“Could we go down a Danish-style route, an ATP-style route, where a bit of what you’ve got is guaranteed and a bit of what you’ve got is variable?” he asked.Webb admitted that one of the challenges of such an approach would be the “hefty” solvency requirements associated with any such level of guarantee, but he said existing models could allow for guarantees “at a much more affordable cost”.“Or could we go down a collective DC (CDC) model, which is not certain, but it may have reduced volatility and better average outcomes, depending on how you passed it?” he asked.The minister suggested the retention of DB models, even without “any of the bells and the whistles”, would be his goal.“It will still be a pension that’s linked with what you used to earn,” he said. “For me, that’s the golden standard.”He has previously said the end of contracting out of the state pension removed the rationale for occupational schemes needing to provide indexation protection, and his department has also floated the idea of stripping DB funds of spousal benefits.He also said DA would allow for an element of flexibility.“What we want to do is not prescribe, not set down a law that says ‘there are three ways you can do pension, and here’s what they are’, but to say ‘here’s a set of models, you can choose’,” he said.Webb did not directly reference previous proposals for a DC smoothing fund during his speech, but Pension Protection Fund (PPF) chief executive Alan Rubenstein addressed the issue in his own keynote earlier the same day.“There was for a while talk, as you know, of a DC PPF, and we’ll obviously have to wait for the consultation document,” he said.“But my sense is that has now, as you say, gone on the back burner, and we are really much more talking about the idea of ‘do we want Dutch style-CDC, or do we want Danish-style ATP?’” The UK government’s defined ambition (DA) agenda should see it consider a system similar to Denmark’s ATP, pensions minister Steve Webb has suggested.Offering a glimpse of which ideas a forthcoming paper on DA would examine, he said the Department for Work & Pensions (DWP) had “honed down” the list of proposals over the large number contained within last year’s consultation. The Liberal Democrat minister admitted he was working to a dual deadline, trying to implement change before the next general election in 2015, but also conscious of the potential changes companies could implement, as the end of contracting out of the state pension causes sponsors to reassess their defined benefit (DB) schemes.He said that, due to the prevailing mood that defined contribution (DC) was the future, several proposals allowing “firms to go the extra mile” within the system would be put forward.
Peter Damgaard Jensen, managing director of PKA, said: “This is unique and historic and clearly underlines the fact that, in Denmark, too, PPP projects are getting off the ground.”PKA said it had now invested in five healthcare sector buildings in Denmark, including this project.In March, PKA joined PensionDanmark and Sampension in a PPP deal worth DKK430m to build and operate a new psychiatric hospital in the city of Vejle.The hospital will be built in Skeiby, north of Aarhus, and form part of the New University Hospital (DNU) in Aarhus.PKA will supply financing for the 50,000m2 hospital building, while KPC will act as turnkey contractor and be responsible for construction, while Wicotec will operate the hospital for a 25-year term.Construction is set to start at the beginning of 2016, and the hospital is expected to be ready for use three years later.Arkitema is the architect for the project ,and the consulting engineer is Grontmij. Danish pensions administrator PKA is investing DKK1.3bn (€174m) in a new psychiatric hospital in Aarhus in the biggest public-private partnership (project) hospital project in Denmark so far.PKA, which manages five labour-market pension funds in the social and healthcare sectors, will finance the project in conjunction with KPC and Wicotec.The consortium of the three partners was chosen by the central Jutland municipality Region Midtjylland to run the hospital project, PKA said.With financing of DKK1.3bn, the PPP will be the biggest of its kind so far in Denmark, PKA said.
The three factors are generally exposed to corporate bonds, global sovereign bonds and inflation-linked bonds, respectively.Now Pensions said the return figure was well above its ‘cash +3%’ benchmark and the return from holding a basic 60% equity/40% UK Gilt portfolio.The provider is wholly owned by Danish pensions organisation ATP and operates a single investment fund for all of its 300,000-plus members.It runs investments through the DKK641bn (€86bn) fund’s in-house investment team in Denmark.It said it implemented a correlation control mechanism in the early part of the year to protect the portfolio when asset performance became overly correlated.Using a bespoke diversification measure, where 0 signifies absolute correlation and 1 no correlation, the manager adjusts its portfolio to stop unexpectedly correlated assets from bringing down overall performance.When the measure falls below 0.45, it immediately re-distributes poorly performing assets to the top-performing classes, and it does not shift back to tactical holding levels until the measure rises above 0.5.It used the mechanism six times up until the end of June, which chief executive, Morten Nilsson, described as more frequent than expected.“It has been a funny 12 months, with very atypical returns,” he told IPE. “It is still not a healthy world, and the correlation control usage has been more frequent than you would expect in a normal environment.”The manager also implemented portfolio risk controls, which automatically de-risk investments in periods of falling performance.Now Pensions said, for every 2% drop in overall fund value over a three-month period, the investment strategy will de-risk by 20%.As a result, a sudden 10% fall in value will see the entire fund de-risked and moved into cash and cash equivalents.Nilsson said the single investment fund, unique in the UK, allowed the pensions manager to implement such mechanisms into its investment strategies.“The new investment structures put in place are very difficult to do on an individual basis,” he said.“You can operate it across a single fund, but if you offer fund choices, it is difficult to get members to diversify the portfolio and manage risk efficiently, as there are not individual tools available.”In July, the UK master trust announced it was overhauling its at-retirement investment strategy and would shift member assets into cash, as it expected members to use changes to legislation and withdraw pots entirely in cash.However, Nilsson said Now would evaluate its strategy as pot sizes continued to grow and further innovations in at-retirement strategies were brought to market. The diversified growth fund of the UK master trust Now Pensions saw investment returns hit 14.2% for the 12 months to the end of June 2014, as the manager added new features to mitigate correlation risks.The fund, which is on track to hit £50m (€62.4m) and operates on a risk-allocation basis over asset allocation, said strong returns were helped by final quarter performance.The target 35% exposure to equity risk returned 4.3% in the three months from March, while its 10% exposure to commodity risk returned 6.6%.Other risk factors – credit, rates and inflation – all performed positively, adding to the eventual 14.2% investment return over the year.
Pension funds are increasingly looking into the hedge interest rate risk but will not rush to adjust cover despite record-low rates, Dutch consultants have suggested.According to Martijn Euverman, actuary and partner at consultancy Sprenkels & Verschuren, a possible reduction of the level of hedging is on top of the agenda of schemes’ boards.“Hedging against falling interest rates has been a good strategy during the past years, but rates have come down so far that the risk of a further drop is limited now,” he told IPE’s sister publication PensioenPro.“And with the current low interest levels, solvency requirements for pension funds are lower, allowing them to take more interest risk,” he argued. “Moreover, rising interest rates would have a negative impact on returns.” However, Edward Krijgsman, investment consultant and team leader at Mercer, noted only a few clients had decided to implement a limited reduction in hedging, and based this on earlier decisions.“We observe pension funds want to discuss this with their [stakeholders] about risk attitudes as prescribed by the new financial assessment framework (FTK),” he said.“In addition, while rates are still decreasing, pension funds also seem to be waiting for clarity about the effect of the ECB’s bonds purchasing programme on interest rates.”In Krijgsman’s opinion, many pension funds are not in the position to reduce their interest hedge anyway.“If their coverage ratio is low, reducing their hedge would mean increasing the risk for liabilities, unless they reduce risk elsewhere in their portfolio,” he explained.Mike Pernot, actuary at consultancy Aon Hewitt also found pension funds did not have concrete plans to decrease their interest rate hedge.“Ten years ago, we thought that an interest level of 3.7% was a historic low, and last year we thought that interest rates couldn’t drop any further,” he said, explaining schemes reluctance.Pernot said he expected that pension funds first wanted to look at the interest hedge as part of a new asset-liability management study and feasibility check, following the new FTK.“Moreover, pension funds with a reserve shortfall are only allowed to change their risk profile once, while schemes with a funding shortfall cannot adjust their risk exposure at all,” he added.The comments of the consultancies came after Dutch pension funds reported record results over 2014, which were mainly boosted by an extensive interest hedge through government bonds and/or interest swaps.The €17.5bn pension fund for the retailsector (Detailhandel) said it returned 34.3%, with 20.3 percentage points attributable to its full interest hedge.However, despite this spectacular result, its funding had only increased 8.5 percentage points to 116.7%, as liabilities had also risen significantly in the wake of dropping interest rates.The industry-wide scheme for private road transport (Vervoer) reported a result of 27.6%, following an interest hedge of 85%. However, its funding rose no more than 1.6 percentage point to 111.5%.Recently, the €25bn pension fund of ING said that it had made a 32.4% profit last year, largely thanks to a full hedge of its liabilities.Read about how other Dutch and European pension funds have fared over the course of 2014
Jacques d’Estais, BNP Paribas Group deputy COO, thanked Marchessaux for his work at the investment manager over the past six years.“I have every confidence in Frédéric’s ability to reinforce our range of investment solutions for institutional clients, distributors and individual customers in what is a highly strategic business for the BNP Paribas Group,” he said.Marchessaux was also previously head of the company’s institutional business line, a role that was handed to David Kiddie last year.Janbon’s promotion follows on from the appointment of a new head of equity derivatives strategy at BNP Paribas Corporate and Institutional Banking.Edmund Shing will be responsible for strengthening the bank’s equity derivatives strategy by developing trade ideas for clients, focusing on derivatives, markets and cross-asset research. Frédéric Janbon is to replace Philippe Marchessaux as chief executive of BNP Paribas Investment Partners.Marchessaux, who oversaw the integration of ABN Amro Asset Management and the investment management business of Fortis into BNP Paribas, is to remain with the company in as-yet-unannounced role.Janbon – who has more than 25 years of experience, including within the derivatives and options market and the interest rate teams within the French Bank – assumed his new role this week.He was named global head of fixed income in 2005, a position he held until last year.
Since selling the portfolio, PFA has only held a very few residential properties, Bruhn said.“Now we have reached the point where we starting to find housing investment interesting again,” he said.“The market is more mature, and there are some trends in the demand for housing that make it attractive to be a housing landlord again.”The property division of the DKK552bn pensions provider has started the process of identifying projects and the type of residential property in which it will invest.“The segment we are mainly looking at is modern family homes to suit, for example, a carpenter and an accounts assistant,” he said.He said there was a lack of quality housing that Danes on ordinary incomes could afford to live in, adding that PFA hoped to meet this demand and also look at housing for young people and the elderly.PFA plans to look particularly at urban areas where the population is growing, both in the Greater Copenhagen region and the provinces.Bruhn said it was rental properties rather than owner-occupied housing that now interested PFA.“We already have a large exposure to home ownership through our investment in Carlsberg City,” he said.This time around, PFA will outsource the day-to-day management of its residential properties – a change from the last time it had such investments, when it did the administration in-house.“We must stay focused and spend our energy on what we do best, and that is investment,” he said.The new investment will be aimed at providing PFA with a stable income over time.“We see housing as a kind of complement to parts of our bond investments at PFA,” said Bruhn.He added that, because it was clear it would be difficult to get the same return on bonds as had been achieved in the past, it was necessary to look at alternatives.“In this context, residential properties for rent can be an investment like a bond that provide a stable long-term return,” he said.He said residential would also create more balance in the property portfolio.“If we look at our Danish property investments, we have a very heavy overweight in office properties,” he said.Although PFA has been very pleased with this sector bias, because it has generated a good return, residential property has a different risk profile from office, he said. Denmark’s largest commercial pensions company PFA has announced it is going back into the residential lettings sector, having sold its portfolio of this asset type back in 2006 at the top of the market.It now plans to plough between DKK2bn (€270m) and DKK4bn into residential property over the next few years.Michael Bruhn, director of PFA’s property division PFA Ejendomme, said: “As things stand right now, the stage is set for us to have residential property of about DKK2bn-4bn in our portfolio in the future.”Back in 2006, PFA sold its residential portfolio – comprising 43 properties, including 2,202 rental apartments in Denmark’s largest cities – to a consortium including Danish real estate firm CenterPlan and Deutsche Bank’s RREEF.
APG Asset Management, PIMCO, Aberdeen Asset Management, State Street Global Advisors, Barclays Wealth and Investment Management, Principles for Responsible Investment, Carnstone Partners, Aviva Investors, Sarasin & PartnersAPG Asset Management – Ronald Wuijster, chief client officer, is to combine his current role with that of CIO at APG AM. Wuijster takes over from Paul Spijkers, who will become president of APG US. Both will continue to report to Eduard van Gelderen, chief executive at APG Asset Management NV.PIMCO – Kristina Najjar-Wahlgren has been appointed as a senior vice-president, focusing on business development in the Nordic region. Her previous industry experience includes almost 10 years as head of business development for the Nordic region at Aberdeen Asset Management. She started her career at Capital Trust Group, a private equity, real estate and corporate finance advisory firm.State Street Global Advisors – Malcom Smith has been appointed to the newly created role of global SPDR COO. Based in London, he will be responsible for leading all aspects of the operating infrastructure for the global SPDR ETF business. Prior to joining State Street Global Advisors, Smith was interim global COO in the Global Investments and Solutions division at Barclays Wealth and Investment Management. Principles for Responsible Investment – PRI has created the position of COO, appointing Peter de Graaf to the role. A Dutch national, de Graaf joins from London-based management consultancy Carnstone Partners LLP, where he spent the last seven years as a senior partner. De Graaf will be based in London and report directly to Fiona Reynolds, PRI’s managing director. He starts on 1 December.Aviva Investors – Max Burns has been appointed as a senior research analyst for industrials. He joins from Sarasin & Partners, where he held the position of global thematic analyst, with responsibility for global industrials, global autos and global energy.Generali Investments – Gabriele Alberici has been appointed to the sales team. He joins from UBS Wealth Management, where he spent 13 years, first as a senior portfolio manager and then as head of the product specialists team in charge of managing Italian ultra high net worth client portfolios.
The insurance industry in particular had tried to get the paragraph on the explicit ban of any form of guarantees in the new vehicles deleted from the final draft.But the government stuck to its initial proposal.Stefan Oecking, pension expert at Mercer Germany commented on this decision: “Although guarantees would have probably increased the acceptance of a pure defined contribution model it is understandable in the current market environment not to allow them in the new model.”He confirmed the government had “mostly not considered any of the proposals made by the industry and the social partners during the consultation phase”.Similarly, Michael Karst, head of legal in Willis Towers Watson’s German pensions department, criticised the final draft: “Especially regarding known weaknesses of the existing occupational pension system, which were mentioned in several comments, there was practically no movement by the government.”He added: “Therefore this is actually not a strengthening of occupational pensions.”The name of the law literally translates as “occupational pensions strengthening law”.The final draft has five more pages than the one presented for consultation on 4 November, which can mostly be attributed to small technical changes.The only one of these changes that both consultancies welcomed in their statements is an increase in the tax-free threshold for employer contributions to second pillar plans.In the initial draft the current limit of 4% of the salary base that counts towards social security contributions (“Beitragsbemessungsgrenze”) was to be increased to 7%. In the final draft it is now 8%.Some left-wing parties have already announced that they plan to start a debate in parliament about how companies that are not part of a collective bargaining agreement (“Tarifvertrag”) can participate in the new pension vehicles.At the moment these are only open to companies that are party to a collective bargaining agreement. These agreements exist for different industries. The German government has decided against most of the amendments that were proposed for the new second pillar reform law during an extensive consultation phase with considerable input from the German pension industry and other stakeholders. The new “Betriebsrentenstärkungsgesetz” (final draft in German), which now has an unofficial abbreviation “BRSG”, was presented to parliament on Wednesday.Industry representatives are still hoping for amendments in this phase of the legislative process given that the government decided to ignore most of their requests for changes to the bill.The law provides for a new form of pension fund, and with it a pure defined contribution system without any guarantees.
The Oxford Endowment Fund (OEF) reported a 16.4% investment return for the 2016 calendar year due in part to a flexible currency strategy.The £2.34bn pooled fund run on behalf of Oxford University and a number of individual colleges more than doubled its 2015 investment return of 7.6%. Over five years the endowment returned 11.8% a year on average.OEF said that the most significant risk for UK investors last year was the country’s referendum on its EU membership, so it planned clear practical outcomes for either result.OEF said: “We came to the conclusion that in the event of an ‘out’ vote, sterling would be the release valve and hence moved our currency exposure to the lower end of its permitted sterling range of 40-70%. “Following the result, we moved quickly to add capital to public markets which fell significantly, using our position as long-term investors to take advantage of a market overwhelmed by short-term fear.”As of the end of December 2016, 44.1% of the portfolio was held in public equities, with 24.5% in private equity, 10.4% in credit and 6.5% in property. While property, bonds and cash holdings (20% in total) were all held within the UK, 33% of assets were in North America, a further 13% in the UK, 15% in emerging markets, 11% in Europe (excluding the UK), and 8% in Japan and Asia-Pacific.There was significant exposure to investments related to innovation across a range of sectors such as technology, consumer products and pharmaceutical research in both public and private equity.OEF said it was also pursuing the theme of domestic growth drivers in emerging markets via publicly quoted companies, and in “exciting” niche private strategies.In credit strategies, a significant amount of capital was being used to fund growth and structural change in markets such as India and China.OEF has also started building a portfolio of UK commercial and residential properties to complement its holdings in strategic land and rural estates. At end-2016, it realised some value in its rural holdings through the sale of the Nuneham Courtenay Estate, publicly marketed at £22m – although the end sale value was not disclosed.Together with the £460m Oxford Capital Fund, which provides expendable capital over the medium term (typically for building projects), OEF is run by Oxford University Endowment Management, a wholly owned subsidiary of the university. OEF’s investment objective is to grow its capital by an average of 5% a year in real terms, at a lower volatility than would be experienced by investing solely in the public equity markets.This means a focus on equity investments, using property and credit as diversified sources of return.
One of Denmark’s biggest pension funds has banked a 100% return on a range of Asian renewable energy investments.Danish labour-market pension fund Industriens Pension said it had doubled its money on a number of assets it bought between 2012 and 2015.The DKK163bn (€21.9bn) fund said sales of solar and wind energy investments in Japan, India, Thailand and the Philippines brought in DKK1.2bn.Japan’s shift to solar energy in the wake of the 2011 Fukushima nuclear accident had contributed to the investment gains, boosting returns on a large portfolio of solar parks in which the pension fund had invested. Jan Østergaard, Industriens’ head of unlisted investments, said: “The entire Japanese energy supply is undergoing rapid change, and our Japanese energy investments have yielded a great return.“Solar cells have played a significant role in Japan’s desire to invest more in renewable energy sources following the Fukushima accident.”The assets were purchased mainly via co-investments with specialist infrastructure funds.Besides the Japanese portfolio, Industriens said it had also invested heavily in India’s energy supply.In collaboration with funds run by specialist managers Actis and Equis, the pension fund said it had set up two portfolios of wind and solar power plants covering the electricity consumption of 1.3m Indian households.In all of these projects, the capital invested was used to develop and operate new renewable energy assets that had been sold at big profits, according to Industriens.“The energy investments in the Far East have delivered the goods in that respect and of course we are also happy to have been able to contribute to the conversion to renewable energy in the region,” Østergaard said.Industriens said it expected to realise more profits from its renewable energy investments in developing countries in the next few months, with sales bringing in at least half a billion kroner – also marking gains of more than 100%.At the same time, the fund said it was investing in new projects in cooperation with specialist infrastructure funds and local partners.Renewable energy investments form part of Industriens Pension’s overall infrastructure portfolio, which has around DKK17bn of assets.