The UK government should focus on offering defined benefit (DB) pension funds greater flexibility over the time-consuming launch of collective defined contribution (CDC) schemes, Mercer has said.While admitting that any reform proposals need to be mindful of “placing all the financial risk” on either a company or employees, the consultancy’s head of DC Brian Henderson stressed that any plans to introduce guarantees into DC would come at a cost.“Essentially,” he said, “a good pension is far more about how much more money can be saved and where that money gets invested rather than simply providing expensive guarantees or risk sharing.”Commenting on the Department for Work & Pensions (DWP) consultation paper on the shape of defined ambition (DA) pension schemes – which last year outlined how greater elements of risk-sharing could be introduced into DC pensions – the consultancy called for a focus on simplified DB provision. It backed a previous suggestion by pensions minister Steve Webb that indexation could fall away on any future DB accrual in the wake of reforms to the state pension, and said that the government should introduce a statutory override to allow plan sponsors to introduce it and other changes, including the removal of survivors’ benefits.Glyn Bradley, a consultant at Mercer, added that, while the proposed introduction of CDC is an “appealing ‘third way’ alternative” to existing DB or DC schemes, launching such a pension plan would be a time-consuming undertaking.“A more sensible priority would be to give existing DB schemes more flexibility by addressing some of the current restrictions,” he said.“CDCs are very successful when market conditions and membership are favourable, but overseas experience demonstrates that difficult funding problems can occur when they are least able to cope.”He also noted that some of the “perceived advantages” of CDC could be achieved in the UK if existing legislation were only slightly amended.“The issue is more about trustees and sponsors stepping forward to adopt them,” he said.However, there is little consensus within the industry over CDC.Rival consultancy Aon Hewitt previously argued in favour of collective vehicles, while Barnett Waddingham also suggested the changes would not lead to a “massive” additional legislative burden.
The Pensions Regulator’s new defined benefit (DB) funding code of practice has come into force, providing trustees with an update of its 2006 guidelines.The new code, “Funding Defined Benefits”, was originally published in December 2013 and underwent consultation until February 2014.A final, revised version was published in June.The code updates the regulatory framework for DB trustees and now takes into account the regulator’s new statutory objective – to consider whether scheme recovery plans take into account sponsoring employers’ sustainable growth. It also provides practical guidance on how trustees can comply with legal requirements.Original versions of the Code came under criticism from the industry for being too prescriptive and long-winded.The regulator eventually took heed, splitting the Code into regulatory requirements and guidance.Interim executive director for DB regulation, Geoff Cruickshank, said TPR was keen to understand how trustees and employers used the code, and which aspects needed further work.“We expect trustees and employers to take the new code into account,” he said. “Our case teams have undergone a programme of training to ensure the code is applied consistently between cases with similar facts.”In other news, the battle for bulk annuity consultancy work has intensified as Aon Hewitt and legal firm Eversheds launched a fixed fee buy-in or buyout service for DB schemes.Named Pathway, the package offers schemes pre-negotiated contract terms with bulk annuity insurers, increasing certainty of price and speeding up deal negotiations.In reaction to the launch, consultancy LCP, which advises trustees and sponsors on bulk annuity deals, said it just completed its tenth fixed fee bulk annuity transaction, after launching its service in 2012.Aon Hewitt said Pathway has been designed with insurers to ensure they prioritise cases and commit to shorter turnaround times.LCP said its process was designed to manage key challenges in running bulk annuity transactions, and that it provides certainty on legal and actuarial costs.Partner at LCP, Emma Watkins, said: “One of the key features of the service is that contracts are pre-negotiated with insurers, which gives trustees immediate access to better terms than the insurer’s standard contracts.”Dominic Grimley, principal consultant at Aon Hewitt, said: “In a busy market, it is more important than ever that a firm plan of action and clear objectives are adopted to get the right deal at the right time.“Annuity purchase involves a number of moving parts.”
NIBC is to assesses whether the fund will invest in part of the corporate bonds to be issued.It added that the investment fund is to participate for a maximum of 25% in each loan.NIBC further noted that other institutional investors could also participate in financing the new fund.Regional development companies, as well as players focusing on certain sectors or investing in sustainable projects, can also join the NPEX Ondernemersfonds.NIBC underlined that a listing would raise the status of SMEs, as it would increase their transparency and professionalism.The Dutch Investment Institution (NLII) recently launched two proposals for corporate financing for institutional investors, composed of an investment fund for subordinated loans (ALF) and a corporate loans fund (BLF), also aimed at SMEs.The NLII estimated the financing capacity that would be unlocked over the next three years at €2bn. A spokesman for APG, ABP’s asset manager, said the new fund was ABP’s contribution to local investment in favour of SMEs, and that the expected annual returns on the corporate loans were 6-9%.He added that the NPEX Ondernemingsfonds did not consider itself a competitor to the NLII.“The latter is focusing on larger projects,” he said. “Moreover, there is sufficient demand from SMEs for both funds.”NIBC was largely owned by ABP and the €178bn healthcare pension fund PFZW until 2005, when it was sold to a consortium of investors and financial institutions headed by JC Flowers & Co. ABP, the €373bn Dutch civil service scheme, has committed €25m to a new investment fund for small and medium-sized enterprises (SMEs). The NPEX Ondernemersfonds, launched by SME exchange NPEX and ABP, targets Dutch companies that aim to raise capital by placing corporate bonds through NPEX.Merchant bank NIBC, appointed manager of the NPEX Ondernemersfonds, said this sort of financing would boost SMEs’ growth prospects.“These bonds are to increase the SMEs’ own assets and encourage banks to keep financing companies,” it said.
The 7.4% improvement in deficit was likely down to changes to the pension fund’s underlying assumptions, which saw its discount rate rise from 3.15% to 3.65% over the first half of the year.At the same time, both assumptions underlying the measures of inflation – the consumer and the retail prices index – rose by 0.45 percentage points to 2.25% and 3.25%, respectively.The report added: “The pension operating cost was £122.4m, an increase of £30.3m, or 32.9%, on the prior year costs, predominantly reflecting the substantial decline in the real discount rate used to determine the cost to 0.35% at the beginning of the year from 1.1% at the beginning of the previous year.” UK retailer John Lewis has seen its pension costs rise by £60m (€82m) over the course of the current financial year, despite a 7% drop in its pension deficit.The department store, which operates as a mutual, said its deficit stood at £1.1bn at the beginning of January, down by £92.9m over January 2015.According to its half-yearly report, profit before tax was down by 26% due to the higher pension charges.Charlie Mayfield, the company’s chairman, said the increase in pension charges was caused by “volatility in the market-driven assumptions”.
The PSVaG, Germany’s lifeboat scheme, has set the levy for pension funds at 24 basis points, a significant jump when compared with last year’s rate of 13bps but still below the long-term average of 30bps, calculated from the fund’s inception in 1975.Companies with non-insurance linked pension promises must pay the levy based on their liabilities, although some vehicles, such as Pensionsfonds, are given a discount.The PSVaG attributed the levy hike to an increase in pension payments due to company insolvencies.Payments will amount to nearly €800m this year compared with more than €400m in 2014. Although the overall number of insolvencies continues to fall, the PSVaG noted in a statement that “there were more above-average pensions to be paid”.In total, 94,200 companies with approximately €326bn in liabilities are paying into the PSVaG, which manages just under €5bn in assets.For this year, the PSVaG has opted against splitting the levy into four instalments, made legally possible last year; nor has it set up any advance payment for 2016.The PSVaG declined to comment on government plans to allow employees to opt out of the protection scheme and instead continue with retirement insurance arranged by their companies.Many industry experts believe this would ease the PSVaG’s burden, although the government has yet to provide details of its plans.The PSVaG could also face another challenge if the government introduces industry-wide pension plans, which would increase the volume of assets in the lifeboat scheme significantly.
Philip Shier, senior actuary at Aon Hewitt in Dublin and a veteran of the pensions industry, is to retire from the consultancy at the end of July after more than 33 years of service.Shier, who qualified as an actuary in 1985, will take up a new role with the Society of Actuaries in Ireland following his retirement.Over the course of his career, Shier rose to become a well-respected member of the occupational pensions industry, taking on various roles in professional associations in addition to his work as an actuary for Hewitt Associates, later Aon Hewitt.He is chair of the Actuarial Association of Europe (AAE), having been appointed in September 2015 for a one-year term. He was chairman of the association’s Pensions Committee from 2005 to 2011 and became a member of the committee in 1999.Shier has also played an important role in the pensions industry through his membership of the Occupational Pensions Stakeholder Group (OPSG) of the European Insurance and Occupational Pensions Authority (EIOPA).He was appointed to the OPSG when it was first established, in March 2011, and continued as a member for the OPSG’s second two-and-a-half-year term, which included one year most recently as its chair following the resignation of Benne van Popta last spring.Shier stepped down from the OPSG in March this year, having served the maximum permissible two terms.He is also a member of the Pensions and Employee Benefits Committee of the International Actuarial Association.At Aon Hewitt, he was involved in projects such as a feasibility study of a pan-European pension fund for EU researchers, which is now seeing the light of day in the form of the RESAVER pension scheme.He also advised some major multinationals on the establishment of cross-border pension plans.
He predicted markets would be volatile for at least two years if the UK had to negotiate a new relationship with the EU.“Investors will flee into the safe haven of German bunds,” he added, “which will see interest rates to fall below zero.”Tuch said Aegon had seen signs of “panic” setting in in recent days, with investors cutting risk and dumping peripheral bonds, equities and sterling.In the event of a Brexit decision, Tuch predicted a highly volatile market on Thursday (23 June), followed by a “big bang” on Friday, with equity markets falling by 5-10% and bond yields continuing to drop.He said he also expected the European Central Bank to announce additional measures, with the effects – including widening spreads – becoming evident as soon as the following Monday (27 June).Tuch, however, said he was not yet worried by the possibility of Donald Trump’s becoming the next US president, as the controversial candidate had said “such weird things that the Republicans will advise people not to vote for him”.Also speaking at the Pensioen Pro conference, Diliana Deltcheva, head of emerging market debt at Candriam, said no country would be immune from the effects of a Brexit.Just how the emerging markets view the risks, however, remains unclear, she said, adding that she could not see a clear link between the UK and, for example, China. Aegon Asset Management has said Dutch pension funds would do well to leave their interest hedges in place in case the UK decides to exit the EU in next week’s referendum, scheduled for 23 June. Speaking at the annual conference of Pensioen Pro, IPE’s sister publication in the Netherlands, Hendrik Tuch, head of government bonds and money market funds, warned, however, that “reducing the interest hedge [will also] require them to increase their financial buffers”.Tuch said pension funds should be able to weather the effects of a Brexit over the long term and that they could counter the effects of potentially lower interest rates resulting from a Brexit by increasing their allocations to equities and credit.He added that Aegon had reduced positions in peripheral economies, as well as UK credit, on signs the chances of a Brexit were increasing.
FRR’s net assets amounted to €36bn at the end of 2016, down by €341m from December 2015.This is roughly the same amount of assets that FRR held before a pensions reform in 2010 radically changed its business model by introducing a fixed nominal liability schedule and stopping all cash inflows.Since then, FRR has transferred €12.6bn in annual payments of €2.1bn to Caisse d’Amortissement de la Dette Sociale (CADES), the agency responsible for paying off France’s social security debt.This was largely offset by cumulative net gains of €11.6bn over that period, which meant that its portfolio has only shrunk by €1bn since the beginning of 2011.Its annual performance since then has been 5.4%.FRR said it had assets worth more than 160% of its liabilities, representing a surplus of €14.27bn as at 31 December 2016. This is up €1.17bn from last year.It highlighted that it made €204m of investments in French private assets in 2016, and that it will expand its investments in this area in 2017 as it implements the bulk of a new €2bn allocation.It recently awarded a €600m private debt mandate and will also be allocating €900m to private equity. France’s pension reserve fund gained 4.97% in 2016, driven by its equity, high yield, and emerging market bond investments.Fonds de Réserve pour les Retraites (FRR) splits its overall portfolio in two, a return-seeking portfolio and a hedging, or liability-matching portfolio.The return-seeking portfolio returned 8.2%. FRR said the good performance of its index-tracking investments in this portfolio was the main driver behind the fund’s overall return.The hedging portfolio returned 3.1% in 2016, which FRR attributed to interest rates falling over the course of the year and a reduction in the risk premiums on US dollar-denominated corporate bonds.
Environmental, social and governance (ESG) criteria are also included in the MAQS group’s processes.BNP Paribas said: “The creation of MAQS will help meet the growing needs of investors seeking innovative solutions in an environment of uncertainty and polarising demand between low-cost management such as indexed products, and high value-added products that encompass risk management, such as factor management and customised solutions.”BNY Mellon combines big three US boutiquesBNY Mellon Investment Management is combining its three largest US investment managers to create a single multi-asset manager.The multi-boutique manager is to combine Mellon Capital Management, Standish Mellon Asset Management and The Boston Company Asset Management.The combined business will have more than $560bn (€476bn) in assets under management. This would rank it in the top 40 of IPE’s Top 400 Asset Managers survey.The new business will be headquartered in Boston, Massachusetts and led by chairman and CEO Des Mac Intyre, currently CEO of US Asset Management at BNY Mellon IM.The combination of the three businesses is expected to be completed within 12 months. A unified brand is to be launched later in 2018.The individual companies’ processes and philosophies for their core strategies will remain substantially the same, but over time “will be enhanced via an optimised operational infrastructure and the addition of new analytical tools and research capabilities”.Chief investment officers will be appointed from each business to maintain continuity of the investment process across all strategies, BNY Mellon IM said.Industry open to second wave of disruptionThe asset management industry is vulnerable to a second wave of disruption from technology firms, after a weak response to the first – investor adoption of low-cost index funds – according to Moody’s Investors Services.Some market share had already been ceded to digital entrants, such as “robo-advisers”, and a template for digital disruption already existed in China, the rating agency argued in a report.Four years since being launched for the digital payment system of Alibaba, one of the world’s leading technology firms, Yu’e Bao had become the largest money market fund in the world, Moody’s said. The fund has roughly CNY1.4trn (€180bn) in assets, according to a recent Bloomberg report.“Though this growth has occurred in a digital payment-friendly country, it is likely to foreshadow events elsewhere,” said Stephen Tu, a Moody’s analyst and author of the report. “Large US technology firms are often cited as leading candidates to enter asset management. Amazon, Google, Apple and Facebook have an edge in distribution through their mindshare, lifeshare, datasets, advanced analytics and predictive modelling skills in combination with their ability to target users.”However, as the potential for growth within the asset management industry was much smaller than in other industries, large technology companies would see involvement as complementary to their main businesses, potentially facilitating the collection of even more detailed and differentiated consumer behaviour data and client retention.WisdomTree ramping up European ETP presenceNasdaq-listed exchange-traded product (ETP) provider WisdomTree is to acquire the European operations of ETF Securities, excluding the latter’s exchange-traded fund platform.The deal includes ETF Securities’ European exchange-traded commodity, currency and short-and-leveraged business. This covers $17.6bn of assets spread across 307 products.According to a statement, the acquisition would take WisdomTree’s assets to around $66bn, making it the ninth-largest ETP sponsor and largest global independent ETP provider, with significant presence in both Europe and the US, the two largest ETP markets.The sale is subject to regulatory approval and is anticipated to close towards the end of the first quarter of next year. It is a cash and shares acquisition that valued at $611m.Under the terms of the transaction, ETF Securities would become the largest shareholder in WisdomTree.Jonathan Steinberg, WisdomTree CEO and president, said: “The acquisition will immediately add scale, diversification and profitability to our business in Europe, the second largest ETF market in the world and a growing and strategically important region for us and the entire industry.”Mark Weeks, UK CEO of ETF Securities, said: “This transaction creates a leading independent global ETP provider which is well positioned to compete in the rapidly growing European ETP market.” BNP Paribas Asset Management is combining teams from three of its subsidiaries to create a Multi Asset, Quantitative and Solutions (MAQS) investment group.The move is part of the manager’s efforts to streamline its organisational structure and enhance its range of products. Earlier this year it combined investment teams in a new group for private debt and real assets.The MAQS group combines teams from THEAM, CamGestion and Multi-Asset Solutions. It will have more than €110bn of assets under management.In a statement, BNP Paribas said the group aims to combine quantitative expertise with fundamental research capabilities, with risk management at the core of the investment philosophy.
Achmea, Labour Party, Fidelity, Pareto, Schroders, Pinebridge, Candriam, JP Morgan Asset Management, Baillie Gifford, Hymans Robertson, Link Asset ServicesPareto Asset Management – The €4.5bn Norwegian asset manager has opened a German branch in Frankfurt and appointed Oliver Roll as country head. Roll is a longtime expert on the German and European asset management industry, and has worked as a consultant for companies such as Dr Heissmann, Feri and 4AlphaDrivers and asset managers such as Threadneedle, max.xs and Kleinwort Benson Investors . Lasse Ruud, CEO of Pareto, said the manager received its first inflows from German institutional investors last year and was continuing to see strong interest in its expertise, particularly in the Nordic markets. Frankfurt is Pareto’s second overseas branch after Stockholm. Achmea – The Achmea pension fund has appointed Lenneke Roodenburg as manager of its executive board. She starts mid-February. Roodenburg has worked as an asset-liability management and actuarial adviser at PGGM and Syntrus Achmea, and had management positions. She succeeds Sybrand Nauta, who left on 1 October 2017 and has now started his own consultancy firm, Fidado. Labour Party – The UK’s Labour Party has appointed Jack Dromey as shadow pensions minister. The MP for Birmingham Erdington replaces Alex Cunningham, who stepped down in December. Dromey took up the pensions brief after having been shadow minister for business, energy and industrial strategy.Fidelity – Michael Gibb has been appointed to the newly created role of head of stewardship and sustainable investing. He will oversee the manager’s strategy and policies on engagement, voting, and environmental, social and governance (ESG) integration across its active product range. Gibb recently completed an MBA and before that worked at investment companies including Martin Currie Investment Management, Credit Suisse and Gartmore Investment Managers. He reports to Fidelity’s CIO for equities, Paras Anand.Schroders – The UK-listed asset manager has appointed Elisabeth Ottawa as deputy head of public policy, effective March 2018. She was previously at Raiffeisen Bank International where she was head of the firm’s EU liaison office. She has also worked at Austria’s finance ministry. Ottawa will be based in Brussels and will focus on European and international public policy, Schroders said. She will work with head of public policy Sheila Nicoll, who joined the company in 2014 having previously been director of conduct policy at the Financial Services Authority. PineBridge Investments – The private global asset manager has named Michael Karpik as its chief operating officer. He left State Street Global Advisors last year after 19 years at the firm, latterly as head of Europe, the Middle East and Africa. He will be based in New York and reports to CEO Gregory Ehret.Separately, the firm has also hired Petra Lugones Targarona as head of German business. PineBridge plans to open a new Munich office. Targarona joins from Macquarie Investment Management, where she was head of institutional business for Germany.Candriam Investors Group – Jörg Allenspach has been named executive officer of Candriam Switzerland, with responsibility for the manager’s further expansion in the country, in particular in the German-speaking region. He will succeed Bernard de Halleux, who will retire later this year although remaining a member of the supervisory board. Allenspach was most recently responsible for strategy and business development at BlackRock in Switzerland. Before that he worked for Swiss Re, latterly as head of investor solutions, private equity partners.JP Morgan Asset Management – JPMAM has hired three senior staff for its exchange-traded funds (ETFs) business. Olivier Paquier joins from State Street Global Advisors as head of continental Europe ETF distribution. At State Street he led the company’s office in France and was responsible for ETF distribution across southern Europe.Ivan Durdevic is the firm’s new head of ETF distribution for Switzerland. He joins from Amundi where he was deputy head of ETF and indexing sales for the country. John Harrington has been appointed head of beta and ETF product, to be based in London. He joins from Deutsche Bank where he was responsible for product development.Baillie Gifford – The investment manager has announced five new partners: Matthew Brett, investment manager in the Japanese equity team; James Squires, investment manager in the multi asset team; Amy Atack, director with responsibility for clients in emerging markets strategies; Nick Wood, director with responsibility for US financial intermediary clients; and Evan Delaney, director of business risk and internal audit. Four Baillie Gifford partners will be retiring from the firm at the end of April: Sarah Whitley, head of the Japanese equity team; Stephen Rodger and Ken Barker, both partners within the firm’s fixed income area; and Pete Cooke, partner with responsibility for clients in the long-term global growth strategy. Hymans Robertson – The pensions and benefits consultancy has hired Baljit Khatra as a risk transfer consultant. Khatra was previously at Mercer where he worked on risk transfer transactions in its strategic solutions group.Link Asset Services – Jean-Luc Neyens has joined the rebranded Capita Asset Services in Luxembourg as head of fund solutions, while Cornelius Bechtel has been appointed managing director, corporate services. Neyens was previously chairman of Degroof Petercam Asset Management in Hong Kong, and Bechtel was a partner at accountancy firm BDO Luxembourg. Australia’s Link Group acquired London-headquartered Capita Asset Services from Capita in November. Link Asset Services was recently announced as the operator of the Wales Pension Partnership, a £15bn (€17bn) collaboration of eight Welsh public sector funds.