The fund will hear the outcome of the review by year-end.The pension fund and JLT “will also explore the possibility of collaboration with other Local Authority Pension Funds”, it said, “if appropriate and where possible”.Cornwall’s real estate investments are managed by CBRE Global Investors’ multi-manager.For the last three years, officers and JLT have been reviewing the organisation’s “capabilities… to provide investment services in the property asset class” for the pension fund.It added that “a number of concerns have been raised with the committee at previous meetings”.The document notes that CBRE Global Investors was not directly appointed to run the mandate.The pension fund appointed RREEF (now Deutsche Asset & Wealth Management) in 2006, but the account was transferred to ING Real Estate Investment Management after RREEF’s multi-manager team – including fund manager Matt Day – departed to ING REIM in 2009.CBRE subsequently acquired ING REIM, bringing the ING Real Estate Select multi-manager into CBRE Global Investors.Day and Mark Bunney, head of UK for ING Real Estate Select, left CBRE Global Investors in 2012 to join Kames Capital.Alex Bignell, head of UK at CBRE Global Multi Manager, told IP Real Estate: “At the point of takeover, the Cornwall portfolio was exposed to certain funds that experienced significant writedowns and impacted performance.“At the same time as working through these funds, CBRE Global Multi Manager has implemented a repositioning of the portfolio.”As of March this year, Cornwall held a £93.5m (€116.7bn) real estate portfolio, representing an allocation of 6.64%. Cornwall Pension Fund is considering clubbing together with other local authority pension funds as part of a wider review of its property asset allocation.The pension fund is also reviewing its existing multi-manager mandate with CBRE Global Investors.In minutes from a 19 June committee meeting, the fund said that, since 2011, the performance of the property asset class, to which it has a 10% allocation, had been “fairly benign”.Cornwall said the review, with help from consultants JLT, would look at how best to invest in property for the most beneficial returns, considering cost, risk, diversification and governance requirements.
Hinder argued that many active managers in the equity space had only added small caps to their approach, which then outperformed in the bull market.He said Publica, therefore, had turned to smart-beta approaches such as value and minimum-volatility strategies in equities, which he said were “adding value compared to pure passive strategies”.For its fixed income portfolio, Publica began build an emerging market debt exposure in February 2013, commissioning Ashmore Investment Management and Investec Asset Management to invest via two passive, enhanced mandates.As of the end of 2013, the emerging-market debt exposure stood at 4.7%, just short of the 5% strategic allocation.Publica also added inflation-liked bonds but it left out high yield, Hinder said, adding that the pension fund’s aim was to “broadly diversify” the fixed income portfolio. Publica, Switzerland’s CHF36bn (€30bn) public pension fund, has switched to passive mandates for “almost all” asset classes in its portfolio in recent years and has now “looked to smart beta” and some active strategies for additional returns.Speaking at the Swiss Leadership Pension Forum in Zurich, Alex Hinder, chairman of the investment commission at Publica, told delegates: “Possible diversifications would be insurance-linked bonds and infrastructure private debt – and this is an area for active managers because, there, you cannot follow an index.”The main focus, he said, would be to “cash in” on independent risk premiums in the fixed income portfolio rather than merely adding equity risk.“We are rather sceptical whether managers can systematically produce alpha, and the niches for active managers are getting smaller,” he said.
More must be done to narrow the disparity between the UK’s richest and poorest retirement cohorts, says JP Morgan’s Benjie FraserLiberated yet? Defined contribution pension holders in the UK, from April, will have previously unheard-of freedom in how they can choose to use their accumulated pension funds. The government already points to the beneficial impact these changes have already had on people’s intentions as regards retirement. Given the modest size of the average pension pot, how will these changes affect how people make financial decisions?Encouraging the mass market to become closely engaged with retirement planning brings a new set of challenges. If the new pension freedoms are to be used effectively, both guidance and advice will need to be delivered actively to the consumer, both before and throughout retirement.Pensions and investments are only one aspect of the retirement challenge. Many people are keen to explore how other strands of well-being can be integrated into financial planning for later life. Old-age care provision, for example, is seen as fundamental to any coherent strategy for well-being in retirement. As a result of such factors, will a broad consensus emerge that endorses a full-blown national savings strategy? And, as is already practised in countries such as New Zealand, will an independent figure emerge who sits in or alongside the Cabinet as a retirement commissioner? Given that the guidance guarantee steers clear of product recommendation, many consumers will still need to seek out regulated advice. Innovation in multi-channel, at-retirement advice is seen as one of the most exciting developments that could come out of the new pension freedoms.The percentage of over-65 year olds participating in the UK workforce has approximately doubled over the past decade, and earned income could be a key source of improved income for older age groups in the future. But work needs to continue to narrow the disparity in wealth levels between the UK’s richest and poorest retirement cohorts.Notwithstanding, greater life expectancy and longer working lives mean that retirement-planning solutions need to be increasingly flexible and capable of working around the different needs of the individual. In order for this liberation histoire to end well, the industry needs to ensure those on more modest incomes receive a similar level of flexibility to those already taken care of in the workplace.Liberation but also equality?Benjie Fraser is global pensions executive at JP Morgan Worldwide Securities Services
Geographically, the share of assets invested in Latvia fell by 7 percentage points to 38%, and that in Europe by 4 percentage points to 16%, while Eastern European investment rose by 4 percentage points to 18%, and global investment by 5 percentage points to 14%.Russian exposure halved to 0.5%.In the third-pillar funds – five open and one closed – average returns shot up from 1.98% to 10.28%, with the balanced funds returning 8.41% and the equity-weighted ones 14.85%.The number of open plans shrank by three to 14.Assets increased by 26% to €303m and membership by 7.8% to 240,255.Lithuania’s pension plans also produced strong results, with the voluntary second-pillar funds raising the average one-year return (measuring the weighted change of a unit value) to 15.05%, from 2.73% 12 months earlier, according the Bank of Lithuania, the central bank and pension regulator.The five high-risk funds, which can invest up to 100% in equities, returned 24.45%, followed by the nine medium-equity funds at 16.31%.The four low-risk funds (with up to 30% in shares) returned 13.32%, while the eight conservative funds, with no equity share, generated 4.79%.The net asset value of the funds increased by 26.5% to €2.1bn and membership by 4.1% to 1.17m.In the third pillar, 12-month returns averaged 17.45%, compared with 2.13% in 2014.High-equity-weighted funds returned 23.32%, mixed funds 16.5% and bond schemes 3.76%.Assets grew by 39.8% to €53.6m and members by 18.1% to 42,257.The year-to-date returns averaged 7.55% for the second-pillar funds and 9.16% for the third, results that Audrius Šilgalis, senior specialist at Bank of Lithuania’s financial services and market analysis division, attributed to the strong performance of European and US markets in the first quarter of 2015. Latvia’s pension funds posted their highest ever returns in the first quarter of 2015, according to the Association of Commercial Banks of Latvia (LKA).The mandatory second-pillar funds returned an average 9.5% over the year, well above the 1.5% recorded a year earlier.In 2015, thanks to strong equity market performances, the eight higher-risk, equity-weighted funds generated 11%, compared with 9.2% from the four balanced funds and 5.9% from the eight conservative, bond-weighted plans.Assets increased over the period by 23.2% to €2.2bn and membership by 0.8% to 1.24m.
Finnish pensions insurance company Varma reported a 4.3% return on investments in the first half, down from 5.0% a year before, and warned that hidden exchange rate risk had returned to the euro following the crisis over Greece’s debt repayments.In its interim report, Varma said its investment return was €1.7bn in absolute terms from January to June this year, down from €1.9bn in the same period last year.Risto Murto, Varma’s chief executive, said: “A major change took place in principle in Finland this summer in relation to the shared currency area of the euro.”He said the exit of a single country — in this case Greece — from the euro was now considered a possibility. “From an investor’s point of view, a hidden exchange rate risk has returned within the euro,” he said.“In Finland’s case, this risk is still very minute, but it’s not nil,” he warned.Varma said the equity and fixed income markets had been unsettled during the second quarter of the year, with the investment market plagued by three threats — rising interest rates, Greece and China.These had added to difficulties in the already-challenged investment markets, said Varma’s CIO Reima Rytsölä.Varma’s pension assets grew to €41.9bn at the end of June from €39.7bn, according to the report.Written premiums rose to €2.26bn in the period from €2.19bn in the same period a year earlier.Solvency capital increased to 35.3% of technical provisions at the end of June from 34.9% 12 months earlier.Within asset classes, equities generated the highest returns, at 8.3%, compared to 7.2% a year earlier, and fixed income investments produced 0.3%, after 3.4% in the first half of 2014.Property yielded 3.4%, up slightly from 3.2% in the comparable period, with other investments — including hedge funds — generating 4.0% compared with 5.2% in the same period last year.
In fact, the actual outflows were much lower – somewhere between $183bn and $295bn, according to Ashmore. The asset manager claimed the FT had made a basic accounting error in failing to include foreign-exchange valuations in their calculation of capital flows (capital flow = change in reserves – current account flow – FX valuation effects).Once included, the FX valuations produce much lower figures, measuring between 0.6% and 0.9% of total tradable debt and equity in the emerging markets. As Ashmore points out, this means the outflows – rather than being more than twice the amount recorded in 2008-09, a point laboured by the FT – are, in fact, significantly smaller and perhaps even as low as half that size.Emerging market news may be subject to exaggeration, but is the crisis we are seeing in these markets, as Ashmore suggests, the ‘canary in the coal mine’ – a symptom of something far bigger and far worse? Over the last four years, the biggest influence on global capital markets has been the massive QE programmes in the US, Europe, Japan and the UK, with the US equity and European government bond markets soaring in response. Yet Ashmore argues that herein lies the roots of the current global nervousness, with overvalued asset prices, weak, unproductive and heavily indebted economies and no obvious way forward.If Ashmore is right, the global problems reside in the developed markets, while emerging markets now look even cheaper. Not only have the actual outflows been much less than the FT indicated, they also appear to be linked to retail mutual funds and ETFs. Institutional investors with long time horizons may be able to achieve outperformance by doing the opposite of the retail investors who have been following the news headlines. Indeed, for those with low allocations to the emerging markets, the crisis just might prove to be an opportunity.Joseph Mariathasan is a contributing editor at IPE For institutional investors, the current market crisis might prove to be an opportunity, Joseph Mariathasan writes Just a few weeks ago, I wrote that August is often quiet for markets and may be the right time to think about preparing for the next inevitable crisis. But that market ‘crisis’ appears to have come much sooner than anyone expected. As a result, institutional investors will be forced to decide how to react, regardless of whether they have a well thought-out plan of action in place or not.As I warned previously, institutional investors are often forced to reduce risk exposures in a crisis, which means selling equities at the bottom of the market. One reader’s first reaction was to object and say “Of course they don’t have to sell at the bottom, unless their clients tell them to”. He is, of course, perfectly correct, but the issue for many managers is that they dare not risk the possibility that markets have not yet reached bottom, and they are faced with the prospect of having to explain even larger losses to clients. That holds true even for institutions with supposedly long time frames.To ascertain how much of the crisis is real and how much the result of exaggeration or poor analysis, at a time of thinly traded markets over a holiday period, is important. But this is proving difficult. Even the Financial Times (FT), in mid-August, was guilty of sensational headlines, according to Jan Dehn and Alexis de Mones at Ashmore, when the news daily declared that emerging markets had suffered $1trn (€891bn) in capital outflows over the past year or so.
The pension fund’s member assets rose to DKK705bn from DKK704bn.Its high-volume hedging activity, designed to protect the return guarantees it gives members, made a loss of DKK2.27bn in 2015, but it said this loss – at less than half a percent of the guaranteed pensions – was satisfactory.In absolute terms, the pension fund made a DKK16.5bn return before expenses and tax, equating to 17.2%, up from DKK6bn in 2014.ATP’s bonus potential, or reserves, grew to DKK101.2bn by the end of December from DKK95.8bn at the same point the year before.Within its investment portfolio, which consists of these bonus reserves, ATP said results had been mainly driven by good returns on its equity and inflation risk classes of DKK11.4bn and DKK7.5bn, respectively.The biggest detractors from returns were commodities, due mostly to falling oil prices.ATP said this year’s life expectancy update increased guaranteed pensions by DKK3.7bn, or 0.6%.This extra provision was due to the fact the observed increase in Danish life expectancy over the past year was higher than expected, rising by 2.5 months for women and three months for men.Administrative costs fell during 2015 by 7%.Investment costs, however, rose by 6% during the year, partly due to increased trading activity on liquid investment strategies, new mandates and increased market values.“In 2015,” ATP said, “focus was also on illiquid investments with a higher degree of direct control than in the past, and these investments have increased in volume.” Denmark’s ATP made a 17.2% pre-tax return on its investments in 2015, partly on the back of a 48% return on its holdings of Danish equities.In its release of full-year financial data, the pension fund revealed that its liabilities – the value of its guaranteed pensions for almost 5m Danes – fluctuated considerably during 2015, varying by almost DKK100bn (€13.4bn) over the course of the year.Despite the swings, which it blamed on rises and falls in interest rates, the value of ATP’s guaranteed pensions ended the year at DKK604bn, down from DKK608bn the year before.Carsten Stendevad, chief executive at ATP, said: “High investment returns, even lower administration expenses and higher ATP pensions made 2015 a good year for ATP.”
Denmark’s largest pension fund, ATP, is allowed to request an exemption from central clearing after the European supervisor gave its consent.The European Securities and Markets Authority (ESMA) issued a note on 3 August relating to Danish regulator Finanstilsynet’s concern that ATP would struggle to post cash as collateral when centrally clearing trades, a requirement introduced under the European Markets Infrastructure Regulation (EMIR).The note went on to relay Finanstilsynet’s concern that requiring ATP to centrally clear trades would increase costs, thereby lowering the statutory pension fund’s investment returns.It said requiring the fund to convert its assets into cash was inefficient. “In view of the above and on the basis of the information provided, ESMA is of the opinion that the reasons why an exemption is justified due to difficulties in meeting variation margin requirements for centrally cleared transactions for [ATP] are valid,” the supervisor’s note continued.It will now be up to Denmark’s regulator to grant an exemption. Unlike several pension providers, such as Germany’s Pensions-Sicherungs-Verein and the UK’s Pension Protection Fund, ATP is not automatically exempt from central clearing but was allowed to apply for exemption.The request for an exemption comes despite ATP’s backing of clearing.It told the European Commission earlier this year it viewed the EMIR proposals for central clearing as a “reasonable initiative”, although it questioned the increasing reliance of central counterparties (CCPs) for such trades.“CCPs should not be required to compensate for lack of financial stability outside the CCP system,” the fund’s submission to the Commission’s review of financial services legislation said, “as this will disproportionately allocate the risk between the financial institutions and potentially lead to unnecessary higher cost that might … undermine CCPs’ original objectives to increase financial stability.”The former financial services commissioner, Jonathan Hill, hinted in May that a proposal to make EMIR’s application to the pension sector “proportionate” was being drawn up by the Commission.Pension funds are exempt from central clearing until 2017, with the UK’s Pension and Lifetime Savings Association calling for an indefinite exemption.
The new Dutch financial assessment framework (nFTK) could cause funding ratios to rise too far over the long term, as its rules make it difficult to reduce pension contributions, research by pensions think tank Netspar has suggested.Researchers Lei Shu, Bertrand Melenberg and Hans Schumacher, of Tilburg University, said their findings raised the question whether the supervisory framework – introduced in 2015 – was as sustainable as it was meant to be.They assessed several scenarios over a 50-year period, based on a pension fund with the minimum required coverage of 104.3%, an investment mix of 35% equity and 65% fixed income as well as stable contributions.The researchers found that in 60% of the situations, participants would receive a fully indexed pension after fifty years, with funding exceeding 150% in half of the scenarios. In the opinion of Melenberg, a professor of econometrics and finance, the nFTK should prevent such peaks, “as employers would demand a premium reduction, and [politicians] would also like to interfere”.According to the researchers, coverage could rise as high as predicted as the nFTK only allows for lowering contributions if all indexation in arrears has been granted and the remaining assets are sufficient for future inflation compensation.They also found that in 40% of the assessed situations, the pension result would be lower than the fully indexed level.In the 5% of the worst scenarios, future benefits would be no more than 40% of the indexed pension.They attributed such a result to a combination of stable contributions with situations of high wages inflation and low returns, rather than to the nFTK.Shu, Melenberg and Schumacher said that they were currently looking at how scenarios with a different investment mix and a lower funding ratio would pan out, adding that they also wanted to compare the nFTK with the previous supervisory framework.Melenberg, however, said that he did not expect that the result would differ significantly.He announced that he and his co-researchers would draw up proposals for adjusting the nFTK, including suggestions to reduce contributions once a coverage ratio was high.
The UK’s vote to leave the European Union (EU) has complicated the pan-European pensions debate, delegates heard at a recent institutional-investment summit for Austria, Germany and Switzerland.Panellists at the summit, organised by Barbara Bertolini in Vienna, suggested Brexit could derail the launch of cross-border schemes in future and spark the renegotiation of pensions-related legislation.Hansjörg Müllerleile, director of pensions at Germany’s Bosch Group, said: “If we have to renegotiate the whole IORP Directive in six years’ time at the latest, providers probably won’t set up any major cross-border pension plans today.”He said he feared that, once the British “counterweight” against France and Southern Europe had left the EU, negotiations would return very quickly to the “full harmonisation” of pension systems. He pointed out that this had been one the major issues in the IORP II negotiations against which Germany had fought.“The British were not the most reliable ally on every single point,” Müllerleile added, “but it was the best we had.”Andreas Hilka, board member responsible for asset management at the Hoechst Pensionskasse, said he was also “worried”, as the British would no longer be there to “support the fight against the holistic balance sheet (HBS) model” post-Brexit.“In the short term, I do not see a Renaissance of the HBS, but it will remain a permanent struggle,” he said. “All we have won is a little time.”Alexander Graf Lambsdorff, German MEP and vice-president at the European Parliament, agreed that Germany would “lose an ally” in the EU, while Christian Böhm from Austrian Pensionskasse APK suggested that the British had helped prevent regulation from “going overboard”. “I wouldn’t want to imagine what the IORP II Directive would have looked like without the British,” he said.“We would have been utterly at the mercy of authorities and civil servants because there would have been too many delegated acts. I wouldn’t have wanted either one or the other extreme.”Böhm said an EU that lacked “a lot of excellent British representatives” on the European Commission, European authorities and other political institutions would “change the balance of power significantly”.He said he also shared Müllerleile’s concern that, after Brexit, the full harmonisation of pensions regulation would be back on the table. IPE understands that the number of active cross-border IORPs (76) has not changed between this year and last.