0.5%.Meanwhile, Zoetwaren’s board, drawing on a recent asset-liability management study, decided to increase its risk profile to a funding level of 120-140% to create financial buffers for indexation, according to employers chairman Leo Dekker.Exceeding the 140% level would trigger de-risking adjustments, Dekker added.At March-end, Zoetwaren’s official ‘policy funding’ was 113.1%. The pension fund said it kept its contribution for 2015 at 27.6% of the pensionable salary.The annual result of the industry-wide scheme was, in part, due to its hedge of the interest risk on its liabilities, which had been 75% initially but was reduced to 65% over the course of the year.The interest cover – a combination of AAA government bonds and interest swaps – made up the scheme’s 55% matching portfolio, which returned 35.7%.The pension fund’s return portfolio generated 8.2%, with all asset classes delivering positive results.High-yield bonds produced a 10.2% return due largely to credit.Equity returned 13.9%, with low-volatility stocks generating the best results, the scheme said.However, Zoetwaren reported an unspecified loss on its hedge of the US dollar and the British pound.The pension fund also reported asset management costs of 0.45%, and attributed the reduction of 0.13% to lower performance fees, as well as increased passive management within its matching portfolio.Zoetwaren has 8,000 active participants, 29,000 deferred members and 9,350 pensioners, affiliated with 210 employers. Zoetwaren, the €2.1bn pension fund for Dutch confectioners, is planning to increase its risk profile after reporting a 2014 return of more than 24%. The return lifted its coverage ratio by 2.7 percentage points to 112.6%, exceeding its mandatory financial buffer by 1 percentage point, according to its annual report.The scheme’s board said it planned to increase Zoetwaren’s equity allocation gradually from 19% to 23%, citing the outcome of a recent survey into the risk appetite of its participants and pensioners.The pension fund also replaced holdings in “expensive and non-transparent” hedge funds for real estate and European credit to “optimise” its investments portfolio.last_img read more

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Lithuania’s INVL AM gets approval to merge second-pillar funds

first_imgINVL Asset Management, part of the Invalda Group and one of Lithuania’s biggest asset management companies, has been given the green light by Bank of Lithuania to merge six of its seven recently acquired MP Pension Funds Baltic and Finasta second-pillar funds.According to Invalda, following the acquisitions, the investment strategies and risk levels of a number of the companies were identical.The merger, preceded by a rebranding of five of the six funds into the INVL name, is due to be completed by the end of 2015.The new merged funds will be known as INVL STABILO II 58+ (the two former conservative, bond funds), INVL MEDIO II 47+ (medium equity) and INVL EXTREMO II 16+ (high equity). The numbers have been added to indicate the recommended age profile of the respective funds.Finasta’s low-equity fund is not part of the merger but will be renamed INVL MEZZO II 53+.The merger will shrink the number of second-pillar operators to six, with INVL in fifth place.According to Bank of Lithuania’s end-June data, of the 26 second-pillar funds, the MP plans had a 5.5% share (64,722) of the total membership and 5.4% (€109.5m) of assets.The respective figures for Finasta were 3.3% (39,100) and 3.5% (€67.6m).On the day of the merger, the accumulated assets of the funds’ participants will be converted, free of charge, into units of the new entities.According to Invalda, each member’s accumulated fund value will remain unchanged, although their number of units may change as a result of each current fund’s different values.Finasta and MP’s two former third-pillar funds are not being merged, but the four will likewise be renamed as INVL plans.INVL entered the Lithuanian pension market in September 2014 when it acquired three second-pillar and two third-pillar funds from Iceland’s MP Banki.In December, it acquired a 100% stake in Finasta Asset Management, including four second-pillar and three third-pillar funds, following up the next month with Finasta’s Latvian asset management operations.That acquisition marked Finasta’s return to Invalda, which in 2009 sold the company to Bank Snoras.Finasta, as a separate legal entity, was unaffected by Bank Snoras’s nationalisation by the Lithuanian government two years later and subsequent bankruptcy.last_img read more

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Swiss investor tenders ESG equity mandate using IPE-Quest

first_imgAn institutional investor based in Switzerland has tendered a €50m ESG equity mandate using IPE-Quest.According to search QN-2137, managers are expected to outperform the benchmark, after costs, by at least 100 basis points over a rolling three-year period.Asset managers should employ the MSCI Europe-TR as benchmark, with a maximum tracking error of 5%.The investor has no minimum assets under management or track-record requirements. The mandate requires at least 50 holdings and prohibits leverage or short-selling, nor should maximum weight of a single security exceed 10% of portfolio value.The investor prefers the “integration approach” to ESG and calls for no “thematic ESG products”.Interested parties should state performance, gross of fees, to the end of October.The deadline for applications is 7 December.The IPE news team is unable to answer any further questions about IPE Quest tender notices to protect the interests of clients conducting the search. To obtain information directly from IPE Quest, please contact Jayna Vishram on +44 (0) 20 3465 9330 or email [email protected]last_img read more

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Dutch Dentists scheme opts for independence over insurance arrangement

first_imgSPT, the €1.8bn closed pension fund for dentists in the Netherlands, has ruled out transferring its assets to an insurer, instead preferring to remain as an independent entity. In the fund’s annual report for 2015, it argued that it still could serve its 3,125 participants and 3,920 pensioners through low provider costs and offering the option of indexation.Last year, the board decided to reject a quote of Aegon for insurance-based arrangements, as the offer was “not beneficial”, according to the scheme’s accountibility council (VO).The board, however, added that its wish to offer inflation compensation was a long-term goal, rather than something it was immediately able to act on. At April-end, the fund’s official policy funding level stood at 106.8%, after remaining around 108% over the course of last year.Under the rules of the new financial assessment framework (nFTK), partial indexation can only be offered once the policy funding level stands at 110% or above.SPT reported a positive result of 0.22% over last year, but added that it suffered losses on several hedging strategies, including its equity cover.As the value of its put options dropped as a consequence of rising equity markets, the pension fund had to accept a lower yield on stock.Combined with a loss on its currency hedge, the net result on equity was 3.4%, despite an actual return of more than 11%, an outperformance of 0.5 percentage points.SPT’s 21% equity portfolio has been fully and passively invested in global developed markets.It has fully hedged the risk on the six largest currencies, and lost on its cover as the main currencies appreciated relative to the euro.Meilof Snijder, the scheme’s temporary chairman, said the scheme lost 0.12% on its 77.1% fixed income holdings, which included a 9.8% stake in money market funds managed by BlackRock.This was caused by a 0.73% loss on its derivatives.The actual return of its fixed income holdings had been 0.61%, and, in particular, NN Investment Parters’ Fixed Income All Grade Fund outperforming its benchmark, according to the pension fund.At year-end, the dentists scheme was hedging the interest risks of 86% of its liabilities through government bonds and swaps.It said that, at this hedge level, a 2 percentage point rise in interest rates could cause its assets to drop by almost €350m.But as liabilities would also fall, its funding would remain “relatively stable”, SPT said, which has extended its contract with risk manager Cardano for developing and implementing its matching portfolio.Last year, SPT replaced NNIP for Lombard Odier as fiduciary manager and extended the mandate for custodian Kas Bank to include asset management reporting.The pension fund incurred 0.17% and 0.08% in asset management and transactions costs, respectively. It spent €236 per participant on pensions administration.last_img read more

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Top 400 Asset Managers 2017: Global passive assets hit €8trn

first_imgGlobal passive assets grew by more than 20% a year between 2014 and 2017, according to IPE’s survey. Actively managed assets grew 12% a year in the same period.The global growth figures relate to a sample of 122 managers within the IPE 400 database across the four-year period. The European institutional figures relate to 104 managers. European institutional passive investment grew by nearly three times as much as active investment between 2013 and 2017, according to IPE’s Top 400 Asset Managers survey.IPE’s data shows the compound annual growth rate for European institutional passive investments was 17.5% for that period, while actively managed assets grew by 6.4% a year.At the end of 2016, the survey shows €5.8trn of European institutional assets was invested in active strategies (76%) versus €1.4trn in passive (24%), according to a like-for-like sample of 216 asset managers across the period.At a global level, the passive share is slightly larger than for European institutional assets at 27% (€8trn). Global active assets under management stood at €29.3trn at the end of 2016 (sample size: 231 asset managers). Source: IPE How active and passive assets have grown in the past four yearsLarger samples of 200-plus managers showed higher compound annual growth for actively managed assets both globally and at a European level. This reflected the higher weighting of smaller, mainly active managers within the larger samples.IPE’s Top 400 Asset Managers report is available here.last_img read more

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Dividend increases outstripping deficit payments: UK regulator

first_imgTPR said the data it released yesterday provided context to the expectations it set as part of its annual funding statement (AFS), and Warwick-Thompson confirmed the regulator’s intent.“Having made our expectations so clear in this year’s AFS, if we see a situation where we believe a scheme is not being treated fairly, we are likely to intervene,” he said. “For example, if a company is paying out more in dividends than in deficit reduction contributions, we will expect to see a short recovery plan. And we will expect that recovery plan to be underpinned by an appropriate investment strategy.”The analysis released yesterday related to DB schemes carrying out valuations between 22 September 2016 and 21 September 2017.TPR said the vast majority of schemes remained affordable, but many should do more to tackle increased benefits.For 37% of schemes TPR considered the employer covenant adequate to support the scheme, but said the current contribution and/or risk strategies posed unnecessary longer-term risks.These could be mitigated by an increased pace of funding, in some cases combined with a reduction in the level of risk, it added.Darren Redmayne, chief executive of Lincoln Pensions, said it was concerning, but not surprising, that TPR viewed nearly four in 10 schemes as taking unnecessary longer-term risks.“To date the industry has focused too much on current scheme deficits and not enough on the risks being run, which can result in further deficits emerging,” he said.Redmayne added that TPR had fired “a warning salvo” regarding the balance between dividends and deficit contributions.“We expect some corporate dividend decisions will come back to bite their directors and shareholders in the coming years,” he said. UK FTSE 350 companies significantly increased dividend payments over the previous six years, but failed to match these with deficit reduction payments to defined benefit (DB) pension schemes, according to the regulator.The Pensions Regulator (TPR) said that the ratio of deficit repair contributions to dividends declined from around 10% to 7% between 2011 and 2016.This was mainly due to a significant increase in dividends over the period, without a similar increase in contributions, it added.Andrew Warwick-Thompson, outgoing TPR executive director for regulatory policy, said the development was disappointing. “We are not against companies paying out dividends but employers must strike the right balance between the interests of the scheme and of its shareholders,” he said.TPR last month published its annual report on DB scheme funding, calling on dividend-paying companies to ensure a balance between cash paid to shareholders and contributions to pension schemes.last_img read more

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MNOPF’s Murphy: Trustees key to consultants, managers delivering

first_imgWith respect to the asset management industry, the regulator wants to see standardised templates developed to report costs and charges to all UK institutional investors.MNOPF’s Murphy shifted the focus to trustees, however, saying they needed to “step up and play their part”.He said that “having clued up trustees and the right governance structure enabl[ed] us to identify and hire managers and advisors who are delivering great results, on our terms.”Responsibility for failure lay partly with managers and advisers, but investors, pension fund trustees in particular, must also take some of that responsibility, he said.Murphy suggested the notion of ‘buyer beware’ may be appropriate.“[I]f you don’t do your homework, know exactly what you want and why you want it, if you don’t negotiate a good price and get some form of warranty, then you have to share some of the responsibility if problems occur,” he said. “We do all that when buying a house or a car and the same approach should be taken by pension funds.”“We fully support the FCA in driving best practice, but what the regulator is looking to achieve is already being delivered – certainly in our case,” he said. The key, according to Murphy, is for the asset management industry’s clients to ensure they are identifying and demanding best practice and, if necessary, “to vote with their feet”.Although relatively small, MNOPF is a well-respected UK pension fund that has taken some innovative and influential decisions over the past several years. This includes adopting a delegated chief investment officer structure in 2010, appointing what was then Towers Watson, and setting up its own insurance company to transfer longevity risk to a re-insurer.The pension fund has won five IPE awards. Most recently it was one of three winners of IPE’s Gold Award for best long-term investment strategy in 2016. Pension fund trustees must bear some responsibility for failing to get value for money and good results from asset managers and consultants, according to the chair of trustees at the UK’s £3bn (€3.4bn) Merchant Navy Officers Pension Fund (MNOPF).Commenting on the UK regulator’s study on the asset management industry, Rory Murphy said the Financial Conduct Authority’s (FCA’s) report was “detailed and insightful in its analysis of the weaknesses of the asset management industry” but that there are plenty examples of managers and consultants or advisors who deliver “great results and good value for money”.“We know this because we’re a pension fund benefiting from both,” he said.The FCA has been critical of the investment consultancy sector as part of its asset management market study, and two weeks ago confirmed it was planning to refer the sector for a formal competition enquiry. It has registered concerns about pension scheme trustees’ lack of experience and resource, leading to a high reliance on consultants.last_img read more

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ING scheme’s matching portfolio drives outperformance in 2016

first_imgThe closed scheme for workers of NN Group and ING Bank decided last year to change the management of its equity allocation from active to passive.Private equity, which delivered 10.8%, also fell short of its benchmark. The pension fund stopped allocating new money to private equity in 2015, and also divested from hedge funds at the same time.Credit – deployed as part of the scheme’s inflation-hedging strategy – produced 10.2%, with some emerging market corporate bonds gaining as much as 15.6%.The pension fund’s property holdings returned 11.4%, an outperformance of 2.3 percentage points, in particular thanks to non-listed real estate, it said.Last year, its board decided to raise the strategic interest rate hedge from 85% to 90%, and to base its investment policy on a balance of risks.The scheme said it would aim to grant an inflation compensation of 80% in real terms rather than a nominal indexation. It increased its strategic return portfolio from 27% to 30% as a consequence.The Pensioenfonds ING also said it was in the process of gradually raising its inflation hedge – comprising French, Belgian, German and American inflation-linked bonds as well as inflation swaps – to a maximum of 25%. At year-end, its inflation hedge stood at 14.4% of the total portfolio.The scheme has hedged 50% of its currency risk on its return portfolio and said it had fully covered the currency risk on its liabilities holdings.At July-end this year, the ING scheme’s funding stood at 139.9%, enabling it to grant all its participants and pensioners full indexation.Last year, the pension fund incurred administration costs of €246 per participant, and spent 0.24% and 0.02% on asset management and transactions, respectively.It said it would assess whether it could simplify the implementation and communication of its current eight different pension arrangements, to increase transparency to its 71,000 participants and to make its pension plan easier to adjust to a potential new pensions system.Earlier this year, the board decided to refrain from dividing itself, after ING split into ING Bank and NN Group. It said such a move would reduce efficiency.However, in the annual report, the visitation committee for internal supervision said the board should pay more attention to alternative future scenarios, rather than just opting for continuing independently. The €26.5bn Pensioenfonds ING reported an overall return of 10.5% in 2016, primarily driven by its liability-matching portfolio.The pension fund’s liabilities holdings – of largely European and US government bonds, loans and interest swaps – yielded 11.1%, exceeding its benchmark by 3.3 percentage points.It explained that the actual yield had been significantly higher than the benchmark return, as interest generated on bonds had dropped further than the swap rate.Within the return portfolio, the 9.8% gain on equity fell 1.6 percentage points short of its benchmark, largely caused by low-volatility holdings and emerging markets, it said.last_img read more

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