The decision by ratings agency Standards & Poor’s (S&P) to downgrade the creditworthiness of the Netherlands from AAA to AA+ will affect the assets and liabilities of Dutch pension funds only marginally, industry experts have suggested.Many point out that pension funds have invested a relatively small portion of their assets in local government bonds.The investments of ABP, the €293bn civil service scheme, in government paper was 15.1% at the end of the third quarter, according to Harmen Geers, spokesman at asset manager APG.Geers declined to provide details on ABP’s investments on a regional basis, but he said the pension fund had invested a much larger proportion of its fixed income holdings in Germany and France. Rogier Krens, director of asset management at Syntrus Achmea, estimated that approximately one-third of Dutch pension funds’ assets were invested in government bonds.“Although the exposure to Dutch government bonds is in many portfolios the largest individual one, it probably won’t exceed 5% of total assets,” he said. “Changes in Dutch government bond yields will have a limited affect on the value of pension funds’ assets.”Geers also pointed out that, to date, only S&P had decided to downgrade Dutch ratings – the Netherlands has maintained its AAA rating with other major ratings agencies, including Moody’s and Fitch.According to Krens, the changes in the 10-year rate following S&P’s announcement varied little from the “usual fluctuations”.He added that the spread with German government bonds remained at approximately 30 basis points.“The downgrading of France had a similar effect, with the spread between German and French bond yields varying no more than a couple of basis points,” he said.Neither is Krens expecting the downgrade to have much of a long-term impact.“The alternatives for government bonds are becoming scarcer,” he said. “And the downgrading doesn’t change the attractiveness of Dutch government paper.”Further, Krens believes the downgrading will affect pensions funds’ liabilities only marginally, as the discount rate is unlikely to change as a result of S&P’s decision.Dennis van Ek, actuary and principal at pensions adviser Mercer, also noted that markets had shown a “limited” response to the downgrading.“The interest rate on 30-year Dutch government bonds seems to have risen by 1 or 2 basis points since Thursday, while the corresponding German rate has decrease by an equal percentage,” he said, adding that the 30-year swap rate had hardly changed.However, he stressed that the less solid fundamentals of Dutch government finances, such as the relatively large budget deficit, large amounts of mortgage debt and high property prices, remained.S&P justified its downgrading of the Netherlands by citing weakened growth prospects, and the fact the country’s real GDP-per-capita growth was lower than that of its peers.However, it said it believed the political consensus, which favours containing public debt and deficits, would be maintained.It said its stable outlook for the long term reflected its view of limited additional downside risk to the Netherlands’ creditworthiness.On national television, Jeroen Dijsselbloem, the Dutch Treasurer, said: “The Netherlands is to remain one of the most creditworthy countries in the world.”
Denmark’s Industriens Pension reported a 2,500 increase in the number of active members of its pension scheme between January and June this year, reversing a period of decline, as employment in the industrial sector grew.Laila Mortensen, chief executive at the labour-market pension scheme, said: “The increase is a result of the positive development in employment in Danish industry.”The number of contributing scheme members rose to 160,976 at the end of June from 158,591 the same time the year before, according to the scheme’s interim report.Many jobs in the industrial sector covered by Industriens had previously been cut, Mortensen said. “Because of that, the number of active members in the pension scheme had fallen very significantly, but now employment and membership numbers are on their way up again, and, of course, we are very pleased about that,” she said.This development helped push the fund’s profit higher, Industriens said.As previously reported, Industriens said its overall pre-tax return for the the first half rose to 6.6%, with Danish equities producing a 20% return at the six-month period.The pension fund said its holdings in Danish shares were worth DKK9.9bn (€1.3bn) at the end of June. Assets under management rose by DKK8bn since the end of December to DKK136bn at the end of June.Meanwhile, Finnish pensions insurance company Ilmarinen posted a return of 3.4% in the first half of this year, up from 3% a year earlier, but witnessed a decline in the number of people insured.In absolute terms, Ilmarinen’s return for January to June was €1.1bn, up from €892m in the same period last year, the firm said in its interim report.It said the number of earnings-related pension insurance policies increased over the period, but the number of insured private customers fell.Ilmarinen said: “This resulted from a weakening in employment due to the recession.”At the end of June, the total number of people insured with Ilmarinen fell by 10,000 since the end of December, to 560,000.Pension recipients, however, continued to rise steadily during the six-month period, growing to 316,000 at the end of June from 310,000 at the end of 2013.Harri Sailas, president and chief executive at Ilmarinen, said: “The increase in life expectancy and the ageing of the population will also have an obvious effect on the number of pensioners insured with Ilmarinen in the near future.”This growth seems to be continuing at around 2% a year, he said.Pension assets rose to €33.5bn at the end of June from €32.5bn at the end of December.Within investments, equities generated 5.5%, up from 6.3%, fixed income produced 2.2% compared with 1.6%, while the return for direct real estate investments was the same as the year before at 2.4%.Solvency grew to 29% at the end of June from 24.3% a year before.
Legal & General – L&G’s bulk annuity and longevity insurance business has appointed John Towner in the new role of head of origination. He joins from Redington, where he advised both pension trustee boards and corporate sponsors on their investment, funding and risk-management strategies. Before then, he worked at Barclays Capital and Deutsche Bank.Mercer – Uwe Buchem has been named business leader for retirement at the consultancy’s German, Austrian and Swiss (DACH) business. He is replacing Mercer’s regional chief executive Achim Lüder, who stepped down from the role to focus on his other responsibilities. Buchem joined Mercer in 2002 and, in 2004, was promoted to market leader for Germany for health and benefits. He began his career at insurance group Debeka and internet insurance business Censio.Monument Group – The investment fund placement agent has appointed Karl Adam as director in the London office. He will have investor coverage responsibility for German-speaking Europe and some UK-based investors, focusing on building relationships with new institutional investors and general partners in the region. He joins from Citi Private Bank, where he was vice-president. Aviva Investors – Louise Kay has been appointed global head of sales. She will be responsible for leading global sales efforts across institutional and wholesale, including global consultants. Kay has held senior roles at Standard Life Investments and Aegon Asset Management UK.KNEIP – Keith Dingwall has been appointed to the new role of head of new business. Before joining KNEIP, he worked for 13 years at State Street Bank and International Financial Data Services in Luxembourg. Before then, he worked for a decade in JP Morgan Asset Management’s operations in the UK and Luxembourg.Pemberton – The independent asset management group, backed by Legal & General and focused on private debt and direct lending, has appointed Jürgen Breuer to head its operations in Germany, Austria and Switzerland. Breuer previously established and led leverage and acquisition finance businesses for Dresdner Bank and West LB in Germany.Comgest – Arnaud Cosserat has been appointed CIO, succeeding Vincent Strauss, who will remain chief executive at the asset manager. Cosserat joined Comgest in 1996 as a portfolio manager covering European equities. He has spent the past two years in the position of deputy CIO.Kames Capital – Mark Benbow has been appointed to the fixed income team as an investment analyst. He joins from Scottish Widows Investment Partnership, where he was an analyst on the global equities team.Invesco PowerShares – Michael Huber has been appointed to the newly created role of business development director for Germany and Austria. Previously, he covered institutional clients for Luxembourg-based asset manager Assenagon. He has also worked at Goldman Sachs Group. ING Investment Management, Cardano Risk Management, Schroders, KAS Bank, Aegon Asset Management, Legal & General, Redington, Mercer, Monument Group, Aviva Investors, KNEIP, Pemberton, Comgest, Kames Capital, Invesco PowerSharesING Investment Management – Bart Oldenkamp has been appointed to the Integrated Client Solutions team at ING IM, soon to become NN Investment Partners. The manager said Oldenkamp would focus on strategic business development, working with institutional clients as well as the investment management teams to “optimise” ING IM’s solutions offering. He joins from Cardano Risk Management, a specialist risk and investment management boutique based in the Netherlands and the UK, where he was a member of the management board. Before then, he held various positions at ABN Amro Asset Management in Amsterdam and Chicago.Schroders – Theo van der Meer has been appointed senior adviser in the Netherlands. He will focus on providing specific pension scheme guidance and governance to Schroders’ institutional clients in the region. Prior to joining Schroders, he held the position of managing director within global distribution at Barclays in London. He has also held senior roles at Fidelity, Vanguard, NIB Capital, Robeco and AMRO Bank.KAS Bank – The custodian has appointed Alexander van Ittersum as market manager for the pension fund markets in the Netherlands, Germany and the UK. His responsibility is to increase activities in core markets by identifying market trends and customer needs, and translating them into new products. Before joining KAS, Van Ittersum worked at Aegon for six years, initially as product development manager with Aegon Global Pensions’ cross-border asset pooling, and later as proposition manager with Aegon Asset Management. Before joining Aegon, he was product manager for Robeco and relationship manager at Euronext.
More than 90% of respondents to Feri’s annual survey on investment trends – which canvassed nearly 70 asset managers in Germany in the autumn of 2014 – believe equities will fare ‘well’ or ‘very well’ this year. Similar to the results of other Feri surveys in recent years, just over half of respondents had a similarly positive outlook for bonds.Asset managers’ sentiment towards real estate, however, worsened, with just 75% of respondents seeing good opportunities for selling investments in the asset class this year, compared with more than 90% last year.For 2015, respondents to Feri’s survey pointed to the growing potential of emerging markets – both in equities and fixed income. Investor optimism for emerging-market bonds increased by 50% year on year, while positive views on emerging market and Asia ex Japan equities increased by 16% and 18%, respectively.Respondents were shown to be increasingly wary of German equities and US bonds, while they remain pessimistic about European bonds, particularly investment-grade bonds, Feri said.Christian Michel, who heads the funds team at Feri EuroRating, said the recent widening of spreads in Europe’s peripheral countries would not be a major driver for returns due to “ongoing uncertainties”.He said the expectations expressed in Feri’s survey were “most likely” to remain unchanged, even after taking into account the ECB’s recent quantitative easing announcement.
The UK’s Pension Protection Fund (PPF) has raised £150m (€206m) from the sale of a property company previously owned by the industry-wide schemes for the coal sector.The lifeboat fund agreed to sell 75.1% of Harworth Estates Property Group to Coalfield Resources (CfR), which traded as UK Coal prior to an ultimately failed restructuring meant to save the remaining UK-based coal pits from closure.As part of the deal, the PPF will be issued with a 25% stake in Coalfield and paid a further £97m in cash.The sale price of £150m accounts to a 20% discount on Harworth’s net asset value at the end of 2014. Coalfield chairman Jonson Cox welcomed the deal, noting it would complete the firm’s transformation into a brownfield property developer.“We will be in a strong position to take full advantage of our proven skills in the property and regeneration markets and to deliver value,” he said.“I would like to thank our existing and new shareholders for their support in achieving an important milestone for the business.”Malcolm Weir, the PPF’s head of restructuring and insolvency, was also positive about the agreement.“We are pleased that, by working closely with CfR, we have been able deliver a significant uplift in value from the Harworth Estates holding for the PPF,” he said. “We look forward to continuing to work with CfR to generate further returns for the PPF and other shareholders from the PPF’s ongoing shareholding in CfR.”Harworth Estates was established by UK Coal in 2012, with the Industry-Wide Mineworkers’ Pension Scheme (IWMPS) and the Industry-Wide Coal Staff Superannuation Scheme (IWCSSS) granted majority shares in the new firm in lieu of further deficit contribution payments. The restructure was signed off by regulators in an attempt to save UK Coal from insolvency.However, the company eventually went insolvent, triggering the schemes’ entry into the PPF, after a fire closed one of its coal pits.
Half of the large listed companies in Germany still have much to do when it comes to the governance of their pension funds, according to Susanne Jungblut, director of Solution Compensation & Benefits at KPMG Germany.Jungblut also warned that, judging by the results of a recent survey of one-third of those companies listed in the DAX and MDAX indices with more than €100m in pension liabilities the “need for action” was likely to be much higher among smaller companies, which “still often have large defined benefit obligations” on their balance sheets.“Especially in the low-interest-rate environment, risk management of pension liabilities has significant importance and should be tackled,” she said at the Handelsblatt conference in Berlin.The survey found that, while 90% of the companies surveyed regularly run ALM studies, only around half of those do so quarterly or monthly. Similarly, the legally required ‘sensitivity analysis’ of liabilities is conducted only once a year by one-third of the companies, while half of respondents conceded they did not know how often such analyses were conducted.“This is not sufficient given the fast economic developments,” Jungblut said.She added that, while most companies actively include their actuaries in assessing pension risks, she was worried about the minority where the actuary seemed to be the only one with knowledge of that risk.Jungblut also said it was “really bad” that a minority of companies lacked any defined responsibilities regarding pension risks.Special reporting tools for pensions, a pensions committee and a pensions governance directive were each found in half of the surveyed companies, respectively.Jungblut noted that German companies had “become aware of the relevance of pension governance and had also recognised the need for action”.
Spezialfonds provider LBBW Asset Management Investmentgesellschaft will share in a $1.9bn (€1.8bn) payout after a New York judge approved a settlement between the parties in an antitrust lawsuit involving the purchase and sale of credit default swaps (CDS).The deal is one of the biggest anti-trust class action settlements ever.A similar claim is now being pursued in the UK for European losses.The action was brought by a US pension fund and other investors including LBBW against 12 of the world’s biggest banks, including Citigroup, Bank of America, Barclays, Deutsche Bank, UBS and BNP Paribas. The International Swaps and Derivatives Association (ISDA) and Markit Group, which provides pricing data, were also defendants.The action covered CDS transactions taking place between 1 January 2008 and 25 September 2015.The plaintiffs alleged the defendants engaged in anticompetitive acts that affected the price of CDSs in violation of the Sherman Act (an antitrust law), and were “unjustly enriched” under common law by these acts.Among other things, it was alleged the defendants “conspired to prevent exchange trading of CDS at secret meetings and through telephone and e-mail communications”.They were claimed to have “agreed with each other not to deal with any central clearing platform that might allow CDS trading, and instead to clear almost all transactions through the one clearinghouse they could control, ICE Clear Credit”.A further allegation was that the dealer defendants pressured the ISDA and Markit not to grant any licences allowing CDS to trade via central limit order book or on an exchange platform, thus ensuring some dealer defendants are on at least one side of every CDS transaction.The result, according to the plaintiffs, was to keep the CDS market opaque, preventing competition and maintaining inflated bid-ask spreads on CDS transactions.According to the court papers, the settlement represents a recovery of 15-23% of the damages that might have been sought based on the class plaintiffs’ preliminary model.In addition to the monetary award against defendants, the ISDA has agreed to improve the corporate governance on licensing its intellectual property by replacing its existing licensing sub-committee with an independent sub-committee made up of members from an equal number of buy-side and sell-side firms, and setting up a more transparent licensing process.The plaintiffs in the lawsuit also included Unipension and the three professional pension funds it runs, but these withdrew voluntarily in June because Danish privacy laws conflicted with their discovery obligations (i.e. to disclose information to the defendants) in the US federal court. Judge Denise Cote said: “Danish privacy laws have proved to be an insurmountable obstacle to the collection and production of documents and foreign trading records necessary to fulfil the Unipension funds’ obligations as named plaintiffs.” However, Quinn Emanuel Urquhart & Sullivan, co-lead counsel for the plaintiffs and the settlement class, is currently pursuing a similar claim in the UK for European losses and has already secured funding through specialist litigation funder Fideres Capital Management.Boris Bronfentrinker, a partner at Quinn Emanuel, said: “The anti-competitive conduct of the major investment banks in respect of CDS was global in nature, and, therefore, capital market participants should be able to achieve similar results in an English claim.”He added: “We are in a unique position to build on the fantastic work that was done in the US to extract compensation for institutional investors and financial institutions that have suffered losses through the anti-competitive conduct of the major banks in Europe.”Information for potential class members in this case will be available here by mid-January, with claims to be submitted by 27 May 2016.The court hearing to consider final approval of the settlement is scheduled for April 2016.
Because Sanoma is also active in Belgium, the working group – assisted by consultancy Focus Orange – will also assess whether a cross-border pension plan would improve its participants’ pension prospects.Several companies have opted recently to relocate their Dutch pension funds to Belgium.The third possible alternative would be to place pension rights with an insurer, which, unlike with an APF, would rule out rights cuts. The working group concluded, however, that transferring all pensions to an insurer would be too costly and limit the potential for indexation.It said it was aiming to complete its survey in the second quarter, and that it wanted to consult market players such as insurers during the next phase of its investigation.The scheme’s board said it wanted to make a final choice this autumn, so as to be able to switch to new arrangements quickly – possibly as soon as next year.Since January, Sanoma’s employees have been accruing their pension in a collective defined contribution plan with the €21.5bn Pensioenfonds PGB. The €600m Dutch pension fund of publishing company Sanoma is considering joining an APF general pension vehicle, relocating to Belgium or exploring other possible options for workers and pensioners.On its website, the pension fund, closed to new entrants on 1 January, said a working group would look further into the three remaining options.The scheme’s board said it did not intend to establish its own APF, preferring to join an existing one, either in a separated compartment or in a section combine with other schemes with a similar asset mix, risk attitude or indexation target.Joining an APF, however, would be likely to reduce costs, it said, while the scheme’s assets would be ring-fenced.
First State Super Pension fund Pension fund AAA N/A US The Environment Agency Pension Fund (EAPF) Stichting Pensioenfonds ABP 4 AAA Local Government Super (LGS) Pension fund 8 7,121 Pension fund UK 3 25,501 AAA AAA 37,500 AustralianSuper Fjärde AP-Fonden (AP4) UK A Pension fund AAA 39,349 Pension fund AAA AAA New York State Common Retirement Fund (NYSCRF) California Public Employees Retirement System (CalPERS) Pension fund 184,500 France Pensionskassernes Administration A/S (PKA) 10,443 10= AAA A 7 9 12 AAA AAA 5 AAA 71,575 Pension fund AAA Netherlands Pension fund AAA AA AAA Pension fund Sweden Etablissement de retraite additionnelle de la Fonction Publique (ERAFP) AAA Australia Source: AODPThe most significant change was a 52% increase in asset owners falling into the CCC-C bucket, which the AODP describes as “indicating many more are acknowledging and more importantly taking action on managing climate risk in their portfolios”.There was a 29% increase in asset owners rated A and above, which the AOPD referred to as leaders.In the 2016 edition, 12 asset owners achieved the highest score, AAA, a 33% increase.The highest-rated asset owner in the 2016 index is the UK’s Environment Agency Pension Fund (EAPF), followed by Australia’s Local Government Super and Sweden’s AP4, which had not made the cut for the AAA category last year.The AODP noted that 26% of the EAPF’s portfolio was in low-carbon assets, the highest in the index.Other new entrants in the AAA category are the Church Commissioners for England endowment fund and AustralianSuper.Big jumps were made by Swedish pension fund AMF and the UK’s Greater Manchester Pension Fund, which each leapfrogged more than 100 of their peers to move from D to A.The leader that fell the most places in the index was Norwegian insurance company KLP, ranked 19th in the 2016 index, down from second the previous year.By country, Sweden is top of the index, followed by Norway and Australia.France was fourth place, with three funds in the Top 20 for the first time. Government-controlled Caisse des Dépôts et Consignation and national pension reserve fund FRR jumped to an AA score, from CC and B, respectively.Three of the seven countries that dominate the global pensions market failed to make the Top 10 in the AODP’s country index: Canada (11th), Switzerland (14th) and Japan (25th).The 10 biggest X-rated funds include insurance companies and sovereign wealth funds in the Middle East and Asia and US pension fund Thrift Savings Plan.AODP chief executive Julian Poulter said: “Climate-change risk is now a mainstream issue for institutional investors, and last year has seen many significantly step up their action to manage this.“However, only a handful are protecting their portfolios from the very real danger of stranded assets, and it is shocking nearly half the world’s biggest investors are doing nothing at all to mitigate climate risk.” 1 Pension fund AA 391,400 Denmark 301,863 AAA 2 Andra AP-Fonden (AP2) Sweden 6 3,956 The world’s 500 biggest investors – pension funds, insurers, sovereign wealth funds, foundations and endowments – are evaluated on three main approaches to climate risk: risk management; engagement with investee companies and other “stakeholders throughout the investment chain”; and investment in low-carbon assets.The 2016 index covers investors with $38trn (€33trn) of assets under management (AUM).The assessment is done on the basis of direct disclosures and publicly available information.The AODP said one-fifth (97) of the 500 investors were taking tangible action to mitigate climate change risk, and that another 157 “are taking the first steps”.This corresponds to rankings from AAA to C, with the 157 figure capturing those rated D.Nearly half of the investors in the index remain in the X category, with no evidence they are taking any action, according to the AODP.The number of asset owners rated X grew from 232 to 246 since the 2015 index, with $14trn in AUM.Top 12 Asset Owners Asset Owner2016 Rating2015 RatingAUM $mTypeCountry Endowment Australia 36,718 Australia AAA 31,315 Nearly half of the world’s 500 biggest investors have still not revealed any evidence to indicate they are taking action to mitigate climate risk, according to a ranking of institutional investors produced by the Asset Owners Disclosure Project (AODP).The not-for-profit campaign group has for the fourth time produced its Global Climate 500 Index, which ranks institutional investors on how well they manage climate risk.The scoring is on a letter-based system, from AAA to C and then D and X, the latter two categories being for what the AODP refers to as “bystanders” and “laggards”, respectively.The 2016 edition of the index differs from previous years in that the AODP “no longer scores purely for transparency or commitments” but requires “evidence of tangible action”. Church Commissioners for England US AAA 10= AAA
Similarly, exposure to euros or US dollars is capped at 2% and 6%, respectively, with 100 basis points of leeway either way.“FX has to be seen as a separate asset class, and the portfolio has to be actively positioned to optimise the risk/return profile,” Kunz said.He emphasised that SBB, which won the IPE Country Award for Switzerland last year, was changing its foreign-currency exposure to minimise risk, “not for currency speculation”.Kunz added that there was no risk premium in currency overlays or investment strategies, and that, over the long term, it was “a zero-sum game return-wise”.To find the optimal positioning for the SBB portfolio, he said he and his team took into account not only the asset side but also the liabilities as a short position.In addition to the slight exposure to yen, euros and the US dollar, Kunz has also left emerging market currencies fully unhedged, although “in recent years, this has proven to be not such a good idea”.“However,” he added, “the general assumption remains that these countries and their currencies have room to appreciate in real terms over the long run regarding productivity and international competitiveness.”Australian and Canadian dollars, as well as UK sterling, are fully hedged due to their high correlation and volatility.Speaking at the conference, Kunz also lamented the lack of academic research on currency risk in institutional portfolios.“With equities, because they have a higher risk profile anyway, FX risk only makes up a small portion, but with some bonds, the FX risk can make up to half of the total risk exposure,” he said.“So the correlation between currencies and bonds is much higher than with equities.” SBB, the CHF16.7bn (€15bn) pension fund for Switzerland’s federal railways, is leaving some of its exposure to the Japanese yen and the US dollar unhedged.Speaking at the CFA Society Switzerland’s recent pensions conference in Zurich, Roger Kunz, head of investment research at the SBB, said: “Up to a certain minimum exposure, both currencies reduce risk in our portfolio.”After hedging, currency exposure in the portfolio is 85.2% Swiss franc, 6.9% US dollar, 2.6% euro, 1.1% yen and 2.8% emerging market currencies, plus some small exposure to minor currencies.But Kunz stressed that, beyond a certain threshold, the diversification and risk-mitigating effects are wiped out by volatility risks – “in our case, this is just over 2% for yen”.