The market segment is likely to remain attractive for the foreseeable future, he said.The fund is aiming for a yield between 2.5 and 3.5 percentage points above UK government bonds of the same maturity.It invests in fixed-rate first-ranking mortgages lent at up to 65% loan-to-value, with 5-10 year maturities.The property loans are secured against core and core-plus UK commercial real estate, which is owned and managed by “proven high-quality borrowers”, the fund said.Tarry said the fund expects to see more interest from pension funds.“They like it as a fixed income diversifier,” he said. “The fund provides them with a spread over the Gilt, which looks attractive relative to the yield they could get from the equivalent rated corporate bond.”As long-term investors, he said pension funds were also keen to harvest the illiquidity premium of real estate debt.Tarry said the firm was still seeing a flow of attractive lending opportunities in the senior debt market.Opportunities for non-bank real estate lending continues to grow, he said, as banks rein in their lending activities as a result of tougher regulation.“It’s inevitable that real estate lending is going to become a smaller proportion of bank balance sheets,” he said.The fund had already deployed more than £53m in two high-quality deals that met the fund’s investment criteria.“Our pipeline of lending business across the UK remains strong,” he said. Four UK defined benefit schemes have invested in the second close of Aviva Investors’ UK commercial real estate senior debt fund originally launched in July, bringing total investment in the fund to £287.5m (€340.3m).Altogether, five investors took part in the second close that raised £187.5m, the asset management firm said, declining to name the individual investors.The fund’s target for investment is £500m by its final close in January 2015.James Tarry, manager of the fund, said: “The interest we have seen from institutional investors in the risk/return profile of senior secured debt validates our view that the opportunity in this space is highly compelling.”
The Pensions Regulator has published research showing small defined benefit schemes endure charges per member almost six times higher than the largest schemes.Its research, conducted among 316 funds last Autumn, showed small schemes (12-99 members) faced average per member charges of £1,054 (€1,262) compared to £182 for schemes with over 5,000 members.There was also a notable reduction in average fees compared to small schemes and medium schemes (100-999 members), which paid £505 per member on average – half the charges paid by small schemes.The plurality of small scheme charges came from administration, accounting for 41%. Investment management accounted for 20% of costs. This compares to large schemes where 43% of the fees came from investment management, and 35% administration.Stephen Soper, the regulator’s interim chief executive said: “Our aim is to put the information out there in order to start a dialogue on costs and help trustees and employers assess whether they are receiving value for money.”Jon Hatchett, partner at Hymans Robertson added: “These costs act as a drag on scheme performance and need ultimately to be met by scheme sponsors.”“Even shaving total annual running costs by just 0.1% of assets would reduce the total liabilities to be met by FTSE 350 companies by around £10bn over the life of the schemes.”Elsewhere, consultancy Aon Hewitt has revealed research showing almost three quarters of defined contribution (DC) schemes will look to change their investment strategy in reaction to last month’s Budget.Some 73% said they would amend their investment strategy to offer a combination of cash and income at-retirement. This is to match the expected move away from annuitisation with some members drawing down their entire pot.A tenth said they would redesign their strategy to offer only a cash payment at retirement, and 17% to generate an income in retirement, however, not in the form of an annuity.“DC schemes should be prepared to offer their members more choices if they are really going to embrace the flexibility heralded by the Budget,” said Jan Burke, head of DC consulting at the firm.Finally, asset manager F&C Investments’ quarterly liability driven investment (LDI) survey has shown pension schemes increased hedging in the final quarter of 2013, as they moved inflation hedging to real rate hedging.The final quarter saw £20.5bn of liabilities hedged against inflation, and £20.6bn against interest rates. This represented a fall on the record levels of £30bn and £23.4bn respectively in Q3 2013, but still higher than all other quarters since 2009.The manager’s survey of investment bank derivative trades showed more outright nominal and real rate hedging, in contrast with switching between instruments. Hedge extensions during the quarter were executed using swaps rather than bonds.Alex Soulsby, head of LDI at F&C, said: “The decrease in hedging activity in the final quarter of 2013 was not surprising given the unusually high levels of index-linked gilt issuance in Q3 2013, which led to an explosion in hedging activity.“Some schemes had specifically targeted the large syndications in the prior quarter, causing both interest rate and inflation hedging activity to drop quarter on quarter.”
TDC Pensionfund, the Danish telecommunications pension scheme, is among a group of investors suing Novo Banco, the successor bank to the failed Banco Espirito Santo (BES), for the recovery of a $785m (€701m) loan made to BES before it went bust last August.The loan was made to BES in July last year to finance a refinery project for the Venezuelan state oil company.The money was lent by Oak Finance Luxembourg, a vehicle set up by Goldman Sachs (GS), which raised funds from investors, issuing them with fixed rate notes.After its collapse, the bank was bailed out by the Banco de Portugal (BDP), the country’s central bank. Assets and senior debt were transferred to a new bank, Novo Banco – the so-called ‘good bank’ – leaving other items in BES, now the ‘bad bank’, to be liquidated.The debt transferred to Novo Banco included the Oak Finance loan.Given that the bank is now operating as a going concern, the loan was expected to be serviced and repaid.However, on 22 December 2014, the BDP announced it was reversing the transfer of the loan because it regarded the original deal as a related party transaction.It considered the loan to have been made by GS itself, which it regarded as a (then) associate of BES because of a small shareholding in the bank.Related party assets and liabilities are being kept within the ‘bad bank’, so there is little chance of repayment.The investors argue that the loan was made by Oak Finance and not GS, and that GS’s shareholding in BES was never more than 2%, the threshold for consideration as a ‘related party’.In February this year, the BDP reaffirmed its decision to return the loan to BES, prompting the lawsuits on behalf of Oak Finance investors.TDC Pension, the New Zealand Superannuation fund (NZSF) – whose own exposure to the loan is $150m – and a number of investment funds including Avenue Capital Group, Silver Point Capital and FFI Fund, have now filed debt recovery proceedings against Novo Banco in the English courts.They have also filed a similar action against BDP in the Portuguese courts, which will seek to reverse the BDP’s purported 22 December decision to transfer the loan obligation retrospectively from Novo Banco to BES.GS itself has also filed proceedings against Novo Banco in the English courts.The action in the English courts is being taken because the loan documentation is governed by English law, and is subject to an exclusive jurisdiction clause in favour of the English courts.Flemming Jacobsen, CIO at TDC Pensionfund, told IPE: “The Oak Finance investment is part of our credit investments, which constitute about 75% of our investment portfolio of around €5bn. It was done directly by us in a basis trade at – for us – attractive returns.”Jacobsen added: “This event will not result in changes to our investment strategy but will, of course, make future investments in Portugal less attractive.”Adrian Orr, chief executive at the NZSF, said the Oak Finance investment was part of a credit strategy that had been operating successfully at the fund for a number of years.While significant in dollar terms, it represents a small proportion of the overall NZD27bn fund.He added: “We have a very strong legal case and a high level of confidence of success.”However, the legal action is likely to be a lengthy process.Meanwhile, legal action has been filed in Portugal by DECO, the Portuguese consumer association, on behalf of small shareholders in the bank.It is suing the Portuguese government, BDP and the Portuguese stock market regulator for compensation for financial losses.DECO has also taken out a civil case against BES, its auditors and investment advisers, as well as former members of the BES executive board.
Regulation forcing Swiss pension funds to act almost like short-term investors is “absurd” and needs to be changed if negative rates persist, said Jean-Pierre Danthine, former vice-president of the Swiss central bank, at a conference in Geneva this week.Danthine, who is now at the Paris School of Economics and a visiting professor at Columbia University, delivered the opening speech at the CFA Society Switzerland conference, which had currency wars as its headline theme.His speech focused on the current economic situation, including the low to negative interest-rate environment, and the conditions for a return to more normal conditions.A delegate raised a question – acknowledged as somewhat rhetorical – about the implications of the current monetary policy environment for pension funds, highlighting the difficulty of applying a negative interest rate to the technical rate pension funds are supposed to use. Qualifying his response by saying he doubted it would be comprehensive, Danthine said “significant adjustments” would be needed if the period of negative rates was to last much longer or become more frequent in future.These are not only on the side of the central banks but in other areas such as pension fund regulation, in Switzerland and abroad, he said.“Pension funds have been subject to regulation that today forces them to behave almost like short-term investors,” he said.“That is absurd. Pension funds need to be able to take a long-term perspective. Regulation needs to adapt to that, and so there are significant changes needed.”A long-term perspective would be beneficial for the Swiss economy and future pensioners, he added, flagging investment abroad – and without hedging all foreign exchange positions – as an opportunity for Swiss pension funds.
Complementa Investment-Controlling – Thomas Breitenmoser has joined the Swiss consultancy as head of the investment consultant/controlling team and a member of the executive board. He joined from Lombard Odier, having most recently been at Swisscanto/Zürcher Kantonalbank. The firm has also hired Michel Oechslin as investment consultant/controller. Oechslin was most recently senior business project manager for investment reporting and accounting at UBS.NN IP – Lewis Jones has been appointed as a local-bonds portfolio manager on the emerging-market debt team, while Zoia Korepanova has been appointed as a corporate analyst. Jones joined from BNP Paribas Investment Partners and worked previously at Boston-based Fischer Francis Trees & Watts, where he was EMD portfolio manager. Korepanova joined from VTB Bank and Gazprombank.P-Solve – Kate Finch and Lara Edmonstone-West have been appointed as directors. Finch joins from SEI, where she was an institutional sales director, while Edmonstone-West rejoins P-Solve from KPMG, where she was a principal consultant.HTB Hanseatische Fondshaus – The Germany-based alternative investment fund manager has appointed Frank Ebner as chief executive. He joins from Deka Immobilien Investment, where he was a managing director and head of alternative investments. Before then, he worked at aurelis Real Estate as head of portfolio management and head of strategy and business development.Church Commissioners – The Bishop of Manchester, David Walker, has been appointed deputy chair at the Church Commissioners’ board of governors, effective from 1 January 2017. Bishop David replaces the Bishop of London, Richard Chartres, who is retiring from his bishopric in February.Kessler Topaz – Bram Hendriks has been appointed client relations manager for Europe, providing services to European shareholders in US class-action lawsuits. Before joining Kessler Topaz, he handled global securities litigation for NN Group.Absolute Return Partners – The institutional investment consultant has appointed Mark Moloney has a senior research analyst. He joins from fund of hedge funds Saguenay Strathmore Capital, where he was associate director.Union Bancaire Privée – Benjamin Schapiro has been appointed senior portfolio manager and co-manager for its Paris-based European convertible bonds team. He joins from La Financière de l’Echiquier, where he held the role of portfolio manager. Stamford Associates, Hymans Robertson, Willis Towers Watson, Legal & General Investment Management, Standard Life Investments, Complementa Investment-Controlling, Lombard Odier, UBS, NN IP, BNP Paribas Investment Partners, VTB Bank, P-Solve, SEI, KPMG, HTB Hanseatische Fondshaus, Deka Immobilien Investment, Church Commissioners, Kessler Topaz, Absolute Return Partners, Saguenay Strathmore Capital, Union Bancaire Privée, La Financière de l’EchiquierStamford Associates – Carl Hitchman has been appointed to the newly created role of head of fiduciary management advisory. He was formerly a partner and head of fiduciary oversight in the investment practice at Hymans Robertson. Before then, he was a director in the investment practice at Deloitte, and a member of Mercer’s UK investment consulting executive committee.Willis Towers Watson – Sara Rejal has been promoted to head of liquid alternatives, while Karen Dolenec has been promoted to head of real assets. Both joined Willis Towers Watson in 2014 as senior investment consultants. In her new role, Dolenec will continue to be responsible for real estate, infrastructure and natural resources, while Rejal will oversee hedge funds, alternative beta, reinsurance and multi-asset strategies.Legal & General Investment Management (LGIM) – Dianne Ramsay has been appointed senior distribution manager within the institutional distribution team. She joins from Standard Life Investments, where she was an investment director in the solutions business. Before then, she worked at Schroders and Mercer.
In its report for the previous year, the investment manager had said exclusions and the associated re-weighting had detracted 1.17 percentage points from performance since 2016.Norway’s Ministry of Finance first issued guidelines for the observation and exclusion of companies from the NOK7.8trn (€856bn) sovereign wealth fund in November 2004. The guidelines involved one set of criteria relating to specific product types, such as tobacco and weapons, and another based on corporate behaviour that risked, for example, human rights violations, environmental damage, and gross corruption.The first set was broadened to include coal last year, and the second set widened to include greenhouse-gas emissions.In December, the California Public Employees’ Retirement System decided to remain out of tobacco investments, despite a study from one of its consultants that showed the ban had cost it $3bn (€2.8bn) in lost returns between 2001 and 2014. Norway’s Government Pension Fund Global (GPFG) missed out on an additional 1.1% gain on its equity portfolio over the past 11 years through excluding stocks on ethical grounds, according to the fund’s manager Norges Bank Investment Management (NBIM).In its 2016 return and risk report, NBIM said in the context of its ethical investment: “Over the last eleven years, the equity benchmark index has returned 1.1 percentage points less than an index which is unadjusted at constituent level.”Between 2006 and 2016, product-based exclusions – such as bans on tobacco and weapons manufacturers – reduced the return on the equity index by close to 1.9 percentage points, NBIM said in the report.“This effect has to some extent been mitigated by the positive contribution of the conduct-based exclusions, primarily the environmentally based exclusions of mining companies,” the report said. Other exclusion criteria, meanwhile, had only a minor effect on the return on the benchmark index, NBIM said.
The fund has a mandate to invest on a commercial basis in a way that supports domestic economic activity and employment.The fund’s investments gained 4% in 2017, according to preliminary figures released as part of the ISIF’s year-end review for last year.The 4% return is composed of gains of 4.1% on the ISIF’s global portfolio and 3.4% on its Irish investments.Since the ISIF’s inception in December 2014, its investment returns have added €655m to the fund’s value, it said. “Exchequer injections” worth €865m – made up of proceeds from the sale of Aer Lingus shares and dividends from its ownership of Allied Irish Bank – took the total fund value to €8.7bn as at the end of December.O’Callaghan said the fund’s investments to date were well spread across the its strategic themes of “enabling, growing and leading edge”.Investments in 2017 included significant commitments in the areas of housing, connectivity, renewable energy, SMEs, food and agriculture, technology and life sciences. Ireland’s sovereign development fund has been more successful in catalysing private sector co-investment than it initially thought it would be, based on its original target.The €8.7bn Ireland Strategic Investment Fund (ISIF) has attracted €5.7bn in private sector co-investment for the €3.4bn it has committed to domestic investments from its own assets. This exceeded the original target ISIF set itself when it was established in 2014, to raise €1m for every €1m it invested.Total new investment by the fund and its co-investors in 2017 alone amounted to €1.6bn, with the ISIF itself committing €667m to 23 separate Irish investments.Eugene O’Callaghan, director at ISIF, said: “The ISIF’s differentiating characteristics of flexibility, long-term timeframe and the value it can add as a sovereign partner to both businesses and co-investors have enabled such wide-ranging investments that are consistent with the fund’s double bottom line mandate.”
“Our perpetual endowment and long-term horizon is well suited to maximising returns from less liquid markets, including venture capital.”The Commissioners said: “We believe that prospects going forward are more muted than the recent past and we therefore retained our cautious approach, focusing efforts to create long-term value…“In the absence of a market correction in the near term, we will likely find ourselves in a low-returning environment for some years to come. This will mean that returns are generated principally by income and active asset management.”Equities lead returns as real assets stallThe fund’s global equities allocation was the strongest performer in 2017, with a return of 18.6%.In their report, the Commissioners said: “Unlike 2016, where performance was strong across the board, in 2017 most of the fund’s return was driven by our public equities.“Our active UK smaller companies manager and our global managers performed particularly strongly and outperformed across the board.”The emerging markets portfolio also delivered strong absolute returns, the Commissioners said. They also hailed a successful year for the fund’s in-house property team, although the combined real assets allocation delivered a relatively subdued 4% over 2017 after several years of strong performance.However, the recovery in sterling – mainly against the US dollar – was a “headwind” for their dollar-based strategies, the Commissioners said, including multi-asset, private equity and private credit strategies. The latter lost 1.6% during the year.Fixed income returned 4.8%, as credit markets rallied due to continued economic growth and improvements in corporate earnings – although these too were affected by the rebound in sterling.The defensive equity portfolio delivered 10% for the year, more than double its return for 2016, while private equity gained 7.2%. Around a quarter of the Commissioners’ private equity allocation – which makes up 4.7% of the overall portfolio – is in venture capital. The investment arm of the Church of England has warned of “muted earnings” for the medium-term, after sterling’s recovery in 2017 weakened returns for the year to 7.1%.The return on the Church Commissioners for England’s £8.3bn (€9.4bn) investment portfolio compared to 17.1% for 2016, and undershot its investment target of inflation plus five percentage points (9.1% in 2017).However, the average annual return over the past 30 years – 9.4% – is still above its target of 8.4%.Loretta Minghella, first Church estates commissioner, said: “The macro-economic environment is changing and, anticipating muted returns in the future, we will continue to develop our focus on non-traditional asset classes.
Defined benefit (DB) pension scheme sponsors in the UK are engaged in a last-minute push to gather information needed to account for the effects of a recent ruling on equal pension payments for men and women.The ruling on “guaranteed minimum pension” (GMP) payments from Lloyds Bank’s DB schemes in October could pose problems for thousands of schemes across the UK.Two leading actuaries with knowledge of the issue said the fact that the ruling had come close to the year-end reporting deadline – plus the complexities of estimating the additional liability – had put finance directors under intense pressure.Aon consultant actuary Simon Robinson told IPE: “Virtually every pension scheme in the UK is having to do this calculation in two months. I wouldn’t say it is an impossible calculation but the data you need to do it accurately is incredibly [complex]. “We have a model that estimates it pretty well but even that model is not simple to run. It is a significant piece of work. If you have a big business with lots of different benefit structures in its scheme, the model has to be run for each of those sections.“In practice, there just isn’t the manpower to do it, let alone the cost for businesses to do it.”It is also likely that differences will emerge between International Accounting Standard 19, Employee Benefits (IAS 19) and the US’s generally accepted accounting practices (US GAAP) in terms of how the additional liability is recorded on company and pension fund accounts.Willis Tower Watson’s IAS 19 expert Andrew Mandley added: “The impact is in the range of an additional liability of 1-3% of the defined benefit obligation, which is a small percentage of a very big number.“It is blowing every issue out of the water in terms of what the accounting numbers will look like. We have to deal with this significant, late-in-the-day, difficult-to-quantify liability as at 26 October.”He added that, although auditors were clear that most companies must treat this as past service cost under both US GAAP and IAS 19, US GAAP offered some scope to amortise the expense rather than post it directly in profit-and-loss statements.
Baur was recently appointed by an unnamed Swiss pension fund with assets of around CHF15bn (€13bn). Dorothea Baur“They want to establish their own idea of ESG, coordinate their view in-house, and eventually come up with a questionnaire they can put to asset managers and advisers,” Baur explained.While this was her first official mandate in the field of pensions, Baur has been engaged in the financial services industry for several years. She also works with the Alternative Bank Switzerland as its independent ethics officer. The bank is focused on ethical and green investments.With her latest client, Baur has conducted one-on-one interviews with members of the management and board of trustees “to get a feel what different key representatives at the Pensionskasse actually think about ESG and where ideas diverge”.“With the ESG working group of the board we then discussed things like how does ESG affect the Pensionskasse in its role as a trustee, and how far they want to go in engaging with companies,” Baur said.Swiss funds lagging on ESGBaur’s assessments mirrored findings from a recent study of Pensionskassen by the World Wildlife Fund (WWF) and ratings agency Inrate.The report stated that “only few Pensionskassen have consistently integrated sustainability into their investment processes and decisions”.Since the last similar study in 2015-16, the researchers found “significant improvement” at certain pension funds, but also noted some did worse than in the first assessment.“This means the majority of the 20 largest Swiss pension funds, representing around one third of the assets in the occupational pension sector, are still relatively far off the WWF vision for the second pillar to play an active role in helping shape a more sustainable society,” the authors said.WWF and Inrate identified three Pensionskassen that had all improved their ESG scores relative to their previous ranking: the €11.4bn Bernische Pensionskasse, the €11.1bn Caisse de prévoyance de l’État de Genève, and the €14.8bn Pensionskasse for the city of Zurich. The surge in environmental, social and corporate governance (ESG) themed products and green indices is “overwhelming many Swiss Pensionskassen”, according to a leading independent adviser.Speaking to IPE, Dorothea Baur said: “Some want to join the new trend but have no internal [policy] on their ESG views.”The adviser – who runs her own ethical advisory firm, Baur Consulting – noted a “lack of reflection, passion and mission” in some institutional investors’ discussions on ESG.“Pensionskassen and other institutions first have to define ESG for themselves, what is feasible for them and what is not,” she said.