Month: September 2020

Brussels must revise rules for long-term savings, think tank says

first_imgThe solution to poor returns on pension savings is simple – create a pan-European fund to facilitate savings and investments based on long-term results, according to Karel Lannoo, president of the Brussels-based think tank Centre for European Policy Studies (CEPS).At a press conference in Paris organised by Carmignac Gestion, Lannoo told IPE the European Commission would need to revise its proposals on long-term legislation.He went on to say that the protection of the interests of private savers for their future pensions required four elements.These, according to the results of a study sponsored by Carmignac in September 2012, require the harmonisation of markets to enable access to long-term products, the creation of a “portable” European product and the easing of investment in illiquid infrastructure investments across Europe. Lannoo told the press conference of the dismal returns being achieved by third-pillar pension funds.He slated the present status quo, referring to deficiencies observed in terms of governance, liquidity profile, asset allocation, investment practices, risk management and communication.He also noted that the study, ‘Promouvoir l’épargne européenne et long-term’, highlighted that, at present, the debate was “confused”.What is needed, according to Lannoo, is a fund structure that ensures transparency and allows for efficient scale and the optimal bundling of services.While any development would be aimed primarily at individual savers, he told IPE, it could also be supported by funds managers holding occupational pension investments, on a fund-of-fund basis.In an earlier statement, Carmignac emphasised the need for retirement savings that would stimulate capital markets as a driver for growth in Europe.Lannoo said at the conference that long-term funds should achieve 2-3% in returns, before inflation.He added that the study was now being considered by the European Commission, and had so far been received warmly be senior officials.last_img read more

European Court throws out UK challenge to financial transaction tax

first_imgThe European Court of Justice (ECJ) has dismissed a case brought by the UK government challenging the 11 countries looking to implement the financial transaction tax (FTT).The UK took the case to Europe’s highest court after arguing that the implementation of the tax, which will not be levied within the UK, would still affect the City of London’s activities.Eleven countries, led by Germany and France, have been pushing for the FTT, also known as the ‘Tobin Tax’, which is being promoted by the European Commission and Parliament.The UK used its veto on tax regulation in the European Union, as the 11 supporters of the tax, known as the EU11, formed an enhanced cooperation agreement allowing implementation in their respective economies. The UK then went to the ECJ looking to annul the European Council’s decision to allow the enhanced cooperation agreement, over fears of an impact on investments in London.However, the ECJ today dismissed the case, arguing that to annul the Council’s move would be irrelevant, as all it allowed was the cooperation.It added that the impact of the tax could not be understood until details were created. “[The case] does not contain any substantive element on the FTT itself,” the court said.“The contested decision contains no provision on the issue of expenditure linked to the implementation of enhanced cooperation. That issue can, therefore, not be examined before the introduction of the FTT.“That being the case, the Court considers that the two arguments put forward by the UK are directed at elements of a potential FTT and not at the authorisation to establish enhanced cooperation, and consequently those arguments must be rejected, and the action must be dismissed.”The UK Treasury said that despite the case’s dismissal, it could still challenge the final proposal for the FTT.However, it runs the risk of not being able to do so without this initial challenge. A UK government spokesman said: “The government is determined to continue to ensure the interests of countries outside the single currency but inside the single market are properly protected as the euro area continues to integrate.”Responding to the decision, a spokesman for the European Commission said it was always confident its case was “legally sound” and gave legitimacy to the EU11.“The Court’s decision gives full legitimacy for the decision to allow 11 member states to proceed with the FTT,” she said.“We carried out a thorough analysis to ensure all the conditions were met [for the cooperation agreement], among which are no negative impact on the rights of non-participating member states.“We have already confirmed the UK would not be negatively affected by a common FTT.”The UK’s National Association of Pension Funds argued that the FTT was ”not the best way to reduce excessive risks or tackle bad behaviour in the markets”.The organisation’s policy lead for EU and international matters, James Walsh, added that the UK government was right to challenge the legality of the proposed tax.He added: “The ECJ is not saying the UK’s challenge is wrong, only that it is premature because the details of the tax are not year clear.  By challenging the FTT’s legality now, the UK Government has protected its right to make a more detailed challenge later, once the full proposal is available.”The FTT has been a hotly contested issue in recent months, with the Commission and the EU11 frustrated by delays to the formation of the tax through blockages.European tax commissioner Algirdas Šemeta, in a speech earlier this year, urged Parliament to push on with the tax and fight interventions from “vested interest groups”.last_img read more

Texas Teachers targets co-investments with new London office

first_imgVaughn Brock, former director of special projects for investment management, will run the office.Brock has overseen energy and natural resources for the fund.Executive director Brian Guthrie said the pension fund’s presence in London would be small, with a staff of just three.But he added that Texas Teachers was “ready to hit the ground running to identify new investment opportunities in real time”.“By opening a London office,” he said, “we will redeploy existing resources so they are closer to where the action is.“This will also help reduce unnecessary travel back and forth from Austin.”Two staff members will be relocated from Austin, with one additional European investment professional in London.Board chairman David Kelly said: “We are confident our new London office will give [us] a strategic advantage in terms of identifying investment opportunities in the UK and Europe that can deliver greater returns at a lower cost to our members.”Texas Teachers said it looked at London as part of an initiative led by deputy CIO Jerry Albright. The Teacher Retirement System of Texas is planning to open an office in London as part of its increasing focus on co-investments.The US pension fund said the office, which it expects to open by November, would be its first outside the US.Texas Teachers said it hoped to increase its access to investment opportunities in Europe and the UK, particularly through co-investments, as well as improve its knowledge of the markets.Infrastructure and real estate are likely to form part of the new office’s remit. last_img read more

North Yorkshire Pension Fund to join East Riding LGPS pool

first_imgThe move comes after the £1.6bn Lincolnshire Pension Fund agreed in early January to join as a founding investor and, as IPE reported in December, the £1.6bn Warwickshire local government pension scheme (LGPS) said it would submit a joint proposal with the other local authorities.The discussions come ahead of the Department for Communities and Local Government’s (DCLG) initial 19 February deadline for English and Welsh LGPS to lay out proposals for a half dozen asset pools.Warwickshire has only agreed to back Border to Coast Pensions for the first consultation being conducted by the DCLG, and said it could still join a different pool ahead of the second consultation set to finalise pooling arrangements.Emerging asset poolsOther collaborations to emerge so far include a so-called Northern Powerhouse pool, named after the UK government’s policy to reinvigorate Northern England, that has seen discussions between England’s largest LGPS, the Greater Manchester Pension Fund, West Yorkshire and Merseyside, create a partnership worth an estimated £40bn.Eight other funds, predominantly in the Midlands, have joined with the West Midlands Pension Fund to pool £35bn in assets, and nine funds worth £19bn are in talks to form a South West England pool.Talks among eight funds in the South East, including Norfolk Pension Fund, are set to create a £26bn asset pool, and the eight funds in Wales are also expected to submit a joint proposal.Including the already launched London CIV and the previously announced partnership between the London Pensions Fund Authority and Lancashire County Pension Fund, this would bring the number of pooling vehicles to eight.Because no other funds have publicly declared their support for the £10bn LPFA/Lancashire partnership, however, it is unclear whether it would gain approval from the DCLG, falling well short of the £25bn asset target imposed.After the London CIV, which has invested in a number of equity sub-funds on behalf of members, it is the most advanced of the partnerships, last year naming Michael O’Higgins as its chairman. According to figures compiled by the LGPS Scheme Advisory Board, 81 funds have either declared their intention or are close to declaring their intention, leaving only eight schemes yet to decide. The South West pool is set to be joined by two further schemes, bringing membership to 11, and Border to Coast Pensions is expected to see membership grow to eight, or £25bn in assets, according to the board. North Yorkshire Pension Fund is backing the asset pool being launched by East Riding, boosting the number of participating schemes to six.The £2.3bn (€3.1bn) fund decided late last week it would join the East Riding, Surrey and Cumbria asset pool – christened Border to Coast Pensions – which, since launching in November, has attracted the support of two further funds.Gary Fielding, North Yorkshire County Council’s corporate director of strategic resources, recommended that the council pension committee support “in principle” the idea of joining the asset pool.A spokesman for the council confirmed the committee had followed Fielding’s recommendation.last_img read more

Cometa shifts to active management, tenders up to 14 mandates

first_imgFondo Pensione Cometa – Italy’s biggest industry-wide pension fund, with €9.6bn in assets – has announced a major investment shift in which it is taking an active approach for most of its assets and tendering up to 14 mandates.The fund said that, apart from getting the best return for its members, it was also important the assets be managed along responsible investment lines and contribute to Italy’s development.Annamaria Trovò, president of the fund, said: “The role of the Cometa fund has always been to invest the assets entrusted to us by our members in the best way to guarantee them the greatest pension cover.”But at the same time, she said, the fund believes it should not limit itself to this but rather become a guide in the definition of responsible investment parameters, while also contributing the the development of the country. The Cometa pension fund, which has 402,000 members and covers the engineering and related sectors, said it would publish details of the mandates in the first few days of April.Applicants will then have 30 days from that date to submit their bids.The mandates will be for €8.3bn of Cometa’s €9.6bn of overall assets, and involve the management of assets in three portfolios: monetary plus, income and growth.The only assets not included in the tender are those backing the two guaranteed pension portfolios, a spokesman said.Up to now, the three portfolios in the tender have been managed using a mix of passive and active investment, but the mandates to be offered will all be for active management.In an interview in Italian newspaper Il Sole 24 Ore, shown on Cometa’s website, Trovò said: “We are moving from investing according to a benchmark to active investment with controlled risk.“We have discussed this at length in the council, and, in the light of current markets, we have come to the conclusion the moment has come to change.”The mandates will run for five years.Within the monetary plus portfolio, a minimum of two and maximum of three bond-type mandates will be granted, with this portfolio underpinning pension savings for members close to retirement.At least four – but as many as eight – multi-asset total return mandates will be granted within the income portfolio, which aims to provide a yield in line with the TFR (trattamento di fine rapporto, or severance pay).Within the growth portfolio, Cometa said it envisaged granting at least two and at most three active multi-asset mandates with controlled risk.This portfolio targets pension scheme members with a risk/return profile and time horizon suited to profiting from the higher volatility of these instruments, the pension fund said.last_img read more

Private assets generated one-third of ATP’s 2016 gains

first_imgDenmark’s giant labour market supplementary pension fund ATP posted a 15% return on its investment portfolio in 2016, with almost a third of the return coming from the strong performance of just two of its private equity investments.However, the fund made an overall loss of DKK649m (€87.2m) in 2016, largely due to hedging losses and the fact it added an extra DKK9.9bn to its coverage of guaranteed pensions to account for longer average lifespans seen in the country’s population.ATP’s new chief executive Christian Hyldahl said: “2016 was a satisfactory year for ATP – and for our members.”Even though it had been a turbulent year, he said, ATP had nevertheless managed to produce a good investment return. The 15% gain compared to its 2015 return of 17.2%. “The results have enabled ATP to further prolong the lifelong pension guarantees, as the life expectancy of the Danish population is increasing more than expected,” Hyldahl said.Hyldahl started his new job at the helm of ATP at the beginning of January following Carsten Stendevad’s departure.The pension fund singled out private equity and corporate bonds as having made particularly positive contributions to the investment return, producing profits of DKK6.6bn and DKK3.8bn, respectively, towards the overall DKK15.3bn investment portfolio gain.During the year, ATP said it made a profit of around DKK5bn on just two private equity investments — DONG Energy and payments firm Nets.“Real estate, bonds, domestic listed stocks, commodities, and infrastructure also contributed positively to the return,” it said.However, within the investment portfolio, the statutory pension fund’s long-term hedging strategy against inflation increases had been the largest detractor from returns, suffering a DKK1.2bn loss, it said.ATP divides its assets — which amounted to DKK759bn at the end of December, up from DKK705bn a year before — into a large hedging portfolio, which backs the pension guarantees it gives, and the smaller DKK100.5bn investment portfolio. Returns achieved on ATP’s investment portfolio are not directly comparable with those of most pension funds because of the leveraging effect from the hedging portfolio’s assets.ATP’s larger-scale hedging activity — its hedging portfolio to back pension guarantees — dealt a DKK4.1bn loss last year, mainly because of the effect of a break in the yield curve the fund uses to discount pension liabilities. This break in the curve results from the change ATP made three years ago in the way its guarantees are structured, which was aimed at lessening its sensitivity to prevailing interest rates and boosting its investment flexibility.ATP fixed the interest rate on the discount curve at 3% after the 40-year mark, using market rates before this point.Before the yield curve break, the hedging activity loss was only DKK100m for 2016, it said.Falling interest rates over the course of 2016 inflated the value of ATP’s guaranteed pensions significantly to DKK659bn, with its liabilities increasing correspondingly, the fund said.last_img read more

Joseph Mariathasan: Green shoots for European ABS?

first_imgLast week however, saw a major development that at least attempts to create a stimulus for European securitisation. The European Parliament, the Council and the Commission agreed on a package that set out criteria for “simple, transparent, and standardised securitisation” (STS).The parties are hoping that a swift implementation of the securitisation package could unlock up to €150bn of additional funding for the real economy. The deal is seen as one of the cornerstones of the Capital Markets Union (CMU), the Juncker Commission’s pivotal project to build a single market for capital in the EU. The intention is to aid the transfer of risk from the banking sector, as securitisation enables banks to transfer the risk of some exposures to other institutions or long-term investors, such as insurance companies and asset managers. This would allow banks to free the capital they set aside to cover for risks of those exposures and hence allow them to generate new lending to households and small businesses. The STS designation attempts to solve a key issue for institutional investors such as pension funds and insurance companies: how to differentiate the more questionable deals that may have complex risks hidden in them from the straightforward stuff? For the more questionable stuff, the capital charge should be punitive, but the problem is how do you differentiate? How do you define what is good? The STS designation provides that seal of approval.As the EU Commission is keen to emphasise, the new legal framework bears no relation to the securitisation of sub-prime mortgages created in the US that contributed to the financial crisis. They are anxious to ensure that opaque and complex sub-prime instruments are not bought unwittingly by unsophisticated institutional investors.This (alongside a business strategy by financial firms of originating securitisations purely to distribute the whole product to third parties) was arguably a key factor in the global financial crash. By imposing high risk retentions on issuing banks together with a badge of comfort in the STS designation, regulators hope to avoid a repeat of the excesses seen in the US securitisation markets pre-2007.European ABS participants have been frustrated by the slow progress in reopening these markets. European ABS never suffered from the losses seen in the US and, to that extent, market participants believe EU authorities have overreacted.Global risk retention rules had suggested that sponsors/originators should retain a minimum of 5% risk exposure to align interests with investors. The European Parliament, however, had decided to increase this to 20% for all European deals. Such a figure would have dramatically reduced the efficiency of ABS as a funding tool relative to alternatives such as covered bonds.It now looks as though agreement has been made to adhere to global standards, at least in this respect. However, the new regulations restrict participation in EU markets only to EU regulated financial institutions. That rules out US companies and also European corporates from securitising trade receivables.More intriguing for the future may also be the question of how the EU’s securitisation markets will develop post Brexit, given that the UK has always had the largest ABS markets in Europe. Securitisation in Europe should be a key financing tool for generating growth in the European economy.Unfortunately, the global financial crash in 2007-08 was induced by sub-prime losses in the US, which tarred securitisation across the globe. Regulators in Europe clamped down heavily on securitisation by imposing onerous capital and risk retention requirements. Total issuance shrank from €419.2bn in 2007 to €96.4bn in 2016, according to the Association for Financial Markets in Europe (AFME).Europe has always suffered from a less enthusiastic perception of asset-backed securities (ABS) compared to the US. As one ABS expert recounted, in the 1990s there was a strong feeling that it was an asset class that only institutions in trouble would utilise. The view was often that strong entities didn’t need such assets.It appears that underlying sentiment remained in place throughout the growth of the market. When the crisis hit and the poster child for the disruption was the US sub-prime market, it was not difficult for those holding that view to tar the whole European ABS market with the same brush. This has been a major contributor to the punitive regulatory environment seen over the past decade.last_img read more

New research ‘quantifies’ long-term investment premium

first_imgInvestors with a long-term investment horizon could reap a premium of between 0.5% and 1.5% a year, according to new research – but a major shift in mindset and expanded skillsets are needed to do so.The size of the net long-term investment premium depends on investors’ governance, asset size, mindset and investment processes, according to the Thinking Ahead Institute.Tim Hodgson, head of the Thinking Ahead Institute, said: “In the investment world, where there are very few universal truths, it would be hubristic to claim that we and our members have proven the existence of the long-term premium.“However, we are more certain than ever that the costs of developing the mindset and acquiring the skillsets to address long-horizon investing challenges are substantially outweighed by the return enhancements. As such we believe this is ground-breaking research because it provides sufficient evidence to answer – with a confident ‘yes’ – this perennial, billion-dollar investment question.” Liang Yin, senior investment consultant at Willis Towers Watson and lead author of the report, said capturing the benefits of long-horizon investing would probably require “a major shift of mindset and significantly expanded skillsets by investors”.“It is reasonable to assume the long-horizon premium exists precisely because it is so hard to capture,” he said. “In fact, 80 years ago, Keynes wrote a whole chapter on how hard long-term investing was and clearly nothing much has changed since then.”The institute came up with the net premium from long-term investing on the basis of a case study of two hypothetical pension funds using a combination of what it identified as eight “building blocks” of long-horizon investment value.It split these into strategies that provided return opportunities and those that led to lower long-term costs and/or mitigated losses.The return opportunity strategies are:active ownership and investing in long-term oriented companies;liquidity provision;capturing mispricing effects via smart beta or factors;capturing an illiquidity risk premium; andthematic investing.The institute attributed potential gains to the strategies, for example arguing that engagement on average generated positive abnormal returns of 2.3% in the year following the initial engagement with an investee company.The strategies or actions that could create a drag on returns are:firing and replacing managers (“round-trip decisions”);forced selling; andtransaction costs.The institute again quantified the costs entailed in these strategies, for example saying that forced selling could reduce returns by 1.5% to 2% per annum.Not all of the building blocks were independent, and some were contradictory, it said.In the case study, the smaller pension fund focused its long-horizon efforts on avoiding costs and mistakes, while the larger pension fund, with better governance and financial resources, was able to consider all available options for capturing premia.The institute’s next phase of research is to find out how to successfully implement a long-term investment orientation across the industry.The Thinking Ahead Institute was set up by Willis Towers Watson.The research can be found here.last_img read more

One Planet Summit: Investors, regulators ‘raise their game’

first_imgAsset managers and asset owners have a requirement to take into account risks related to environmental, social and governance (ESG) factors, the European Commission plans to clarify. Presenting its “Action Plan for the Planet” on the occasion of the high-level climate change summit in Paris this week, the Commission foreshadowed a series of measures it planned to take to place the financial sector “at the service of the climate”.The summit coincided with the two-year anniversary of the signing of the Paris Agreement.The Commission’s measures were intended to provide incentives for investors to invest in the green economy.  In addition, although Climate Action 100+ was explicit about including emissions from the use of a company’s product, Preventable Surprises said the methodology was underweighting energy utility companies. This sector accounted for around 42% of global emissions, according to figures cited by Preventable Surprises, and was “the low hanging fruit for reducing greenhouse gases”.Hayman said investors needed to quickly come to a view about what stewardship activity would lead to the biggest reduction in the shortest timescale, and Climate Action 100+ was the perfect initiative for experimenting with “different theories of change”.Lastly, Preventable Surprises called upon asset owners joining the initiative to report on how they were changing their mandates for investment consultants and fund managers to incentivise action on climate-related systemic risk.This was a prerequisite for “real manager commitment and participation in this initiative”. In March the Commission would present a plan with these initiatives, it said, which would include “integrating sustainability considerations into the duties that asset managers and institutional investors have towards those whose money they manage, to clarify the requirement to take into account risks related to environmental, social and governance factors”.One Planet SummitFrench president Emmanuel Macron hosted a ‘One Planet Summit’ in Paris this week. Held two years to the day after the UN climate change agreement was reached in the same city, it brought together people and organisations from different walks of life, from those engaged in making a clean economy a reality, to those whose primary power lies in their capacity to finance this transition. An appreciation that action was now needed more than words seemed to pervade at least some of the many announcements made in connection with the summit. But some stakeholders still saw the need to hold to account those making new commitments or launching new initiatives.IPE reported on some initiatives and views expressed in connection with the summit earlier this week.Valdis Dombrovskis, Commission vice-president for financial stability and financial services, said in a speech in Paris that the EU executive would propose to integrate sustainability factors into investment mandates. This would clarify institutional investors’ legal obligation to factor sustainability risks into capital allocation decisions.center_img Commission vice president Dombrovskis during the One Planet SummitThis essentially means the Commission is taking forward one of the recommendations of the sustainable finance expert group it has established.The other well-trailed measures included the creation of a “common language and classification system for what is considered green and sustainable”, said Dombrovskis. The goal is a EU classification system for sustainable finance.Lower capital charges for banks on qualifying “green” assets may also be forthcoming. The Commission was looking favourably on a European Parliament proposal to that effect, according to Dombrovskis.Commission president Jean-Claude Juncker said: “The time has now come to raise our game and set all the wheels in motion – regulatory, financial and other – to enable us to meet the ambitious targets we have set ourselves.“This is a necessity dictated by our current living conditions as well as those of future generations. This is the time that we must act together for the planet. Tomorrow will be too late.”  AXA IM implements new climate policyAXA Investment Managers has brought in a new climate policy that will apply to all of its responsible investment open-ended funds and other products and mandates on an opt-in basis, from the end of January.According to a spokeswoman, AXA IM planned to divest from companies that derived 30% or more of their revenues from coal. The new policy also covered divestment from any companies with significant exposure (30% or more of revenues) to tar sands activities.In April, the asset manager sold its holdings in companies deriving more than 50% of revenues from coal-related activities. Fixed income and equity holdings worth €177m were sold.Climate Action 100+ investors urged to aim highThe advocacy organisation Preventable Surprises has issued a challenge to investors involved in the Climate Action 100+ engagement initiative that was launched in Paris this week.Carolyn Hayman, board member and climate lead at the organisation, said the initiative had set itself apart because investors were saying what they would do as stewards of capital, instead of telling governments or companies what to do.“Investors need to quickly come to a view about what stewardship activity would lead to the biggest emissions reduction in the shortest timescale.”Carolyn Hayman, Preventable Surprises“Potentially this could be a big shift,” she said.Although applauding the initiative, Preventable Surprises raised the question of whether it could actually help reshape the current global warming trajectory by 2020.It highlighted that many major US fund managers – including BlackRock, State Street, Fidelity and Goldman Sachs – did not appear on the list of participating investors.“Well before the next anniversary, we hope that climate-aware asset owners and investment consultants will have been able to persuade all major global managers, wherever they are headquartered, to come on board,” the organisation said.last_img read more

LD hires Nykredit, JP Morgan for investment admin services

first_imgThe pension fund described the bidding round that took place as “intense”, and said the quality of bids was very high, with offers including new services.Bidders had changed both the price and the quality of their offerings in comparison with those seen in the previous tender in 2010, the fund said.Charlotte Mark, LD’s finance director, said: “We have very high confidence in the cooperation partners we have chosen.”“The parting from Nykredit as depositary and BNY Mellon as global custodian is a result of the intense competition and in no way an expression of dissatisfaction on our side,” she added.LD is preparing to receive as much as DKK80bn of new assets as a result of amendments made to holiday entitlement rules in order to comply with EU law.In November, a consortium of Danish pension funds bought a 10.9% stake in Nykredit. Denmark’s Lønmodtagernes Dyrtidsfond (LD) has hired JP Morgan and Nykredit to provide investment administration services for the next few years for its fund subsidiary Kapitalforeningen LD (KLD).Following a tender process launched last July, LD announced Nykredit Porteføljeadministration had been re-appointed for investment administration services to the subsidiary. KLD holds DKK40bn (€5.4bn) in its investment portfolio, or the bulk of LD’s DKK42bn of assets.Meanwhile JP Morgan was appointed as the new depositary and global custodian, replacing Nykredit Bank and BNY Mellon, LD said.It said it had made savings of up to around 30% with the new services compared to the current level of costs.last_img read more