Inadmin, a subsidiary of the €337bn pensions provider APG, has been awarded a contract for pensions administration by insurer ASR.The insurer is the second client of Inadmin, which has started as the administrator of Pensional, the new pensions vehicle PPI launched in a joint venture between APG and ABN Amro bank.Inadmin focuses on the administration of collective defined contribution plans offered by PPIs, insurers and company pension funds reconsidering their pension arrangements.Rik Douwes, Inadmin’s managing director, said: “We offer an open model, in which the PPI can choose its asset manager and insurer.” In his opinion, the contract with the insurer is unique.“Pension funds and insurers represented separated worlds until now,” he said.According to Douwes, Inadmin will also target potential customers for pensions administration in cross-border arrangements.For his part, Jos Baeten, chief executive at ASR, said: “The opportunities Inadmin made available, combined with APG’s reliability, were the reasons for ASR to use Inadmin’s platform for the administration of this pension scheme.“This decision is consistent with our policy of creating flexible and structurally lower costs.”Last June, APG presented its “advanced” system Lifetime – developed by APG subsidiary Inovita – for tailor-made administration of DC plans for PPIs, insurers and pension funds.
A group of a Swedish institutional investors has taken steps against German auto-manufacturer Volkswagen (VW) after it shut out minority shareholders in Scania.The issues relate to VW’s 60% capital holding in Scania, the Swedish heavy vehicles manufacturer, which, under the Swedish A and B share system, equates to 88% of voting power.In terms of voting rights, a single A share gives the owner one vote, while 10 B shares would be needed for equivalent power.The group of investors claims VW used its influence to remove Scania’s nomination committee, reducing smaller shareholders’ influence within the company despite their having a near 40% capital stake. The Scania board now comprises 10 members, including seven from VW, the firm’s CIO, and two independents, with no representation for minority shareholders.AMF, the Swedish pensions provider, the fourth state pension fund AP4 and asset managers Skandia and Swedbank Robur have joined forces to highlight ongoing governance concerns.They also cite VW’s ownership of rival truck manufacturer MAN Group, of Germany, as a potential problem.VW has steadily increased its holdings in MAN, with the view to merging it with Scania to create Europe’s largest heavy-vehicle manufacturer.AMF’s Anders Oscarsson, who heads up corporate governance at the provider, said its problem with VW was two-fold.“The first,” he said, “is they have a competitor in their group. This always leaves you suspicious, and if there was a situation when to make investments, where would the investment go? If they only own 60% of the capital, they only gain 60% of the profit.“The second problem is that Scania is in fantastic shape, and MAN is not, and Scania has done some excellent R&D. So the question is, could there be some transition out of the company?”The pensions provider raised concerns over the recent awarding of a joint Norway and Sweden heavy military vehicle contract to the MAN Group, after Scania suddenly withdrew its tender.In a statement, AMF said it wanted to ensure the principal owner of Scania respected all shareholders, so the company could continue providing good returns.Despite its small holding, combined with other institutional investors, AMF can achieve the 10% minority vote needed to appoint an examiner or auditor, to keep governance in check, it said.However, AMF conceded it lacked concrete evidence that minority shareholders were being disadvantaged.After voting against the abolishment of the nomination committee in the 2013 annual general meeting (AGM), the institutional investors secured the requirement for complete disclosure of all management decisions at Scania, where conflicts on interest may occur between Scania and MAN.AMF said it was looking forward to the disclosure report, specifically the information on Scania’s withdrawal from the military tender.Scania’s next AGM is due to take place in early May, with the report detailing management decisions published shortly beforehand.
It added that it made losses on its emerging market equity investments, without providing further details.The scheme’s 5% property portfolio delivered a quarterly return of 3%, following positive results for both listed and non-listed real estate.Investments in private equity and hedge funds – 2.6% of assets under management – produced a combined return of 1.7%.The pension fund reported a loss of 0.1% on its currency hedge, as a result of a slightly weakening euro against the Japanese yen and the Australian dollar.Over the first quarter, the pension fund saw its coverage ratio increase by 7.6 percentage points to 135.8%. However, this was chiefly due to an additional contribution of €879m by the employer following the agreed financial independence of its scheme, closed for new entrants on 1 January 2014.Currently, it has 72,775 participants.New pensions accrual will take place in two new pension funds, providing collective defined contribution arrangements.A new ING CDC Pensioenfonds will provide pensions for staff of ING Bank and Westland-Utrecht Bank, while NN CDC Pensioenfonds will manage the pension plan for staff at ING Insurances and ING Investment Management.The two new schemes come in anticipation of the planned split of ING into a banking company and an insurance and investment firm – ordered by the European Commission due to the financial support ING received from the Dutch government during the financial crisis. The €20.7bn pension fund of banc-assurer ING has returned 6.6% on its investments over the first quarter.The scheme cited the effect of falling interest rates on its fixed income allocation of almost 72%, which returned 9.3%.Last January, the pension fund increased its fixed income allocation by 6.6 percentage points – at the expense of its equity holdings – on the back of strong equity returns last year.Equities – accounting for 18.4% of the overall portfolio at March-end – returned 1% over the first quarter, mainly thanks to the performance of US and European investments, Pensioenfonds ING said.
At the time, it concluded that joining an insurer would have been too expensive, adding that this would also have prevented it from linking up with a larger pension fund at a later date.In the Dutch financial sector, the pension fund of merchant bank and asset manager Van Lanschot is in the process of establishing an APF, in which assets can be ring-fenced.However, it declined to provide details about its potential partners.Expenses at the AFM and DNB schemes have recently come under scrutiny, as many of the institutions they supervise decry the ever-increasing cost of regulation.The AFM’s merger announcement comes soon after the publication of a survey by local insurance magazine AM and news website Follow the Money, which claimed that the watchdog underestimated the cost of winding up Mercurius and starting its own pension fund.The AFM recently confirmed that its total costs for the scheme had come to €1.5m rather than the estimated €1m.It also said its pensions administration costs were €426 per participant – three times the national average for Dutch pension funds.By comparison, the cost per participant at the €1.3bn pension fund for fellow watchdog DNB is €284. The AFM – the pensions communications watchdog in the Netherlands – has said it wants its €100m scheme either to merge with other pension funds in the Dutch financial sector or join an initiative to establish a low-cost APF vehicle.The AFM, which has a staff of approximately 600, said it was “undesirable” for smaller pension funds to remain independent, and that they should merge with other schemes to gain the benefits of scale.The regulator’s scheme was established in August 2013, following the liquidation of the Mercurius scheme, which had served several companies in the financial sector.The AFM had tried in vain to make Mercurius part of a new voluntary industry-wide pension fund for the financial sector, and, after this initiative failed, it decided to launch its own temporary fund.
He added: “That could include bringing elements or a measurement of certain assets in-house, as opposed to doing everything through asset management partners.”The fund’s director of strategy and legal affairs David Taylor stressed that in-house expertise would only be considered if the PPF could save money through such a step.“There are some asset classes we are clearly going to be in for the long term, and it makes sense to start thinking about bringing them in,” he said. “There are other asset classes we may not be in for the long term, in which case building up [such] infrastructure only to then migrate out of those classes doesn’t make a great deal of sense.”Asked which asset classes the PPF would not consider as long-term holdings, Taylor noted that the fund would not expect to be “heavily” in equities in 2030, but would not be drawn further.However, the fund predicted the increased costs of external management would be offset by its assets rising to £25.1bn by 2018, resulting in management costs of 0.55%. The PPF currently agrees framework agreements with its asset managers across nine broad asset classes, with managers seeded as and when the need arises.Its global bond framework, the largest, comprises 15 managers, while four managers stand to benefit from its UK bond and derivatives activities, used to hedge its liabilities. The fund last year returned 19.5%, 2.9% ahead of its benchmark return. The UK Pension Protection Fund (PPF) is considering the launch of an in-house investment team in an effort to contain the growing costs of asset management.The £20bn (€27.9bn) UK lifeboat fund, which last year amended its Statement of Investment Principles (SIP) to allow a 12.5% exposure to hybrid assets, said fund manager fees were expected to increase by one-third, or £38.6m, over the course of the coming financial year.Publishing its strategic plan for 2015, the fund said the increased costs – up to £120.1m in 2015-16 and rising to nearly £133m by 2017-18 – was the result of growing exposure to alternative asset classes.David Shaw, head of strategy and policy, said it was important to look at changes that could increase both the fund’s control over assets and the cost-effectiveness of investments.
The European Central Bank’s (ECB) policy of buying corporate debt is “destroying” the debt market, with funded pension systems being considered “collateral damage”, according to Peter Eichler, a member of the board at Austrian insurer Uniqa.Speaking at an institutional investor summit in Vienna, Eichler said the “wipe-out of funded systems [seemed] to be an accepted risk” of the central bank’s amended quantitative-easing programme.Eichler’s company Uniqa owns a stake in the Austrian Pensionskasse Valida.Also speaking at the summit, Olaf Keese, managing director at the S-Pensionskasse, the German pension fund for savings banks (Sparkassen), said the ECB was “distorting that market” for European corporate debt. The S-Pensionskasse has in recent years set up a Masterfonds, with the vehicle investing in international government bonds through a credit overlay.The Masterfonds covers 8% of the Pensionskassen’s €4bn in assets.Keese said his fund could invest in longer-duration bonds of 15 years of maturity or more, thereby increasing duration, but he acknowledged that the approach would increase risk without improving risk-adjusted return.He said the overlay strategy had been chosen “especially due to a higher degree of liquidity and granularity”.“At the moment,” he added, “this approach is especially favourable since corporates are getting less liquid and more expensive.”Incentivising infrastructureCriticism for European policies also came from Martin Bruckner, managing director at Allianz Austria, who pointed to “inconsistencies” in institutional plans to increase investment in infrastructure.“Politicians say we should invest billions into infrastructure, but the supervisors seem to have different ideas – they should find a consensus on this important topic,” he said.Bruckner also argued that regulations were making it increasingly difficult for banks to grant long-term loans.“We as institutional investors therefore have to step into this private-debt segment,” he said. For Christian Böhm, chief executive at Austria’s €4.2bn APK Pensionskasse, one of the problems stemming from European regulation and supervisory framework is its view of certain asset classes.“All the stress tests are based on [value-at-risk] models and are always backward-looking, which means, for example, government bonds are extremely overvalued.”He argued that the backward-looking view emphasising government bonds was “not helping us in the least at the moment”, adding that he hoped for “a change in valuation views through a European dialogue”.But Böhm also stressed the responsibility borne by pension funds in the current environment.“Pensions are not risk-free, and we have to manage the assets so that we have enough risks on the books to generate sufficient returns,” he said. “If we do not achieve this over a rolling multiple-year period, we are obsolete as institutions for retirement provision.”
The financial sector has responded with relief to the outcome of the Dutch elections, with the liberal VVD party of prime minister Mark Rutte the clear winner.Geert Wilders’s populist Freedom Party, PVV, gained less than expected.VVD’s current coalition partner, the labour party PvdA, has largely collapsed – dropping 29 seats to 9. This opens the way to a new centre-right government under Rutte, likely to be supported by the Christian democrats, CDA, and the liberal democrat party D66.“If this is the case, it won’t impact our view on European financial markets,” commented Lukas Daalder, chief investment officer of asset manager Robeco. “If Rutte can continue as prime minister, Dutch politics would be a source of stability, rather than disruption.” The euro rose and spreads in euro-denominated bonds declined on the back of the election outcome, Daalder said. He noted, however, that yesterday’s rate hike from the US Federal Reserve may have been the dominant cause.Anna Stupnytska, global economist at Fidelity International, described the election result as “good news”.However, she warned that a long negotiating period for a new coalition government was likely, “which would not be helpful for a Greek bailout review”, which is ongoing.A new government coalition would need at least one smaller party – in addition to VVD, CDA, and D66 – for a majority.The most likely candidates are the small religious right party CU, which won five seats, and the green-left party GroenLinks, which more than tripled its number of seats to 14. Although tough climate measures are a key element in GroenLinks’s manifesto, it hasn’t excluded co-operation with the VVD.Ruth van de Belt, senior investment strategist at Kempen Capital Management, concluded that the election result gave investors breathing space ahead of the presidential elections in France. She said Kempen expected Le Pen to lose from Macron in the second round, and also indicated that the asset manager didn’t anticipate early elections in Italy.“With the cloud of uncertainty lifting, this makes European equities very attractive,” Van de Belt added.Antoine Lesné, EMEA head of exchange-traded funds strategy at State Street Global Advisors, said French government bond spreads might tighten a bit, as the Dutch election was seen as a temperature check for the French elections, which start next month.Columbia Threadneedle Investments, however, was more cautious and pointed at the increased fragmentation of the political landscape, and the fact that Geert Wilders – who gained 20 seats in the 150-strong lower house – will remain as a critical opposition voice.Pension managers APG and PGGM, as well as pension funds ABP and BpfBOUW, declined to comment on the election result.
Source: Pension Protection Fund, JLT Employee BenefitsThe combined shortfall plummeted immediately post-referendum but has since recoveredJLT director Charles Cowling said earlier this month that the positive picture “masks ongoing challenges for a number of companies with large pension schemes”. “Actuarial valuations currently being conducted are likely to show a need for significant increases in cash funding,” he added. “This will come as a difficult message for both schemes and sponsors, at a time when the tension between funding deficits and paying dividends to shareholders has already spilled over.”The UK as an asset management hub Source: FE Analytics, Bank of EnglandEquity markets are up significantly in sterling terms, while Gilt yields are broadly flatThe MSCI Europe index has gained 18% in the past two years in euro terms, with the FTSE All Share up almost 12%. Sterling investors made additional gains due to the weakness of the UK currency: in sterling terms the MSCI Europe rose 31.5%, and the FTSE All Share gained 24.6%.The UK 10-year government bond yield has been volatile over the same period, but as of this week was at a broadly similar level (1.5%) to where it was two years ago. UK prime minister Theresa May signs the letter triggering Article 50Steven Andrew, fund manager at M&G, said: “The UK economy has surprised forecasters and investors with a strong resilience since the EU referendum in 2016. In spite of predictions of recessions and a nationwide slowdown, UK growth has been materially stronger than expected and businesses have continued to grow at an aggregate level.“While caution is still warranted as the UK negotiates the terms of its departure from the EU, the resilience of the market provides a number of opportunities for investors. Ongoing uncertainty during the negotiations will cause market volatility, which in turn presents attractive opportunities for patient investors in the UK market. In time, uncertainty will reduce and a number of assets will continue to demonstrate strong underlying fundamentals.” Scheme fundingThe Brexit referendum was not kind to UK defined benefit (DB) pension schemes. According to estimates from JLT Employee Benefits, the combined shortfall of private sector DB funds reached £503bn (€574bn) at the end of September 2016.However, asset returns and a weaker currency helped many schemes recover to much healthier positions. At the end of February JLT estimated the shortfall to be just £105bn, while the Pension Protection Fund’s monthly figure reported a combined deficit of £72bn. David Davis and Michel Barnier at a Brexit press conference in October 2017One of the main concerns – at least among UK-based asset managers – has been retaining access to the EU market. London is seen as an important access point for non-EU companies, and UK managers run hundreds of billions of euros on behalf of EU clients.Data from the European Fund and Asset Management Association (EFAMA) seems to suggest that the UK has yet to be significantly affected in terms of its market share.Luxembourg and Ireland continue to dominate in terms of assets under management – the two countries were home to €6.6trn between them at the end of last year. Source: Investment AssociationHow much UK investors have allocated to non-UK domiciled funds, and vice versaThe latest Brexit-related news and features from IPE are available here . Today marks one year since UK prime minister Theresa May signed the letter to the European Union triggering Article 50 of the country’s constitution and confirming the its decision to exit the bloc.Since then there have been tense negotiations, much political blustering and – finally – some agreements.As it stands, the UK will cease to be a member of the EU as of 29 March 2019. Politicians on both sides have agreed to a transition period running until the end of 2020, and talks are expected to start soon about the future trading relationship.IPE has looked back over the past year to discover what the decision to leave has – and hasn’t – done to Europe and the UK’s pension and investment markets. Source: EFAMAAs European assets have grown in the past two years, the split across the biggest markets has barely changedThe next few years could see this picture change. Already, a number of asset managers have begun moving staff out of London and expanding their EU presence – Jupiter, Aberdeen Standard and M&G most notably. In addition, cities such as Paris, Frankfurt and Copenhagen are positioning themselves to be able to accommodate financial services companies that choose to move away from the UK capital.Cross-border assetsData from the UK’s fund management trade body, the Investment Association, also indicates that investors outside the UK have not yet chosen to pull their money out of UK-domiciled funds.Similarly, UK investors have not pulled money out of non-UK based funds to any noticeable extent. Investment marketsDespite a big drop in stock markets immediately following the June 2016 referendum result, equities continued to rally through 2017, posting multiple records.
However, these changes have already drawn criticism from the IMF. Scope highlighted that “the interplay between a country’s old-age dependency ratio and prudent government policy” were “vital in the funding of future pensions and healthcare costs”.These factors also influenced public debt sustainability, Scope said, and the current proposed changes could “endanger the country’s economic growth potential”.To fix the intergenerational dependencies, Scope suggested raising the retirement age, changing eligibility criteria, adjusting the contribution rate (currently 18.6% of gross monthly income), or changing the pension replacement rate (fixed at 48% of salary).The government proposal still needs to pass parliament before it can come into effect.Scope’s full analysis can be downloaded here. Proposed reforms to the state pension system in Germany might change ESG investors’ outlook on the country’s public finances, according to ratings agency Scope. The new system would increase the burden of cost on younger workers as more money was spent on retirees, Scope argued in a statement.“As the proposal stands, the new pension guarantee is set to put an additional burden on Germany’s public finances over the medium-term and represents an important shift in the redistribution of tax revenues from the Baby Boomer generation’s children back to their parents,” the ratings agency said.Over the summer, the German government presented a proposal to guarantee current pension levels until 2025 and also cap contributions to the first pillar.
Aviva’s French officeAviva France said it had been working on the establishment of an FRPS for almost 18 months, and the dedicated entity would allow it to develop its workplace pensions activity through its distributors.Phalla Gervais, deputy chief executive officer and chief financial officer of Aviva France, said the new FRPS category would “enable implementation of an asset allocation adapted to a long-term horizon”.“This will also make retirement savings a more effective lever for financing the real economy,” she added.In its announcement about the FRPS, Aviva France made several references to the PACTE law that is currently going through the parliamentary legislative process and will shake up pension saving in the country.IORP II, the EU’s revised pension fund directive, is to be implemented in French national law via the PACTE law, which is expected to be adopted in early spring next year. These are subject to a regulatory regime that is compliant with the IORP Directive, the EU’s pension fund legislation. The intention was to allow insurers to benefit from a regulatory environment more suited to the long-term nature of pension liabilities than Solvency II, with a particular focus placed on increasing investment in equities and other risk and long-term assets. Aviva France has established the country’s first “fonds de retraite professionnelle supplémentaire” (FRPS), a new entity that qualifies as an occupational pension fund under EU legislation.Aviva Retraite Professionnelle was authorised by the regulator last week and houses around €4bn of occupational pension commitments currently managed by an Aviva France subsidiary, according to a statement.These were mainly in the form of “Madelin” contracts, which govern individual defined contribution (DC) schemes for the self-employed, and “Article 83” contracts, which are for collective, company-sponsored DC plans.In France, insurance companies have generally been the main providers of pension arrangements, but a 2016 law known as Sapin II provided for the creation of pension funds in the form of an FRPS.