He said insurance companies, which invested €35.7bn, were the strongest drivers of new Spezialfonds business.Pension funds contributed another €13.7bn, while companies and industrial foundations invested €11.9bn.Insurers were the largest group of investors overall, at €417bn, followed by pension funds at €199bn.The BVI said there were “several factors” that would prolong institutions’ need for investment funds, including increasing regulation, as well as higher standards in risk management and reporting. Further, the association sees a continuing trend in the shift towards indirect investments, especially in real estate – an asset class in high demand in the low interest rate environment.Real estate Spezialfonds have grown by one-third since 2010 to €40bn.For public equity funds, the BVI noted an outflow of €6.6bn, but it said this was due to “a special effect”, as some institutional investors pulled out €5.6bn. Germany’s asset managers collected a record €76.7bn in Spezialfonds last year, according to the BVI, the country’s industry association.The new figures bring the total volume managed in Spezialfonds to just over €1trn as per year-end 2013, again a new record compared with €982bn the year before.The industry now manages nearly €320m for institutional investors in mandates, a slight decrease on the €325m managed in 2012, the BVI said.Holger Naumann, president at the association, added: “The business with institutional investors in particular continued its upward trend.”
The UK pensions industry welcomed a revised code from the UK regulator after critisising previous drafts as long-winded and prescriptive, while highlighting it is now more employer-friendly.The Pensions Regulator (TPR) published the final version of its new defined benefit (DB) Code of Practice, which updates its regulatory framework for DB trustees and sponsors, taking into account its new statutory objective.The regulator must now consider whether recovery plans, negotiated between trustees and sponsors, also create a sustainable growth environment for the sponsor.The code, first published in December 2013, proposed dropping its old funding triggers and length of recover plans approach, in light of a new holistic risk-based model. It also offered nine basic principles that should be evident at DB schemes, which, if they make their way into the final code of practice, must be legally implemented by trustees.However, while many aspects of the Code were welcomed, it was described as too prescriptive and overly complex, with calls for a separation of guidance and regulation.The regulator largely took on board criticisms from consultations and has now created essential guides for both trustees and sponsors, while slightly rewording its DB Code of Practice, now named ‘Funding Defined Benefits’.The Society of Pension Consultants said the “biggest winners” of the new code would be covenant advisers, with president Duncan Buchanan noting TPR’s request to seek advice on the sponsor covenant, or explain why such a step was not necessary.He also noted the increased flexibility now granted in deficit reduction negotiations due to the wording of the new fourth statutory objective’s emphasis on sustainability of company growth.“Employers will be keen to explore the extent to which the sustainable investment objective permits recovery plans to become more flexible,” he said.Graham Mclean, senior consultant at Towers Watson, said employers would also be pleased with the new objective, and that the concessions would be seen as a “victory” by those who lobbied for change.He said the regulator would have received feedback from employers suggesting it was not inclusive of their needs, and that the question of whether this change was positive would depend on a company’s position within negotiations.“Employers may feel emboldened in the next round of negotiations with trustees,” he added.“They haven’t reduced the length substantially, but addressed areas of ambiguity making it slightly better.”Aidan O’Mahony, partner at Aon Hewitt, said the regulator had taken criticisms on board, with the Code being less long-winded and prescriptive, and more principles based.He backed Mclean’s observation and said there was a lot more focus on the employer requirements, giving sponsors more negotiating power.“The updated code explains in more detail how the new objective will be interpreted and used, but it has been polished up, compared with December, and leans more towards giving employers ammunition,” he said. ”This is an attempt to give employers breathing space“The previous code was perhaps a little Stalinist and told trustees to negotiate robustly, but this is more about collaboration.”Mercer partner Deborah Cooper said the regulator had largely absorbed the critical feedback it received.She also welcomed the removal of the Balanced Funding Outcome (BFO) method – which would have integrated covenant, funding and investment risk – and said its new approach to using a funding risk indicator was more sensible and positive.“The language is now a lot more forgiving and friendly to both trustees and employers with regard to risk taking,” she added.The business lobby group CBI, which had led the call for the new statutory objective, also welcomed the Code.Head of pensions Jim Bligh said the organisation was pleased TPR had recognised the need to balance pension commitments with company growth.“The CBI has repeatedly stated that a strong, solvent employer that can invest in the future is the best guarantee for a member’s pension benefits, and it’s good to see the regulator supporting this,” he added.The regulator’s interim chief executive Stephen Soper stressed, however, that it would only be required to minimise any adverse impact on the growth of companies.“In the vast majority of circumstances, trustees and employers should be able to agree funding plans that both benefit the business and strengthen the scheme’s long-term security – but this can only be achieved by employers and trustees working openly and collaboratively,” he said.
Dutch government and opposition parties are seeking clarification on the secondary legislation set to fill in the gaps of the new financial framework for pension funds (FTK).In particular, several parties have questioned why the government intends to enshrine the indexation limit in secondary legislation rather than directly in the primary legislation be brought before parliament. The various parties are also confused as to how the cabinet has arrived at the lower coverage ratio limit of 110%.The VVD liberal party, one of the two governing parties, in particular wants to know what shape the secondary legislation will take, seeking a timeframe and also clarity on whether it will actually come before the lower house. The VVD is also critical about the plan to allow smoothing of contribution levels based on expected returns, which is not in line with the Frijns and Goudswaard reports.The Calvinist SGP party, which supported the cabinet in the lowering of the tax-free rate for pension accrual, says it is also seeking clarity on the risks of smoothing contributions and the cabinet’s opinion on objections by the AFM and DNB supervisors. Political parties are also seeking clarity on why the new rules will allow underfunded pension funds to put off implementing benefit cuts for up to five years since this is set at three years in the current framework. The extension to five years was due to extraordinary circumstances and the D66 centrist party notes the Council of State’s opinion that this is an unsatisfactory choice.Another question is how the balance of responsibilities would be distributed between the social partners, trustee boards and the supervisor. The governing VVD party has asked whether trustee boards will be able to override decisions on indexation and contributions that social partners have made.The Central Planning Bureau (CPB) has calculated that the new indexation rules would work well on a macro level, but the D66 and Christian Union parties requested clarity on how equitable the new rules would be in practice for pension funds on an individual level.The governing VVD and Labour (PvdA) parties want the cabinet to assess the effects that pension regulations over recent years have had, including the so-called September Package. The Christian democrat CDA party pointed out that policymakers have kept interest rates artificially low and is seeking an estimate on the effect on coverage ratios if the yield curve were to climb by 300 basis points.At the request of IPE’s sister publication Pensioen Pro, Mercer estimated that mark-to-market coverage ratios would climb from their August-end level of101% to 140% if this were the case.Some details in this article have been amended to correct translation inaccuracies.
The Defined Contribution Investment Forum (DCIF) has published a paper suggesting the upcoming charge cap on DC default investment funds will affect the viability of suitable options available to small companies auto-enrolling their employees.The UK government has legislated for a 0.75% charge cap on default funds from April this year, potentially falling to 0.5% by 2017.The research, conducted among six life insurers and four DC master trusts, was compiled by consultancy Spence Johnson.It said the cost constraints arising from market competition and the Department for Work and Pensions’ (DWP) charge cap would make it difficult for smaller companies to use a well-diversified investment approach. The Pensions Trust told the report the charge cap would limit diversification in default funds, while Legal & General said DC default funds would adopt more strategic asset allocations, with only occasional shifts in assets.The research also found that insurers and master trusts felt the popularity of alternatives to annuities would be short-lived. Alternatives are a growing market as compulsory annuitisation ends in April.However, providers feel many of the products will be challenged once it is realised they do not produce higher sustainable levels of income.Elsewhere, the Tennants Consolidated Limited Pension Fund has appointed Buck Consultants to provide actuarial, administrative, secretarial and consulting services for both its defined benefit and contribution sections.The pension fund has around 1,200 members and £130m (€170m) in assets.David Welch, chair of trustees for the fund, said Buck demonstrated sound understanding of the scheme and employer’s needs.Buck was chosen ahead of four others and said it had tailored its solution.“They listened carefully to what we are looking for and demonstrated how they would bring working efficiencies, both through their people and their technology,” Welch added.Lastly, research from UK consultancy JLT Employee Benefits showed the number of FTSE 100 companies offering defined benefit schemes fell to 56 from 65 over the year to 30 September 2014.JLT said the deficit among FTSE 100 schemes deteriorated by £14bn over the same period and now stands at £66bn, as liabilities rose 7% to £591bn.The amount companies contributed to their DB schemes fell by £1.1bn to £14.6bn – £8.8bn coming in the form of deficit reduction.
Employees of Aon Netherlands have expressed concern over the recent decision to move its pension fund to Belgium, despite the workers’ council (OR) still discussing the matter with employers, according to Dutch financial daily FD. “We haven’t approved anything, and therefore it is strange that the pension fund already has taken such a decision,” Paul Kabel, the OR’s secretary told FD.He indicated that there were still worries among the scheme’s participants about the quality of the Belgian pensions system, and added that a lobby group had been established which was still discussing the issue with Aon.According to the FD, the OR – a statutory representative body of employees – and the employer have different opinions about the scope of the OR’s right of approval. It cited René Mandos, the pension fund’s chairman, who confirmed that the OR had voiced its concerns to both Dutch supervisor DNB and Belgian regulator FSMA.Mandos defended the pension fund’s decision, by saying that the accountability organ of representatives of workers and pensioners had unanimously approved a transfer.However, he stressed that a cross-border move was still subject to the OR’s approval.Almost a year ago, the Aon scheme announced that it was considering placing its pensions in a Belgian IORP.It made clear that its intention came after the employer had terminated its contract for pensions provision with its pension fund, and had transferred pensions accrual to a defined contribution plan with an insurer.For the accrued pension rights under average and final salary plans, “a liquidation of the pension fund, including a collective value transfer, was the most realistic scenario”, the scheme said at the time.According to the pension fund, the employer preferred a transfer to an IORP in Belgium, which could also house pension rights from its Belgian staff, and possibly other European countries.
The €38bn private equity investor AlpInvest returned 21% last year on a euro basis, allowing it to return €6.8bn to its 30 institutional investors, predominantly pension funds.In its 2014 annual report, it attributed the return chiefly to “exit markets, which continued to be strong”, adding that, over the last two years, the performance of its funds with exposure to the pre-2008 peak years “improved significantly”.AlpInvest said it invested €3.6bn in total last year and had a “healthy level” of commitments for 2015.Jacques Chappuis, who succeeded Volkert Doeksen as executive chairman last year, said: “The European market offered an interesting and steady stream of opportunities for fund investments, following signs of recovery, low interest rates, low private equity penetrations and relatively lower values compared with the US.” Chappuis added that the outlook for India had also improved.AlpInvest acquired four new mandates in 2014, including one from Horeca & Catering, the €6.5bn pension fund for the Dutch hospitality and catering industry.The private equity investor said it was in the process of upgrading its IT systems for improved efficiency and announced the launch a new portal to provide access to reports across investors’ alternatives portfolios.The company also announced that it has obtained an AIFMD licence from Dutch regulator AFM for managing funds-of-funds and private equity products for professional investors.AlpInvest, one of the world’s largest private equity houses, has been fully owned by Carlyle Group since 2013.It had been founded by Dutch civil service pension fund ABP and healthcare scheme PFZW 15 years ago. Both schemes still have large stakes in AlpInvest and recently committed new capital to the private equity investor.
SPOA, the €1.5bn occupational pension fund for public pharmacists in the Netherlands, is looking to join PMA, the €2.5bn scheme for pharmacist staff, depending on the results of an ongoing survey.BPOA, the occupational association responsible for the pharmacists’ scheme, said it signed a declaration of intent with independent pharmacist industry group VZA and the association of employed general practitioners (LAD) to investigate whether all public pharmacists could join PMA.It said the mandatory accrual of employed and independent pharmacists’ pension rights was needed to secure “lasting mandatory, collective and affordable” pension arrangements.BPOA said the stakeholders aimed to increase efficiency, improve quality and cut costs through the benefits of scale, adding that employers would also benefit from a single pensions window, as well as from uniform labour conditions for all workers. In the Netherlands, the number of employed pharmacists now exceeds that of independent pharmacists.BPOA warned that this could jeopardise mandatory participation in the occupational pension plan and argued that, if all public pharmacists accrued their pensions through a single industry-wide scheme, mandatory participation could be preserved.The stakeholders said they were also examining the effects of transferring existing pension rights to PMA.According to BPOA, the gaps between the pension arrangements and funding ratios at SPOA and PMA have narrowed this year.SPOA’s official policy funding stood at 104.3%, as of the end of June.The pharmacists’ scheme, however, has had to apply four successive rights cuts of 5%, 7%, 6.8% and 4.6% since 2011.PMA’s policy coverage was 105.8% at the end of the second quarter.
The focus on alternative assets would see Lothian build on its partnership with the £1.8bn Falkirk Council Pension Fund, for which it currently advises on a £30m infrastructure mandate.The fund also cited its alternatives portfolio as one of the driving forces behind its 16.5% return over the course of the most recent financial year. Lothian is not the first LGPS to work closely with fellow local authority funds, following on from several collaborative efforts by the London Pensions Fund Authority (LPFA) with both Greater Manchester Pension Fund and Lancashire County Pension Fund.The initiatives were spurred by the UK government’s desire to pool LGPS assets, currently worth £230bn across 101 funds.The partnership between the LPFA and Lancashire has also said it will apply for FCA authorisation, as has the collective investment vehicle backed by London’s 32 boroughs.But Lothian is believed to be the first to declare publicly its intention to work with funds outside of the LGPS.Lothian’s statement added that the corporate structure for its SPV would emulate that of equivalent private sector funds, which would allow the further development of its in-house team.Funds including those for employees of BAE Systems, Barclays and BP have in-house asset managers. As of May, LPFE Limited, the company wholly owned by Edinburgh council, directly employs five of Lothian’s in-house team, including investment and pensions service manager Clare Scott.Lothian added that, in applying for FCA authorisation, it would “further support and reinforce” the in-house team’s status as professional investors, alluding to changes to financial regulation requiring a greater focus on staff expertise.The emphasis on the team’s professional status is a likely reference to the revised Markets in Financial Instruments Directive, which will classify LGPS clients as retail investors.The Local Government Association has warned that a reclassification could trigger a fire sale of LGPS assets worth £115bn. Lothian Pension Fund’s in-house investment team will compete for private sector mandates once it receives approval from the UK’s regulator, the first local authority fund manager to do so.The Edinburgh-based scheme said it filed for Financial Conduct Authority (FCA) authorisation, a year after winning approval for a standalone, limited company and two special purpose vehicles (SPVs) to house its investment staff, and hoped to receive approval by early 2016.In a statement, the £5.5bn (€7.5bn) local government pension scheme (LGPS), which currently manages 60% of its assets internally, said FCA authorisation would offer regulatory certainty.“The structure will also allow [Lothian] to collaborate more effectively with LGPS and other private sector pension funds/institutional investors in the alternative investment and other markets in which it operates,” it said.
Members of the IASB (International Accounting Standards Board) tentatively decided during their 14 December meeting, by consensus, to explore whether they should require companies to present subtotals representing earnings before interest and tax (EBIT) and/or operating profit.The board also plans to look at removing options for presenting items of interest and expense under international financial reporting standards (IFRS).Early indications are that this will have a direct impact on pensions accounting because one of the areas staff plan to look at is the presentation of net interest cost on a defined benefit (DB) pension liability.IAS 19 Employee Benefits does not specify how DB sponsors should present net interest cost on the net defined benefit liability. As a result, different entities present this cost in different locations.In addition, the board signalled that it wanted to look at giving guidance on the use of performance measures, as well as explore better ways to communicate information about other comprehensive income.Among other decisions taken by the board on its Conceptual Framework project, IASB members tentatively decided to carry forward the existing chapter dealing with capital and capital maintenance into the revised framework.
Hedge funds run by listed companies underperform those run by privately owned firms, according to academic research.Listed firms gained $3.5m (€3.3m) more in revenue than privately owned companies and gained more assets under management (AUM), despite their underperformance, reported Lin Sun and Melvyn Teo of Singapore Management University’s Lee Kong Chian School of Business.In the five years after a group’s initial public offering (IPO), risk-adjusted performance of funds fell by 13.7% a year on average, the researchers wrote in their paper, ‘The Pitfalls of Going Public: New Evidence from Hedge Funds’.Listed-manager funds underperformed their unlisted peers by 2.9% a year. The pair analysed more than 16,000 existing and defunct hedge funds, taking performance and asset data between January 1994 and December 2013.Over the period, listed companies increased their market share from 4% of total assets to more than 16%, Sun and Teo’s data illustrated.Sun and Teo said: “We show that hedge funds managed by listed asset management firms consistently underperform funds managed by their unlisted competitors. The results are driven by agency problems at fund management companies.”Newly listed firms tend to “aggressively raise capital” through new product launches, the authors wrote.The best funds for raising capital – typically those with high liquidity – were also those most likely to underperform relative to similar products run by unlisted companies.Sun and Teo argued that investors in funds run by listed companies were trading performance for “the comfort of lower operational risk”.“Typically, a privately held hedge fund firm is controlled by its founders … who also invest a substantial percentage of their net worth in the funds managed by the firm – hence the tight link between ownership, control and investment capital,” they added.“Post-IPO, this link is broken as the founders of the firm sell out to new shareholders who neither invest alongside the limited partners nor manage the hedge funds run by the firm.”Read Sun and Teo’s paper here.