Asset owners have a responsibility to let information disclosed under the new Principles for Responsible Investment (PRI) framework inform their appointments of asset managers, the head of responsible investment at Finland’s Ilmarinen has said.Anna Hyrske said she was looking forward to using the new PRI reporting framework – outlining how signatories to the code should disclose their socially responsible investment approach – and added that it would make her role at the €31bn mutual pension insurer “a lot easier”.Speaking at a conference in Paris organised by Novethic, she also said one of the most critical components of the reporting framework was that it could act as a road map for investors.“It helps you to develop your own actions and see where you do really well, what you could do better,” she said. “We used a lot of the PRI questionnaire as an internal development tool to see where [we wanted to go] with our resources, what we would like to do differently and so on.”While Hyrske was critical of the pilot version of the new framework, she said the one in place now would be useful for those who wished to compare asset managers easily.“I’m putting my faith and hope with the PRI reporting framework – in the sense that, when the asset managers are reporting in a comparable way, we have [a] big responsibility to go and actually check the reports and make our decisions partially based on that information as well,” she said.“The comparability, the accountability – those are critical issues, and they will make our lives easier.”She also noted that Ilmarinen did not view sustainable investing as separate from investing as a whole, and that therefore good days saw the sustainable investment team consist of all of the mutual’s in-house portfolio managers.“The portfolio managers are the ones who know the companies the best, so there is no point in having a list of [companies] ‘approved by Anna’, or something like that,” she said.
Since then, investors affiliated with the PRI had ceased to be members of the organisation and the original annual general meeting had been abolished, it said.PRI managing director, Fiona Reynolds said: “The PRI is deeply disappointed this has occurred.”At its annual Signatory General Meeting in Cape Town in September, the PRI committed to undertake a review of its governance, she said.“The Council’s governance committee has already begun to define the scope of this review, which will be led by a new council chair expected to be appointed in early 2014,” Reynolds said.She said the PRI advisory council was democratically elected by signatories and made up of representatives from all three categories of signatory and regions of the world.Council members appoint the directors of the PRI association board, who oversee the work of the PRI Secretariat, she said.“The council and the board take governance seriously and are committed to continued improvements,” Reynolds said.The PRI organisation’s leaders had previously arranged to meet with the Danish signatories in Copenhagen on 13 January, adding that the PRI planned to continue with the meeting and hoped all of the funds concerned would attend.“Given the important work of the Danish pension funds in responsible investment, we hope the funds concerned will reconsider their decision at some point in the near future,” she said. The private body behind the UN’s Principles for Responsible Investment (PRI) has said it is “deeply disappointed” six Danish pension funds are leaving the organisation in protest at the way it is being run.The PRI insisted it took governance seriously and was committed to improving.On Friday, Denmark’s DKK600bn (€80.4bn) statutory pension fund ATP and five of the country’s other major pension funds said they were delisting from the PRI organisation because of a number of governance problems — but would still follow the principles themselves.ATP criticised PRI for a lack of democracy and transparency, which it said stemmed from a move by the organisation in 2010-11 to alter its constitution without involving members.
UK3,263 US18,878 South Africa236 Ireland130 The UK has overtaken Japan to become the world’s second-largest pensions market, according to a study by Towers Watson that placed the country’s pension assets at more than £2trn (€2.4trn).The consultancy’s Global Pension Asset Study noted that, over a 10-year period, the UK saw pension assets increase to account for 131% of GDP, up by more than 60 percentage points since 2003.However, for nearly five of those years, UK growth was sluggish.Ranking the 13 largest pension markets by assets under management in US dollars, the UK was a distant second with $3.2trn (€2.4trn) compared with more than $18trn held by US funds. Australia1,565 Japan3,236 Germany509 Canada1,451 France169 Hong Kong114 Netherlands1,359 The volume of assets held by German, French and Irish pension funds remained largely unchanged compared with 2012, while Switzerland saw its size – again when denominated in dollars – increase by $50bn to $786bn.Chris Ford, Towers Watson’s EMEA head of investment, credited equities with the growth enjoyed by a number of the pension markets, saying shares enjoyed the best year of risk-adjusted return since the financial crisis.“Generally,” he added, “pension funds are now implementing investment strategies that are more flexible and adaptable and contain a broader view of risk so as to make greater allowance for the sort of extreme economic and market volatility they have experienced during the past five years.“This is welcome, as the global economic recovery – and the implied normalisation of market conditions – is by no means guaranteed.” Brazil284 Japan fell to third place, less than $30bn behind the UK.However, while the country’s assets denominated in US dollars declined by nearly $500bn compared with 2012, the market’s value as a share of GDP rose by 3 percentage points to 65%.The consultancy also noted that the survey covered a period during which the yen depreciated by 18.4% against the dollar.Australia ranked as the fourth-largest pension market, ahead of Canada and the Netherlands.However, the European country remained the largest pension market in the ranking when compared with GDP, accounting for 170% against just 80% in Canada and 105% in Australia.Size of pension markets in December 2013CountryAssets in $bn Switzerland786
“The yield drop was higher for lower-rated bonds, potentially reflecting a shift in risk assessment and continued search-for-yield behaviour on the part of investors,” the report said.It also found that the issuance of asset-backed securities (ABS), mortgage-backed securities (MBS) and covered bonds was at an all-time low.However, the regulator argued that there was no increase in liquidity risk despite the decline in issuance.However, it added that a heterogeneous pattern to liquidity remained across the market.“Overall, liquidity-risk developments should be treated with caution, as liquidity-support measures remain in place, and shifts in yield curves could significantly alter liquidity risks,” it said.It added that market risk stabilised during the third quarter of 2013, despite “mixed” signals.It also found that credit risk remained largely unchanged, despite the “subdued” issuance.“Sovereigns and corporates were able to issue debt with longer maturities,” the regulator said.“As the improvement in conditions relies partly on accommodating monetary policy measures, a rise in the interest rate could eventually trigger an increase in credit risk, especially in vulnerable countries.”,WebsitesWe are not responsible for the content of external sitesLink to Market Trends, Risks and Vulnerabilities report Sovereign and corporate bond issuance fell to pre-crisis and decade-long lows as the European Securities and Markets Authority (ESMA) warned of continued “substantive” risks facing investors.The regulator’s chairman Steven Maijoor noted that while market stresses had decreased, “key markets and investors” continued to face significant hurdles.ESMA, in its first market trends, risks and vulnerabilities report for the year, noted that European Union sovereign bond issuance “fell sharply” over the latter half of 2013 – down 33% over the first half of the same year and “well below” the same period in 2012.Gross issuance of corporate bonds also continued to decline over the course of 2013, with yields for all except AAA-rated bonds falling slightly.
The European Investment Bank (EIB) has joined a working group on green agriculture bonds, part of an attempt to avoid “green washing” of projects.The 13-strong committee, which also includes academics and representatives of NGOs, has been set up by the Climate Bonds Initiative to allow investors to tackle deforestation and the impact of climate change on agriculture, chief executive Sean Kidney said.“The right kinds of investment in agriculture also have the potential to help sequester enormous amounts of carbon,” he added.Working group lead Tania Havemann said she expected a large green agricultural bond market to develop in the coming years. “The expert group will develop clear and public criteria to help investment decision-making,” she said.“Certification under the Climate Bonds Standard will provide investors with assurance about the environmental benefits of these projects.”David Ganz, chief of party of a USAID project to lower emissions in Asian forestry, said a standard for land use would reduce the risk of poorly designed projects and “green washing”, where any project could be sold to an investor as green.“We sincerely hope this effort will promote confidence to the market when selecting certified projects with the Climate Bonds Initiative certifications,” he said. Chris Knowles, head of the climate change and environment division at the EIB, has joined the group.Other members of the working group include Annett Thiele of Germany’s Greifswald University, Jerry Seager of the Verified Carbon Standard, and Paul Chatterton, director of the UN-backed Reducing Emissions from Deforestation and Forest Degradation (REDD) at the World Wildlife Fund (WWF).A recent report by the Climate Bond Initiative said the climate bond market recently exceeded $0.5trn (€369bn).The initiative also announced the details of draft property green bond standards in June.
The pension fund for the Organisation for Applied Scientific Research in the Netherlands, Pensioenfonds TNO, is planning to ramp up exposure to the alternative credit market during 2015, CIO Hans de Ruiter has said.The €2.9bn fund is looking to start investing in the Dutch mortgage market to benefit from its high spreads and low risk profile, the CIO added.Speaking with IPE magazine, De Ruiter said the fund would also analyse asset classes such as infrastructure debt, real estate debt and direct lending.The current asset allocation of the fund sees 5% of assets invested in emerging market debt and 3.5% in high-yield bonds, which sit on the ‘return’ part of the portfolio. The ‘matching’ part, which accounts for 51% of the portfolio, is partly invested in high-quality sovereign credit and EU investment-grade bonds.During the past two years, the fund went through a gradual process of rationalisation, which consisted in divestment from hedge funds and streamlining private equity and real estate investments.De Ruiter said the fund was currently drawing up an investment plan for 2015 that would see the fund making new investments in both the private equity and real estate markets.In 2014, Pensioenfonds TNO hired Wilshire to run its private equity investments and Kempen to manage the real estate portfolio.De Ruiter suggested the new credit strategy would help insulate the fund from a potentially negative macroeconomic scenario.“We do not see a lot of growth in the [EU] economy, but, at the same time, we see valuations on the high side,” he said. “This makes markets vulnerable to disappointment.”The CIO added that TNO was unlikely to change its interest rate hedging strategy for the time being.Overall, 55% of the portfolio is hedged against interest rate increases.“We do not see any triggers for interest rates to rise significantly for some time, and, if that is the case, then lowering the hedging would not be the best way to spend the risk budget,” De Ruiter said.For more on Pensioenfonds TNO, see How We Run Our Money in the current issue of IPE
While he said the year-to-date return was more than the pension fund had previously expected to achieve, he was less positive about the future.“We do not expect these high returns to continue given the challenges that Europe, in particular, is facing with weak economic growth, an extreme monetary policy situation, where half of Europe’s government debt has negative interest rates, an under-capitalised financial sector, and the prospects of a hard Brexit,” Stendevad said.ATP divides its assets into a huge hedging portfolio designed to back the pension guarantees it gives and a smaller investment portfolio that consists of its free reserves or bonus potential. Returns achieved on ATP’s investment portfolio are not directly comparable with returns reported by most pension funds because of the leveraging effect the hedging portfolio assets can allow.In the first nine months, ATP said in its release of interim results that the investment portfolio’s strong return was driven mainly by private equity, which contributed DKK5.3bn (€712m) of the portfolio’s DKK12.5bn return in absolute terms.However, it said fixed income, credit, real estate and infrastructure had all made large positive contributions to the return.On the other hand, the DKK3.7bn loss on long-term hedging strategies against inflation increases had pulled the result down.ATP’s equity and debt investment in Nets, which held its initial public offering (IPO) in late September, contributed a profit of DKK1bn to third-quarter results, with DKK900m of that included in its private equity investment results and the rest categorised as credit.Overall, however, ATP has now generated a return of DKK2.5bn out its original DKK3.6bn investment in Nets first made just over two years ago.ATP reported it made an overall business loss in the first nine months of the year of DKK1.1bn, dipping into the red after the DKK9.9bn it set aside earlier this year to cater for an increase in life expectancy.Total assets grew to DKK805.7bn at the end of September from DKK705.2bn at the end of December 2015, with the hedging portfolio standing at DKK705.6bn and the bonus potential at DKK100.1bn. ATP, Denmark’s largest pension fund and the fourth biggest in Europe, made a 5.8% return on its return-seeking investment portfolio before tax and expenses in the third quarter, due in large part to a profit on its private equity investment in payments business Nets.This return for the quarter relative to the investment portfolio – which consists of ATP’s bonus potential and not its entire asset base – brought the year-to-date return to 12.3% at the end of September, from the 6.7% generated for the first six months of the year.This nine-month return is slightly higher than the 11.6% return produced in the same period last year.Carsten Stendevad, ATP’s chief executive, said: “We are delighted with how our investment portfolio has performed so far this year, with most asset classes performing strongly.”
Will Kinlaw, senior managing director and global head of State Street’s unit State Street Associates, said: “One of the biggest findings from this research is the growing focus on private markets.”Despite the attraction of these investments, he said SWFs were aware of the risks, with illiquidity being the main one.“However, many have invested considerable time and resource in assessing these markets and have clearly identified attractive opportunities here,” he said.Eight IFSWF members were interviewed for the survey behind the first paper, with these respondents representing a wide range of SWFs, State Street said.These SWFs had, as a group, substantially expanded their alternative, unlisted, and private investment portfolios, according to State Street, with at least 30% having invested more over the three to five year period, and none having shrunk their exposure.But research in the second paper, which took in contributions from ten IFSWF members, revealed that even though SWFs had been successful in private markets, many reported ongoing internal debate about whether the return premium was fair compensation for the risks these types of investments added to portfolios.Roberto Marsella of CDP Equity — a company within Italy’s Cassa Depositi e Prestiti group — and leader of the Investment Practice Committee of IFSWF, said the investment landscape had evolved greatly in recent years and SWFs had contended with an ever larger range of investment opportunities in both public and private markets.“In response, many are re-evaluating the methods they employ to construct portfolios and measure and manage portfolio risk,” he said.“The low interest rate environment creates new challenges and requires reassessment of investment methodologies and professional skills,” said Marsella. Sovereign wealth funds (SWFs) have been boosting their asset allocations to private and emerging markets while cutting their exposure to listed and developed-market investments, but many are still debating whether current returns in private markets really compensate them for the extra risks they pose, according to new research.Two new white papers from State Street and the International Forum of Sovereign Wealth Funds (IFSWF) show how asset allocation and the approach to private markets has changed at the funds over the last three to five years. State Street was appointed earlier this year as one of the IFSWF’s two official research partners for its investment practice committee. The first two papers from the partnership, which have just been released, are entitled: “Asset Allocation for the Short and Long Term” and “Comparison of Members’ Experiences Investing in Public versus Private Markets”.
The €1.4bn Dutch occupational pension fund for pharmacists (SPOA) will not join the industry-wide scheme for pharmacists staff (PMA).The funds have not been able to agree on a merger, according to the pharmacists’ scheme, which said it would continue independently.BPOA – the pharmacists’ occupational association – had initiated a study into a possible merger in 2015. At the time it said that most of SPOA’s members were no longer self-employed, which could have jeopardised mandatory participation in the scheme.However, BPOA, which has the final say in the pension arrangements, said that consultation responses from sector organisations had made clear that a single industry-wide scheme would not be feasible in the short run. According to BPOA, independent pharmacists and GPs wanted to keep participating in a mandatory, collective, and affordable pension plan. BPOA, for its turn, wanted to enable independent pharmacists to join PMA, together with their salaried colleagues.BPOA said it failed to reach an agreement with the €2.4bn PMA scheme, which would have comprised having some influence over how the pension plan was run, as well as the extension of PMA’s mandatory arrangements.However, as the Ministry of Social Affairs had decided to extend the mandatory status of the pension fund by another five-year period, the occupational association indicated that continuing SPOA as an independent scheme would be the best option for the time being.At November-end, funding of the pharmacists scheme stood at 94.3%.PMA reported a coverage ratio of 93.2% at the end of January and indicated recently that cuts to pension rights were still an option for this year.
The state-owned firm owns a chain of casinos across the Netherlands, with the profits going directly to the Dutch government.The company has been at odds with trade unions about the transition to the APF since last year.Both the unions and the company’s works council had claimed the transfer was happening without their approval, but this was rejected in court.As a consequence, Holland Casino was able to continue with the transition of the pension fund, which has 3,600 active participants, last year.The Stap APF has brought in several new clients in the past year, including part of the scheme for Dutch airline Transavia and Douwe Egberts’ company scheme.APFs allow consolidation of legacy schemes under one manager, but with each scheme retaining its own compartment within the vehicle. Holland Casino contributed an additional €4.3m to its company scheme when it transferred to the general pension fund (APF) Stap last year.The employer also paid Stap – founded by insurer Aegon and its subsidiary TKP – €120,000 to cover the transition costs, the annual report of the €1.5bn pension fund revealed.Holland Casino said that the one-off, voluntary contribution had been agreed as the company would save money from its pension fund joining the APF. The amount agreed was the result of negotiations with the scheme’s board.However, the company declined to make clear whether the contribution was linked to the scheme’s underfunded financial position, equating to a funding level of 103.2%.