Equities drive strongest returns in three years at Romanian schemes
Raluca Tintoiu, chief executive at the fund, told IPE it wanted to increase its exposure to equities in 2014, “taking into account a potential decrease in fixed income instruments’ yields”.This is an ongoing trend across the system, as Romanian pension funds in general have boosted their equity exposure since 2013. Equity allocations now exceed 12% on average, up from 3% just after the financial crisis in 2009.The APAPR added that Romanian pension funds also made major investments in all of the government’s IPOs and SPOs last year.“Overall, 95% of the pension funds’ assets are invested locally, with only 5% foreign exposure,” it said.Tintoiu said she would like to see more flexibility in regulation to allow pension funds to invest in alternative asset classes such as real estate and OTC-traded corporate bonds, among other things, as this “could benefit our pension plan members on the long run”.Contrary to many other countries in the Central and Eastern European region, where governments have expropriated funds in the second pillar, Romania has increased the contribution level to 4.5%.Tintoiu said she was convinced the government would not change this.“We read this as a sign of a better general understanding for the need to support and develop the second-pillar system, on behalf of both the authorities and opinion leaders – be they think tanks, analysts or academics.”She conceded that strong annual returns also made it harder to criticise the system.Tintoiu pointed out that, according to Romanian legislation, participation in the second pillar gives plan members ownership rights protected by the Constitution.“The likelihood of nationalisation is very low,” she said, “as long as authorities respect the current legal framework.” An increased allocation to equities has helped Romanian pension funds – including the RON5.3bn (€1.17bn) ING fund – to their strongest returns in three years.According to statistics compiled by the Romanian pension fund association APAPR, the average return for 2011 was 11.75%, while the annualised average since inception in 2008 now stands at 11.5%.Investment returns contributed RON2.6bn to the system last year, while contributions added RON11.3bn, bringing the total value of assets in the second pillar to RON14bn.The largest pension fund in the mandatory system, the ING pension fund, returned 11.29% – just below the average.
“Pensionskassen are not hedge funds or high-frequency derivative traders,” he said. “They use options and futures to optimise their portfolios.”The VBV board member said limiting the use of derivatives by institutional investors risked drying up liquidity in European derivative markets.He also claimed that “politics and regulation currently do not add up in Europe”, citing long-term infrastructure investment as an example.He said budget-constrained politicians had welcomed these investments while at the same time regulators were making them “unattractive” for investors, citing risk, valuation challenges and illiquidity.He argued that, “as with any niche investment”, the question remains whether it yields enough to compensate for the “administrative effort”.“Niche investments that are not returning at least 5-6% are not attractive – even now that the interest has gone down further – because the administrative and regulatory burden remains the same,” Schiendl said. The European Central Bank’s (ECB) decision earlier this month to lower the benchmark interest rate from 0.25% to 0.15% has merely served to increase duration risk and the relative importance of interest-rate derivatives, according to Günther Schiendl.The head of asset management at Austria’s largest Pensionskasse VBV lamented what he saw as misguided and indiscriminate “regulatory bias” against all forms of derivatives, as part of supervisors’ ongoing efforts to prevent speculation.“Regulators currently are eyeing derivatives very sceptically, which is regrettable because, at the same time, everyone is talking about risk management, and for this derivatives are the best alternative,” he said.Schiendl stressed that he, too, was in favour of regulating systemic risks in OTC derivatives and agreed that many credit default swaps had “caused a lot of damage”, but he argued that options and futures traded on a stock exchange were “something different”.
The European Commission has proposed a further two-year exemption, starting from August 2015, for pension funds having to clear their derivatives trades through central counterparty clearing houses (CCPs).In a report, the European executive said CCPs had failed to develop any infrastructure allowing pension funds to overcome the hurdles posed by clearing and that more time was required to devise solutions for the industry.It added that, ultimately, the objective was for pension scheme arrangements (PSAs) to use central clearing for their derivatives transactions, as was the case for other financial institutions – a matter, it argued, imperative for financial stability.However, the report accepted that the Gilt and Bund markets were unable to deal with demand, and that daily requirements would exceed the daily capacity of the UK Gilt repo market. Under current arrangements, PSAs – which encompass all categories of pension funds – would have to source cash for central clearing.Given that PSAs hold neither significant amounts of cash nor highly liquid assets, imposing such a requirement on them would require very far-reaching and costly changes to their business models, which could ultimately affect pensioners’ income, the document stated.It estimated that shifting to a system of posting cash collateral – one of the alternatives in the absence of using high-grade bonds – would reduce retirement income by 3.66% across member states, with the UK seeing a reduction of 3.1% and the Netherlands a loss of 3.2% over 40 years.Jonathan Hill, the financial services commissioner, said: “Today’s report sets out a number of potential ways to facilitate central clearing for pension funds. But none of them is straightforward, and it is sensible to take more time to develop a solution that is proportionate.”The European Market Infrastructure Regulation (EMIR), which entered into force on 16 August 2012, was designed to improve the stability of the over-the-counter (OTC) derivatives markets throughout the EU.The Regulation allowed for a three-year exemption for pension funds, until August 2015, with a further three-year exemption possible.Pension funds told IPE last year they were of the view the Commission would continue to offer an exemption for the industry.Last year, Hill also indicated that he would seek to propose a resolution mechanism for CCPs, which he saw as falling in the same ‘too big to fail’ category as banks.Read more about the delays in confirming a further pension fund exemption from clearing
Ids van der Weij – director at Ondernemend Oranje Kapitaal (OOK), a Dutch holding company launched in 2013 to invest in small and medium-sized enterprises (SMEs) – has attributed a lack of interest from pension funds to the OOK’s relatively small scale of planned investments.To date, no Dutch pension funds have taken a stake in the investment vehicle, according to IPE sister publication PensioenPro.“Many funds have a minimum amount they’d like to invest – for instance, €25m – while at the same time not exceeding a 15% stake in the investment,” Van der Weij said. “This often doesn’t match our format.”He added: “And because smaller pension funds often outsource their asset management to larger players, they don’t invest through the OOK either.” Van der Weij also cited the fact the OOK is a holding company with a “different” legal structure, as well as its lack of a track record.The director said the OOK expected to make its first investments in Dutch SMEs soon, adding that the target return would be 15%.None of the local-investment initiatives in the Netherlands has yet been able to report any progress on actual capital attracted, or investments made.The Netherlands Investment Institution (NII), launched last October, is still developing proposals for concrete long-term investments in infrastructure, energy, sustainability, care and SMEs, according to its chief executive, Loek Sibbing.And the Netherlands Enterprises Fund (Ondernemingsfonds), an initiative launched by the Dutch financial sector – including stock exchange Euronext and asset manager Robeco – said it was still a “work in progress”.When it was launched in January last year, it said it aimed to generate €1bn to co-finance loans to local companies, and that it expected to issue its first loans in 2014.
The British Steel Pension Fund was the big winner at this year’s IPE Awards, held at the Hotel Arts in Barcelona, taking home three trophies.In addition to winning the coveted Best European Pension Fund Award, the €19.3bn defined benefit scheme also won the Best Pension Fund in the United Kingdom and In-house Investment Team awards.Theo Kocken, founder and chief executive of Cardano, won the Outstanding Industry Contribution Award for his influence in the pensions industry with regard to risk management and preparing for future financial crises.PenSam’s Helen Kobæk walked away with the Pension Fund Achievement of the Year Award for her commitment to the development of social welfare benefits in Denmark. SILVER AWARDS Active Management: PenSamPassive Management: West Midlands Pension FundBest Corporate Pension Fund: Santander UK Group Pension Scheme Common FundBest Industry-Wide Pension Fund: Pension Protection FundBest Public Pension Fund: The Church CommissionersBest Small European Pension Fund: Frjálsi Pension FundBest Sovereign Reserve Fund: FRR and NLB Penziski Fond BRONZE AWARDS Alternatives: Merchant Navy Officers’ Pension FundEquities: SEB PensionFixed Income: Bosch Pensionsfonds AG COUNTRY AWARDSBest Pension Fund in Austria: Allianz Pensionskasse (Pensionskasse) and VBV – Vorsorgekasse (Vorsorgekasse)Best Pension Fund in Belgium: IntegraleBest Pension Fund in Central & Eastern Europe: KB First Pension CompanyBest Pension Fund in Denmark: PFA PensionBest Pension Fund in Finland: Elo Mutual Pension Insurance CompanyBest Pension Fund in France: IrcantecBest Pension Fund in Germany: Deutsche Telekom Pensionswerke (bAV) and Ärzteversorgung Westfalen-Lippe (Versorgungswerk) Best Pension Fund in Ireland: Construction Workers’ Pension SchemeBest Pension Fund in Italy: Fondo Pensione LaborfondsBest Pension Fund in The Netherlands: Nedlloyd PensioenfondsBest Pension Fund in Portugal: Fundo de Pensões Aberto BPI ValorizaçãoBest Pension Fund in Small Countries: Almenni Pension FundBest Pension Fund in Spain: Pensions Caixa 30Best Pension Fund in Sweden: SPKBest Pension Fund in Switzerland: Pension Fund SBBBest Pension Fund in the UK: British Steel Pension Fund The full list of winners GOLD AWARDS Best European Pension Fund: British Steel Pension FundOutstanding Industry Contribution: Theo Kocken, CardanoPension Fund Achievement of the Year: Helen Kobæk, PenSamLong-Term Investment Strategy: Trafalgar House Pension Trust PenSam picked up two further awards for Active Management and Specialist Investment Managers.The fourth Gold Award – for Long-Term Investment Strategy – went to the UK’s Trafalgar House Pension Trust.Other notable winners included the UK’s Merchant Navy Officers’ Pension Fund (MNOPF), SEB Pension of Denmark and Germany’s Bosch Pensionsfonds, which each won two awards.The MNOPF won the Alternatives and Innovation awards, while SEB Pension took home the Equities and Smart Beta trophies.Bosch Pensionsfonds came out best in the Fixed Income and Diversification awards.Altogether, there were 43 awards from a record number of entries. THEMED AWARDSClimate-Related Risk Management: Environment Agency Pension FundDC/Hybrid Strategy: NESTDiversification: Bosch Pensionsfonds AGEmerging Markets: Royal County of Berkshire Pension FundESG: ERAFPInfrastructure: PensionDanmarkIn-house Investment Team: British Steel Pension FundInnovation: Merchant Navy Officers’ Pension FundPortfolio Construction: FRRReal Estate: Merseyside Pension FundRisk Management: Superannuation Arrangements of the University of London (SAUL)Smart Beta: SEB PensionSpecialist Investment Managers: PenSam
EIOPA offers a few tasty morsels on transparency, Jeremy Woolfe writesWhen it came to the appetizer for the PensionsEurope ‘Making Pension Work’ annual conference in Brussels, surprise, surprise, there were no surprises. But there were tasty morsels on transparency.Speaking at a reception the evening before the main conference, Fausto Parente, executive director at EIOPA, led with comments on IORPs (Institutions for Occupational Retirement Provision). The need, he said, is to be realistic: “It will do harm if we pretend everything is fine and ignore the existing challenges.”Parente then referred to his authority’s two important recent steps. First was its EU-wide stress test for occupational pensions, and second was its issuing of an opinion to the EU institutions on a common framework for risk assessment and transparency. Appropriately, perhaps, he was speaking in the luxurious foyer, where the glass ceiling looked up to the sky, and where the floor beneath his feet was also glass. He was standing with his back to a wall, about three generous storeys high, also entirely made of glass panels. Parente pointed out EIOPA had already recommended that policymakers base their work on not hiding behind “jargon”. Funds should present information in a simple and standardised manner, he said. And there should be a common structure in place to help pension beneficiaries to compare different schemes when, for example, a worker wishes to change jobs.No doubt, he would have been aware that, not far across town, IORP rules might just be in the final stages of clearing through the Brussels legislative machinery. It is regretful, Parente commented, that EIOPA’s work has shown that even pension supervisors – “too many of them”, he said – simply do not know what the operating costs of schemes come to.
A spokesman for ShareAction said at least 24 schemes had been contacted through the campaign, including public and corporate schemes, and both defined benefit and defined contribution funds.The oil and gas companies will this year hold three-year binding votes on pay policy.The letters argued that the pay policies Shell and BP were proposing did not incentivise business activity compatible with keeping global warming to less than 2°C, which could put shareholder value at risk in the long term.LGPS funds urged to up the ante on investment climate risk Separately, ClientEarth and ShareAction have analysed newly published ‘investment strategy statements’ (ISS) from local government pension scheme (LGPS) funds, and found that more than 80% did not mention climate risk.The analysis came after the organisations contacted The Pensions Regulator in February highlighting varying standards across the LGPS funds in terms of how they were assessing and managing climate risk in their decision-making. The two organisations argued that funds must address climate risk specifically in their investment strategies as climate change posed systemic risks likely to affect a fund’s whole portfolio. They said they would continue to monitor “laggard funds” and might take further regulatory action. Catherine Howarth, CEO of ShareAction, said many LGPS funds were “operating under a number of misconceptions, including legal ones”.“This is not fair on pension holders,” she said. “Members’ savings should be protected across the board from the very real and emergent risks of climate change.”Don’t relax on climate change action, investors urge leadersMore than 200 global institutional investors have called on the heads of state of major world economies to drive investment in low carbon assets and implement climate-related financial reporting frameworks.Overarching these demands was a call for the G7 and G20 leaders to stick with and swiftly implement their commitments to the Paris Agreement on climate change.G20 leaders failed to reference climate change, climate finance, and climate adaptation in an official statement following a meeting of these countries’ finance ministers in March this year. Pressure from the US was reportedly behind the omission of a stated commitment to climate action.In this week’s letter to G7 and G20 government leaders, investors urged global leaders to commit to supporting a doubling of global investment in low carbon assets in developed and developing countries by 2020 and to include carbon pricing in climate-energy action plans.On climate-related financial reporting frameworks, the investors called on political leaders to “clarify the purview of national financial regulators to explicitly mandate, enforce, and evaluate” the quality of climate-related financial disclosures in alignment with the recommendations from the Financial Stability Board (FSB) Task Force on Climate-related Financial Disclosures (TCFD).More specifically, national financial regulators should develop mechanisms to monitor whether company and investor disclosures, and national reporting rules, are aligned with the task force’s recommendations. National regulators should provide annual progress reports to the FSB, according to the investors.The letter was coordinated by several investor organisations, including the Institutional Investor Group on Climate Change (IIGCC) and the Principles for Responsible Investment (PRI).Actiam cuts back on coal investmentsElsewhere, the €55bn Dutch asset manager Actiam has said it would divest from companies with a turnover of more than 15% derived from coal production.As a consequence, the manager – a subsidiary of Vivat/Anbang – said it would sell its holdings in 10 emerging market firms, adding that it would publish the companies’ names at a later stage.It said that its entire investment portfolio, including its index products, were subject to the exclusion decision.Actiam’s pension fund clients include the €20bn Vervoer, the sector scheme for private road transport in the Netherlands. UK pension savers have written to schemes such as The Pensions Trust and the Universities Superannuation Scheme urging them to engage with asset managers about voting against the remuneration policies of Royal Dutch Shell and BP.The letters were addressed to trustees and other relevant decision-makers and outline potential liability if they don’t take action.The letter writing campaign was supported by responsible investment campaign organisation ShareAction and environmental law charity ClientEarth.ClientEarth CEO James Thornton said: “ClientEarth is supporting these members to make full use of the law to protect their rights. We’ll be watching how pension funds vote on these remuneration policies, and will be ready to take action where necessary.”
Meanwhile, figures from Mercer’s Pension Investment Performance Service (PIPS) showed that, for the 2017 calendar year, equity allocations within Spanish pension funds returned 7.8%. Within this, euro-zone equities returned 8.4%, European equities outside the euro-zone gained 4.9%, and North American equities increased by 4.4%.Among the biggest allocations within fixed income, euro-zone government bonds made 0.2%, while euro-zone credit made 1.4%. However, government bonds, high yield and credit allocations outside of Europe contributed to an overall loss in fixed income of 0.5%.Xavier Bellavista, principal at Mercer, said these losses were due to performance and currency depreciation in non-euro-zone assets.Within alternatives, private equity made 13.3%, hedge funds 2.3% and real estate 1.3%.The PIPS survey covered a large sample of pension funds, most of them occupational schemes. It reported that Spanish funds on averaged allocated 59.9% to fixed income and 35.4% to equities.Fixed income allocations were dominated by euro-zone credit (18.8%), followed by euro-zone government bonds (18%) and 9.7% in cash. Euro-zone equities made up 17.7%, North American equities 10% and emerging markets 3.6%.According to the PIPS figures, only 4.6% of pension fund assets were held in alternatives, principally 1.7% in real estate and 1.4% in hedge funds.There has been a gradual shift away from euro-zone holdings over the long term, according to Mercer.Bellavista said: “The main difference between December 2017 and December 2016 is the increase in exposure to non-euro-zone assets… especially in fixed income. The equity exposure is the highest in the last seven years, while alternatives continue to increase slowly.”In terms of risk management, Bellavista observed that in general, during 2017 and the start of 2018, pension funds had quite a positive sentiment when looking at macroeconomic data.However, he added: “Most pension fund managers maintain a prudent approach because of high valuations and low interest rates. This is making some of them implement hedging strategies to protect against tail risk.” Spanish occupational pension funds gained 3.2% on average in 2017, according to the country’s Investment and Pension Fund Association (INVERCO).This marked an improvement on the 2.7% gain posted in 2016, and outpaced inflation, which came in at just under 2%.The fourth-quarter results brought the average annualised returns for Spanish occupational funds to 3% for the three years to 31 December 2017, and 4.8% for the five-year period.At end-December total assets under management for the sector stood at €35.8bn, an increase of 1% over the year. The number of participants in the occupational system was stable at just over 2m.
Public pension and sovereign wealth funds aim to invest more in property and infrastructure over the next two years, according to a new survey.Having been the fastest-growing portion of sovereign wealth fund (SWF) and public pension fund portfolios in recent years, real assets such as property and infrastructure are set to take up even larger slices of investors’ allocations.In its latest Global Public Investor report, London and Singapore-based think tank OMFIF said 70% of the 750 global public investors it surveyed planned to increase their infrastructure investments over the next 12-24 months – and none planned to decrease.Real estate was the next most popular asset class for future allocations, with almost 45% of pension funds and SWFs planning to increase their investments. However, 12% said they were planning to reduce property investments in this period. This planned reduction was mostly led by institutions with large allocations to real estate that have seen the value of their investments grow over recent years, OMFIF said in the report.“Most said they intend to reinvest the proceeds in new real estate projects,” it said. “Value-add and opportunistic projects, which offer greater potential for value appreciation and are less expensive than prime real estate in core locations, are the main targets for these acquisitions.”Between 2009 and 2017, SWFs and public pension funds’ combined property allocation climbed by nearly 120%, OMFIF said, citing a separate 2018 report it produced in conjunction with BNY Mellon. Infrastructure grew by 165%, albeit from a lower base. These investors had an average allocation to real estate of 9.3%, and 3.6% to infrastructure.The Global Public Investor report found that total assets had grown by $2.5trn (€2.1trn), or roughly 7.3%, to reach $36.2trn.This was the largest such increase in the five years since it started tracking the assets of the 750 institutions in its survey, OMFIF said. It cited the global economic recovery and upturn in equity markets as reasons for the asset surge.
Ireland’s €8bn sovereign wealth fund has invested in a specialist fund lending to domestic whiskey distilleries and related businesses.The Ireland Strategic Investment Fund (ISIF) backed the €10m launch of Ilen River Partners’ Irish Whiskey Growth Fund earlier this month, aiming to tap into the “fastest growing spirits sector in the world”.“Whiskey businesses need to lay down stock early in their development in order to scale,” the fund said. “However, given the long-term nature of the whiskey sales cycle, the businesses require financing solutions suited to a long time horizon to achieve scale.”The whiskey fund will provide loans to businesses secured against existing stock. Ilen River Partners said it would not seek to appoint its own directors to businesses or take control away from existing owners. Ilen River – founded earlier this year by Fearghal Ó Ríordáin, a former partner at private equity firm Scottish Equity Partners – has appointed three whiskey experts to provide “strategic commercial advice and access to industry knowledge and expertise”.Ó Ríordáin said: “Whiskey distilleries are playing an ever more vital role within the Irish economy. There were just two whiskey distilleries on the island in the early 1980s. There are now 18 distilleries in operation, with more distilleries in the pipeline, all contributing to Irish tourism, agriculture, trade and exports.”Irish whiskey exports were forecast to exceed €850m a year by 2020, he added, compared with €400m in 2015.One of the ISIF’s core aims is to boost domestic investment and support job creation in Ireland.In the past 12 months it has backed two US technology firms expanding into the country: Vectra and Nautilus Data Technologies.In March the ISIF partnered with the China Investment Corporation to create a $150m technology fund.