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Interested asset managers have until 19 August to apply, disclosing their gross of fees performance to the end of June.Meanwhile, the Royal County of Berkshire Pension Fund has concluded a recent tender for a new scheme actuary.Following the tender, which saw four companies apply, the £1.57bn local authority scheme re-appointed Barnett Waddingham as scheme actuary.Lastly, Ireland’s National Treasury Management Agency (NTMA) is looking to appoint an investment consultant and pension administrator for its €75.9m staff pension fund.The defined benefit scheme – currently 51% invested in equities, with a further 34.3% in bonds, 9.9% in alternatives and 4.2% in property – at the end of 2013 reported a deficit of €3.6m and returned €7.3m from investments.The agency asked that all requests for proposals be submitted by 28 August.The IPE.com news team is unable to answer any further questions about IPE-Quest tender notices to protect the interests of clients conducting the search. To obtain information direct from IPE-Quest, please contact Jayna Vishram on +44 (0) 20 7261 4630 or email [email protected] A Dutch pension fund is tendering a $200m (€150m) small-cap equity mandate, using IPE-Quest.The scheme conducting search QN 1438 said it was looking to invest in US and European core small-cap stocks, with the index-tracking mandate split evenly across the MSCI Europe Small Cap index and its US counterpart.Companies applying should preferably have at least three years’ experience managing similar mandates, and $5bn in assets under management (AUM).However, the fund did not require a minimum AUM for any existing passive small-cap mandates.
Italian defined contribution provider Arca Previdenza intends to grow its exposure to Italian minibonds, as it sees value in the asset class’s illiquidity.Speaking in the upcoming issue of IPE magazine, Marco Vicinanza, deputy investment director at the €2.6bn institution, says it views the nascent market for the funding of small and medium-sized enterprises (SMEs) as more attractive than high-yield bonds or bank loans.“To us, a good example of value in illiquidity is Italian minibonds, an asset class that has shown strong growth, with many small to medium-sized issuers coming to the fore in recent months,” Vicinanza says.“We see investing in SME credit as an important opportunity. It represents both a chance to provide structural support to the Italian economy and a way to provide our clients with the benefits of long-term investments that match their profiles.” Industriens Pension, the Danish pension provider, sees greater value in high-yield bonds and bank loans – to which it has allocated more than 10% of its portfolio – but portfolio manager Fredrik Frei Rast is uncertain how much it will grow exposure in future.He says both markets have been “particularly crowded in [recent] years”, which has presented the fund with hurdles when investing.He also sees the more illiquid spectrum of the fixed income market as attractive.“They carry a premium compared with the more liquid side, and the floating rate is attractive in a low interest rate environment,” he says. For more on high-yield bonds and loans from Vicinanza, Frei Rast and Pierre Jameson, CIO of the Church of England Pension Scheme, see the October issue of IPE
Aer Lingus has received backing from shareholders to inject €150m into a new defined contribution (DC) fund, signalling an end to a protracted dispute over the €715m deficit in the Irish Airlines Superannuation Scheme (IASS).The airline, which convened this week’s extraordinary general meeting to approve the recommendations of a government-backed expert panel, saw an overwhelming majority of shareholders approve the deal.In June, the expert panel said IASS sponsors – Aer Lingus and the Dublin Airport Authority – should put aside more than €200m to address the needs of active members who would suffer benefits cuts if the defined benefit fund wound up.If the scheme were to wind up under the current priority order, which no longer grants pensions in payment absolute priority, the fund’s deficit would fall to €197m. The airline has agreed to inject €147m into a new DC arrangement for IASS members, as it is barred from making deficit reduction payments to the fund.In its third-quarter results, Aer Lingus noted that once shareholders had signed off on the deal, the Pensions Authority would need to approve the Section 50 benefits cuts put forward in the IASS funding proposal.It is unclear if the Authority will approve the Section 50 request before the end of the year, as the airline had hoped the restructuring would be complete by 1 January 2015.Aer Lingus could not be reached for comment.
”Cost is a big part of what we are doing – this is about understanding what the drivers are and then accessing them in the most cost-efficient way.”He added: “There is still a place for traditional active management in the RPMI portfolio – it’s just that the bar for consideration has been raised substantially.“If we think we can get 80% of the benefit of something at 20% of the cost, we’d consider that a good outcome, so active managers would need to persuade us that more than 80% of the excess return they generate is not replicable systematically and cheaply.”RPMI is implementing its strategies via both indexation, with implementation of tracker mandates by Legal & General Investment Management, and active quantitative management methodologies, all of which are open to evolution.“We are always looking to broaden and deepen exposure if we can identify and design more effective ways of capturing these risk premia,” said Artingstall. For example, the Research Affiliates fundamental indexation approach forms one part of RPMI’s value allocation.However, RPMI subsequently worked with index provider FTSE to build a bespoke, more concentrated version of this strategy and is due to transition assets to the new version soon.“We use external active managers, such as Unigestion for low-volatility and AQR for risk premia, which might be regarded as active managers but which we regard as simply having a well-designed or more refined approach to accessing the factors we are interested in,” said Artingstall.“Cost-efficiency remains critical, so there is still a very high bar for the quantitative active managers to clear when there are well-established style indices available.”Speaking with IPE after presenting at a factor investing conference for institutional investors hosted by MSCI, Artingstall said RPMI was actively researching momentum and quality risk premia.Areas of further research would include the small cap and illiquidity factors, he added.“We have already moved to a significant position, with 50% of our public equity exposure managed in this way, and we will consider increasing that depending on the level of conviction we have in other factors we are examining at the moment,” he said.For the longer-term agenda, RPMI will look into the cost-efficiency and transparency of moving towards long/short implementation of its risk-premia strategies, which have so far been long-only.It may also take the project beyond its equities portfolio and look into ‘exotic’ or ‘hedge fund’ betas.Altaf Kassam, head of index applied research for the EMEA at MSCI, told IPE RPMI Railpen’s moves were part of a broader trend in institutional asset management.“We launched our Minimum Volatility index in May 2008, and, of course, after the market fell in September, everyone rushed into defensive strategies,” he said.“But then the market rebounded in 2009, and everyone recognised you couldn’t put all of your eggs in one basket, so investors started looking for a more cyclical factor, like value or momentum, to diversify the minimum-volatility.“Today, what we are seeing is the idea of diversification between multiple factors to manage financial risk, as well as governance or career risk.” RPMI Railpen, manager of the assets of the UK’s £21bn (€28.9bn) Railways Pension Scheme, has taken big strides towards transitioning to smart beta-style strategies, putting 50% of its public equities portfolio into products designed to access risk premia systematically and cost-efficiently.A dedicated alternative risk premia function, established as part of RPMI’s ‘Investment Transformation Programme’ (ITP), has allocated to low-volatility, value and income equity strategies after a period of research conducted in collaboration with risk analytics and index provider MSCI.Further research into other risk premia is currently underway, and alternative ‘hedge fund beta’ is on the longer-term agenda.Steve Artingstall, an investment manager at RPMI Railpen, said: “This project came out of looking at the underlying drivers of risk and return in different asset classes but also at how much we were paying to get exposure to these factors through actively managed strategies.
The £9.5bn (€13.2bn) Santander UK Group Pension Scheme saw an investment return of 17.7% over 2014 as its commitment to real assets proved successful and the scheme lowered risk.The pension fund, which provides retirement benefits to more than 60,000 former and current bank employees, saw its investment return outstrip the 13.3% seen in 2013.It said investment performance was ahead of its benchmark and came as the fund increased hedging levels to nearly 60%, and decreased costs through simplifying administration.Director of pensions at Santander UK, Antony Barker, said there was still a funding deficit in the scheme, which was not helped by falling interest rates – something the fund did not expect to change any time soon. The scheme’s discount rate dropped 90 basis points to 3.6% over the year.“Our fund is close to £10bn now, and we agreed to reduce our quoted equity exposure by a further 5% in favour of real assets, which we have been securing around the globe,” Barker said.Its property fund increased by £296m and now stands at £1.1bn, including a range of properties across the UK and eight new commercial, housing and industrial properties.Barker said the fund continued its approach to find the value in “hairy deals”, which require additional active management.But he added that each new deal had a clear and detailed business plan and exit strategy.The fund owns a concert venue in Manchester, which added a 24.6% return after the Santander scheme launched a raft of changes to the arena and helped increased revenue via advertising.It also implemented a new approach to investing in hedge funds, shifting its entire allocation to hedge fund strategies into the equity of hedge fund managers.“As pension funds worldwide questioned the value in the fees paid to hedge fund managers,” Barker said, “Santander has sought to benefit by reinvesting the proceeds from its own hedge fund exposure into the equity of hedge fund managers themselves – one of the first European pension funds to do so.”Alongside the fund’s plan to shift equity exposure to real assets, it also boosted exposure to government index-linked debt, with total exposure now at £2.5bn from £2bn in 2013.Last week, it acquired a 4% stake in Eurostar, the London to Paris and Brussels train operation, after the UK government sold its stake as part of its privatisation plan.The stake was purchased by Hermes Infrastructure as the asset manager secured a 10% stake on behalf of Santander scheme and other UK pension funds.The common investment fund, the amalgamation of six pension schemes brought together by Santander’s banking acquisitions, said last year it would reduce investment risk as the funding level improved.On an accounting basis, the pension fund is now showing a £116m surplus at the end of 2014, a shift from the £554m deficit seen a year earlier.Read IPE’s interview with Anthony Barker on the scheme’s investment strategy implementation
He added that the alternatives portfolio would ultimately also consist of infrastructure (3%), commodities (2%) and private equity (2%).According to the secretary, the exact composition of the investment portfolio still needed to be fleshed out, and the new allocation would be implemented after the summer.He said that the outcome of the survey among its participants confirmed the higher risk profile that the board already had in mind, following a recent asset-liability management study (ALM).Although the “average participant” was slightly risk-averse, he or she nevertheless supported a modest increase of the scheme’s risk profile, the researchers concluded.They found that active participants favoured an investment mix with 40-65% of equity, whereas pensioners preferred a portfolio with 30-50% of stock.However, they noted that the interpretation of the results should also factor in the pension fund’s overall policy as well as its specific characteristics. As a consequence, the scheme should engage in additional communication about the chosen investment policy, they recommended.Pensioenfonds UWV has scheduled several debates with its participants about the survey’s conclusions for June.The study also made clear that a “large number” of participants were prepared to make additional contributions – 5.7% of their net income on average – for their pension, and that many participants expected to receive 77% of their net income in benefits at retirement.The survey was conducted by Hay Group in co-operation with Rotterdam-based Erasmus University. The conclusions were drawn from 5,600 responses. The pension fund has approximately 52,000 participants in total.At the end of April, the UWV scheme’s official policy funding level – the twelve-month average of the actual funding, as well as the criterion for rights cuts and indexation – stood at 102.3%.As the required minimum funding is 105%, the pension fund must submit a recovery plan to regulator De Nederlandsche Bank (DNB). The €7bn pension fund of UWV, the Dutch social security agency, said it would increase the risk profile of its investments, following an extensive survey into the risk appetite of its participants. The planned adjustment is to focus on reducing the current 43% strategic allocation to fixed income by 10 percentage points in favour of liquid assets, including equity, convertible bonds as well as residential mortgages, according to Frans Lemkes, the scheme’s secretary and chairman of its investment committee.At the same time, the strategic asset allocation to liquid assets is to be increased from 37% to 47% of the pension fund’s assets.The current strategic allocation to alternatives – the portfolio is still under construction – would remain at 17%, and include 10% of indirect property, said Lemkes.
“There is considerable scope to reform and expand supplementary private pensions,” said the organisation, noting that insights from behavioural economics and evidence from other countries suggest automatic enrolment improves pensions coverage.“Such automatic enrolment could be complemented with the introduction of a fall-back pension fund, which offers a low-cost investment instrument to those firms and individuals that do not wish to make their own arrangements to save for complementary private pensions,” said the organisation.It flagged the government’s plans to promote occupational pensions through collective agreements among social partners but said automatic enrolment was a broader approach and one the German government should consider.“Automatic enrolment would boost occupational pensions, especially among workers in small firms,” said the OECD.“The small firms could co-ordinate and provide occupational pension schemes collectively – for instance, at sector level, as is done in Switzerland and in some sectors of the German economy.”The OECD’s recommendation for auto-enrolment has some parallels with a reform proposal by three ministers in the state of Hesse, for a “Deutschland-Rente”, although the OECD does not refer to this proposal.The OECD also called for supervision of book reserve schemes (Direktzusage) “to better understand the macroeconomic and microeconomic risks they entail”, saying the systemic risk from direct commitments could be reduced by requiring companies to invest part of employees’ pension contributions externally.It suggested making contributions to what it referred to as “the mutualisation scheme” risk-sensitive.The “mutualisation scheme” refers to Pensions-Sicherungs-Verein, an association that insures corporate pensions against insolvency.A company’s equity could determine the level of risk, the OECD said.It recommended cutting the operating costs of the Riester-Rente, by improving comparability among providers.Another suggestion was to amend the pension system for civil servants to extend rules limiting losses in pension claims civil servants incur if they move to a private sector job.An old-age payment (Altersgeld) designed to do this is only available to federal civil servants – the OECD has recommended this also apply to civil servants in the Länder, the federal states.“In the long run,” it added, “barriers to the portability of civil servant pensions could be eliminated by merging or harmonising the pension scheme for civil servants and the general public pension system, as most OECD countries have done.” Germany should introduce auto-enrolment in occupational pension funds and make voluntary private pension plans more attractive to improve pension coverage in the country, the OECD has said.Other recommendations, made in a Germany economic survey report, include indexing the statutory retirement age to life expectancy, removing barriers to the portability of civil servant pensions and strengthening the supervision of employers’ direct pension commitments.Occupational pension plans already exist in Germany as a means to supplement public pensions, but employees have to choose to participate rather than being enrolled by default, as is the case in Italy and now also the UK, for example.The OECD said “substantial” coverage gaps remained despite the German government’s having introduced the Riester-Rente, state-subsidised voluntary individual private pension plans, and encouraged the expansion of occupational pensions.
PFZW, the healthcare sector scheme, lost 0.4% in 2018The pension fund attributed the outperformances to rising house prices and low vacancy rates, corporate transport infrastructure, and smaller losses than expected on credit risk sharing.It said it had only slightly adjusted its asset allocation last year, with holdings of infrastructure and insurance raised to 3.9% and 2.5%, respectively, at the expense of its stake in developed market equities and alternative equity strategies.The scheme also increased its allocation to residential mortgages to 1.1%, while reducing its exposure to credit to 2%. It added that its 9.8% allocation to alternative equity strategies had in particular underperformed, incurring a loss of 8.3%.PFZW has returned 8% on average since it was established in 1971.The healthcare scheme reported a cost reduction for pension administration of €2.80 to €62.10 per participant, but said that achieving its target of €60 would remain a challenge, as it had to invest in automation.PFZW reduced its asset management costs by 4bps to 0.45%, and lowered transaction costs by 1bps to 0.09%, thanks to a lower transaction volume for equity and commodities.PFZW has more than 1.2m active participants, almost 1.1m deferred members and almost 465,000 pensioners. At the end of last March, its funding stood at 100.9%. At 2020-end, its coverage ratio must be at least 104.3% in order to prevent pension cuts in 2021. The scheme added that it had invested more than €32bn in investments linked to the UN’s Sustainable Development Goals (SDGs) – equating to 16% of its entire assets – and had fully integrated its ESG policy across its entire investment process.Returns breakdownPFZW said that, despite its overall loss of 0.4% last year, it had achieved an outperformance of 0.44% relative to its benchmark, largely driven excess returns from property, infrastructure and credit risk sharing allocations. Dutch healthcare scheme PFZW says it is unlikely to meet its sustainability target within its current mandate, as its staff has had difficulty finding suitable investments.The €217bn scheme had said it expected to reach a total of €20bn of investments in solutions for climate change, water scarcity, healthcare and food security by 2020 – quadrupling its stake in such investments relative to 2015.However, according to its annual report for 2018, at the end of December it had invested €14bn in the four themes, with €2bn to be added next year. It said its investment teams had struggled to find assets offering sufficient returns while also meeting its strict criteria for sustainable investments.Since 2015, PFZW has reduced the carbon footprint of its investments from 339 tons to 240 tons of emitted CO2 per €1m of corporate turnover. Its target is a 50% reduction by 2020.
Nigel Stapleton, chairman and trustee of the defined benefit (DB) scheme, said: “The buy-in provides greater certainty and assurance about the future costs of providing members’ pensions, and we see this as a positive and prudent way of managing the overall funding and risk of the scheme.”Andy Agg, chief financial officer at National Grid, which is a FTSE 100 company, said the deal was “an important step in our long-term strategy to reduce the level of risk within our pension arrangements”.The transaction with National Grid is the third buy-in in quick succession to have been announced by Rothesay.Last month it disclosed a £3.8bn buy-in for drinks company Pernod Richard’s UK DB scheme, which followed a £4.7bn ‘buy-in to buyout’ deal with technology company Telent.The news of National Grid’s deal takes to more than £30bn the value of buy-in and buyout announced so far this year, compared with a previous record of £24bn last year. Experts expect further deals to close this quarter, and also point to a strong pipeline of transactions for next year.The high level of activity in the de-risking market has been due to a combination of factors, including stalling life expectancy improvements and improved funding levels.At the end of September Rothesay and Prudential said they would appeal against a high court judgment blocking the transfer of £12bn of assets, covering 400,000 annuity policyholders, from Prudential to Rothesay.Charlie Finch, partner at consultancy LCP, had said the ruling could pave the way for an increase in insurers’ capacity for bulk annuities. The £20bn (€22bn) National Grid UK Pension Scheme recently completed a £2.8bn buy-in with Rothesay Life, the life insurer announced today.The buy-in policy is in respect of the benefits payable to pensioners aged 70 or less in Section A of the scheme, which has around 100,000 members, mostly from National Grid’s gas transmission and distribution businesses. It is closed to new members.The transaction was complex, according to Sammy Cooper-Smith, co-head of business development at Rothesay.“Our sophisticated risk management systems allowed us to provide economic certainty to the trustees ahead of transacting despite volatile market conditions in recent weeks,” he said.
French president Emmanuel Macron has appointed Laurent Pietraszewski as pensions minister to replace Jean-Paul Delevoye, whose work laid the foundation for the French government’s reform plan.Pietraszewski’s appointment was announced on the same day as officials in Macron’s entourage reportedly indicated the president would be “willing to improve” the proposed reform, with reference made to the contested introduction of a “pivot age” of 64, two years later than the official retirement age of 62.Prime minister Edouard Philippe met with trade unions yesterday, but according to the head of the CFDT union, deemed more moderate than others, a solution to the disagreements had not yet been found.The more hardline CGT said it remained “firmly determined” to fight for another pensions reform project. Pietraszewski is a member of parliament from France’s North district, and has been spokesperson for Macron’s La République en Marche party in the National Assembly. He was named secretary of state in charge of pensions, attached to Agnès Buzyn’s ministry for solidary and health.Delevoye, whose official position was high commissioner for pensions, resigned on Monday amid commotion linked to his having failed to disclose other roles.France has been in the grip of public transport strikes over the planned pension reform, with large protests having taken place for several days as well.