The growing interest from pension funds in alternative asset classes will provide a boost to established alternative asset manager revenues, according to a report by Moody’s Investor Services.It said the “structural shift” into alternative investments would benefit those managers well established in the industry, with proven track records.However, as other asset managers grow their capabilities, they can also benefit from the growth in alternatives assets being managed, it said.The report highlights data from the UBS Pension Fund Indicators Report, which shows that alternative allocations for UK corporate pension funds reached 10% by 2013. While alternative allocations began in 1995, no real growth was seen until 2007-08, as equity markets plummeted.Soo Shin-Kobberstad, senior analyst at Moody’s, said: “Pension funds are increasingly seeking investments that offer protection against inflation and avoid undue price volatility. They are increasingly turning to alternative investments that generally offer higher returns driven by greater illiquidity and idiosyncratic risks.”Despite a downward pressure on fee margins for traditional assets, those for alternatives funds are significantly higher, the report said.Research done in 2011 by the Investment Company Institute calculated the expense ratio for equity mutual funds and bond funds at 0.79% and 0.62%, respectively.However, in Preqin’s 2013 survey on alternatives, it found management fees as high as 2%, with additional performance fees ranging up to 20%, if the manager achieved a certain return level.Even though traditional managers would like to enter the market, the research said it would be difficult for them, as the necessary expertise and resources are in short supply.However, Shin-Kobberstad argued that higher fee margins could change this.“Marginal revenue will likely exceed marginal cost for well-established traditional asset managers, lifting their overall net operating margin,” he said.“However, downward pressures on fees will increase as competition in the alternative asset management sector escalates and institutional investors further gain their bargaining power.”
The €48bn metal scheme PMT is to launch an online “participants panel” following a steep fall in trust as a result of its 6.3% rights cut last year.The online panel will provide the pension fund with participants’ opinions as well as feedback for improvements on communication, according to Annemieke Biesheuvel, PMT’s head of communications.Speaking during the IIR congress on pensions communication in Amsterdam, she conceded that last year’s rights cut had been “disastrous” for the scheme’s image.“Participants’ confidence in PMT is now lower than their faith in insurers and banks,” she said. “The results of the panel could help us to win back our participants’ trust and loyalty.” Biesheuvel stressed that the pension fund was reluctant to apply a second rights cut.“The applied discount triggered so much emotion that we sometimes had to hire security during meetings with pensioners,” she said. “Many participants and pensioners consider us as thieves.”PMT’s funding was 0.2 percentage points short of the required minimum at year-end.However, the pension fund believes it should be allowed to forgo a second cut, due to additional recovery measures and the fact its funding increased to the required level in January.According to Biesheuvel, several surveys have suggested PMT’s participants need “verifiable transparency”, additional information about the pension plan and the specific effects of the rights cut.They also demand more information on pensions from their employer, she added.She said 1,000 participants would be asked to discuss specific subjects on the online panel, which will be incorporated into PMT’s website.PMT – the largest pension fund in the market sector – is responsible for the pensions of more than 400,000 active participants and deferred members, as well as more than 172,000 pensioners. The €32bn metal scheme PME is also planning to set up a similar panel, meant to increase pensions awareness, according to Gerda Smits, the pension fund’s spokeswoman.She said the plan would be developed jointly with PMT to save costs.However, she stressed that the idea was still in its infancy.Last year, PME had to cut pension rights by 5.1%, and it announced a second discount of 0.5% earlier this week, in order to achieve its required funding level.PMT and PME are both serviced by the €90bn pensions provider and asset manager MN.
The London Pensions Fund Authority’s (LPFA) joint ventures with Lancashire and Greater Manchester hope to grow in size by acting as asset managers for other local government pension schemes, Susan Martin has told the IPE Conference & Awards.The London fund’s chief executive told delegates in Barcelona that the two joint ventures would soon be “opening up” to the rest of the sector to grow in size.The LPFA’s £10.5bn (€14.8bn) pooling vehicle with the Lancashire County Pension Fund will see the two funds merge investments, liability management and administration efforts.It recently announced Michael O’Higgins, former chairman of the Pensions Regulator, as its inaugural chair. Speaking of its £500m infrastructure joint venture with the Greater Manchester Pension Fund, Martin noted that it recently completed its first investment in a green energy fund targeting biomass power plants. “Our idea is to make a few more investments, and then we will be opening that up to the rest of local government,” she said, citing the advantage for other funds to avail themselves of the in-house capacity built up by Lancashire, Greater Manchester and the LPFA.In response to a later question, Martin explained that the infrastructure partnership was set up “with the intention of opening it up to LGPS funds” but that it would only focus on local government clients.“That doesn’t mean we don’t make investments with other pension funds,” she added, citing the potential for partnerships with other European, Canadian and Australian pension investors.Martin also said the LPFA-Lancashire partnership was in discussions with other local authority funds and would be open to other schemes acquiring a stake in the venture, or simply opting for it as an asset manager.Her comments come amid a flurry of activity within the local government sector, with numerous funds in discussion to set up several pooling vehicles, after the UK government expressed its desire to see management costs reduced and a greater focus on infrastructure investment.The most recent announcement came from funds in Surrey, Cumbria and East Riding, which are in discussions to set up a £9bn pool they hope will grow to £20bn.
The Dutch financial regulator (DNB) has said the number of pension funds is set to drop to 265, having fallen from more than 800 in 2005 to the current total of 325. Speaking at an IIR seminar last week, Johanna Bovenhoff, DNB supervisor for small pension funds, said 60 pension funds were in the process of liquidation, having completed the collective value transfer of pension rights to a new provider.Bovenhoff said the consolidation of Dutch schemes was set to continue, albeit at a slower pace.She said the regulator was now assessing “no more than” three value-transfer applications, attributing the low number to pension funds waiting to see how the new general pension fund (APF) developed. Bovenhoff also observed that the pension funds opting to liquidate were larger than they had been, adding that the 37 schemes that wound up last year had transferred combined assets of €7bn.In 2015, half of the schemes relocated to an insurer.Value transfers to sector-wide pension funds, company schemes and the PPI defined contribution vehicles occurred in 36%, 5% and 9% of the cases, respectively, according to Bovenhoff, who added that most assets (46%) were shifted to industry-wide schemes.Bovenhoff took pains to emphasise that pension funds must inform the regulator early on about any liquidation plans and refrain from adjusting investment policies or signing new contracts.“We don’t want to be presented with a fait accompli,” she said.She said DNB expected companies to start initiating value transfers from insurers to the new low-cost APF once the vehicle was operational.At the moment, the regulator is assessing six applications, for the most part submitted by insurers.“However,” Bovenhoff added, “because the insurer’s guarantee would be replaced for a plan that includes the option of rights cuts, all individual participants must approve such a turnover of pension rights.”Another potential problem for pension funds switching to an APF is when the company cannot afford to plug the funding gap if ringfenced assets within the APF have a higher coverage ratio.Bovenhoff said the scenario could occur if the value paid by an insurer failed to cover the costs of joining an APF.According to the supervisor, the contract between the company and the insurer would determine the value of a transfer.
The UK’s Pensions Regulator (TPR), in an effort to improve governance standards across the sector, has suggested “sub-standard” pension funds should be forced to merge with others.In a wide-ranging consultation on trustee standards and governance, the regulator also asked whether professional trustees should be required to complete minimum qualifications before registering.The regulator noted that, while many trustee boards were displaying dedication and skill when conducting their work, some were failing to meet minimum standards, or finding it “challenging” to do so.Lesley Titcomb, the regulator’s chief executive, emphasised that trustees had a “vital job” protecting savers’ money. “Being a trustee carries significant responsibility, so it’s important trustee boards display sufficient skills and knowledge, and follow effective stewardship principles,” she said. “But good practice is far from universal, and the challenges are particularly stark in smaller schemes.”The notion of improving trustee standards comes just after the revised IORP Directive was finalised.The directive requires member states to raise the level of trustee experience across a trustee board as a whole – a condition that has led the Irish regulator to propose stricter entry requirements. Titcomb’s note of caution that smaller schemes could face challenges was also addressed in the paper, which asked whether such funds should be encouraged or required to exit the market, transferring assets to larger-scale providers.“Is regulatory intervention required to facilitate this,” the consultation asked, “or can it be achieved through existing market forces?”The idea of mandatory consolidation within the pensions sector appears to enjoy the backing of former pensions minister Ros Altmann, who told IPE earlier this year she would like to “see more mergers of schemes to get economies of scale”.“We’ve started on that in local authorities, and there is room to go for small DB [defined benefit] schemes in the private sector,” she said. “I would expect to see more of that.”As Altmann noted, consolidation has most recently been put into action within the local government sector, where English and Welsh funds are in the process of pooling assets into eight distinct arrangements with up to £35bn (€40.7bn) in assets. TPR itself has previously argued only larger-scale funds should be used for the purposes of auto-enrolment, by default encouraging the growth of larger and better-governed providers, while the opposition Labour party suggested in 2013 the regulator be given powers to bring about consolidation in the defined contribution (DC) sector.However, the notion this should be expanded to the DB sector is a new one for the UK, where the Pension Protection Fund acts as a consolidator by absorbing the schemes of failed companies, growing to £23.4bn (€29.7bn) in assets as a result.To a lesser extent, the de-risking of UK DB provision – and the transfer of assets to insurance companies – is also acting to consolidate the sector’s assets.In the Netherlands, the regulator has long supported the benefits of scale.As a result, the number of schemes in the market has fallen by nearly half over the last decade as schemes join forces with larger ones – such as SPF, the €14bn pension fund for railways, and SPOV, the €3.4bn pension fund for public transport’s planned merger.Ireland has also begun discussions about how the market should be rationalised, ahead of the expected rollout of auto-enrolment reforms. TPR did not offer up any potential solutions on how consolidation should be brought about, instead asking the industry for responses by 9 September.,WebsitesWe are not responsible for the content of external sitesLink to TPR’s ‘Raising the Bar’ discussion paper
The bank also noted a drop in global and domestic equity allocations in the portfolios of the Pensionskassen covered by its research.Alternatives were the only asset class that received a greater allocation from investors. Prevanto, the actuarial consultancy, cited indices including UBS – which reported a 1.3% average decline for the first quarter – Pictet BVG (-1.6%) and Swisscanto (-1.7%).It also recorded a drop in the average funding level of Swiss Pensionskassen, from 113.8% at year-end 2017 to 111% after the first three months of 2018 for private pension funds. The average for public pension funds dropped from 99% to 96.5%.Canton Pensionskassen report 2017 gains Middle Bridge over the Rhine in Basel, SwitzerlandThe CHF10.8bn (€9bn) Aargauische Pensionskasse (APK) reported an 8% return for 2017 in its annual report, while the CHF12.8bn Pensionskasse Basel-Stadt (PKBS) returned 7.3%.The public pension funds’ returns were in line with market average performance for the last year. Depending on the market sample used by various analysts the average return among Swiss pension funds was between 7% and 8% for last year, as previously reported.For APK, the return was mainly supported by global equities (including Switzerland) and domestic real estate.However, the pension fund noted a negative impact from insurance-linked securities (ILS) after major natural disasters hit the market last year.This alternative asset class is being debated by many Swiss pension funds, with some trying to diversify away from ‘catastrophe’ bonds while others making their first foray into ILS. PKBS noted in its annual report that it would make first investments in ILS this year.Both APK and PKBS were well above the average public sector funding level at the end of the year, at 104.4% and 102.5% respectively.Funding was aided by investment performance and an adjustment of the technical parameters, in line with a general trend among Swiss Pensionskassen. Read more about the Swiss pension system in the June issue of the IPE magazine. Swiss pension schemes’ funding levels fell in the first quarter as returns declined across almost all asset classes, according to market indicators.Credit Suisse and Prevanto published figures for the Swiss pension fund sector for the first quarter of 2018, showing a downturn across almost all asset classes and taking funding levels down a notch.According to Credit Suisse, only real estate and mortgages performed positively through the first three months of the year.Overall, the investment bank calculated an average 1.3% loss across Swiss pension funds, compared to the strong start made in 2017 when funds gained 2.8%. Swiss pension funds returned 8% on average for the whole of 2017.
“Auto-enrolment has been a huge success thanks to the vast majority of employers who do exactly what they should, but a tiny minority not only ignore their automatic enrolment duties but fail to pay their fines, even after the courts have ordered them to.”By the end of 2017, TPR had taken a total of 262 employers to court for non-payment of fines. More than 32,000 employers had been issued with fixed-penalty notices by that point, and a further 6,770 had received escalating penalty notices.“The use of HCEOs is a last resort for us,” Ryder said. “Unfortunately the behaviour of a tiny minority means it may be necessary.”In the face of increased activity by TPR, those facing possible penalties have been urged to act.“A key priority in the payroll profession is compliance with legislation,” said Diana Bruce, senior policy liaison officer at the Chartered Institute of Payroll Professionals (CIPP).The CIPP has published links to auto-enrolment guidance for members on its website. The organisation said it would urge “any payroll agents or business advisers to run some additional checks to ensure that their clients are fully compliant and to ensure they communicate the additional consequences of non-compliance as per TPR’s update”, Bruce added.Industry experts, however, saw the move by TPR as one designed to end the perception of the regulator as “toothless”.“The regulator wants to be seen as being clearer, quicker and tougher – that’s its prime objective,” said Nicholas Greenacre, partner at White & Case, the global law firm.“The wider perception – which is perhaps unfair – is that the Pensions Regulator has not been using its powers quickly enough.“But this [should be seen] as a last resort,” he added. Officers appointed by agents of the Pensions Regulator (TPR) could be set to swoop on office computers and company cars as part of a crackdown on companies that refuse to pay workplace pension fines.TPR has appointed high court enforcement officers (HCEOs) who will be tasked with seizing companies’ assets should firms refuse or fail to pay fines for non-compliance with mandatory auto-enrolment duties.Darren Ryder, TPR’s director of automatic enrolment, said these responsibilities were not optional, but laid down in law.“Those who break the law by denying their staff the pensions they are entitled to should expect to be punished – and must pay any fines they are given,” he said.
Aside from some further technical work to be done, the political agreement wraps up a process that started in 2017, when the Commission proposed amendments to the European Market Infrastructure Regulation (EMIR), rules introduced in 2012 in response to the 2007-08 financial crisis.Eugen Teodorovici, Romania’s finance minister, said: “In the aftermath of the financial crisis, the EU put in place a solid and effective framework for bringing more transparency and reducing systemic risk in the derivative markets.“Today, we agreed targeted adjustments that will preserve all the core elements of the reform, while simplifying the rules and making them more proportionate.”In December 2017 EU member states endorsed the proposal put forward by the Commission, but the European Parliament took a different stance on the length of the extension of the exemption.The timing of the start of negotiations between the EU institutions led to concerns that pension schemes would face a legal gap surrounding their central clearing obligations. The so-called trialogue started in the summer, which did not leave enough time for any pending agreement to enter into force before the exemption was due to expire in August.The European securities markets regulator intervened to tell national supervisors not to prioritise enforcing EMIR rules on pension funds during the temporary gap in the exemption’s applicability. The pension industry has expressed hope that the final legal text would make clear that any trades carried out after the August deadline would be retroactively exempt from having to be centrally cleared. Last month the €215bn Dutch asset manager PGGM said it would start carrying out part of its repurchase agreement transactions through central clearing. It said it had picked Eurex Clearing as central counterparty for its derivatives, providing it with an additional channel for cash as collateral for interest rate swaps. The European Parliament and EU member states have reached an agreement on extending pension schemes’ exemption from an obligation to centrally clear derivatives.This means large pension schemes will be exempt from the requirement for another two years, with the possibility of two one-year extensions if insufficient progress is deemed to have been made on solutions to deal with what is sometimes referred to as “the cash collateral problem”.To centrally clear derivatives, pension funds would need to hold cash to post as collateral, but they typically do not do so because this eats into returns. Exemptions from the central clearing obligation have been granted to allow time for the market to implement solutions to allow the transfer of non-cash collateral to use as “variation margin”.The European Commission said progress towards these clearing solutions would be “carefully monitored”.
Sweden’s AP7 has started a tender process for a global custodian, offering a five-year contract, according to a notice on the TED EU tenders site.The SEK460.1bn (€43.8bn) national pension fund said price was not the only criterion for selecting a custodian for the pension assets, and that the full list of criteria was given in the procurement documents alone.The deadline for the receipt of tenders and requests to participate is 13 May at a minute before midnight.AP7’s current global custodian is BNY Mellon, which has had the contract since 2014. AP7 runs the Såfa fund, which is the default option in Sweden’s Premium Pension System. Earlier this year it reported an average loss of 2.8% on the balanced fund last year, which was better than the result for private sector pension providers.The Swedish Finance Ministry has tasked pensions expert Mats Langensjö with devising a new framework for AP7, which is Sweden’s largest public sector pension fund.
The invested capital run by PPIs – low-cost defined contribution schemes – in the Netherlands amounted to €9.7bn at the end of the first quarter of this year, marking a growth of 20% compared to the fourth quarter of 2018.According to data from Dutch regulator De Nederlandsche Bank (DNB), the number of active members increased by 11% in the same period to almost 44,000. Almost half of the capital increase, €814m, was from returns on investment, while 30% (€503m) was attributed to newly transferred pension plans. More than a quarter of the increase (€429m) was from contributions.The growth of 20% compared to the previous quarter was the largest increase since the end of 2015. Compared to a year earlier, the PPIs saw their combined assets under management grow by 40%. This was more than the 32% increase recorded for the same period a year earlier, but a lot lower than previous annual growth, with data showing increases of 64% in 2017, 107% in 2016 and 202% in 2015. This concerns the total amount of invested capital at members’ risk. PPIs still manage only a fraction of the capital invested across all workplace pension plans in the Netherlands. According to DNB, the invested capital at the end of the first quarter amounted to €1.4trn in defined benefit and similar schemes, while defined contribution-type schemes managed €6.2bn. Meanwhile 770,000 members have their pension assets housed at a PPI. The number of active members grew in the first quarter to almost 440,000, an increase of 11% compared to a quarter earlier. In addition, there were 330,000 deferred members, 7% more than three months earlier.