PDN, the €5.6bn pension fund of Dutch chemicals company DSM, saw its coverage ratio increase to 106.7% over the third quarter, thanks in part to a 1.9% return on investments over the period.It attributed the performance to strong equity markets in particular, as well as investments in infrastructure and energy projects.According to its 2012 annual report, its infrastructure portfolio currently comprises “relatively defensive” investment funds, focusing on public-private partnerships, and onshore wind and solar energy projects.It also mentioned that it increased its infrastructure investments last year. PDN said the increase in long-term interest rates, which caused a €212m drop in liabilities, was the main contributor to the 5.4-percentage-point improvement in funding over the last quarter.The scheme must have a coverage ratio of at least 104.3% by year-end.In other news, the €534m multi-company pension fund SCA has reported quarterly returns of 1% and 1.1%, respectively, for the former pension funds SCA Hygiene Products Netherlands and ’t Anker, taking their year-to-date returns to -0.9% and -0.5%.Equity returned 3.6% and 3.5%, respectively, while fixed income returned -0.9% and -0.7% for the schemes, whose assets have been kept separate within the multi-scheme.As of the end of September, their funding increased to 110.1% and 109.5%, respectively.However, last month, SCA – the first multi-company scheme in the Netherlands – conceded that it may need to split up, as its sponsor company, SCA, has sold its packaging subsidiary to UK-based DS Smith.As a pensions vehicle, the multi-scheme was established in 2010, providing smaller Dutch pension funds with a means of running similar schemes with a single board, but with ringfenced assets.Earlier this year, state secretary Jetta Klijnsma said the API, the pensions vehicle for cross-border defined benefit plans, would succeed the multi-scheme.
The Dutch Pensions Federation has embraced the government’s proposed “general pension fund” (APF) and called for its speedy introduction. Responding to a consultation on the concept legislation, the lobbying organisation said the APF could be a “proper alternative” for pension funds in or near liquidation. In a letter to Jetta Klijnsma, state secretary for Social Affairs, it said: “It would be a shame if the APF arrived too late for these schemes, all the more because there is much interest for the concept.”The APF is meant to become a third type of pension fund in the Netherlands, replacing the cross-border defined benefit vehicle API, which never really took off. The Pensions Federation said the APF’s speedy introduction was crucial, as many schemes wished to transfer their pension plans before 1 January 2015, the deadline for a number of changes for the industry. It suggested the current proposals could be easily adjusted for a not-for-profit alternative, to avoid concluding collective pension arrangements at one of the few commercial insurers in the market.It also argued that “all kinds of pension funds”, including closed schemes, should be allowed to adopt the APF model. But it also called for clarity on the position of industry-wide schemes that implement both mandatory and non-mandatory pension plans.In addition, all board models should be allowed without additional requirements, limitations or too strict or opaque supervision, it said, which could impede the APF’s succesful introduction.The Pensions Federation said too many restrictions had made the existing Dutch multi-company scheme unattractive.Although in the proposed concept, the APF could operate as a commercial entity, the Federation said the debate on this should be postponed for the sake of expediting the decision-making process.
According to the regulator, having fewer directors will result in the most efficient and effective board considering the context of a new European banking union.The four remaining directors will be Klaas Knot, Jan Sijbrand, Frank Elderson and Job Swank.Knot will be in charge of the internal corporate processes at DNB, in addition to his position as chairman of the board at the regulator and as a member of the ECB Governing Council.Sijbrand, as chairman of supervision, will be in charge of banking supervision and the department of supervisory policy, in addition to taking on the supervision of insurance companies.Elderson will be director for the DNB’s new role as clearing authority.In addition, he will be in charge of pension fund supervision and the oversight of horizontal functions (previously centres of supervisory expertise).Elderson will not be charged primarily with banking supervision, monetary policy or financial stability so as to ensure the clearing role may be fulfilled in an autonomous and independent manner.He will continue to be responsible for Legal Affairs.Swank, in addition to his roles as director of monetary affairs and financial stability, will take responsibility for payment transactions.The DNB’s new portfolio division will become effective from 1 November. The Dutch financial regulator (DNB) has announced it is to reduce its board of directors from five to four.Joanne Kellermann, whose is expected to leave the watchdog in November, will not be replaced.The DNB said the move was a direct result of the shift of the banking supervision centre of gravity to Brussels.In a statement, it said: “Considering that banking supervision is becoming more of a European matter and decision-making authority is in part being shifted to the ECB, the board of directors and the council of commissioners have decided to limit the number of directors to four.”
Divergence in mortality across socio-economic groups makes it challenging for pension funds and annuity providers to mitigate longevity risk, the OECD said.Their exposure to longevity risk tends to be more concentrated in higher socio-economic groups, it added, which could potentially limit the capacity for this risk to be passed to reinsurers.The OECD has previously called for the development of capital markets solutions for longevity risk and in its latest report said that the “capital markets could potentially offer additional capacity at a lower cost”.However, it went on to note that there are problems with the index-based longevity instruments that are needed to meet capital market investors’ need for transparency and flexibility.Asked whether the OECD was giving up on or at least backing away from the idea of capital markets solutions fo rmanaging longevity risk, Pablo Antolín-Nicolás, principal economist and head of the private pensions unit at the OECD, said it was not.“We still believe that market solutions are part of the overall solution to manage longevity risk,” he told IPE. ”We are just highlighting that socio-economic differences in mortality trends creates additional problems to develop market solution for managing longevity risk.”According to the OECD, index-based hedging instruments have drawbacks because they do not provide a full transfer of the risk, which leaves pension funds or annuity providers with what is referred to as a basis risk – the potential shortfall between payments from a swap counterparty and payments owned to annuitants.Divergence in mortality improvements means that “[t]he magnitude of this basis risk can be significant, reducing the effectiveness of the longevity swap to hedge the longevity risk of the pensioners or annuitants”, said the policy organisation.The OECD noted that very few index-based longevity hedges have been executed.The four largest public transactions have all been in the Dutch market, where, according to the OECD, the very high coverage of the private pension system means that mortality among the population with annuities is “more likely to closely follow the trends of the general population, minimising basis risk and resulting in higher hedge effectiveness”.The Life & Longevity Markets Association (LLMA) and the UK’s Institute and Faculty of Actuaries (IFoA) recently commissioned a research project that aims to develop a methodology for assessing basis risk for longetivity transactions. Another solution, according to the OECD, is for pension funds and annuity providers to diversify their longevity risk by “adapting product offerings to different segments of society”.Policymakers, as the organisation has long argued, also have a role to play, by making accurate and timely mortality data available by socio-economic groups and encouraging product innovation.The “ultimate solution”, however, according to the OECD, will be to target the causes of the differences in mortality and life expectancy by socio-economic factors.To that end, the next step in the organisation’s research agenda is to estimate and quantify the potential impact of these differences on the well-being of retirees. Differences in life expectancy across socio-economic groups could act as a barrier to the development of a longevity product tradable on capital markets, according to the OECD.Pension funds and annuity providers should look to adapt their benefit structure or product offering to different segments of society as an alternative solution to managing their exposure to longevity risk, it said.It made the comments in its 2016 Business and Finance Outlook, which was released this week.The report focussed on the “fragmentation” in a variety of areas of life, including in financial markets, regulatory and legal regimes, and life expectancy.
The €4bn Dutch sector scheme for the merchant navy (BpfKoopvaardij) is to start investing in private residential mortgages.It intends to invest 3% of its portfolio – €120m – in the asset class and wants to construct its portfolio during the course of this year.The pension fund said it had opted for residential mortgages because of the potential of additional returns without unacceptably higher risks.According to Rajesh Grobbe, the scheme’s manager of finance, risk and management, the pension fund expected a yield of 2.3%, which fits its matching target. BpfKoopvaardij described mortgages as a “solid investment”, that could generate stable cashflows and contribute to the diversification within the investment portfolio.“We see the spreads widen for the long term,” Grobbe added.The mortgages investment comes at the expense of the scheme’s allocation to non-euro-denominated government bonds.At the end of 2016, BpfKoopvaardij had invested 30% in long government bonds, predominantly issued by Germany and the Netherlands, and more than 10% in government bonds of non-euro countries. The allocation had generated more than 8% and 2.4%, respectively, during 2016.BpfKoopvaardij’s stake will be run in a discretionary mandate by manager DMFCO, which invests in mortgages issued by Munt Hypotheken and offers pension fund clients individual portfolios.The portfolios enables pension funds to make their own decisions about the investment, including the duration of the mortgages, according to Grobbe.The merchant navy scheme made clear that it would accept the relatively high implementation costs of the mortgages portfolio and the discretionary mandate.It pointed out that the initial costs of 0.55% would drop to 0.28% on average after 10 years, adding that the expected returns would justify the extra costs.BpfKoopvaardij indicated it had the option of extending its mortgage investments in the future.“However, this depends on the developments in the market and the conclusions of the coming asset-liability management study,” said Grobbe.At the end of 2016, BpfKoopvaardij had 5,455 active participants, 17,785 deferred members and 31,130 pensioners.
CalPERS – Ted Eliopoulos (right) will step down as chief investment officer of the US’ biggest pension fund at the end of this year for family reasons. He has led the investment operations of the $350bn (€296.4bn) California Public Employees’ Retirement System (CalPERS) since 2013 when he was made interim CIO. He took the job on a permanent basis in 2014.Eliopoulos joined CalPERS in 2007 as senior investment officer for real estate and real assets. As CIO he has led a major overhaul of the portfolio, including reducing the number of external managers from 400 to 140 as part of CalPERS’ Vision2020 plan to simplify its operations and reduce costs. CalPERS, Avida, PLSA, Generali, Hymans Robertson, XPS Pensions Group, KPMG, Lombard Odier IM, Credit Suisse AM, Neptune, First State, Majedie The fund’s CEO, Marcie Frost, said: “Under Ted’s leadership, the investment office has greatly reduced the cost and complexity of the investment portfolio and increased transparency around fees. Because every dollar we save goes back into the fund, our members will directly benefit from those cost savings for years to come. Ted has always been guided by our fiduciary obligation to our members and the fund.” Stan BeckersAvida International – Stan Beckers has joined Avida International’s advisory board. He is also an executive fellow and non-executive chair of the AQR Asset Management Institute at London Business School, and non-executive director and chair of the risk committee at Rothesay Life in London.Until April 2017, he was CEO of NN Investment Partners. Previous roles include managing director and co-head of BlackRock Solutions EMEA, head of the Scientific Active Equity Group Europe at Barclays Global Investors, and CIO at Kedge Capital. Beckers has also served as a member of the investment committees of several pension funds and on the supervisory boards of KAS BANK and Robeco in the Netherlands. He has taught at several universities and published more than 50 papers in various academic journals. He said: “It is a pleasure and an honour to be part of the advisory board of Avida International at a time when the asset management industry finds itself at the cross-roads of increased transparency, ever more demanding regulatory reporting, cost pressures, technological change and business consolidation.” Pensions and Lifetime Savings Association (PLSA) – The UK pension fund association has appointed Simon Sarkar as head of research and Tiffany Tsang as policy lead within the governance and investment team. Sarkar previously worked at the Financial Conduct Authority for over 13 years within the research team. In his new role at the PLSA, he will manage the association’s research programme.Tsang is an economist and pension policy specialist with over 15 years of public policy experience. She was previously a policy adviser for the Association of British Insurers. At the PLSA she will work issues relating to defined benefit pensions and the Local Government Pension Scheme. Generali Group Investments – Antonio Tedesco has joined Generali as the head of group asset liability management and strategic asset allocation within Generali’s investments, asset and wealth management business unit. He reports to the head of group investment management solutions, Bruno Servant.Tedesco joins Generali from PosteVita, where he was head of asset management and head of capital management, and previously the head of finance. Before this he held senior positions at JP Morgan Chase Bank in New York and London. Hymans Robertson – The pensions and risk consultancy has promoted Susan McIlvogue to head of its trustee defined benefit (DB) business. She took over the role from Calum Cooper, also a partner, who will continue to work within trustee DB at Hymans Robertson. McIlvogue joined Hymans Robertson in 2014. Before that she was at Mercer for 19 years, advising a wide range of trustees and sponsors and holding a number of leadership roles. Xafinity Punter Southall/XPS – Simeon Willis has been appointed chief investment officer at Xafinity Punter Southall, the UK consultancy group. He joins from KPMG where he was a director and head of investment strategy. He will be responsible for the group’s strategic asset allocation advice, manager research, and investment research.The newly merged UK consultancy group – formed when Xafinity bought parts of the Punter Southall Group earlier this year – today announced that it had rebranded as XPS Pensions Group.KPMG – The audit and consultancy giant has appointed two staff to senior research roles. Ajith Nair is the company’s new head of asset class and manager research, having worked as a principal investment consultant for more than seven years. Calum Brunton Smith has been named head of investment strategy research – he was also previously a principal investment consultant.Lombard Odier IM/Credit Suisse AM – Juan Mendoza is to move to Lombard Odier from Credit Suisse as part of an agreement between the two Swiss asset managers. He runs the €236m Credit Suisse Global Prestige Equity fund, which will transfer into a new Lombard Odier fund once it is launched next month. Mendoza has run the high-conviction luxury goods strategy since 2009.Neptune Investment Management – Theodora Zemek has been hired to the newly-created role of head of fixed income strategy at UK boutique Neptune. She was previously global head of fixed income at Axa Investment Managers where she oversaw major growth as the company recovered from the financial crisis. Before Axa, Zemek was head of fixed income at New Star Investment Management, and CIO and global head of fixed income at M&G Investment Management.She is currently a non-executive director of BlackRock Global Investors UK and a council member of Goldsmiths University. Zemek has also held fund management roles at James Capel Fund Managers, the United Bank of Kuwait Investment Managers, Orion Royal Bank, the Swiss Bank Corporation, and Lehman Brothers Kuhn Loeb.First State Investments – The UK subsidiary of Australian fund manager First State has hired Nick Grant as director of infrastructure investments within its European direct infrastructure team. He was most recently CEO of water supply company Severn Trent Services for the UK, Ireland and Italy, a role he held since 2014. He has also worked for major UK utilities companies Centrica and British Gas.Majedie Asset Management – The UK-based equity boutique has hired two former BlackRock fund managers to replace Chris Reid, manager of its UK Income fund, who is leaving the firm to pursue a Masters in Finance degree. Mark Wharrier will replace Reid on the Majedie UK Income fund. He left BlackRock last year having previously managed its UK Income fund. He currently works at Troy Asset Management.Imran Sattar was previously a co-manager on BlackRock’s UK Focus fund, and will replace Reid as co-manager on the Majedie UK Focus fund alongside James de Uphaugh, Chris Field and Matthew Smith.
Investors must be prepared to scrutinise complex equity overlay strategies as downside protection comes to the fore, according to consultancy Bfinance.A number of pension funds have turned to such strategies over the last year to protect portfolios against falling market prices.Toby Goodworth, managing director for risk and diversifying strategies at Bfinance, said: “We have seen a clear trend among investors seeking more explicit forms of protection against equity losses over the past 12 months as artificially stimulated asset prices have given way to increased market volatility, geopolitical tensions and trade war concerns.”The prospect of severe downturns had bolstered the case for more explicit safeguards on investment portfolios, he said, in contrast to the past decade when investors had instead built up implicit downside protection through diversifying strategies. However, changing approach in this way involved several critical choices, Goodworth said – some of which were relatively complex from a technical point of view.Usually, equity protection strategies involve a derivative overlay designed to limit how much an equity portfolio falls in value.“They also need to be considered from the perspective of governance and stakeholder buy-in, as even the most cautious investor can find that their stakeholders run out of patience before protective measures pay off,” Goodworth warned.“When it comes to applying overlays, simplicity is not always straightforward so investors should ensure they are well-equipped to consider the level of customisation required with the desired level of tactical adjustment and the types of instruments to be employed with an awareness of the trade-offs that are involved.”The South Yorkshire Pensions Authority (SYPA) was among the large pension schemes to have put a strategy in place over the past year to mitigate possible falls in equity markets. In June 2018, it tasked Schroders with a £2.6bn (€3bn) equity risk management strategy.In December, the £1.4bn London Borough of Tower Hamlets Pension Fund also hired Schroders to run a “risk management solution” protecting around half of its portfolio.Also in December, multi-sector Dutch pension fund PGB hired BMO Global Asset Management to implement a protection strategy for its €12bn equity portfolio.
Austria’s nine second pillar pension funds posted an average loss of 5.3% in 2018.National pension fund association FVPK blamed “high volatility” on the capital markets for the considerable losses – “particularly in the fourth quarter”.At the end of September, the five multi-employer pension funds – which manage the majority of the €22bn in the Austrian second pillar system – had posted an average loss of 1.1% for the first nine months of 2018.In a newsletter, the FVPK highlighted that the average performance since inception of the occupational pension pillar 28 years ago was at 5.2% a year, despite the 2018 losses. The funds gained an average 6.1% in 2017. Andreas Zakostelsky, chairman of the pension fund association, said the long-term results proved that it made sense to invest in the capital markets for supplementary pension income.Good years also allowed Austrian pension funds to build buffers, which were used to cushion cuts to pension payouts in defined contribution funds.The extent of the cuts depends on the contract a company signed with a pension fund and how well its buffers are filled. One pensioners’ rights group has warned of a 16% cut for some higher-earning pensioners.Austria’s largest pension fund, the €6.7bn VBV, lost 5.5% last year after a 7.4% gain in 2017.Günther Schiendl, board member at the VBV, said equities was not the only asset class that made a negative contribution to performance.“At the end of last year all relevant, investable asset classes had a considerable negative performance – including money-market funds,” he said.He also noted the extreme volatility on the US stock exchanges, especially in the last trading days of 2018 when share price declines “were the worst since the 1930s”.
ABP’s main office in Heerlen The Netherlands’ biggest asset manager and pension provider is to cut 60 jobs as a consequence of continuing digitisation and automation.APG said the job losses – equating to 50 full-time positions – were to affect its administration arm, based in Heerlen in the south west of the Netherlands.APG’s administration clients include the €407bn civil service pension fund ABP – Europe’s biggest pension fund – and Huisartsen, the €10.5bn occupational scheme for general practitioners.The company’s 15 pension fund customers have 4.5m participants and pensioners in total. A spokesman for APG highlighted that the number of redundancies would, on balance, be 40, as new jobs would be created elsewhere within pension provision.APG cited increasing computerisation taking over workers’ tasks as the reason for the job losses, pointing out that participants increasingly organised their pension matters online.The spokesman said that APG intended to find new jobs for its surplus staff in the Heerlen area within 13 months.APG employs more than 3,000 staff in total, 648 of whom work in its administration arm.Between 2012 and 2017, the asset manager and pensions provider carried out several reorganisations.A survey carried out by IPE’s Dutch sister publication Pension Pro last year found that, between 2013 and 2017, the number of full-time jobs at APG fell by 14% to 3,070.According to the spokesman, the preparations for the latest round of redundancies started two years ago.He added that there were no plans for further reorganisations at the moment.Last year, APG told Pensioen Pro that, on balance, the company was set to shed more jobs rather than create new ones.
NeoGrowth and Ascent Meditech both operate mainly in India“We want to substantially increase impact investing for a sustainable world – so we are delighted to be supporting the largest equity fund by a dedicated impact manager in emerging markets,” said Philippe Le Houérou, CEO of International Finance Corporation, a lead investor in the fund, said the World Bank subsidiary wanted to “substantially increase impact investing for a sustainable world”. He added: “We want more and more investors who are looking to do well while also doing good.”Further reading Social Impact Finance: Bonds to help Asia’s ‘missing middle’ women Rural women entrepreneurs in India will this year, for the first time, access loans generated through a social impact bond, reports Elisabeth Jeffries Public Markets: Hard to pin down A mishmash of blurred definitions and terminology borrowed from ESG and sustainability is marring the progress of impact investing in public marketsImpact investing: Tricky, but worthwhile According to the International Finance Corporation, in the past three years there has been substantial growth in the use of the word ‘impact’ as a brand for mutual funds and exchange-traded funds, and the number of impact-branded funds in public markets has grown from 13 to 62 since 2008Varma backs human rights initiativeFinnish pensions insurer Varma has signed up to the Workforce Disclosure Initiative (WDI), a global campaign for better disclosure of company workforce management practices and improved job standards.The WDI has more than 120 signatories from international investors with over $13trn in assets under management, including Nordic bank Nordea and Danish pension fund PKA.Hanna Kaskela, director of responsible investment at Varma, said: “Human rights violations in companies or their subcontracting chains are similarly serious in terms of reputation risk as environmental factors. “Consumers want to buy responsibly produced goods and pay attention in their purchasing decisions to how companies treat employees in the production chain.”Varma added that the WDI provided its signatories with significant and comparable data on their own and supply chain employees. The LeapFrog fund has already invested in financial firms WorldRemit and NeoGrowth, and pharmaceuticals companies Goodlife Pharmacy, Pyramid Pharma and Ascent Meditech. Specialist impact fund manager LeapFrog Investments has raised $700m (€623m) for its latest private equity fund, targeting healthcare and financial services investments in Africa and Asia.The company claimed the amount raised was a record for a private equity fund run by a dedicated impact investment manager. Investors included Dutch pension fund SBZ and asset manager Kempen, as well as a number of insurance companies, international development funds and foundations.Andrew Kuper, founder and CEO of LeapFrog Investments, said: “Today’s announcement marks an unprecedented level of commitment to independent impact investment managers, with a new fund backed by diverse best-in-class institutional investors.“It also marks an important moment for responsible private equity. As our third fund and largest fund, it is a decisive demonstration that meeting the real needs of under-served people is great business.”