Poul Kobberup, managing director at PFA Asset Management, said: “PFA’s money is being put to work for Danish export, and, at the same time, it is a good investment.“In the future, we look forward to contributing to other attractive projects that will increase Danish exports for the benefit of Danish growth and employment.”PFA has earmarked a total of DKK10bn for financing Danish export businesses for which EKF provides a guarantee.Both parties expect the initial loans will be for long-term projects such as wind farms, with minimum amounts of DKK250m and long maturities. Danish pension fund PFA has loaned DKK240m (€32.1m) to Bord Gais Eireann, the Irish state-owned energy company, to buy wind turbines for its 24MW Lisheen II wind farm near Moyne in County Tipperary, central Ireland.The project amounts to a considerable extension to the existing wind farm.The money, which will finance the purchase of turbines from Danish manufacturer Vestas, is guaranteed by EKF, the Danish Export Credit Agency.Agent for the loan is the Royal Bank of Scotland.
Ireland’s regulator has warned more than 60 local defined benefit (DB) funds that it cannot allow “persistent non-compliance” with the funding standard to continue.The Pensions Authority, which under recent regulatory changes has the ability to direct the wind-up of schemes in deficit, said it was “strongly” encouraging the trustees of the affected funds to take action and address underfunding.It said “persistent non-compliance” with the funding standard could not be allowed and that it would shortly begin dealing with those in breach of rules.The minimum funding standard, formally reinstated last summer, requires trustees to file recovery plans if in deficit, either outlining how shortfalls can be addressed through investment returns, or by reducing benefits. Several weeks after the 30 June deadline last year, 70% of funds, or 212 schemes, had failed to submit a formal proposal, a figure that fell to 120 a few weeks later.As of April, the regulator said around 50 had yet to submit funding proposals.However, figures released by the Authority showed that, as of 12 September, 61 schemes were still in breach of the funding standard.Brendan Kennedy, head of the regulator, noted that cutting benefits or winding up schemes were “very serious” steps only taken reluctantly.“However, unless a sustainable recovery plan is put in place, an underfunded scheme is unlikely to be able to pay the benefits promised to scheme members,” he said.“The younger members are at particular risk not only of getting less-than-full benefits but of losing the contributions they may be making into the scheme.”Under new regulation drafted by the Department of Social Protection, trustees of schemes informed that the regulator may force the wind-up of the fund need to inform all members.The Occupational Pension Schemes regulations (Section 50 and 50B) also said the Authority should be sent a funding certificate, the fund’s annual return, information on the scheme’s long-term sustainability and “such other information as the Pensions Authority believes is necessary” to allow it to make a decision.The regulation came into force at the beginning of September.
All of the 40-odd German institutional investors Telos surveys annually will be using a Master KVG structure – or centralised administrator – for at least some of their assets by 2017. In Telos’s 2014 Master KVG study, it cited the advantage of centralised and streamlined reporting, as well as the significantly increasing importance of risk reporting.Telos said more than 80% of respondents to its survey said they were already using such a service provider compared with 75% in the previous year.In 2012, roughly one-third of German institutions did not use a Master KVG. Of those respondents that have not yet hired a Master KVG, half are planning to do so this year, while the other half is aiming to do so in 2016.But potential for market growth will not end there, according to the survey, as investors are requiring more and more services from their Master KVG.For one, the number of direct investments included under the mandate in order to achieve a more holistic view of the portfolio is increasing.One-third of respondents to the survey expressed interest in including direct investments in a Master KVG mandate, while 92% of the surveyed providers are already offering it – compared with 57% the year previous.Another driver for growth is the inclusion of real estate investments, largely a niche offering for some providers.Investor interest in this service has grown from 14% in 2013 to 50% in the most recent survey.Telos said real estate holdings in insurers’ portfolios amounted to “several trillion euros”.Similarly, other real assets or alternative investments included more frequently in portfolios will have to be integrated into a Master KVG mandate.Telos noted that, to date, smaller investors have shied from certain asset classes if their Master KVG was unable to include them.Senior loans, for example, remain a problem, as it is unclear how they are to be labelled under the VAG, the law regulating the supervision of insurers and similar institutions.This, in turn, means the evaluation and reporting of these assets presents a particular challenge – but one that more and more service providers are taking on.However, all surveyed market participants agreed there was little room for new providers, as they would have to make major investments to set up the basic infrastructure existing market participants already have.Instead, existing providers will further widen their service offerings to include asset-liability studies, fiduciary management services or asset manager selection, Telos said.Less than 40% of investors – and 50% of providers – fear this expansion of services might lead to investors depending too much on the Master KVG.
Elizabeth Corley is to step down as chief executive at Allianz Global Investors (AGI) after four years in the role.Corley, who led AGI’s European business prior to taking over as head, will become a non-executive vice-chair – a new role for the company – in April 2016.AGI co-chief executive and global CIO Andreas Utermann will succeed her.Utermann joined the company in 2002 as global equities CIO. He was subsequently promoted to global CIO and given responsibility for managing RCM Capital Management.George McKay, the current global COO, who joined in 2006 from Mellon Bank, has been promoted to co-chief executive alongside Utermann.Corley said it had been a “privilege” to work at AGI.“This is a wonderful company with fantastic employees, and I am most grateful to them making my time here such a pleasure.”Commenting on the changes, Jay Ralph, a member of the Allianz board in charge of asset management, praised Corley’s work.“Elizabeth has deftly steered Allianz GI to become a successful, globally integrated asset manager,” he said. He added that he looked forward to working with Corley in the future as she developed her career as a non-executive.Utermann also praised Corley’s time as chief executive.“Elizabeth’s inspirational leadership, passion for investment and boundless positive energy have contributed immeasurably to the success and standing of Allianz GI today,” he said. “Naturally, I am delighted she will continue to act as an ambassador for the firm into the future. Equally, I look forward to cementing a similarly productive partnership with George, who has demonstrated his leadership and agility in many roles since joining the firm in 2006.”Utermann will retain responsibilities for investment matters, while McKay will be responsible for global distribution, global solutions, corporate marketing and COO functions.Read Elizabeth Corley’s piece in IPE’s November 2013 issue on financial repression
While the portfolio contains €300m of investments now, Kaskela said Varma is actively developing and shaping it, and looking for new investment opportunities.The firm announced at the end of May that it was the country’s first earnings-related pension company to establish such a policy to steer its investments in all asset classes.According to the policy, the overall portfolio is being developed so that Varma’s investments are in line with the target of limiting global temperature increases to less than 2°C — as agreed at the Paris Climate Change Conference.In the shorter term, however, its goal is to shrink the carbon footprint of its listed equity investments by 25%, of listed corporate bonds by 15%, and that of real estate investments by 15% — all by 2020.Kaskela said it is not the case that Varma is now reallocating resources from other asset classes into the new sustainable equities portfolio, but rather that within the overall equities portfolio, the pensions investor is taking sustainability factors — and particularly climate change-related factors — into account in a more focused way.Kaskela said: “This is not exactly something we started today or this summer, because we have been excluding power companies that generate more than one third of their electricity with coal since early summer 2015.”But when you have a carbon footprint target, you need to allocate equities differently in order to be open about this, and in order to meet the targets.”As well as investing in firms that benefit from climate change mitigation, the sustainability portfolio also includes companies that have their own clear targets concerning climate change, or which do not incur major costs from adapting to climate change.It includes both industrial and consumer companies from a range of industries in developed markets, Kaskela said.Kaskela said she believed investing in renewable energy is profitable despite fears that Donald Trump’s victory in this month’s US presidential election will set the battle against climate change back.“Changes in US policy and regulations may slow the progress, but on a global scale I don’t believe that energy investments will change course,” she said. Finnish pensions insurer Varma says it has built up an equities portfolio designed to benefit from climate change mitigation, and is actively seeking assets to add to it.Varma, which is the Nordic country’s largest private investor with €42.4bn in assets at the end of September, said it began developing the portfolio in the second half of this year as part of its newly-published climate policy.The pension provider described the sustainability portfolio as the “flagship” of its responsible investment strategy.Hanna Kaskela, Varma’s portfolio manager in charge of building the sustainability portfolio, said: “We are allocating to equities in different ways and creating a more transparent role for sustainability.”
The PLSA said the survey also found concerns regarding the capacity of asset managers to fulfil their stewardship responsibilities.It said 35% of respondents indicated they were dissatisfied with their asset manager’s approach to executive pay.The association said 60% of respondents indicated high levels of pay in the asset management industry were a problem.The PLSA said the report’s analysis of remuneration-related shareholder votes at company AGMs found that “overall levels of dissent did not change dramatically in 2016”.Luke Hildyard, the PLSA’s policy lead for stewardship and corporate governance, said it would update its guidelines to encourage its members and their asset managers “to take a tougher line on the re-election of company directors responsible for executive pay practices”.The PLSA’s report comes two days after the UK government launched a consultation on corporate governance at UK companies, including proposals on the subject of executive pay. The UK’s Pensions and Lifetime Savings Association (PLSA) believes a survey of its members shows there is “a strong sense” that high levels of pay at asset managers are preventing them from “properly” holding companies to account over pay practices.Releasing its 2016 AGM season report, which focuses on executive pay, the association said 87% of pension funds responding to its survey believe executive pay is too high.Of those, 63% think executive pay is generally too high, according to the PLSA, while 37% believe it is too high in cases of poor performance.The pay gap between executives and their workforce was identified as a problem by 85% of respondents.
Norway’s sovereign wealth fund has revoked its exclusion of US defence firm Raytheon from its investment universe, after blacklisting its shares back in 2005.Norges Bank Investment Management (NBIM), which manages the oil revenue-funded the NOK7.4trn (€827bn) Government Pension Fund Global (GPFG), said it had excluded the company from its investment 12 years ago due to the company’s involvement in the production of cluster munitions.NBIM said: “The executive board’s decision to revoke the exclusion was made on the basis of a recommendation from the Council on Ethics, which regularly shall assess whether the basis for observation or exclusion still exists.“The Council on Ethics has received confirmation from Raytheon that the company no longer has any activities associated with production of cluster munitions.” The council said in its recommendation, dated 22 August 2016, that Raytheon has issued a statement on its website saying it did not manufacture or sell cluster munitions — nor did it make or sell land mines, nuclear warheads, or biological or chemical weapons.In 2008, a number of Nordic pension funds blacklisted Raytheon because of its involvement in the making of cluster bombs along with other companies involved with the controversial munitions.The four Swedish national pensions buffer funds AP1, AP2, AP3 and AP4, Industriens Pension and Danica Pension in Denmark were among those divesting from Raytheon and other companies and removing them from their investment universe.The Council on Ethics for the GPFG exists to evaluate whether the fund’s investments are consistent with the fund’s ethical guidelines.The Convention on Cluster Munitions was signed in December 2008 in Oslo, prohibiting all use, stockpiling, production and transfer of the weapons, and so far it has been signed by 119 states. These weapons are considered a danger to civilians in a conflict both during war and for years afterwards, since the ‘bomblets’ can wander off course and remain unexploded, like landmines.
The Investment Integration Project (TIIP) has produced guidelines aimed at helping asset owners and managers sift through “systems-level” environmental, societal, and financial issues to decide which are relevant to their investment processes.According to Steve Lydenberg, founder and CEO of TIIP and author of the paper explaining the guidelines, being able to identify which issues were significant enough to be integrated into investment processes “is crucial for institutional investors because issues with too narrow a focus may prove irrelevant, ineffective, or even potentially detrimental to their management of long-term risks and rewards”.He argued that considerations about environmental sustainability or “the creation of a just and prosperous society” encompassed many issues, but “not all of these can – or should – rise to the level of ‘relevant consideration’” by institutional investors.To determine which issues were worthy of their attention, institutional investors should consider four criteria, Lyndenberg suggested: consensus, relevance, effectiveness, and uncertainty. Issues that shared these characteristics were “those that will be of sufficient concern that long-term investors can reliably treat them as credible”.#*#*Show Fullscreen*#*# He said an issue could be worth considering if it had achieved a broad consensus as to its legitimacy and general importance, whether positive or negative.To pass the “relevance” test, an issue should have “substantial potential to impact positively or negatively the long-term financial performance of not simply one portfolio or asset class, but portfolios across most investors and asset classes”, according to Lydenberg.The “effectiveness” criterion would be met if institutional investors had the ability to influence the functioning of a given system.Lastly, an issue could be deemed reasonable for consideration “if it involves difficult-to-assess uncertainties in the event of systems-level disruption”.“The greater the potential for uncertainty due to systems-level disruptions, the stronger the case for consideration of these issues,” wrote Lyndenberg.Examples of “systems-level issues” that could be deemed relevant for long-term institutional investors included: climate change, access to fresh water, poverty alleviation, access to healthcare, and stability and credibility of financial systems.The paper can be found here.
VER’s allocation to risk premia involves systematic strategies across different asset classes.Viherkenttä said: “They may be in the areas of equities, fixed income, currencies, or commodities, and the strategies can be based on, for example, carry, momentum, or volatility. The strategies may also be leveraged. We are not investing in typical risk parity funds.”One of the benefits of risk premia investments was that they balanced VER’s other investments, Viherkenttä added, as their return was usually uncorrelated to the return of the broad portfolio.“Transparency and lower costs of risk premia investments compared to hedge funds also make them an attractive investment choice,” he said.VER has invested 3.5% of its portfolio in hedge funds, compared to an average allocation of 9.6% from other Finnish pension investors.Viherkenttä added that the State Pension Fund was also interested in further geographical diversification of its real assets portfolio – 3.3% of the fund – which includes property funds and infrastructure.”Our property portfolio is pretty Europe-focused meaning we can be looking at opportunities outside the continent,” Viherkenttä said.Finland’s regulatory framework means VER can only invest a maximum of 12% of its portfolio outside of listed equity and fixed income.“Thus, we need to fit in all possible other investments in this – from property to infrastructure, hedge funds and risk premium. Regulations do not leave much space for growing exposure in these investment tools,” Viherkenttä said. The Finnish State Pension Fund (VER) plans to double its exposure to risk premia investments, the €19.2bn fund’s CEO Timo Viherkenttä has said.Currently 1% of VER’s portfolio is invested in risk premia funds and strategies, some of which have been developed in-house.VER aimed to increase this exposure to 2-2.5% of its portfolio, Viherkenttä said.“We have started growing this part of our portfolio at quite a rapid pace, but overall allocation is still very small,” he added.
The company added that it would “continue to work closely with our unions on a sustainable and affordable solution for the provision of pension benefits after 31 March 2018”.The Communication Workers’ Union (CWU) proposed an equity-heavy risk-sharing scheme in March. Royal Mail rejected this plan but retained some elements of it in another proposal, which formed one of several options being considered for a replacement pension arrangement.Both the CWU and Unite unions have threatened industrial action, including strikes, in relation to the DB scheme’s closure.‘Standard Life Aberdeen’ to cut 800 roles post-mergerThe planned merger between Aberdeen Asset Management and Standard Life Investments – which would create one of the biggest asset managers in Europe – moved a step closer this week as the two companies issued official documents.The two companies said in the scheme documents for the merger that they expected to remove roughly 800 roles from their combined workforce of approximately 9,000 during the integration process.The companies said they aimed to achieve annual savings of up to £200m.The combined entity would be called Standard Life Aberdeen, the companies announced.Aggregate DB shortfall climbs in AprilThe combined deficit of UK corporate DB pension funds rose by 8.4% in April to £245.6bn, according to data from the Pension Protection Fund (PPF).This was the highest figure recorded by the PPF’s 7800 index of DB schemes since October 2016.Total liabilities rose during last month, while assets fell.Andrew Tunningley, head of UK strategic clients at BlackRock, said many schemes were “underhedged”.“UK index-linked gilt yields – crucial to determining pension liability values – are driven by a powerful force that is sometimes underappreciated: supply and demand,” Tunningley said. “The proliferation of liability-driven investing among the pension community has caused demand for linkers to grow at a much faster pace than supply.”He added: “We estimate that over the next five years demand for index-linked bonds could be around four times the projected supply available to pension schemes… In our view, this persistent imbalance could act as a powerful anchor preventing a sustained pick-up in yields. Today’s low real yield environment will prevail for some time, meaning that materially better market levels at which to hedge liabilities may not arise any time soon.” Royal Mail’s pension scheme contributions will reach £1.3bn (€1.5bn) from next year, higher than initially expected, according to its latest valuation.The company, which runs the UK’s postal network, announced the closure of the Royal Mail Pension Plan (RMPP) to future accrual earlier this year. This is due to take effect from 31 March 2018.In a statement to the stock exchange on Monday, Royal Mail said the defined benefit (DB) scheme had a surplus of £1.7bn as of 31 March 2017. However, combined employer and employee contributions to the scheme were estimated to be higher than the £1bn the company estimated when it announced the closure of RMPP. The company currently pays £400m a year into the scheme.“Accordingly, we expect that the actuarial funding surplus would be exhausted during 2018 if the plan had remained open in its current form,” Royal Mail said. “After this time, the annual cost would be more than double the current contributions, which, as we have pointed out to plan members in a number of communications, is unaffordable for the company.”