The board expects the fund to generate another CHF200m through investment returns.In other news, verdicts have been handed down in the 2006 embezzlement case at the First Swiss Pensionskasse.Former trustees, the president and his deputy were accused of embezzling more than CHF33m from the scheme.They were sentenced to time in prison but have appealed the verdict, according to Vorsorgeforum, the Swiss platform on the second pillar.The judges noted that the management board never had any authorisation to transfer assets to a third party.The defendants’ legal representatives conceded that their clients’ choice of external asset manager had been “a mistake”, notwithstanding good references.The judges also placed part of the blame on the supervisory authorities – particularly the Swiss Social Ministry BSV – which, they said, took too long to intervene.Lastly, the CHF1bn Swiss collective pension fund Stiftung Abendrot, which investing solely according to ESG criteria, has reported a 5% performance, as of the end of November.In the previous year, the fund had returned just over 6%.Based on this annual performance, the trustee board decided to guarantee a 1.75% interest on active members’ assets, slightly higher than the 1.5% granted in 2012. PVK, the CHF2bn (€1.62bn) Pensionskasse for the city of Bern, has confirmed it will lower the discount rate and call on employees to increase their contributions.The trustee board accepted the proposal to increase the funding gap over the short term to adjust the technical parameters.The PVK is looking at a shortfall of CHF341m from next year – the deficit is currently CHF108m – but it has 40 years to achieve full funding, as the city of Bern opted for Switzerland’s part-capitalisation model.From 2015, employees will have to increase their contributions, the pension for members’ spouses will be cut and the vesting period to achieve the highest conversion rate will be expanded.
Aberdeen was selected after the exercise, which saw nine other firms competing for the portfolio.The fund’s property investments, which according to its latest published report are valued at £184m, suffered a capital decline of 4.5% during 2012-13. West Sussex attributed the decline to weaker pricing in the secondary property market.This left the local authority scheme below its strategic allocation, with property only accounting for 7.8% of total assets.Its review of the property portfolio showed the manager had a negative 0.1% return in the last five years, 70 basis points below benchmark, and 4.6% over three years, 1.4 percentage points below.The manager’s target was to provide 1% over the benchmark on a three-year period.West Sussex had given C&WI a discretionary mandate for its property portfolio, which saw the manager purchase a range of assets including supermarkets.The fund recieved close to £8.5m in rental income from the portfolio, its last published report showed. In the announcement, West Sussex also said its contract with Aberdeen would allow the fund to increase its allocation to property to up to £500m, as it looks to move closer towards its strategic allocation.Before changing its name to LFF Real Estate Partners, C&WI was jointly acquired by La Française, a French property manager, and Forum Partners, as the pair looked to develop their real estate business in Europe.The manager runs a pan-European portfolio and currently has around $1.2bn (€888m) in assets under management. The West Sussex Pension Fund has terminated its 22-year relationship with Cushman & Wakefield Investors (C&WI), transferring its entire property portfolio to Aberdeen Asset Management.The fund, which currently has around £1.9bn (€2.3bn) in assets, has a strategic allocation to property of 10%, which has been managed by C&WI since 1992, according to its annual report.C&WI now trades under La Française Forum Real Estate Partners (LFF Real Estate Partners), following a takeover earlier this year.West Sussex confirmed to IPE its decision to appoint Aberdeen as replacement for C&WI after putting the mandate out to tender in July last year.
The Law Commission said trustees investing under fiduciary duty could take into account non-financial concerns as long as they had good reason to believe their scheme members shared their view, and the decision did not represent a significant financial risk.The government then consulted on amending regulations regarding the clarification of ‘environmental, social or ethical considerations’ to ensure they distinguished between financial and non-financial factors.It also questioned whether trustees should be required to state their policies on stewardship.It its response, the NAPF said it did not see any additional benefit to clarifying fiduciary duty further or imposing an explicit duty to consider specific factors.Will Pomroy, the NAPF’s policy lead on stewardship, said: “Such an approach would be very difficult to appropriately draft. “It would struggle to keep pace with emerging best practice and investment trends and, indeed, impinge upon the flexibility that is currently so beneficial.“Instead, we support efforts to catalyse further discussion at trustee board level about a scheme’s investment approach.”However, UKSIF said the complexity of long-term, financially material factors such as ESG was the biggest threat to pension investors.Its members demanded that the Law Commission’s findings be embedded into regulation.Simon Howard, chief executive, said: “This must not result in box-ticking exercises. We require trustees to formulate meaningful policies on their investment strategy and approach to stewardship that enables them to take considered decisions relating to their investment portfolios.”ShareAction, in its response, agreed with the NAPF that “codification” of the term fiduciary duty would be impractical, but it also argued that a non-binding clarification within the regulations would be reasonable.“[The regulations] should include a provision clarifying that trustees may have regard to a wide range of factors, including ESG and non-financial considerations, when exercising their discretion on investment and stewardship decisions,” the group said.The NAPF also said a fund’s approach should be included alongside its disclosures on how it considers financial and non-financial matters, rather than a comply-or-explain policy on trustees regarding stewardship.It warned of the risk creating a “tick-box” exercise over meaningful engagement by asset owners.ShareAction agreed and said a comply-or-explain approach would fail to encourage trustees to take stewardship seriously.The group added that, if the government wished to encourage stewardship, it should reference the NAPF’s own “Principles for Stewardship Best Practice” over the “Stewardship Code”. The National Association of Pension Funds (NAPF) has advised the UK government against further prescribing the meaning of the term ‘fiduciary duty’ in regulation, as sustainable investment and stewardship industry groups call for stricter wording.Responding to a Department for Work & Pensions (DWP) consultation on changes to investment regulations for pension schemes, the NAPF said further government clarification, whilst maintaining the required flexibility, would be difficult to draft.However, socially responsible investment advocates ShareAction and UKSIF called for additional work to ensure trustees account for sustainability factors when selecting investments.The NAPF’s response came after the DWP considered the clarifications made by the UK Law Commission on fiduciary duty to alleviate concerns it was too focused on short-term financial reward.
However, at the Swiss Re conference, another panel member, former ECB president Jean Claude Trichet, warned against further increases in debt issuance.He called on institutional investors, as well as regulators, to “bias equities” and increase exposure to the asset class.“We have seen the dangers of piling up debt, and, therefore, it is important investors increase the share of equities in their portfolios,” he said.Trichet said he was “surprised to still see a bias against equity and pro debt in many economies”.He told IPE any bias towards equities should be a long-term perspective, as equity markets were overpriced.“Thinking ahead, a higher equity exposure makes sense, and it would be safer than piling up new debt,” he said.Fürer agreed that “equity is important”, as “it is the basis for any type of financing including debt”.However, he pointed out that certain investors were better suited to taking on more equity investments than insurers, with long-term liabilities best mirrored by fixed income instruments.Swiss Re itself invests about 7% of its $128bn (€94bn) portfolio in equities, which is “within the strategic range”, said Fürer.To increase exposure to infrastructure financing, which, on average, makes up 1% of European insurers’ portfolios, Fürer would like to see a “market-consistent spread risk charge under Solvency II”.Further, he called on all stakeholders to continue the dialogue to “allow a tradeable infrastructure debt asset class to emerge”.To this end, he said, “we need to have best practices agreed between the public and private sector on bond documentation and disclosure requirements”.Fürer added: “Currently, infrastructure projects are almost non-accessible for institutional investors. Private involvement in financing makes such projects more efficient.”Furthermore, he stressed that a tradeable asset class would “attract a lot of private capital”.”Policy risk is still the risk number one in infrastructure investment,” he said.“A tradeable asset class is the best risk-mitigation strategy”. Insurers’ role in being able to provide risk capital and “thus act as a shock absorber” should not be weakened but strengthened, according to Swiss Re Group CIO Guido Fürer.Weighing in on the debate over long-term financing, Fürer told IPE: “Insurers are part of the value chain in lending, as they can offer size and long-term financing.”Speaking in an interview on the sidelines of a Swiss Re round-table meeting on financial repression and the role of institutional investors in long-term financing, he argued that banks and insurers were “complementary partners” in the world of lending, as banks had the customer access and “necessary insight” into project risks such as infrastructure, while insurers had the long-term investment horizon to match their liabilities.Last week, the Austrian finance minister Hans Jörg Schelling repeated criticism raised by the IMF on institutional investors competing with banks over financing and “distorting” the market.
The Watson Petroleum Limited Retirement Benefits Scheme has transferred its £30m (€40.5m) worth of liabilities to Pension Insurance Corporation (PIC).The insurance buyout, conducted after the scheme’s sponsor was sold last year, means PIC will now take responsibility for the remaining liabilities.The fund will be wound up.Andrew Barnett, trustee to the scheme, said the recent corporate changes meant the board had to work closely with its new sponsors to ensure benefits were secure. In June, LCP estimated the UK bulk annuity market at £4.4bn, led by Prudential and Legal & General, with more than £1.1bn each.PIC amassed £681m in the first half of the year, compared with £1.8bn in 2014.In other news, the National Employment Savings Trust (NEST) reappointed BarraOne as its investment risk-management system provider on another five-year contract.BarraOne, owned by MSCI, was appointed in 2011 in line with public sector tendering requirements, meaning the contract was re-negotiated and will commence next year for an additional five years.NEST said BarraOna provides the government-backed defined contribution master trust with information on its risk exposure at the security and portfolio levels.Lastly, research from consultancy JLT Employee Benefits places the value of UK private sector defined benefit (DB) deficits at £247bn, as of the end of September.This is an increase of £40bn over the year, JLT said.Deficits among FTSE 100 schemes came to £73bn, down from £82bn two months’ previous, giving an average funding level of 88%.Charles Cowling, director at JLT Employee Benefits, said the volatility stemming from the US Federal Reserve’s decision to maintain low interest rates had done nothing to boost pension scheme hopes of reducing deficits.“It is not surprising to see deficits jumping by £40bn,” he said.“With just under half of DB pension assets still invested in equities, pension schemes are exposed to a huge amount of market volatility, potentially leading to big losses that can further widen the deficit gap.”
PGGM, Hogan Lovells, Nikko Asset Management, Pictet Asset Management, BMO Global Asset Management, CBRE Global Investors, Morgan Stanley, Hermes Investment Management, Mercer, Cartwrights, Santander Asset Management, Aon Hewitt, Candriam Investors Group, Fidelity, Natixis Asset Management, City Noble, MEAG, Inalytics, Goldman Sachs Asset Management, Axioma, Standard & Poor’s, Neuberger Berman, PIMCOHogan Lovells – Maarten Schellingerhout has been appointed as counsel at the global investment funds practice of law firm Hogan Lovells International in Amsterdam. Schellingerhout, a UK and Dutch law qualified funds lawyer, will advise institutional investors and managers on fund construction, primary and secondary fund investment, co-investment and restructuring, with a focus on private equity, infrastructure and private real estate. He joins from the €200bn asset manager PGGM, where has been senior legal counsel since 2012.Nikko Asset Management – Udo von Werne has been appointed chief executive for the EMEA region. He joins from Pictet Asset Management, where he was head of institutional clients for Continental Europe. Before then, he worked at Zurich Financial Services and UBS.BMO Global Asset Management – Jean-Michel Bongiorno has been appointed sales director for France, while Björn Bahlmann has been appointed sales director for Switzerland. Bongiorno joins from CBRE Global Investors, where he was director of investor relations for Southern Europe. Before then, he was a relationship manager at Thomson Reuters. Bahlmann joins from Morgan Stanley, where he was vice-president. Before then, he was head of products at SEB Asset Management. Hermes Investment Management – Colin Melvin has been appointed to the new role of global head of stewardship. Hans Hirt and Emma Hunt have been appointed co-heads of Hermes EOS, the company’s stewardship-services division, replacing Melvin in this role.Mercer – Ashlin Noonan has been appointed as a senior investment consultant. She joins from Cartwrights, where launched an investment consulting service. Before then, she worked at KPMG, Towers Watson and Novare Actuaries & Consultants. Noonan will provide advice on investment strategy, manager structure, manager selection and performance monitoring.Santander Asset Management – Robert McElvanney has been appointed senior portfolio strategist within the Strategic Institutional Solutions group. He joins from Aon Hewitt, where he was a principal on the investment consulting side. McElvanney has 17 years of investment experience at a number of consultancies, advising a wide range of pension fund, corporate and institutional clients. Candriam Investors Group – Chris Davies has been appointed head of UK distribution, while Derek Brander has been hired as head of UK wholesale as part of the company’s expansion in the region. Davies joins from Fidelity, while Brander joins from Natixis Asset Management.City Noble – The pensions and investment advisory firm has appointed Patricia O’Loughlin as an associate. O’Loughlin has held senior roles at a range of investment managers including Invesco Asset Management and Aviva Investors. She served as adviser to Derbyshire County Council Pension Fund for eight years and was client liaison director at Aviva Staff Pension Fund.MEAG – Andree Moschner has been appointed as a member of the board of management. He will also join the management board of ERGO on 1 April, where he will be responsible for the financial products division. He joins from Allianz Deutschland, where he was a board member.Inalytics – Jennifer Youde has been appointed as a strategic consultant in the fund-manager analysis company’s new fixed income and credit team. She joins from Goldman Sachs Asset Management, where she was a managing director.Axioma – Sunil Rajan has been appointed managing director for the EMEA region. He joins from Standard & Poor’s, where he was senior director and head of sales for EMEA Risk Solutions. He succeeds Ian Webster, who has taken on an expanded role as chief of staff.Neuberger Berman – David Rowe has been appointed head of marketing for the EMEA region. He joins from PIMCO, where he held a similar position. Before then, he worked at Threadneedle and GAM.
The strategy shift would also establish a distinct fixed income asset class, targeting an exposure of 22% by 2021, rather than the estimated 10% of fixed income assets held within alternatives, as at present.The consideration to merge comes after Lothian Pension Fund successfully implemented a second, standalone investment strategy for certain employers sponsoring the fund.The report said the unitisation strategy allowed for a 100% exposure to index-linked Gilts, while its current strategy would be employed for the remainder of the scheme’s employees.It added that there was scope to increase the number of different strategies managed by Lothian.“The unitisation functionality could help with implementation of the new investment strategy for the Lothian Buses Pension Fund, as it allows more flexible allocation of investments,” the report adds.“It would also bring other efficiencies such as accounting, actuarial valuations and investment manager arrangements.”Dunn’s report added that the merger should happen at the “most appropriate timing” but that further consultation with stakeholders – such as Lothian Buses – was needed before it progressed.The changes would have no affect on a third pension fund managed by Edinburgh Council.The local authority is also responsible for the management of the £155m Scottish Homes Pension Fund, sponsored by the devolved Scottish government.English and Welsh local authority funds have been discussing mergers over the last few years as part of the UK government’s desire to increase scale in the LGPS sector, but the Scottish LGPS remains exempt.The plans were eventually dropped in favour of the creation of asset pools, of which between seven and eight are now emerging following talks within the sector. Lothian Pension Fund may soon merge with a smaller scheme for transport workers, in plans being considered by the City of Edinburgh Council.The council is responsible for the management of two local government pension schemes (LGPS) – the £4.4bn (€6bn) Lothian Pension Fund and the £386m Lothian Buses Pension Fund – but it has allowed both to remain standalone funds.In a report prepared for the respective funds’ most recent pensions committee, the council’s acting director of resources Hugh Dunn said the buses fund was established as a sub-fund of the larger LGPS, with a clause within the regulation allowing for it to be “subsumed” into Lothian Pension Fund.Dunn said the option of merging with the larger fund had been “highlighted and explored” as part of an ongoing review of the transport scheme’s investment strategy, which proposed that it gradually reduce its equity allocation in favour of bonds, while lengthening the exposure of its fixed income portfolio.
They warned of similar risks in abolishing mandatory participation at sector schemes, although Beetsma said he did not expect companies would withdraw their pension assets from industry-wide funds “on a whim”.Restrictions should be imposed nonetheless, they said, allowing companies to switch every five or 10 years only, and then only after giving ample notice. In the same article, Van de Kieft and Beetsma said the “rigid application” of interest rates for discounting liabilities could threaten financial stability in times of financial stress.“A drop in market rates causes funding ratios to fall, which could force pension funds to replace equity with fixed income,” they said.“This would have a downward effect on markets, interest rates and schemes’ coverage, causing a vicious circle.”They sought to put this risk into perspective, however, by noting that pension funds based their policies on the average funding over the previous 12 months.They also have the option of spreading their recoveries from funding shortfalls over a 10-year period.The authors argued that the regulators’ tendency to prescribe risk-based buffer requirements – such as in the new financial assessment framework, Solvency II for insurers and Basel III – carried the risk of herding, which could increase volatility.They also pointed to the “potentially procyclical” character of the pensions system.“During an economic downturn, additional pension contributions could reinforce the crisis because they would reduce the disposable income,” they said. René van de Kieft, chief executive at asset manager MN, and Roel Beetsma, economics professor at Amsterdam University, have warned of a “bank run” on pension assets should the Dutch government relax rules enforcing mandatory participation in the system. In an article for ESB, a communications platform for economists, Van de Kieft and Beetsma argued that dropping the mandatory-participation rule – often suggested in the ongoing debate over the new Dutch pensions system – could be dangerous. “If participants, for whatever reason, suddenly lose faith in their pension fund, it suddenly may have to divest assets on a large scale, which could destabilise financial markets,” they said.They said individual freedom of choice, when drawing on pension assets, should be for specific purposes only, such as buying a house or as a lump sum at retirement.
This figure can be extrapolated from the share price reactions in September 2015, but it also needs to account for general market movements.The case has been filed in the Braunschweig District Court (Landgericht Braunschweig) in the federal state of Lower Saxony, the home state of VW’s headquarters in Wolfsburg.It is being financed by Bentham Europe (BE), a third-party litigation funder.Jeremy Marshall, CIO at Bentham Europe, said: “Most investors have been upset about the arrogance of approach taken by VW – for instance, claiming they knew nothing about the fraud, then saying it wasn’t their fault.”But he said it had been difficult to find exactly who had been investing in VW, as some investors were reluctant to come forward.“Everybody believed VW was an environmentally friendly business, and investors now feel they have been made to look foolish,” he said. Bentham said the chances of reaching a settlement depended on whether VW could defend the charge of negligence in managing its business.He said: “We suspect it will be death by a thousand cuts – regulators, media, whistle-blowers – and there is going to be a point where people will start to go through the books, and the company will want to avoid that.”Brian Bartow, general counsel and chief compliance officer at CalSTRS, said: “Companies must be held accountable when they engage in such widespread deliberate deceit that destroys shareholder value, damages their reputation and harms the public.“As a long-term shareholder, CalSTRS has serious concerns about Volkswagen’s internal controls, governance and oversight by the Board.“This action seeks to recover not only CalSTRS’s economic losses to the pension fund but ultimately to implement much-needed corporate governance reforms going forward at Volkswagen.”Plans are afoot to file a further lawsuit against VW on behalf of other institutional investors, in late August; work to prepare the case in line with complexities of the German legal system is still in progress.A similar lawsuit was filed against VW in Brunswick by nearly 300 institutional investors, including CalPERS, last March.Bentham said: “The reason for the two groups is a function of market competition, and that this is what happens in the US. It is no bad thing, as there are so many active shareholders, and it doubles the impact of the lawsuits.” Quinn Emanuel said the Braunschweig Appellate Court would be likely to consolidate the model case applications and select a so-called model plaintiff.Bentham Europe is inviting investors that wish to participate in the second wave of litigation to indicate their interest by 30 July 2016.Meanwhile, the Boston Retirement System has become the first institutional investor to file a bondholders’ class action against VW in the US.The lawsuit has been filed in the California Northern court by lawyers Labaton Sucharow and relates to bonds issued by VW between 23 May 2014 and 22 September 2015. Around 800 different funds, including the California State Teachers’ Retirement System (CalSTRS) and European pension funds, are backing a lawsuit filed in Germany against Volkswagen (VW) by lawyers Quinn Emanuel. The claims, estimated in total at €1.5bn-2bn, are for losses related to the material fall in share price experienced by VW shares on the German stock exchange during the week commencing Monday 21 September 2015, after the disclosure that the car manufacturer had used ‘defeat device’ software on thousands of diesel vehicles sold in the US, enabling them to violate emissions standards.Around €25bn was wiped off the company’s market capitalisation on German exchanges in two days following revelations of the fraud by US environmental agencies, with the share price plummeting from €160 to €100.The losses, however, are not simply based on the fall in share price but must reflect the risks associated with the scandal.
Major Danish institutional investors, including pension funds ATP, PFA Pension and Sampension, are concerned about the drying up of liquidity in the domestic bond markets seen over the last 10 years and say bond trading now requires significantly more resources, according to a new study.The Danish Securities Dealers’ Association (Børsmæglerforeningen) and the Danish Bankers’ Association (Finansrådet) have conducted a study into how the country’s largest investors are experiencing liquidity in the bond market, which concludes that the development is clearly downward and worrying.Peter Andersen, board member of the Danish Securities Dealers’ Association and chief executive of Jyske Bank Markets, said: “It is a worrying development that we are seeing on the bond markets.“We must take these statements from the big investors very seriously,” he said. In their research, the two associations held meetings with six institutional investors during the spring — ATP, Sampension, PFA Pension, Nykredit Asset Mangement, Danske Capital and Nordea Investment Management.The associations said a general impression from the talks was that all the investors were experiencing falling levels of liquidity on the bond markets and expressed concern about the development, particularly on the mortgage bond market.Strong liquidity on the bond market was crucial for the efficiency of the mortgage market, so that borrowers got the best financing, the associations said.Outlining problems the sparser liquidity is throwing up for institutional investors, the report said the new situation meant not only that sales and purchases of Danish bonds had become more expensive for the investors, but also that they now had less opportunity to change asset allocation.“Investors are experiencing a new reality that entails them having to use significantly more resources to carry out their trades today,” the report said.The investors also pointed out in the discussions that the biggest challenge they faced today within this sphere came when they wanted to reallocate portfolio assets“In practice it can be impossible to implement such a reallocation within a short time period,” the report said.Investors told the associations’ researchers that whereas 10 years ago they had been able to carry out bond trades of up to DKK1bn (€134m) within a few minutes without changing the market price significantly, today they had to limit trades to DKK100m or less in order to effect the deal within a single day without changing the market price.The investors cited various factors that had likely led to reduced liquidity in the bond market, including the current dearth of market-makers and smaller, marginal investors in the market compared to a few years ago and the fact that bank treasury departments appeared to have become less flexible in their portfolio allocation because of stricter regulation.The Danish Securities Dealers’ Association made a number of proposals in the report to enhance liquidity, including reducing the number of open mortgage bond series and using a higher level of central counterparty clearing as well as making changes to the law on refinancing.Late last year, ATP cited the significant drop in market liquidity over the last 13 years as one of the factors behind the strategic changes it had been gradually making to its investment and operations.Chief executive Carsten Stendevad said back then that the big fall in sovereign bond market liquidity since 2002 had been a huge challenge for the DKK705bn statutory pension fund.