Speaking in his capacity as managing director of Trustee Decisions, Kavanagh also urged trustees to not follow advisers’ decisions without questioning the advice given.“It should be remembered, however, that a trustee’s job is to mandate and challenge these advisers, not to solely rely on or to be solely led by them,” he said.“Sure, one should seek specialist advice and delegate tasks, but one cannot delegate responsibility.”He also called for trustee education to be expanded, with trustees required to attend 10 hours of further education a year, covering a range of issues from investment and administration to ethics and the effective management of advisers.However, Kavanagh went further and recommended the introduction of an official certificate for qualified trustees, and the requirement that all schemes with more than €2m in assets or 100 members have a professional trustee on their board.“I am saying existing trustees are applying themselves to the task at hand and, again, I have to applaud the existing work of trustees, especially lay trustees,” he said.“But we need to find ways to be more professional in the prudential role.”He added: “We have a wealth of talent of professional advisers in this country. “But we need to ensure we have trustees who are knowledgeable, do not over-rely on advisers, operate with strategic clarity, have effective real-time decision-making procedures, are capable of adapting to change and manage conflict-of-interest issues.“All of this requires courage by trustees, especially in the area of challenging their advisers.” Irish pension funds managing more than €2m should be required to employ a professional trustee, the head of Trustee Decisions has said.Speaking as Ireland’s Pensions Board held the first of its public consultations on the future of defined contribution (DC) regulation, James Kavanagh also warned that a code of governance could have unintended consequences and result in the matter becoming a box-ticking exercise for trustees.Speaking at the event in Dublin earlier this week, Kavanagh – also chair of the Irish Association of Pension Funds’ (IAPF) DC committee – said the association acknowledged the important role played by lay trustees.“That said, the IAPF believes effective trusteeship should be executed with competence, knowledge and understanding and by those individuals who can attest to being informed – and who stay informed – who are pensions literate and are skilled in their prudential duties,” he said.
Finnish mutual pension insurance company Etera has refuted claims it may merge with another Finnish mutual pension insurance company next year.In a statement, the company’s managing director Hannu Tarkkonen said Etera would continue as an independent pension insurance company, despite speculation in the Finnish media to the contrary.Helsingin Sanomat, the largest daily in Finland, reported last week that Etera’s returns and solvency had weakened so markedly over the year to date that it considered solving the situation by merging with Ilmarinen, the second largest mutual pension insurance company in Finland.Allegedly, Fennia Pension and LocalTapiola Pension, which will merge at the end of 2013, had also been interested in merging with Etera. In addition, according to the newspaper, the management fees Etera charges from its customers are insufficient to cover all its operational costs.The newspaper said the firm would, therefore, have to fill in the gap from its investment returns.According to Helsingin Sanomat, Finland’s Financial Supervisory Authority (Fiva) is observing the situation, which many pension professionals consider extremely problematic.Etera currently manages assets worth nearly €5.6bn, and generated a -0.4% return for its investments over the first three quarters of 2013.Ilmarinen manages assets worth nearly €31.5bn, while its investments returned 6.5% over the same period.Etera’s solvency level, 16.2%, is currently the weakest among Finnish mutual pension insurance companies.Ilmarinen’s solvency level stood at 25.8% after the third quarter of this year.The core of Etera’s investment strategy is to diversify risks as much as possible, which has not worked in this year’s market environment, Tarkkonen said.“We were actually prepared for weaker development of the markets,” he said.“Equity markets developed better than we expected because of the actions central banks took.”According to him, although Etera’s solvency level has fallen this year, it is still within the “normal” operational range.Tarkkonen, who will retire next summer added: “The situation [still] enables having normal, full-scale investment operations.”
Submitting a passive claim after a successful class action suit is becoming a fiduciary duty for asset managers and pension funds, experts have argued. Anatoli van der Krans, senior adviser for responsible investment and governance at the €90bn asset manager MN, said: “Such a claim is not only about financial compensation but also about improving corporate governance, which could find its reflection in improved shareholder value.”He was speaking at a congress, held by IPE sister publication IPNederland, about legal discourse in the Dutch pensions sector.Van der Krans’s views were echoed by David de Villiers, senior counsel for Shell Asset Management Company (SAMCo), asset manager for the €21bn pension fund of Shell Netherlands. De Villiers underlined the importance of having an effective class-action programme.In the opinion of the MN adviser, actively submitting a claim was one step further, “as this requires a totally different involvement and expertise”.He said he considered a lawsuit to be an “ultimate remedy”, after voting at shareholder meetings or engaging in dialogue with a company.Pensions expert Peter Kraneveld added: “A lawsuit is an instrument for risk management. It also shows that one is acting for the interest of a pension fund’s participants.”In the opinion of Guus Warringa, legal affairs chief at the €346bn asset manager APG, many pension funds are too passive in taking on companies for damages.He argued that a lawsuit did not require much in the way of resources, and that both the economic and legal risks rested with the lawyers.Jeroen van Kwawegen, a claims lawyer at Bernstein Litowitz Berger & Grossmann, pointed out that, in the US, a judge decides whether a lawyer’s fee is reasonable, and that the institutional client was also entitled to such a check.“And with a ‘no-win, no-pay’ approach, the fee, as a percentage of a successful claim, decreases the larger the amount involved becomes,” he said.Frank Kroes, partner at law firm Baker & McKenzie, said the fee in a no-win, no-pay case could vary between 20% and 35%.During the congress, the attending pensions professionals agreed that the legal discourse in the Dutch pensions sector was increasing through a rising number of legal procedures and growing interest for legal backing.However, the legal experts said there were hardly any signs of an emerging claims culture such as that found in the US.
Investments returned DKK16.1bn last year, up from DKK9.1bn in 2013.In percentage terms, the annual return for members aged 40 rose to 10.5% for 2014, up from 9.3% the year before, and to 10.6% for those aged 65, up from 3.9% last year.PensionDanmark’s total assets rose to DKK171bn at the end of 2014 from DKK152bn a year before, and membership increased to 662,107 from 642,178.However, in its annual report, the pension fund said pension transfers in 2015 were expected to be lower than those seen in 2014 because last year had been affected by special factors.For 2015 and the next few years, it forecast continued moderate growth in regular contributions because it said growth in employment and wage-related costs at those businesses whose members were part of the PensionDanmark scheme was expected to be limited.Meanwhile, pensions and insurance industry association Forsikring & Pension (F&P) warned that a new law requiring 25% of construction land to be used for social housing will hit pension funds’ property investments and disrupt existing projects.The new planning act just adopted by the Danish government could force pension funds and other investors to sell 25% of their construction land for social housing, the association said.The law would mean lower returns on investment in urban development to the detriment of current and future pensioners, it said.Per Bremer Rasmussen, chief executive of F&P, said he had “great respect” for the political desire to have a more mixed residential composition, but he warned this would have a cost.“If 25% of construction stock is now suddenly reserved for public housing, the price will be lower than the market value that was the original condition for the investment,” he said.The association was particularly angry that the law would be applied retroactively, Bremer Rasmussen said.“It is totally unacceptable that the law also applies to current residential projects,” he said.“Pension companies went into projects with full confidence in the existing detailed local planning frameworks.”These local plans would now be overridden by the law, with the demand that there should be a high proportion of social housing, he said.F&P said it had repeatedly objected to the new law.Bremer Rasmussen said that, under the new law, the City of Copenhagen municipality could force investors in the Carlsberg City urban construction project to sell 25% of their construction land to a housing association.Carlsberg City is a big building project in Copenhagen, with 564,000sqm of land on the old Carlsberg brewery site being developed over the next 10-15 years.The project is 20%-owned by pension provider PFA, with labour-market fund PenSam owning 15% of it, insurer Topdanmark holding 15% and Carlsberg and property organisation Realdania holding 25% each.Bremer Rasmussen said the new law cast doubt on whether the government wholeheartedly wanted the insurance and pensions sector to participate in solving Denmark’s growth challenges. Danish labour-market pension fund PensionDanmark saw its business volume grow by 16% in 2014 largely on the back of pension transfers from other providers.Publishing its 2014 annual report, the labour-market pension scheme said contributions climbed to DKK12.5bn (€1.7bn) in 2014, from DKK10.7bn the year before, representing a rise of 16%.The rise in contributions was particularly down to transfers of pension deposits from other companies, in cases where members were consolidating their savings within PensionDanmark, it said.Chief executive Torben Möger Pedersen said: “We have never before achieved such large rises in all the central parameters such as return, contributions and total assets in one year.”
In addition to Borgdorff, Spruijt and Krul, the band consisted of John Kostermans of custodian Kas Bank (guitar), Martens of AGH (vocals), Mariska van der Westen of Pensioen Pro (backing vocals) and Spruijt’s partner Silvia van Dam (vocals), as well as the members of gypsy jazz Trio Spagaat: Steeph Custers, Leen de Heer (saxophone) and Jan Hagens (accordion). Last but not least, the band included Annelies, Dolly and Milly van Markwijk, widow and daughters of John van Markwijk, musician and CIO of metalworkers scheme PME, whose sudden death in 2013 shocked the pensions industry.The band dedicated two songs to him, performed by his surviving wife and daughters.At the event, Feri’s Antje Biber explained to the guests how art and institutional investments had many things in common: both rely on careful composition and both are subject to rules and regulations.“The challenge is to be creative within the framework of rules,” she told her audience.She proceeded to set the right example by performing Bach on the flute, accompanied by Pieter Westland of Blue Sky Group on harpsichord.Delegates then were directed to a room full of easels and paint brushes to try their hand at painting. Participants were encouraged to buy back their own paintings at “fair value”, raising funds for Alzheimer’s research.Judging from the calls for an encore, it seems quite likely The Defined Benefits will reassemble at some point.To be continued! Peter Borgdorff of the Dutch healthcare pension fund PFZW on drums, John Spruijt of metalworkers scheme PMT on bass, Peter Krul of Railway Pension Fund manager SPF Beheer on guitar and Steeph Custers of the construction workers’ scheme on violin.Last week, the Dutch pensions industry proved its musical bona fides with a performance of its very own band, The Defined Benefits.The Defined Benefits played at a fundraiser dedicated to “pensions, music and art” for Alzheimer Netherlands, organised by Antje Biber (Feri), Else Bos (PGGM), Peter Borgdorff, Erik Martens (AGH) and IPE sister publication Pensioen Pro.
This is Prudential’s first deal in 2015, after writing £1.7bn in 2014 to become the third-largest player behind Legal & General (L&G) and Pension Insurance Corporation (PIC).The insurer, known for flirting with the UK bulk annuity market with sporadic business, said earlier this year it would continue to operate with discipline and very selectively, and that its strategy was working well.Andy Reed, director of DB solutions at Prudential, said the insurer had good aspirations in 2015 but stressed it had to be on the right terms.“We do not have a limit or target [for 2015], but it is more about if the opportunity is good for us at that given point in time,” he said.“We like the market, but we write business as it suits us. We’re not in the £3bn-4bn range, and this size of transaction is very suitable.”Reed also said the individual annuities business arm of Prudential, one of the UK’s largest providers, was not influencing the bulk annuity business strategy.The pension scheme and sponsor were advised by consultancy LCP in the latest deal.LCP said the deal was a spike in bulk annuity business in Q2 compared with Q1, joining Lehmans and one other £500m-plus deal.LCP partner Michelle Wright said the deal was also arranged to allow additional annuity policies to be added at a later date on agreed terms.The first quarter of 2015 was dominated by L&G, which wrote £644m, but Prudential and Rothesay Life have now stamped claims on Q2 with larger deals.This year’s reported business for Q1 and announcements in Q2 still lag behind levels seen in 2014, a record year for the UK market.Market participants insured more than £4bn of liabilities by April 2014, compared with £804m this year.By the end of Q2 last year, insurers reached a total of £6.9bn, a feat unlikely to be reached even with the deals announced by Prudential and Rothesay Life.Wright said, despite the 2015 market’s starting in a lumpy fashion, business levels were picking up, with strong demand from UK pension schemes.“[Last year] was characterised by large transactions [ICI (£3.6bn), TRW (£2.5bn) and Total (£1.6bn)], and this year it seemed to be a slower start,” she said. “But activity is picking up.”The record £12bn of deals in 2014 was expected to entice several other insurance companies into the market, particularly after the UK government changed defined contribution (DC) regulations that spelt a reduction in the size of the individual annuity market.UK insurer Scottish Widows announced its intention to enter the bulk space by the third quarter of 2015, a move LCP said would bring “welcomed capacity” to the market and lead to further competitive pricing. The Northern Bank Pension Scheme has secured a £680m (€932m) bulk annuity buy-in with Prudential as the insurer enters the 2015 market with the largest deal thus far.The £1.25bn pension fund secured the buy-in insurance contract to cover the majority of its pensioner members and dependants.Prudential’s win marginally surpasses the £675m deal stuck between Rothesay Life and the UK Lehman Brothers Pension Scheme last month to become the largest transaction of the year.Northern Bank provides retail banking services in Northern Ireland under the trading name of Danske Bank, and its closed defined benefit (DB) scheme supports around 5,000 members, 2,000 of which have just been insured.
The letter, signed by the funds’ respective chairs, also said it hoped to increase its current 4.5% allocation to infrastructure – equivalent to £1.6bn – to its 10% target within 3-5 years.The letter continued that the funds were targeting a 25% reduction in costs, a “significantly ambitious” target that could partially be achieved by moving externally managed equity and bond portfolios in-house in the coming years.“The savings arise predominantly from the increased resource of the pool enabling many alternative asset classes to be accessed in a more cost-effective way,” the letter added.It said that, rather than the three schemes being reliant on funds-of-funds within the private equity and hedge fund space, it would instead opt for co-investments and single strategy funds.The pool’s submission to government added that it would also place greater emphasis on direct real estate and infrastructure investment, although in the case of the direct property mandates, the pool expected them to still be managed externally on an advisory basis.The pool also continued its push for the GMPF’s joint venture with the London Pensions Fund Authority, a £500m infrastructure fund, to become a national vehicle for LGPS investment in the asset class.The venture already enjoys the backing of West Yorkshire and Merseyside, with the two funds expected to each contribute £250m in capital towards by the autumn of 2016.The Northern pool is the largest of eight pools to emerge following attempts by DCLG to increase scale across the LGPS.The collaborations largely aim to pool assets by April 2018, although the London CIV and Local Pensions Partnership are already operational. The UK’s largest local authority pension pool predicts its collaboration will see costs fall by 25%, as the three pension funds abandon fund-of-fund structures in favour of co-investments.The £35bn (€41.9bn) Northern pool – previously known as the Northern Powerhouse pool and backed by the Greater Manchester Pension Fund (GMPF), West Yorkshire Pension Fund and Merseyside Pension Fund – also said it planned a longer-term allocation of 15% to infrastructure, increasing by 10 percentage points the combined funds’ allocation to the asset class.The pledge was contained within the collaboration’s final consultation to the Department for Communities and Local Government, to which local government pension schemes (LGPS) had to outline their pooling proposals by 15 July.“With such a large investment pool composed of partners from across the North, the fund will deliver both the commercial returns required and social value to the regions that each of the funds represent,” a letter attached to the funds’ consultation response said.
The UK’s smallest pension schemes may not be properly assessing their costs, according to the Pensions Regulator (TPR).TPR yesterday launched a thematic review of how small defined contribution (DC) schemes assess their “value for members”, which is set to assess the annual chair’s statements of 100 pension funds.“From our research and experience we believe that many small and micro schemes are failing to meet our expectations by providing a quality assessment of how their charges represent value for members,” said Anthony Raymond, acting executive director of regulatory policy at TPR. Raymond said the regulator was especially concerned about “sub-scale” schemes resulting in “two classes of DC saver – those that benefit from the premium of scale and good governance and administration, and those that do not”. Graham Vidler, director of external affairs at the Pensions and Lifetime Savings Association (PLSA), said: “Assessing value is a critical part of trustees’ duty to the scheme and TPR is right to act on any concerns they may have.”The PLSA has recently called for a “renewed regulatory focus” on trustee standards. The Financial Conduct Authority also highlighted the limited ability of trustees to challenge providers in its Asset Management Market Study earlier this year.TPR is set to report on its findings in the summer of 2018.RPMI Railpen backs music rights fund RPMI Railpen – the £25bn (€28.4bn) pension scheme for the UK’s railway sector – was announced yesterday as the lead investor in a music royalties fund run by Kobalt Capital.The company raised $345m (€298.3m) for the portfolio, and has added leverage to give a final capacity of $600m.It is the second music royalties fund Kobalt has launched, the first having invested more than $350m since 2011.Kobalt provides musicians with a technology platform that allows them to track where their music is used around the world and reclaim royalties. Artists connected to Kobalt include Queens Of The Stone Age, Lady Gaga and LCD Soundsystem, according to the company’s website.Musicians can sell copyright to Kobalt’s funds, transferring royalties to investors.Craig Heron, deputy investment director at RPMI Railpen, said: “This opportunity provides us with just the type of long-term returns that we need to help us meet our mission statement to pay members’ pensions securely, affordably and sustainably.”Broadstone Group in double acquisitionUK employee benefits and pensions consultant Broadstone Group has bought Manchester-based Mitchell Consulting, an actuarial firm, and its sister company 2020 Trustees, an independent trustee group.Grant Stobart, chief executive of Broadstone, said 2020 Trustees would “remain independently managed” following the acquisition. The firm is one of five providers on the Pension Protection Fund’s panel of independent trustees, which help steer schemes through the lifeboat fund’s assessment process.In a statement announcing the acquisitions, Broadstone said Nigel Jones, CEO of Mitchell Consulting, would lead the combined actuarial consulting arm.Jones said: “The acquisition is good news for clients, who will benefit from an expanded network, access to a larger pool of consultants providing expert guidance and solutions, and access to new tools, platforms and support services that will help meet their needs.”
The partnership is part of PenSam’s new strategy for private equity investments within its alternatives portfolio, the fund said.“When we invest together with TIAA directly in co-investments with other funds, we do it in a more cost-effective way than we have done previously through equity funds,” Jørgensen said.PenSam said it had been important in making the decision on a cooperation partner that TIAA had the same basis as it did in relation to investment profile and risks.Jørgensen said that, like PenSam, TIAA existed for its members and that all its profits were returned to customers or invested in developing the business for the benefit of the customers.“Therefore, we have a shared DNA that is about ensuring a good pension scheme for the customers,” he said.Jason Strife, head of private equity and junior debt at TIAA, said PenSam was the ideal partner for TIAA’s private equity platform.“We have one-stop investment interests with a desire to invest in different parts of the capital structure and the opportunities to scale the partnership on a regular basis,” he explained. Danish labour-market pension fund PenSam has signed a co-operation deal with US pension fund Teachers Insurance and Annuity Association of America (TIAA) and its asset management arm Nuveen to invest DKK1.2bn (€161m) in US private equity.PenSam plans to invest the sum alongside TIAA in medium-sized private companies in the US and Canada this year and in 2018.Claus Jørgensen, PenSam’s CIO, said: “At PenSam, we have been looking for an investment partner who has specialist knowledge of the North American market.“TIAA has the right profile and skills where, with more than $200bn [€169.5bn] in alternative investments and its local knowledge can bring us close to the right, interesting investments in the US and Canada.”
Charlotta Dawidowski Sydstrand, AP7According to Charlotta Dawidowski Sydstrand, corporate governance and sustainability strategist at AP7, the Swedish buffer fund had identified that “weaknesses in current climate policy globally pose a risk to the long-term value growth of our pension portfolios”.“At this point in time we find it unacceptable that companies counteract ambitious climate policy, either directly or through their business organisations,” she added.“Lobbying on climate issues should be evaluated, managed and reported on transparently. We are hoping this will become a natural component of companies’ sustainability reporting.” Earlier this year investors used the occasion of a G7 summit to urge governments to do much more to both limit global warming and ensure the world was prepared for the effects of climate change. The 55 companies that AP7 and the Church of England Pensions Board have written to were selected due to their high greenhouse gas emissions and significant role in energy-intensive sectors. They include companies such as Fiat Chrysler, Rio Tinto, and Rolls-Royce.The companies were assessed by InfluenceMap, which monitors lobbying activity by companies, with the worst performers in seven industry sectors set to be the focus of the investors’ engagement. Legal & General Investment Management, the biggest UK-based asset management, and Robeco have also backed the initiative, according to a spokeswoman.The engagement programme was developed in consultation with the Institutional Investors Group on Climate Change (IIGCC), a European forum for collaboration on climate action by investor members with €21trn in assets collectively under management.Driving changeIn a document shared with the targeted companies, AP7 and Church of England Pensions said the programme’s aim was to drive change in corporate lobbying ahead of UN climate negotiations in 2020.Some targeted shareholder resolutions would be considered at companies in key sectors lobbying on climate change, they indicated.“Weaknesses in current climate policy globally pose a risk to the long-term value growth of our pension portfolios”Charlotta Dawidowski Sydstrand, AP7In a statement about the initiative, the investors also referenced the recent special report from the UN Intergovernmental Panel on Climate Change (IPCC).Published three weeks ago, this warned the world was on course for 3°C of global warming and presented the case for limiting global warming to 1.5°C above pre-industrial levels compared with 2°C.Adam Matthews, director of ethics and engagement at the CEPB, said: “As the recent report from the IPCC clearly highlighted, the stakes are high and time is against us. It is therefore right that investors are challenging Europe’s most high-emitting companies to ensure consistency in their lobbying practices.” Two major European pension funds have challenged large companies over lobbying positions that are inconsistent with the goals of the Paris climate deal.Sweden’s SEK608bn (€62bn) AP7 and the £2.3bn (€2.6bn) Church of England Pensions Board (CEPB) have today written to the chairs of 55 European companies to push them to review the lobbying practices being adopted by their trade associations and lobbying organisations.“If these lobbying positions are inconsistent with the goals of the Paris Agreement, we would encourage you to ensure they adopt positions which are in line with these goals,” the letters continued.The investors also urged the companies to be transparent about their own policy positions and how they ensured these were implemented in their direct and indirect lobbying activities.