USS: Mark-to-market to blame for pension funds’ failure on infrastructure

first_imgShe highlighted the different method Canadian pension schemes take to mark to market, and the Australian perpetual structures approach, as a reason why they can accommodate allocations above 60%. Graham, who worked at the £40.2bn BT Pension Scheme (BTPS) before joining USS, said: “We cannot take advantage of this. I explained this to the UK government, which could not understand why we weren’t buying more like the Canadian [pension funds]. It is a balancing act, and we’re forced into this position.”USS allocates around 5.1% of its assets to infrastructure, but this is less than half the allocation to private capital markets and lower than its allocation to Japanese equities.The scheme has made several high-profile UK infrastructure purchases, including a stake in the UK’s air traffic control service and an airport in south-west England.It was reportedly in line to purchase the government’s stake in Eurostar, the UK/Continental train operator, before being pipped to the company by Canadian fund Caisse de dépôt et placement du Québec (CDPQ).However, Hermes Infrastructure did acquire a 10% stake on behalf of several UK schemes including the BTPS.Defending mark-to-market accounting, Ian McKinlay, investment director for the nearly £15bn (€20.4bn) Aviva Staff Pension Scheme, said closed defined benefit (DB) schemes should adhere to the system to ensure pension payments are met.He did, however, suggest that open schemes, such as USS, should be regulated more as endowments are.“The reality for me, with a closed scheme, is that I have to get the last cash flow, and the clock is ticking,” he said.“In that environment, mark-to-market makes more sense because I have fiduciary obligation to make sure the probability of paying the pensions is as high as possible.”Stefan Dunatov, CIO at Coal Pension Trustees, which manages £20bn in assets for the UK’s formerly nationalised coal industry pension funds, said mark-to-market was forcing pension funds to buy UK Gilts, instead of other assets, unnecessarily.He said the regulatory standards meant schemes always preferred buying Gilts, in order to be hedged.“You get into a situation where everyone might say they are liability-matched, but they’re not because it cannot possibly be,” he said. “We need to rebalance the regulatory culture.” The Universities Superannuation Scheme (USS) has cited the requirement to use mark-to-market accounting for scheme assets and liabilities as a major barrier to increasing UK pension funds’ allocation to infrastructure.The £41.6bn (€50.3bn) pension fund for the UK’s higher-education sector invests in infrastructure but said mark-to-market regulations prevented the scheme from investing in more long-term projects.Speaking at the London conference, The Investment Agenda, Kathryn Graham, USS’s head of strategy coordination, said she resented pension schemes being “constantly berated” for not being more long term in light of the circumstances.Graham said she was always surprised at the level of infrastructure in Canadian and Australian pension funds, but that their accounting structures explained why allocations significantly outstripped those of the USS.last_img read more

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Swiss institution tenders CHF100m equity mandate using IPE Quest

first_imgThe mandate calls for a minimum track record of five years.The investor expects an annual outperformance of 2-3% per annum, gross of fees.Tracking error should range between 2% and 6%, using the SPI Index.Fund managers should have a minimum of CHF1bn in assets under management in Swiss equities “across the different funds/mandates”.Interested parties should state performance, gross of fees, to the end of March.The IPE news team is unable to answer any further questions about IPE Quest tender notices to protect the interests of clients conducting the search. To obtain information directly from IPE Quest, please contact Jayna Vishram on +44 (0) 20 7261 4630 or email [email protected] An undisclosed institutional investor in Switzerland has tendered a CHF100m (€96m) Swiss equity mandate using IPE Quest.According to search QN-2082, “knowledge and experience with the Swiss institutional funds and/or institutional clients is an advantage”.The investor calls for a “clear, active style”, able to adapt to market conditions.Small and mid-cap-focused mandates will not be considered.last_img read more

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PGGM backs EMIR but calls for stressed market liquidity assistance

first_imgIf this was not possible, it called for a permanent exemption for pension funds from EMIR, but stressed its preference either of the first two options.Pension funds are currently exempt until August 2017 from using CCPs to clear OTC derivatives with regulators unable to find an answer to the collateral conundrum.Under current rules, OTC derivatives must post cash as collateral with CCPs. However, pension funds’ asset allocations and minimal cash holdings mean the requirement adversely affects investment returns and ability to pay pensions.It would also mean in times of market stress, where collateral postings could increase quickly and dramatically, pension funds would be forced to liquidate other assets on unfavourable terms in order to meet collateral cash calls.PGGM said pension funds should be able to post non-cash assets without affecting the pricing or liquidity of the underlying derivative contract.It added: “Until now, no comprehensive solutions have been identified or implemented. Pension funds cannot solve this issue by themselves: it is also the responsibility of the clearing industry and the legislators.”However, it said if the industry could not find a solution to posting non-cash assets, stakeholders need to address liquidity and transformation risk in stressed markets when pension funds need to liquidate assets – suggesting help from central banks.It said current repo markets were not deep enough nor suitable for pension fund usage to the level required for derivative transactions.Such markets are also prone to liquidity risks and dry up under market stress.“It is important to acknowledge that central banks provide the only reliable source of market liquidity in stressed market conditions,” the scheme said.“One potential solution could be to explore the feasibility of a guaranteed repo facility that pension funds could access under extreme market conditions.”The scheme said it recognised the principles behind EMIR and how using CCPs for OTC derivatives was essential to this.“We can only support central clearing for pension funds if a robust solution is found,” it said.PGGM suggested the 2017 delay – implemented in order to find a solution – has not been used effectively, with EMIR yet to be fully launched for other OTC derivative users.“To date, the temporary pension fund exemption has not delivered what was originally intended as pension funds have been exempt from a clearing obligation that still does not exist,” it said.,WebsitesWe are not responsible for the content of external sitesLink to PGGM position paper on clearing The Dutch pension fund manager PGGM has called for central bank liquidity help should the European Market Infrastructure Regulation (EMIR) not change to favour pension fund assets.PGGM said it supported the founding principles of EMIR but the implications of posting cash as collateral with over-the-counter (OTC) derivatives were too great to allow it to continue as they are.It said it wanted the regulations to be changed to allow for the posting of high-quality government bonds instead of cash as its first preference, suggesting it was possible under current wording.However, in lieu of an agreement on this between the European Commission, regulators and central counterparties (CCP), it suggested assistance in developing wider, and more pension fund-friendly, repurchase agreement (repo) markets.last_img read more

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BlackRock to combine active equity capabilities, create real assets group

first_imgAs part of the shake-up, Charles Prideaux, the current head of institutional client business for the EMEA region, is to move to a newly created role as head of active management for EMEA.Prideaux will report to David Blumer, head of the EMEA region, and Rob Kapito, who is also chairman of the global operating committee.Prideaux’s current role will be split between two individuals.Justin Arter, currently country head for Australia, will manage institutional business for the UK, Middle East and Africa, while Peter Nielsen will continue as head of Continental European institutional business, as well as remaining the country head for the Netherlands and Nordic region.BlackRock has seen positive net inflows into active strategies in recent quarters from institutions and net outflows from index strategies.“Without doubt, active management will continue to play a crucial role in institutional portfolios with risk budgets to afford it and perhaps never more so than in the coming years,” Prideaux writes in the January 2016 issue of IPE.Arno Kitts, head of UK institutional business, will leave BlackRock in April “to pursue a portfolio of individual opportunities within the industry”.Kitts, formerly global head of distribution at Henderson, is also a former chair of the investment council of the Pensions & Lifetime Savings Association (previously the NAPF). The new real assets group, which will be headed by Jim Barry, will combine infrastructure and real estate to reflect the fact clients see these areas “as a distinct and more integrated asset class”.Marcus Sperber will continue in his role as global head of real estate.BlackRock will also expand its multi-asset strategies business with the appointment of Rich Kushel, previously chief product officer, to head the unit.The BlackRock Investment Institute, the firm’s internal clearing house for information sharing, will broaden its mandate to include market insights from clients.Ewen Cameron Watt, chief investment strategist, will step down from his full-time role in the unit from July but continue to serve as a senior director.BlackRock’s full-year results are due to be announced on Friday.The third quarter of 2015 saw inflows of $50bn (€45.8bn) and long-term institutional active inflows of $5.9bn, of which $4.1bn was in fixed income.Passive long-term strategies saw net outflows of $700m, including equity net outflows of $1.8bn.At the end of the third quarter, 97% of active quant equity products and 90% of active taxable fixed income performed above benchmark over three years, as measured in AUM terms.For fundamental active equity strategies, the figure was 80%. BlackRock is to combine its active equity capabilities as part of a significant organisational shake-up, including the creation of a real assets group, that will take effect next month.Portfolio manager positions will be unaffected by the changes.The new active equities platform will group fundamental and quant equity capabilities in a single unit.In a staff briefing note today, BlackRock chairman and chief executive Larry Fink and president Rob Kapito said: “In a market environment characterised by more volatility, lower beta and increased dispersion, clients are increasingly looking for active equity solutions irrespective of whether they are fundamental or quantitative strategies.”last_img read more

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Divestment ‘a waste of time’ as response to climate change

first_imgDivestment is a “complete waste of time” as a response to climate change risk, said Robert Waugh, CIO at Royal Bank of Scotland group pension fund, with other pension fund executives largely sharing his sceptical stance.Engagement, decarbonisation and targeting more attractive low-carbon investments were said to be better ways of addressing climate change.RBS’s Waugh was the first to dismiss divestment during a panel discussion at the Pensions and Lifetime Savings Association (PLSA) investment conference in Edinburgh.Waugh said it was better to engage with companies or “provide capital to areas that are helping”. The RBS fund is part of the ‘Aiming for A’ investor coalition that encourages companies to provide better information on their exposure to carbon risk. The coalition has lodged shareholder resolutions at Glencore, Anglo American and Rio Tinto.As to the second aspect, Waugh said there were “loads” of investment opportunities allowing pension funds to fulfil their fiduciary duties of “enhancing return per unit of risk” while at the same time funnelling capital to new areas of the economy.Windfarms, for example, are a “great investment for pension funds”, he said.The RBS fund is also looking at solar and has a large sustainable timber portfolio, noted Waugh, with waste-to-energy also an interesting area.Mark Fawcett, CIO at NEST, was also sceptical about the effectiveness of divestment, saying “as a wholesale strategy, it doesn’t work”, although “selectively it can be useful”.The Environment Agency Pension Fund (EAPF), said Faith Ward, its chief risk officer, has favoured decarbonisation and engagement as part of a pragmatic and evidence- and risk-based approach to addressing the risks posed by climate change.It has, however, done some selective divestments due to a shift to “smarter” indices used in the fund’s passive portfolio.Selective divestment can have an appropriate role to play from a “risk-based, investment-driven perspective”, said Ward.This is especially the case in terms of divestment within a company’s balance sheet, according to Ward – pulling away from projects that do not make sense from a capital expenditure point of view, for example.Overall, EAPF prefers to think about the matter in terms of decarbonisation, which means working with fossil fuel-exposed companies to transition to a low-carbon economy rather than divesting.last_img read more

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Rules for German occupational pension funds ‘make no sense’

first_imgBenedikt Köster, head of pensions at Deutsche Post, has reminded German companies to beware the “effects of action forced by financial difficulty” due to the impact of international accounting standards and the local HGB equivalent. Taking part in a panel discussion at the Handelsblatt conference in Berlin, Köster said some of the measures dictated by international and domestic accounting rules “might not make sense over the long term”.“Yet we are driven by these measures,” he said, “which make no sense economically.” Across Europe, persistently low interest rates have increased the challenge of funding pensions liabilities, and in Germany, many companies – including large listed ones – still face sizeable defined benefit obligations. According to Willis Towers Watson, the average pension funding level for companies on Germany’s DAX30 stock exchange is 65%. The Deutsche Post pension scheme’s funding matches the average almost exactly, having just over €17bn in liabilities, funded via vehicles including a Pensionsfonds.Also speaking on the panel, Friedemann Lucius, a board member at German actuarial firm Heubeck, called for a more drastic step, pointing to a “massive bulk of additional financing needs” in the system.“We have to get away from pension funds having to adjust their investments to match liabilities on a given date,” he said.He said forcing pension funds to ensure liquidity at all times had been “extremely counter-productive” and called for the allowance of an “underfunding corridor” for German Pensionskassen, similar to that permitted with the Pensionsfonds vehicle.Although German regulator BaFin, wary of making Pensionskasse “too similar” to Pensionsfonds, has ruled out this proposal already, Lucius argued that the “pressure was not yet great enough”, and that the time was therefore “not yet ripe”. Previously at the Handelsblatt conference, he called for changes to how companies are allowed to deal with promises on future services, such as the amount of time an employee must work before receiving a pension. But he also warned that “all of that will not be enough if the low-interest-rate environment continues”.Thomas Dommermuth, a professor at the German university Amberg-Weiden at the Institute for Retirement Provision and Financial Planning, said the application of the ‘marked-to-market’ term to liabilities was “actually wrong because I cannot sell off liabilities”.In Germany, he said, even with external funding, a top-up requirement remains with the company, unlike companies in the UK and the US.Reiner Schwinger, managing director at Willis Towers Watson, lamented that German companies with unfunded pension liabilities applying German accounting standard HGB were feeling the effects of rate changes directly in their profits.These companies must calculate an average interest rate to apply as a discount rate to their liabilities.But Schwinger dismissed that average as “nonsense”, as it “prevents any kind of hedging” against the effects in a company’s profits and losses.At the beginning of the year, the German government increased the calculation period for this average HGB rate from seven years to 10 to include pre-financial crisis interest levels, but the move proved controversial.Schwinger further warned that the alternative of switching to defined contribution plans merely presented different problems.   “The more a company backs away from making promises, the more other challenges appear on the horizon, such as reputational risk, warranty risk, transparency and the new role of employees as agents for their staff in choosing retirement provision.”last_img read more

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Pension fund for accountants ‘caught out’ by low interest rates

first_imgAccountancy, the €330m pension fund for Dutch accountants, is facing the prospect of multiple rights cuts over the next few years after its funding ratio dropped to 64%.The pension fund, which switched from a reinsured pension plan to its own collective defined contribution (CDC) arrangement last year, conceded that it had been “caught out” by falling interest rates.As a consequence of its low coverage, the scheme was forced to cut pension rights accrued under its own management by 3.5% last March.To raise its coverage ratio to the minimum required level of 123%, it now faces a number of annual rights cuts over the next 10 years. It has also reduced the annual pensions accrual from 1.75% to 1.5%, while raising the contribution by 17%.Accountancy said it would have to reduce accrual even further, or increase the premium again, if the low-interest-rate environment remained.It ruled out the possibility of raising the contribution to avoid a rights cut, as this would require a 50% premium increase over the next 11 years.It has not extended its contract for further accrual with insurer Aegon, as this would be have been “far too expensive” due to the low interest rates.It added that, had it decided to extend the contract, the annual accrual would have been reduced to 1% under the 17.5% contribution at the time.Jan Raaijmakers, chairman at Accountancy, said the board still fully supported its earlier decision, “as alternatives wouldn’t have been sufficient”.By switching to individual defined contribution arrangements, its 3,200 participants would have been similarly hit by low interest rates, albeit at a later stage, he argued.He pointed out that calculations in 2014 estimated the CDC plan would have generated 15% more pension rights in 10 years’ time, due to costs savings and the possibility to benefit from investment returns after retirement.When it drew up its recovery plan in 2014, which included the maximum allowed assumptions for return, the pension fund said it expected to improve its funding to 130% within 10 years.The Pensioenfonds voor de Accountancy said it considered itself too small to remain independent and that it was investigating the option of joining the ‘general pension fund’ (APF) of Aegon and its subsidiary TKP next year.last_img read more

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Joseph Mariathasan: Can active management survive?

first_imgGiven the increasing competition from passive, smart beta and quantitative approaches, fundamental managers need to be able to articulate why their process works and why it should continue to work into the future. The days of earning a living by closet indexing may be coming to a close, but how many active managers are actually prepared to take a forward-looking view completely independent of their benchmark index weightings? If systematic alternatives can be bought very cheaply, what can a fundamental active manager do that will improve returns?Typically, a fundamental approach can pick out problems in the balance sheet that a systematic approach may be unable to do. They may be able to have a forward-looking view that can take advantage of macro-economic factors. What quant and smart beta cannot do is to produce high-conviction portfolios. For investment consultants, that means managers able to run portfolios of no more than 30-50 stocks, and one admitted that they would rule out any fundamental active manager with a 100-stock portfolio on the grounds that no one can really know them all well. That does leave opportunities for many active fundamental managers but maybe not the majority.Joseph Mariathasan is a contributing editor at IPE The challenges faced by traditional fund managers aren’t going away any time soon, writes Joseph MariathasanThe proposed merger of Henderson Global Investors and Janus Capital is another example of the consolidation we are seeing in the investment management industry. Traditional fund managers face serious problems if they hope to survive, let alone prosper, over the long term, as they face challenges from passive, smart beta and active quant products. These competitive pressures, combined with a low-return environment, have led to the fee cuts that lie behind the consolidation. These pressures are not going to lessen in the foreseeable future.It’s no surprise that passive management, smart beta strategies and quantitative active management are all making strong inroads into the equity space. Smart-beta approaches appear to be able to add value to lower-cost passive market capitalisation approaches. A lot of studies show that virtually any kind of alternative weighting can beat passive market-cap-weighted indices. Smart beta can incrementally improve returns available through purely passive strategies because the tilts that such strategies introduced have proven over the long term to be effective. Factors such as value, quality, momentum and low volatility have roots in behavioural finance, with evidence through back-tests showing that they work over long, statistically significant periods of time. The argument goes that, because they are behaviourally backed, and human beings do not change behaviour very quickly, they should continue to work into the future.The worry about smart-beta strategies is that they are created using pretty naïve factors. Smart-beta approaches typically use simple constructs. What quant then does is to use that same philosophical backing but puts it together in a far more sophisticated manner. For investors seeking small-cap managers, the universe of 2,500 or so stocks in just Europe in an illiquid, poorly researched market is difficult for fundamental managers to tackle, and few have tried. An active traditional manager may have around 60-80 stocks in their portfolio. In contrast, a quantitative approach has no restrictions on the number of stocks that can be analysed in a consistent manner, but the portfolios will typically have many more stocks in them, as the conviction associated with any specific bet is much less.last_img read more

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Carina family fortress hits the market for first time

first_imgThe house at 22 Bernecker St, Carina, is for sale.THIS Carina house was built with luxury family living in mind.Adrian Rete moved into the 22 Bernecker St house 18 months ago, after he and his wife had spent time designing the contemporary residence themselves. The kitchen has Statuario Venato benchtops.“My wife and I developed a design and spent countless hours on the plans before giving that to the builder,” Mr Rete said.“During the construction we worked very closely with the builder to ensure attention to detail was achieved for our family home.”The two-level house has a contemporary, angular exterior and a monochromatic colour scheme. The bathroom is to die for.When asked if they would build again, Mr Rete said plans were currently up in the air, but the idea of constructing another home fit for their family appealed to them.“It was very challenging, but it was very exciting at the same time,” Mr Rete said. Bi-fold doors create a seamless indoor-outdoor flow.Upon stepping inside, polished timber floorboards flow through the common areas of both levels, and the kitchen has Statuario Venato benchtops paired with matte black tapware. There is matte black tapware.Mr Rete said they had also enjoyed living in the area, often going for bicycle rides at the nearby Minnippi Parkland.center_img The main living area is open concept.He said in the back yard was a place his three children loved to play, although not as much since turf had been laid.“I remember for them it was more exciting before we put the turf down.“They got out there and played in the dirt.” The master bedroom at 22 Bernecker St, Carina.More from newsCrowd expected as mega estate goes under the hammer7 Aug 2020Hard work, resourcefulness and $17k bring old Ipswich home back to life20 Apr 2020This area, which is part of an open concept living space, is what Mr Rete believes is a family favourite.“It’s the most used and it’s got the living out to the back alfresco and the garden,” he said.“This is where we mostly live.” The backyard is low maintenance yet functional.Video Player is loading.Play VideoPlayNext playlist itemMuteCurrent Time 0:00/Duration 0:51Loaded: 0%Stream Type LIVESeek to live, currently playing liveLIVERemaining Time -0:51 Playback Rate1xChaptersChaptersDescriptionsdescriptions off, selectedCaptionscaptions settings, opens captions settings dialogcaptions off, selectedQuality Levels720p720pHD576p576p432p432p270p270pAutoA, selectedAudio Tracken (Main), selectedFullscreenThis is a modal window.Beginning of dialog window. Escape will cancel and close the window.TextColorWhiteBlackRedGreenBlueYellowMagentaCyanTransparencyOpaqueSemi-TransparentBackgroundColorBlackWhiteRedGreenBlueYellowMagentaCyanTransparencyOpaqueSemi-TransparentTransparentWindowColorBlackWhiteRedGreenBlueYellowMagentaCyanTransparencyTransparentSemi-TransparentOpaqueFont Size50%75%100%125%150%175%200%300%400%Text Edge StyleNoneRaisedDepressedUniformDropshadowFont FamilyProportional Sans-SerifMonospace Sans-SerifProportional SerifMonospace SerifCasualScriptSmall CapsReset restore all settings to the default valuesDoneClose Modal DialogEnd of dialog window.This is a modal window. This modal can be closed by pressing the Escape key or activating the close button.Close Modal DialogThis is a modal window. This modal can be closed by pressing the Escape key or activating the close button.PlayMuteCurrent Time 0:00/Duration 0:00Loaded: 0%Stream Type LIVESeek to live, currently playing liveLIVERemaining Time -0:00 Playback Rate1xFullscreenStarting your hunt for a dream home00:51last_img read more

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Tennis aces team up to spruik the Sunny Coast

first_imgTennis champ Mark Kratzmann will build one house in India for every apartment sold at his latest development venture, The Ivy Picnic Point JUL 1987: PAT CASH OF AUSTRALIA CELEBRATES WITH THE WIMBLEDON MENS SINGLES TROPHY AFTER WINNING IN THE FINAL AGAINST IVAN LENDL.To date, 27 of the 37 units at The Ivy Picnic Point have sold, with completion expected later this year.For every apartment sold at the Ivy at Picnic Point, The Kratzmann Group is building one house in India, in partnership with not-for-profit organisations Habitat for Humanity and B1G1. An artists impression of the living space inside one of the sub-penthouses at The Ivy Picnic PointAlthough his real estate portfolio is centred in London, the former Wimbledon champion said it was worth exploring investment opportunities on the Sunshine Coast, given that major capitals such as Sydney and Melbourne had come off their highs.The tennis pals also visited a number of local hot spots. The Ivy Picnic PointCash, who regularly holidays at Noosa while commentating during Australia’s summer of tennis, said he was impressed by the level of construction and infrastructure being built in the tourist town.More from newsCrowd expected as mega estate goes under the hammer7 Aug 2020Hard work, resourcefulness and $17k bring old Ipswich home back to life20 Apr 2020“I thought Maroochydore was a sleepy little coastal town, so I was quite impressed by the quality of waterside properties close to great beaches, good dining and coffee shops,” Cash said. Pat Cash and Mark KratzmannFORMER Aussie tennis ace Pat Cash made a surprise visit to the Sunshine Coast last week, stopping in to check out the latest development by friend and fellow tour champion Mark Kratzmann.The Kratzmann Group recently commenced construction of The Ivy Picnic Point, a luxury 37-unit complex on the banks of the Maroochy River.last_img read more

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