The Pension Protection Fund (PPF) is to begin lending at least £150m (€181m) a year to UK corporates, entering the direct lending market more than five years after the financial market caused the banking sector to contract.The £15bn UK lifeboat fund said it would seek to appoint no more than two investment managers that could act as co-investors and offer loans or private debt securities to the firms.A spokesperson told IPE: “Adding UK Direct Lending to our investment portfolio is intended to act as a diversifier within our fixed income portfolio.“This mandate fits well our need for long term fixed return assets as it will enable us to access these with investment grade companies.” In the tender notice, the PPF said it would consider lending “mainly to companies with a UK presence”, and that all transactions should be fixed-rate or index-linked, denominated in sterling.It added that any loans should be long term – at least five years – investment grade and placed directly with the borrower or through market syndication.Any applying manager must have at least a decade’s experience, as of December last year, in the UK direct lending market, and able to act as a co-investor, matching the PPF’s commitment to each company.Applicants should also already manage a portfolio of at least £3bn in assets and be able to invest a minimum of £150m a year on behalf of the lifeboat fund.Investment managers have until 4 February to apply for the mandates.A number of large UK pension funds have previously spoken of their interest in direct lending, with Steven Daniels, CIO at Tesco Pension Investment, last year telling the National Association of Pension Funds investment conference that he would be “happy to participate in [direct lending] as far as possible”.But he insisted at the time that any deals had to offer terms suitable to funds.“We are banks – potentially good banks – but we are not mugs,” he added. “We need to pay great attention to how everything is structured that we do.”Institutions across Europe have already been active in lending to small and medium-sized enterprises (SME), with the Irish National Pensions Reserve Fund a year ago investing €500m in three funds aiding domestic firms.The €36bn Fonds de Réserve pour les Retraites in France last summer also confirmed it had committed €120m to an SME financing fund backed by the government and insurance industry, while the Danish pension association F&P recently struck an agreement with its government to promote SME lending among local pension funds.Italy’s PensPlan, meanwhile, launched a fund investing in corporate bonds of SMEs in the South Tyrol region.
SPVG, the €375m pension fund for glass manufacturers in the Netherlands, has said it will liquidate itself and join PGB, the €16.3bn industry-wide pension fund for the Dutch graphics, packaging and process industry. The pension fund is still waiting for the DNB – the pensions regulator – to pay damages for lost returns after the watchdog forced SPVG to offload its gold holdings.The pension fund filed an €11m claim for compensation against the DNB after the regulator was adjudged to have wrongly ordered the scheme to slash its gold allocation from 13% to 3%.The pension fund’s decision to pursue compensation followed the rejection of the DNB’s appeal against the verdict of the Rotterdam court. The court had ruled that the watchdog’s reasoning in the case had been “unacceptable”.Although the DNB has not yet paid, SPVG has already factored in the €9.5m into its assets.Meanwhile, SPVG’s employer, O-I Netherlands, is to provide an additional contribution of €4m to facilitate the transfer of pension rights, which is to take effect on 1 October.Last year, the company contributed an additional €7.5m to limit a necessary rights discount of 6.1% to 4.6% for the more than 3,000 predominantly older participants.The pension fund said its employer had made the newest additional contribution conditional to a merger with PGB, which is expected to implement the pension arrangements against much lower costs.Last year, SPVG lost 11.2% on its investments as a consequence of the effect of increasing interest rates on its large fixed income allocation.
Oslo Pensjonsforsikring (OPF), the pension fund for the municipality of the Norwegian capital, reported a lower year-on-year return for January to September but said it was already beating the new solvency requirements set to become law next year by a wide margin.The public sector pension fund said in its interim report that, following a 0.8% loss suffered between July and September, the value-adjusted return on customers’ savings was 2.7% in the nine months to the end of September, down from 5.1% in the same period last year.OPF said: “The fall is partly due to weaker equities markets and party down to the fact corporate bond prices fell.”Solvency capital coverage grew to 170% in the third quarter, up from 152% in the second. “Oslo Pensjonsforsikring AS fulfils the new steeper capital requirements that are coming into force in the new year by a good margin,” the pension fund said.Taking into account the more lenient transition regulations the authorities introduced, the coverage ratio was 359%, it said, but added that, even disregarding the proposed transition leeway, its solvency level was well above the limit.“The good level of solidity means OPF will continue with the investment strategy that has produced a good return on customers’ assets for many years,” the pension fund said.It said the chief elements in the strategy were to ensure a stable and high level of return by spreading risk between different asset classes, and to have a long-term investment perspective.Group profit for the third quarter of 2015 alone was NOK141m (€15m) compared with NOK174m in the same quarter last year.In the year so far, however, the result was NOK824m, up from NOK498m. The group quarterly profit had been reduced by NOK21m because of the decision to move NOK246m of the customer premium fund to reserves over three years, to take account of lower mortality levels ascertained between 2012 and 2013.Between the end of September 2015 and the end of December 2014, OPF’s asset allocation edged towards equities and away from fixed income.Fixed income investments made up 49.9% of group assets at the end of September, down from 52% at the end of last year, while equities portfolios gained slightly to 25.2% from 24.9%, according to the interim data.Total group assets rose to NOK77.0bn at the end of September from NOK74.6bn at the end of December.
The share of alternative assets in the portfolios of Swiss Pensionskassen has increased steadily since 2000 to reach 7.7%, as of the end of 2015, according to Complementa.Heinz Rothacher, chief executive at the State Street-owned ratings agency, said the increase was based on “active, new investments” rather than portfolio shifts.Complementa found that private debt, infrastructure and insurance-linked securities were the most sought-after investments in the alternatives space.But Rothacher took pains to emphasise that the investments were made with “much more consideration and due diligence than the run on hedge funds at the turn of the millennium”. Since 2008, allocations to hedge funds have fallen steadily.Rothacher told IPE most Pensionskassen were focusing on “around three” sub-categories within the alternatives space but no more than that.The Complementa survey also found that the share of non-domestic investments remains above 50%, which has been the case since 2014.At the same time, foreign-exchange exposure continues to decline as currency hedging increases.The current foreign-exchange allocation is well below 20%, while, in 2006, it had still been closer to 30% when the share of non-domestic investments was not even at 40%.According to Complementa, more expensive investment strategies have paid off over the last three years.Since 2013, Swiss pension funds have had to publish total expense ratios for their portfolios in their annual reports, which has dissuaded some trustees from pursuing more expensive investments.Rothacher, however, said Complementa was seeing more searches for alternative investments from Pensionskassen.The survey shows that, between 2013 and 2015, the quartile of the most expensive pension funds reported an average annual return of 5%, while the cheapest quartile was at 4.7% – below the average for all pension funds.Meanwhile, the Oberaufsichtskommission (OAK), Switzerland’s top supervisory body for second-pillar pensions, has published its report on pension funds’ financial position.The OAK report (in German and French) is based on estimates reported to the authorities by Swiss pension funds in January, before the filing of annual reports.The OAK confirmed initial estimates on returns and funding levels made earlier in the year by the Swiss pension funds association ASIP, as well as financial service providers such as UBS, Credit Suisse and Willis Towers Watson. It said the average return stood at 0.8% for 2015 and that the funding level for pensions funds – including public ones without a state guarantee – had dropped from 108.5% to 105.1%.OAK president Pierre Triponez warned that future pension promises remain “too high” in light of the returns that can be “realistically expected”. However, he applauded Pensionskassen that have already adjusted their technical parameters such as the discount rate (technischer Zins) or the conversion rate.
Its reaction to the government’s ideas, made public this week, comes after the academic pensions council earlier this month raised the alarm over the reform plan, saying it represented a “dangerous” move towards “individualisation”.Pensions minister Daniel Bacquelaine in turn responded by saying he was “astonished” the council was “contesting the right of an employee to freely build a complementary pension in the second pillar”.Bacquelaine said he nonetheless intended to modify this right so it could better address “the reality” as concerns complementary pensions in Belgium, and that the details were still to be developed.‘Jungle’ fearsPensioPlus said the minister should submit his proposal to the national labour council for its opinion if he intends to follow through with his idea to allow workplace personal pensions.“PensioPlus considers that a ‘voluntary’ individual pension for an employee does not fall under the remit of the second pillar and reminds the pensions minister that the ‘specificity’ of each pension pillar needs to be respected,” it said in a statement. Belgium’s pension fund association has added its voice to concerns over a government proposal for personal workplace pensions, calling for the “specificity” of the different pension pillars to be respected.The government last month announced that, as of 2018, all employees should be able to save for a second-pillar pension even if their employer does not offer this opportunity.Under the government proposal, an individual could, on his or her own initiative, decide to contribute part of his/her salary to a pension, and the tax benefits would be the same as those applicable to contributions into pension schemes set up by employers.PensioPlus, the country’s pension fund association, said it was worried about the possible impact on the second pillar. Personal pensions need to be addressed through supplementary pensions in the third pillar, which is the general definition applied by the OECD, it added.Philip Neyt (pictured), president of PensioPlus, said: “We should first do the groundwork and learn from the experiences with these kinds of individual pension accounts, like in Chile, Mexico and Eastern Europe, and [that] now are pushed back under a lot of pressure due to high costs, disinformation, financial illiteracy, etc.”He told IPE the experience of auto-enrolment in the UK would be worth studying given the apparent success of it so far, including for potential lessons about how to get the many small companies in Belgium “on board” in the second pillar.The government’s proposal is unnecessary and potentially damaging and ineffective, according to Neyt.He said there were already “fairly extensive measures” allowing individuals to save for retirement on top of the second pillar, with tax benefits, and that there could be scope for improving pension coverage within the existing system by strengthening the second and/or third pillars.“The minister should first examine the ‘blind spots’ in the second pillar to take adequate measures,” said Neyt.He said it could be damaging in the sense that it could “cannibalise” the second pillar by undermining the motivation for employers to offer workplace schemes if there were alternatives that transferred the risk to the individual and were not subject to prudential regulations or social and labour laws governing second-pillar pensions.“I fear costs especially,” he said, “even more in a low-yield environment. I would not want, after a couple of years, people to become dissatisfied because that would have a collateral effect on all the pillars.” The government’s proposal could amount to the introduction of a pure investment product rather than a pension product, with a host of inter-related associated issues such as consumer protection, costs and financial education, according to Neyt.“We don’t want to create a jungle in the pension world in Belgium,” he said.
Germany could have a framework for class action lawsuits by November, based on the coalition agreement struck by the country’s two largest parties.Chancellor Angela Merkel’s Christian Democrat Union (CDU) and the Social Democratic Party (SPD) reached a deal on another grand coalition on 7 February after months of negotiation following inconclusive national elections last September.Their agreement, which is still to be ratified by SPD members, contains plans to introduce a framework for class action lawsuits to take effect by November this year.This would mean setting up model case proceedings (Musterfeststellungsverfahren) for all injured parties, such as consumers of products and investors in a company. According to Marc Schiefer, lawyer at TILP Litigation, however, such a framework probably would not help investors much, as the institutions presenting a claim would not have the financial means or legal back office to work on high-volume cases.Under the new system, a claim would be presented by a qualified institution, which is a registered association acting on behalf of injured parties. Volkswagen and Porsche cases showed the German system was not suited to deal with mass claimsSchiefer contrasted this with the class action system in the US, where the representative for European investors pursuing claims would be a law firm with enough financial means to pursue litigation, and not just a supportive consumer organisation without power or funds.He said the law would likely be approved by November, he said, “although the legislature has already worked for years on several other models for class actions that never came into effect”.German model versus US modelIn the US, a lead plaintiff represents the class from beginning to end, but in Germany registrations would be necessary, Schiefer said. He suggested that talking in terms of “mass action” was more appropriate. Under the proposed German framework, there would need to be a minimum of 10 injured parties with substantiated claims to start the proceedings. There would also have to be 50 registered individuals on a claims register to execute the proceedings.Any decision would be binding on all parties who had registered claims, if they had not withdrawn from the register before the first day of the oral hearing.Schiefer said the emissions scandal lawsuits currently being pursued against Volkswagen and Porsche had shown that the current procedural situation in Germany was not sufficient to deal with a mass of consumer claims.He said: “Consumers often refrain from claiming their rights due to high litigation costs, especially in cases where individual claims are for small amounts.”In Germany, each injured party must actively file their own complaint to get compensation. However, there is provision for a group model – the KapMuG – to allow court rulings won by individual investors to set damages for other investors in the same position.According to Schiefer, the drawback of KapMuG is that it is only for investors who have suffered losses on the capital market, not for consumers. He added that it only addresses abstract questions of law and fact, but does not completely and comprehensively resolve a case.
The new rules would increase investor confidence in the transparency of the ESG market, it said.However, Moody’s estimated that asset managers’ costs could increase by 0.25%-2% depending on their ESG capabilities, with margins likely to come under pressure.It said the need to update product offerings and prospectuses and explain how ESG factors were considered would come with “heavy one-off implementation costs”.“The more stringent disclosure rules will require new systems or enhancements to current systems, potential new headcount, as well as the need to train salespeople to adequately explain the considerations,” the credit rating agency added.The higher costs would weigh mostly on the profits of small EU-based asset managers without ESG expertise, according to Moody’s.EU sustainable finance policy is developing quickly at present. Political agreement has also been reached on a regulation on low carbon benchmarks and last week the members of two EU parliamentary committees narrowly adopted an amended version of the so-called taxonomy proposal. A full parliamentary vote is scheduled for late May.The body for EU member states has yet to adopt its position on the proposal, which is for a classification of environmentally sustainable economic activities. Asset managers that have already established sustainable investment products and reporting could benefit from new EU disclosure rules, according to Moody’s.Earlier this month the European Parliament and EU member states agreed on one of the main pillars of the European Commission’s sustainable finance action plan, the so-called disclosure regulation for institutional investors.Moody’s said asset managers that had already adopted environmental, social and corporate governance (ESG) disclosures before the release of the new rules could benefit from first mover advantage.“For assets managers that have the appropriate infrastructure, expertise and product range, the rules will likely lead to increased inflows into sustainable strategies, given increasing demand for ESG products,” said the credit rating agency.
Nordström said there was no doubt that stricter requirements and enhanced consumer protections had already had an effect after the first phase of the PPM reform. These changes – together with effective supervision from the Swedish Financial Supervisory Authority – would lead to consumer protection for all savers, he said. A Swedish lobby group for fund managers has warned that planned reforms of the country’s Premium Pensions System (PPM) could reduce competition and limit savers’ choices.The PPM – a state-run platform for private pension savings – is undergoing major changes to its range of funds, including new rules raising the bar for providers offering products. The changes mean a third of options previously available are likely to be removed from the platform.Fredrik Nordström, chief executive of the Swedish Investment Fund Association (Fondbolagens förening), acknowledged in a column in business newspaper Dagens Industri that the Swedish Pensions Agency’s power to procure funds for the PPM platform could push down fees.However, he added: “At the same time, there are a large number of disadvantages of procured solutions. They reduce competition and run the risk of leading to forced displacement of savers’ capital when new procurements change the selection of funds.” Not so sweet: Swedish asset managers believe new rules will limit choice for saversHowever, instead of evaluating the changes that had now been implemented, politicians in Sweden wanted to continue with reforms, Nordström said, with a government inquiry now looking at replacing the current fund marketplace’s offering through procurement.“We run the risk of having a concentration of power with a few giant funds [that are] in practice state-controlled,” he said.The Swedish Investment Fund Association has 49 member companies that collectively manage around 90% of fund-based saving in Sweden.Pensions Agency drives down costsSeparately, the Swedish Pensions Agency, which manages the PPM, reported that from 11 May it would pass on SEK8.4bn to fund savers.Of this total, SEK4.7bn came from discounts given by fund managers and SEK3.6bn came from “inheritance gains” from customers who died, the savings of whom were passed on to other customers.This total was up from SEK7.9bn in the previous year, according to the agency’s figures.“The discount means that funds within the premium pension have low fees, which in the long term gives a considerably higher premium pension for the individual savers,” said Erik Fransson, head of the agency’s funds marketplace department.The agency also reported that its fees to PPM savers decreased to SEK494m this year, from SEK803m in 2018. The reduction was the result of the paying off of a loan granted to the PPM to fund its creation.
Belgian pensions industry organisation PensioPlus is planning further action to enhance the sector’s pioneering role as prime location for pan-European pension funds through the implementation of IORP II.In a memorandum about the sector’s future, it said it would focus on simplifying procedures for admittance and implementation for cross-border schemes as well as their fiscal treatment.PensioPlus said it would also look into the barriers to migrating pension funds caused by double taxation treaties. The introduction of the financial transaction tax, for example, would be “the kiss of death” for pan-European pension funds, it said.Citing figures from European supervisor EIOPA, the organisation said that Belgium was home to 14 cross-border schemes. This was expected to rise to 19. Ireland and the UK accommodated 26 and 19 cross-border pension funds, respectively. Earlier this year, PensioPlus said it wanted to grow the industry’s assets under management to €100bn by 2025 through expanding coverage and attracting more cross-border schemes.Belgian schemes net 8.5% return in H1 Credit: Dimitris Vetsikas The Parc du Cinquantenaire in Brussels, BelgiumMeanwhile, PensioPlus’ 201 member schemes posted an average investment return of almost 8.5% during the first six months of 2019.The annualised historical return, adjusted for inflation, was more than 3.9% on average over the past 30 years, it said, attributing the results to a stable allocation of equity and fixed income.At June-end, Belgian funds held an average of 39% in equity, 45% in fixed income, and 4% in property. Cash holdings totalled 4% of the combined pension assets of €46bn, while alternatives accounted for 7%.The industry organisation highlighted that the search for yield in a low interest rate environment would increase the importance of alternative asset classes, including infrastructure and private equity, and would require greater risk management.In order to find investable projects of sufficient scale locally, it advocated “organisational improvements” at the supply side.“This would enable pension funds to take full social responsibility as long-term investors in the real economy,” it said.Further readingBelgium: Rolling out IORP IIBelgium is proud of its transposition of the EU’s new pension fund directiveCross-border pensions: Barriers to entryBosch Group’s Dirk Jargstorff explains his company’s efforts to set up a cross-border arrangement for its Austrian employees
“We’re offering a bundle where there is a lot of ability to customise the solution we bring to their office in order to make them more efficient and cost effective than if they try to build out internally by doing a lot of these things themselves.”Specific services can include aggregating and reconciling portfolio data, asset allocation studies, risk management, detailed manager due diligence reports and consolidating performance reporting across all asset classes.Kris Shergold, regional director within SEI’s UK institutional business development team, said the new offering allowed institutional investors to access some of the processing and technologies that the world’s largest asset managers and banking organisations had access to.SEI, which in the UK and Europe is best known as a fiduciary manager, estimates the size of the ECIO target market, excluding the US, at $17trn (€14trn), Matthews told IPE. Fin tech organisation SEI has launched a new package of services aimed at supporting large institutional investors that have made a strategic decision to insource investment management.Enhanced CIO, as the offering has been dubbed, is a suite of services across investment processing, investment operations, and investment management.“We’ve offered some of the components to institutions before, but never this combination,” said Kevin Matthews, vice president, strategic growth initiatives, in SEI’s institutional group.“Many of the investment teams we speak with are focused on having their team build out investment acumen and have people they’re hiring have expertise on manager selection or portfolio construction, but they haven’t always wanted to build out their own internal operations team or even if they have an individual or two doing operations it still can be a burden.