It also argued that the lifting of the euro/Swiss franc peg at the beginning of the year and the introduction of negative interest rates on banks’ deposits by the Swiss Nationalbank (SNB) had made a challenging investment environment even more difficult.“The challenge to generate the necessary interest rate at a justifiable risk level has been further exacerbated,” the fund said.Meanwhile, the CHF2.5bn Schaffhausener Pensionskasse (PKSH) published its first annual report as an independent entity.The Swiss government recently forced cantons to sever ties with their pension vehicles to increase transparency on the financing of retirement provision, and some of these new entities have struggled to achieve full funding.But the PKSH has already reached a 105.8% funding level, boosted by a 10.5% return last year – well above the market average of approximately 7%.At the beginning of the year, the SNB’s surprise move to cut the peg to the euro cost the fund 350 basis points in funding, although strong equity markets helped to make up for the losses by the end of February.In the Pensionskassen’s annual report, Rosmarie Widmer Gysel, chairwoman of the supervisory commission, drew attention to a “much graver” problem than the SNB’s decision.She warned that, “after a fat bond year, we are now looking at many lean years, as bonds have already realised the major part of their performance over the remaining duration in 2014”.Swiss government bonds returned around 9% in the PKSH’s portfolio last year.For 2015, the pension fund wants to continue to sell certain assets from its real estate portfolio in order to exploit the “very good” market environment.Additionally, further purchases “at competitive prices” are to be made.For more on how other Swiss pension funds are reacting to negative interest rates, click here The CHF9.3bn (€8bn) Aargauische Pensionskasse (APK) has reported an “unexpected” return of 5.3% for last year, pushing the funding level further towards 100% after the 97% reported in 2013.In a statement, the fund said it was surprised to see all asset classes, except commodities, make a positive performance contribution over 2014, given the market environment.At the APK, bonds returned almost 8%, making them the third highest performing asset class, just behind infrastructure (10.4%) and equities (12.9%).The pension fund said it was able to “profit from booming equity markets as much as our risk-bearing capacity allowed”.
The Environment Agency Pension Fund (EAPF) has awarded Germany’s Union Investment a £90m (€126m) sustainable equity mandate, replacing an existing manager after 10 years.The award comes nearly a year after the £2.7bn EAPF tendered an indefinitely renewable equity mandate that took into consideration a manager’s performance in both financial and non-financial matters.While the tender allowed for up to £250m to be invested in the new mandates, Union’s £90m portfolio, combined with a previously announced £90m allocation to a long-term equity fund managed by Ownership Capital, means only £180m has been allocated.In addition to Ownership and Union, Mirova Asset Management and Hermes Investment Management were appointed to a framework agreement, allowing the local government pension fund to appoint further managers at a later date. The four managers beat 56 other respondents, of which a dozen – eight large, established investment houses and four boutique managers – were eventually shortlisted.Mark Mansley, CIO at the EAPF, told IPE he was not planning any further equity mandates in the near future and noted that the fund was reducing its equity exposure.He said a decade-old mandate with Sarasin & Partners was terminated to fund the two new awards.In a report detailing how it conducted the search, the EAPF said Sarasin had done well since it was appointed in 2005 but noted that the responsible investment market had “moved on significantly” since the initial award.According to the scheme’s most recent annual report, the EAPF’s £164m stake in Sarasin’s fund returned 9% last year, 2.8 percentage points above benchmark, and 16.8% during the financial year ending March 2013.The two awards form part of the EAPF’s efforts to invest 25% of the fund in sustainable investments.Mansley said that, at present, it had exceeded the allocation, which stood at 26.3% and accounted for €703m at the end of March 2015.The figure is up from March 2014, where £558m – or 24% – was allocated towards sustainable investments, boosted largely by the 2013 hire of Townsend Group to a global real assets portfolio.For more on the EAPF’s evergreen mandate, read IPE’s interview with Mark Mansley and Faith Ward,WebsitesWe are not responsible for the content of external sitesLink to EAPF report on appointment of sustainable equity managers
Denmark’s largest pension funds, ATP, PFA and 24 other institutional investors, have filed a witness summons as part of their legal action against collapsed shipping fuel company OW Bunker, whose bankruptcy in late 2014 jointly cost them DKK769m (€103.3m) in investment losses.In a statement, ATP and PFA said a consortium consisting of 26 Danish institutional investors filed the summons in the Copenhagen City Court regarding OW Bunker.Tomas Krüger Andersen, general counsel for the pension fund’s division ATP Pensions & Investments, said: “Although it will take years before we get a clarification, ATP has a duty to our members to seek to recover the losses we have suffered from OW Bunkers bankruptcy.”“As an investor we also have a clear interest in establishing liability in this extraordinary case,” he said. The investor group had suffered losses of DKK769m by investing in shares of OW Bunker on the basis of a prospectus that was, ATP and PFA said, “deficient on essential points in the form of incomplete, erroneous, misleading and omitted and concealed information.”Krüger Andersen told IPE: “The background for our lawsuit is in reality that the picture they were painting to us turned out not the be the real picture, and that is disappointing.”In their statement, ATP and PFA said the most crucial information that was missing in the main prospectus issued ahead of OW Bunker’s IPO in March 2014 concerned oil-price speculation and trading with one very large customer via the Singapore company Dynamic Oil Trading.The claim is against OW Bunker in bankruptcy, the private equity fund Altor as well as the board and the daily management of OW Bunker, the Danish pension funds said.“The action can be expanded to include additional parties, and it has not yet been decided whether additional cases will be brought,” ATP and PFA said.The investors said in their statement they did not have all the information and documentation on certain events leading up to the IPO.The consortium said it would also try to agree “suspension pacts” with the issuing banks and accountants, to ensure that any possible claim would not lapse due to statutes of limitations.Krüger Andersen said ATP believes the banks involved in the case would agree to this.ATP declined to name the banks involved, but, in the March 2014 prospectus, Carnegie and Morgan Stanley were listed as joint global coordinators of the IPO, Carnegie, Morgan Stanley and Nordea as joint bookrunners and ABG Sundal Collier as co-lead manager.Deloitte is listed as auditor.Asked why the consortium of investors was not at this point taking legal action in court against the banks, Krüger Andersen said: “We are looking at the information we have at hand and so feel it is appropriate to go after the company, its board and its management and the private equity fund Altor.”Even though the lawsuit’s current aim is at individuals and one private equity fund, he said ATP does believe it will be able to get compensation.“We know there is insurance coverage, but we don’t know the details of that,” he said.Rasmus Bessing, president and COO at PFA Asset Management, said: “It is extremely important we get this unfortunate situation fully elucidated and place the responsibility for the events around OW Bunker’s IPO and bankruptcy.”This had to be done, not least in order to restore trust in the Danish stock market, he said.“At the same time, we owe it to our customers to get the best possible compensation for their losses,” he said.Other pension funds and providers involved in the consortium of 26 are SEB, Lærernes Pension, Topdanmark, PensionDanmark, Unipension, DIP, JØP, AP Pension, Sampension and PenSam.Law firm Bruun & Hjejle is representing the investors in the cases, supported by lawyers Accura and auditors KPMG.ATP and PFA said in June last year they were part of an investor group planning to sue OW Bunker.ATP has said it invested around DKK150m in OW Bunker, while Industriens Pension, DIP and JØP have said their exposure to the collapsed company was DKK15m, DKK16m and DKK9m, respectively.
PensionsEurope has mounted a robust defence of the role of pension funds in the global financial system in response to claims from asset managers that they pose a risk to international financial stability.The association was responding to the consultation paper from the Financial Stability Board (FSB) on proposed policy recommendations to address structural vulnerabilities for asset management activities.In its paper, the FSB made a number of recommendations to address what it sees as four main ways in which asset managers are structurally vulnerable, with two of the four – liquidity mismatch and leverage – considered the most important. But a fifth area – which the policy proposals do not address – concerns the potential risks to financial stability that stem from pension funds and sovereign wealth funds. Previously, BlackRock, Vanguard and industry groups had suggested pension funds should not be exempt from being classed as ‘global systemically important financial institutions’ (SIFIs).And the FSB has hinted that pension funds could yet be considered systemically important.But PensionsEurope, in its response to the policy proposals, said: “We agree with the FSB statement that pension funds contribute to the stability of the financial system thanks to their long-term horizon and due to the fact their investment choices are not significantly affected by temporary fluctuations of the markets.”It said some asset managers seemed to “generalise or overestimate” the risk that pension funds could pose to the financial system, in requesting the FSB/IOSCO to also include pension funds in the NBNI-work.And it noted that pension funds – as opposed to asset managers – were subject to extensive regulatory (prudential) oversight, based on the European IORP Directive, and on national regulations.“Controlling the assets does not mean pension funds reallocate assets in a non-prudent manner or are a source of systemic risk,” PensionsEurope said.It added that the European Insurance and Occupational Pensions Authority (EIOPA) – in its first European IORP Stress Test Report of 2015 – recognised that IORPs posed no systemic risk.On the contrary, “they are able to mitigate financial shocks and work as a stabilising factor for the financial sector,” PensionsEurope said.In terms of specific investment risks, the industry group dismissed references to “unproved potential for liquidity risk in some types of defined contribution (DC) pension funds”.Apart from a situation where the IORP allows a member to transfer the capital value of the accrued benefit to another IORP or insurance company, it said, “the member cannot withdraw his benefits from the plan – moreover, there is a requirement for the assets of an IORP to be invested predominantly on regulated markets”.And in relation to the use of derivatives by IORPs, PensionsEurope said: “We would like to reiterate that pension funds can only use derivatives to hedge risks and not to speculate – hence, the potential build-up of leverage is limited.”It concluded with a stern warning for regulators.“Regarding the use of less liquid assets, we recommend to authorities to refrain from over-regulating the pension funds sector, as requirements decrease the liquidity in the markets, making them more rigid,” it said.“A more rigid market may prove not to be resilient in times of crisis.”
Peter Damgaard Jensen, chief executive at Danish pension fund manager PKA, has taken over from Donald Macdonald as chair of the Institutional Investors Group on Climate Change (IIGCC), with Macdonald also retiring as a trustee of the £46bn (€56bn) BT Pension Scheme.Damgaard Jensen became chair of the IIGCCC on 1 January.Macdonald had been its head for just over five years.PKA, which runs three labour market pension funds in the social and healthcare sectors, has been a member of the IIGCC since 2010, and Damgaard Jensen a member of its board since 2013. Commenting on his appointment, Damgaard Jensen said the IIGCC’s membership and influence had grown over the years to make it “an organisation that policymakers and governments now take seriously – as became particularly clear during the climate negotiations at COP 21 that delivered the Paris Agreement.“With the Paris Agreement in force, it is paramount institutional investors now put words into action to deliver sustainable investments both in Europe and emerging markets, where there are huge opportunities and a great need for such investments.”In addition to stepping down from his role at the IIGCC, Macdonald is this week retiring from his role as a trustee director of the pension scheme for UK telecommunications company BT.He will have been a trustee of the BT Pension Scheme for 19 years. Macdonald was the inaugural chair of the Principles for Responsible Investment (PRI), having been its head from September 2006 to December 2010.He is staying on as a non-executive director at Inflection Point Capital Management (IPCM), an investment advisory firm focusing on sustainable investing research that is owned by IPCM and Group La Française.Macdonald told IPE he was looking forward to his retirement but that he has enjoyed the work he has done.“I’ve particularly enjoyed doing the work with IIGCC,” he added. “That’s been a considerable challenge, but we have built up the organisation, and we now have a very strong relationship with the European Commission and the member state governments, and I think we helped to mobilise investor opinion in a way that helped to shape the Paris accords on climate change.”
PFA’s with-profits or average-rate pension product returned 6.7% in 2016, according to the early financial figures.The firm said interest-rate hedging and the bond portfolio contributed the most to the with-profits pension return, though corporate bonds, alternatives and real estate had also made positive contributions. Damgaard said that, in the light of an investment environment of low or negative interest rates and uncertainty on the stock market, a central element of PFA’s investment strategy was to find good alternatives to shares and bonds.“PFA has therefore strengthened its skills in alternatives investments and expects to expand its investments in, among other things, property, infrastructure – for example, via public/private partnerships – and sustainable energy,” he said.Meanwhile, labour-market pension fund Sampension reported that returns on its market-rate pensions had bounced back in 2016, to end the year between 5.4% and 9.7%, depending on customer age and risk profile.In 2015, Sampension made losses of between 0.1% and 1.8% on its market-rate product.The pension fund said: “Sampension ended the year with a good plus in all three asset classes – equities, bonds and alternatives – despite the ultra-low interest rates in the year and turbulence on the equity markets.”Brexit and the election of US president-elect Donala Trump had been two of the year’s most important political events on the financial markets, it said.“But, despite the enormous media discussion, neither the British ‘no’ vote to the EU nor the Americans’ ‘yes’ vote for Trump had great significance for the return,” Sampension said. Denmark’s biggest commercial pension provider, PFA Pension, reported higher-than-forecast returns on its unit-link pension product for 2016 and said it was pleased with the results given difficult market conditions.Anders Damgaard, group finance director at PFA Pension, said: “We are proud we have delivered a return for our customers with market-rate products this year of between 6.5% and 8.2% – particularly in the light of Danish inflation, which is at 0.1%.”In 2015, returns on the market-rate product PFA Plus ranged from 5.3% to 12.3% depending on customer age and product profile.The returns are higher than the firm forecast this time last year, when PFA predicted PFA Plus 2016 full-year returns would come in at between 2% and 7% – though it did say this prediction depended on prevailing interest rates staying at their early 2016 levels.
The European Banking Authority (EBA) has warned that proposals from the European Commission (EC) to transition banks to the new IFRS 9 accounting model could mean banks recognise lower loan-loss provisions or impairments than they do at present.The effect of any such move, the EBA said, would be to unpick any improvements made under IFRS 9 relating to provisions that banks must hold to protect against losses on financial assets such as loans.The EBA said the commission’s proposal “as it currently stands could be interpreted as allowing institutions to add back [expected credit losses] in stage 3 under IFRS 9”, which would “result in the neutralisation” of the provisioning currently in place under IAS 39.The EBA added: “However, if an institution decided to apply the transitional arrangements, it would be able to add provisions back to [tier one provisions] and therefore have a positive impact due to IFRS 9.” The EC published its transitional proposals for IFRS 9 under the auspices of its review of cash reserve ratios. The proposals are intended to lessen the impact of IFRS 9 on capital ratios.The proposals give institutions – not regulatory authorities – the option to apply the transitional arrangements for a period of five years.They would allow institutions to add back in to tier one any loan loss allowances classified under stage one or two by IFRS 9.The International Accounting Standards Board (IASB) launched its bid to replace its existing financial instruments accounting standard, IAS 39, in 2009.Critics of IAS 39 have argued that its incurred-loss impairment model has caused banks to recognise losses too late.Although the IFRS 9 project started out life as a joint effort with the US Financial Accounting Standards Board (FASB), the US standard setter has largely walked away from the effort. This challenged the IASB’s bid to become the world’s single global accounting standard setter.In a further twist, critics of IFRS 9 have jumped on the fact that the FASB has adopted a more forward-looking model that requires banks to recognise full upfront losses on the lifetime of impaired loans.The EU formally adopted IFRS 9 on 22 November 2016.The European Parliament issued a resolution supporting the adoption for IFRS 9 on 30 September 2016.This resolution also called on the EC to examine the possibility of introducing a phase-in regime for the impairment requirements of IFRS 9 in order to avoid any sudden unwarranted impact on institutions’ capital ratios and lending.The EC responded on 23 November 2016 as part of its CRR II/CRD V proposals with transition proposals.
Danske Bank’s pensions subsidiary Danica Pension is taking over SEB Pension’s activities in Denmark in a deal that will bring its assets close to the level of market leader PFA.Danica Pension – currently the second biggest commercial pension fund in Denmark after PFA – has signed an agreement to acquire SEB Pensionsforsikring and SEB Administration from Nordic financial services group SEB.Danske Bank said this would result in around 200,000 new pension customers joining Danica, bringing its total to 800,000.Per Klitgård, chief executive of Danica Pension, said: “The acquisition will give us strengthened innovation capacity, enabling us to deliver the right solutions for our pension and insurance customers – now and in the future.” Danica Pension also said the deal would make it more competitive through economies of scale.The takeover, which is expected to receive final approval from authorities in the first half of 2018, means that Danica Pension will have around DKK547bn (€73.5bn) in assets under management, according to 2016 figures.This is just shy of PFA’s DKK607bn total assets at the end of 2016.In terms of customer numbers, with about 1.2m customers, PFA would still be considerably larger than Danica Pension.In the deal, SEB will sell all shares in SEB Pensionsforsikring and SEB Administration for a total of DKK6.5bn, consisting of DKK5bn in cash and a pre-closing dividend of DKK1.5bn.Johan Torgeby, president and chief executive of SEB, said: “I am pleased that we together with Danica have concluded a mutually beneficial deal.“The transaction has clear strategic and long-term financial benefits and is consistent with SEB’s strategy allowing us to continue to grow with our core customer segments and accelerate the transformation of the bank.”
Former ATP investment chief Bjarne Graven Larsen is set to launch an all-weather, multi-strategy risk premia fund through his new firm Qblue Capital.The Copenhagen-based manager — founded in October last year — expects to launch the Qblue Luxembourg fund in the next few months.Qblue said the new fund was targeted at international professional investors. Its strategy spreads investment across equities, fixed income, commodities and currencies.Graven Larsen, chief executive of Qblue Capital, said: “Based on our collective experience, we want to help institutional investors achieve their objectives by developing and delivering robust and sustainable investment solutions with superior risk-adjusted returns at an attractive price.” Qblue said that, although the traditional portfolio model with 60% equities and 40% bonds had performed well in the past, current trends and decreasing interest rates suggested there was no guarantee that this was the best way forward. The timing of its new multi-strategy alternative risk premia product was no coincidence, the firm said. Qblue said its Luxembourg product had been constructed to offer investors “a new building block that truly diversifies the portfolio and at the same time performs independent of whether equity markets are up or down”.During his 11 years as CIO of ATP, Graven Larsen overhauled the now DKK785bn (€105bn) fund’s ‘bonus-reserves’ investment portfolio. While the portfolio’s investments had fallen into just two categories, low risk bonds and return-seeking equities, under Graven Larsen in 2006 it was revamped to focus on five types of risk: equity, credit, nominal interest rate, inflation and commodity.ATP’s investment portfolio construction was further overhauled in 2015-16 under chief executive Carsten Stendevad, creating a fund consisting of four risk factors, or “building blocks”, which was in part inspired by the All-Weather Portfolio devised by Bridgewater founder Ray Dalio.Graven Larsen was most recently CIO and executive vice president of one of Canada’s largest pension funds, the Ontario Teachers’ Pension Plan, from February 2016 to June 2018.As well as Graven Larsen, Qblue’s staff is largely made up of other former ATP staff, including co-founders Fredrik Martinsson (former CIO Investments at ATP), Martin Richter, Thomas Stryger Olsen, Lars Voss Toft and Lars Hougaard Nielsen, as well as Kevin Mitchell, former portfolio manager at Kiski Europe.
The Swedish Riksdag in StockholmMore pension system criticismsThe motion, which drew on criticisms made about the PPM in a recent report from the National Audit Office, said the Swedish Pensions Agency’s discount model did not work as intended.“There are, among other things, shortcomings in the reporting of commission fees while there are indications that fund-of-fund solutions and hidden index funds are used to circumvent the discount model,” the Left Party contended.The motion also compared the system to the default pension option, AP7 Såfa, and found the PPM to be 37% less efficient on average in generating pension capital.In its recent report, the NAO called for greater cost transparency in the PPM. However, this appeal was rejected by the government as the PPM was already undergoing significant reform.The Left Party – which says it stands for “an equal Sweden, for feminism and for the climate” – also called for the government to oversee the cost effectiveness of the PPM marketplace and propose ways to supervise it.Although not a member of the government coalition agreed in January after months of political wrangling, the Left Party has agreed to give limited support to prime minister Stefan Löfven’s two-party coalition. The Pensions Group consists of representatives from the five parties behind the 1994 pensions agreement: the Social Democrats, the Moderates, the Centre Party, the People’s Party and the Christian Democrats. Credit: Jessica Segerberg Ali Esbati (top) and Nooshi Dadgostar (bottom), MPs for Sweden’s Left PartyIn a second motion, submitted by Left Party MP Nooshi Dadgostar on 23 April, the party said the PPM was a mandatory fund savings arrangement and certain groups of savers could therefore be particularly vulnerable.The PPM forms part of the first-pillar state pension system, but investors can choose their investments. Those who do not choose are invested in AP7’s default fund, Såfa.“The significant proportion of the population who in one way or another lack knowledge or interest in financial savings end up at a disadvantage, but still need to take risky decisions about their premium pension,” the party said.“The Left Party does not believe that the premium pension system should be a mandatory system,” it said. “It currently works mainly as a lucrative business model for managers.” Sweden’s Left Party (Vänsterpartiet), which props up the current coalition government, has called for the policy-creating multi-party Pensions Group to be disbanded and for participation in the Premium Pension System (PPM) to become optional.The two proposals form part of two new parliamentary motions, each backed by nine of the party’s MPs in Sweden’s parliament, the Riksdag.In a motion submitted on 6 April, MP Ali Esbati said the party wanted to see the Riksdag regain control over pension policy from the Pensions Group.He said: “The Left Party is strongly critical of the fact that pension issues, which are absolutely crucial for citizens, are handled by a closed group without the possibility of transparency or influence for outsiders.”