Think tank to offer trustees new long-term ‘comply or explain’ tools [updated]

first_imgIt will also include resources aimed to help them think through how they might take the conversation to the “supply side”.Tony Manwaring, who heads up Tomorrow’s Company, said the need for the guide was clear given the findings from Professor John Kay’s review into short-termism within equity markets.“Post-Kay, there has been a lot of focus on how fragmented the system is, the role of intermediaries, lack of transparency and the absence of a line of sight for investors,” he told IPE.He added that, for too long, there has been a presumption that trustees find long-term investing too complex, and cannot address their role in the system.“We don’t think this is correct, and the system cannot work without trustees playing the full and proper role,” he said.Manwaring said a number of trustees recognised some of the strategic decisions made by the board did not originate with the asset owner, as they should, and often in practice came from the supply side.However, he added that trustees were starting to move away from this, and set mandates looking at more long-term, sustainable investing.While one aim of the report is to see this trend continue, it will also propose further action by trustee boards.“We also have a policy proposed in the guide that trustee boards have a ‘comply or explain’ requirement on the mandates they set,” Manwaring said.“It acknowledges that many trustee boards would like to show consideration to creating value for the long term, but often feel under pressure from suppliers to take a narrower, and short-term, views.“They are the principals – it is for them to set the mandate and be clear about the basis on which they set that mandate.” A guide on how to achieve long-term financial returns is to be published this week, including, along with practical guidance, a ‘comply or explain’ procedure for pension fund trustees.The report, ‘Tomorrow’s Value’, will be launched by UK-based global think tank Tomorrow’s Company and look at providing trustees with appropriate tools for achieving long-term financial returns.A range of leading figures, in both the pensions and financial worlds, have endorsed the report, including Fiona Reynolds, who leads the UN PRI, and Keith Ambachtsheer from the Centre for Pension Management.The report is to provide guidance to trustees on how they can practically discuss long-term value investing.last_img read more

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UK pensions industry meets collective DC announcement with scepticism

first_imgThe UK government has confirmed its intention to legislate for the permittance of collective defined contribution (CDC) pension funds, with industry representatives mixed on responses.The commitment to CDC was made in today’s Queen’s Speech, a statement by the UK’s head of state regarding Parliament’s course of action in its next session, which begins in the autumn.The general aim is to implement CDC, which will require the creation of new legislation, by 2016, in line with the launch of the new single-tier first-pillar pension.The requirement of CDC’s implementation by 2016 is significant as it heralds the end of contracting out for defined benefit (DB) schemes, with the expectation for scheme closures, due to additional costs. CDC, part of pensions minister Steve Webb’s aim for greater risk-sharing, is seen as a potential midway point, stopping these DB closures resulting in members being moved into pure-DC arrangements.The legislative background in the UK does not currently permit any such arrangement, with any pension scheme where 100% of the risk is not placed on an individual member regulated under the complex DB code.However, while some sections of the UK industry welcomed an additional feature of the pensions market, many have lamented its lack of appeal or consistency with other proposals, as well as its timing.The National Association of Pension Funds (NAPF) praised the increased flexibility CDC brings, but said the focus for DC should remain on good member outcomes.The group had previously called on the government to slow down its reforms of the DC market, as the industry swallows recent Budget changes, and a cap on charges by 2015.Chief executive Joanne Segars admitted CDC had a role to play in this, but governance, low charges and investment strategies were fundamental.“The real goal here has to be schemes operating at scale,” she said. “Scale is a necessary precondition for CDC, but it also enables a much wider range of member benefits.”Duncan Buchanan, a lawyer and president-elect of the Society of Pension Consultants (SPC), said, given increased flexibility in at-retirement DC options, CDC’s appeal in the UK was diminished.“It is unlikely employers will feel pressure from employees to establish or contribute to new-style ‘risk-sharing’ schemes,” he said.“CDC requires critical mass to make risk sharing fair. Without large numbers of members, these collective schemes might not be able to get off the ground.”LCP, a consultancy, said while it welcomed the reforms, it agreed with the SPC that quick take-up was unlikely.Alex Waite, LCP’s head of corporate consulting, said: “This type of pension scheme has some attractions. However, pooling risks between members generates winners and losers, and it is likely that anyone that loses out materially will call foul. Against this background, it is unlikely employers will rush to set up CDC schemes.”However, defending the announcement, Danny Wilding, partner at consultancy Barnett Waddingham, said while CDC might not be right for all employers, allowing it as an option is welcome.“CDC has the potential to offer more generous and stable pension returns to scheme members and act as a viable alternative to both DC and DB schemes,” he said.Lee Hollingworth, head of DC at consultancy Hymans Robertson, said CDC would have distinct winners and losers.“Potential losers include younger savers and the less well-off,” he said. “The muted reaction of employers is based in part on the Netherlands’ experience. There, employers have found themselves paying in extra money rather than face the industrial relations impact of benefits being reduced.”Tony Hobman, chair of the advisory board at Lincoln International Pensions Advisory, and former chief executive of the UK regulator, said CDC funds come with greater risk which need greater governance in order to be mitigated.”We need to understand who will be looking after this money, who will they be investing it with and who will be monitoring the risks involved,” he said.“Collective pensions will need very high standards of governance and risk monitoring. The DC environment is only just beginning to get to grips with this challenge.”last_img read more

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ECB to begin ABS purchase programme in October

first_imgThe European Central Bank (ECB) has confirmed it will begin the purchase of asset-backed securities (ABS) in a new programme as it looks to facilitate credit flows into the euro-zone economy.The announcement comes only days after the bank confirmed BlackRock, the world’s largest asset manager, was advising the bank on the creation and sustainability of such a system.In a statement today, ECB president Mario Draghi said the euro system would purchase a “broad portfolio” of ABS which would consist of non-financial debt.This would likely include the purchase of regular and commercial mortgage-backed securities and will not include bank loans or government bonds. The programme will begin next month, with further details expected after the ECB’s governing council meeting on 2 October.“The newly decided measures, together with the targeted longer-term refinancing operations (TLTRO) which will be conducted in two weeks, will have a sizeable impact on [the ECB’s] balance sheet,” Draghi said.“[The programme] reflects the role of the ABS market in facilitating new credit flows to the economy and follows the intensification of preparatory work on this matter.“In parallel, the Eurosystem will also purchase a broad portfolio of euro-denominated covered bonds issued by monetary financial institutions (MFI) domiciled in the euro area.”According to the ECB, MFIs can be defined as institutions such as central banks, commercial banks and money market funds.ABS purchases are likely to ease credit markets in the euro area and intensify the supply of money, which should fuel inflation, in a similar vein to the quantitative easing seen in the US, UK and Japan.According to Eurostat, the euro zone’s statistics office, inflation in the monetary union was 0.3% in August having fallen from 1.3% in 12 months.Alongside the central bank’s bid to increase the supply of money into the euro-zone, Draghi also announced the lowering of interest rates across the monetary union.The main refinancing rate has been reduced by 10bps to 0.05% and similarly the marginal lending rate reduced to 0.3%.The deposit rate at the ECB has been further pushed into negative territory, reducing 10bps to negative 0.2%.According to hedge fund CQS, any ABS purchasing programme would compliment the central bank’s TLTRO programme.Neil Williams, chief economist at Hermes Investment Management, said the move and rate cut was too late to remove the risk of deflation.“The ECB’s private asset purchases may help, but the amounts are small, and any benefit will fall more to the bigger, core members, Germany, France and Italy, than the periphery.“Far more useful would’ve been the ‘bazooka’ of unlimited sovereign quantiative easing,” he said.In the immediate aftermath of the announcement, the euro fell in value against the US dollar, and the yield 2-year German bonds moved further into negative territory.The yield on 2-year French sovereign bond fell into negative territory.last_img read more

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Former UK minister calls on industry to improve outcomes for DC pots

first_img“If we get this wrong, we might need to revisit the whole question of compulsion,” he said. “We don’t need to do this yet, today, and I hope we never need to do this.”The former Labour MP called for innovation of investment products as a way of increasing certainty, although he did not support the potential introduction of investment guarantees.He warned against falling into the trap of believing that, “through some magic sprinkling of fairy dust”, DC could become more like DB.“We can’t, but I think we can significantly improve the outcome,” he said.Raj Sharma and Tom Barton, partners at law firm Pinsent Masons, went on to recommend changes to the governance structure of DC that could see greater pressure applied to pension providers and employers to ensure good outcomes.Their chapter in the report, one of 14 in total, questioned why employees played a limited role in selecting DC providers despite shouldering investment risk.“Indeed, a worker who agrees to sacrifice salary for pension contributions and invests in a default arrangement effectively plays no role at all,” the lawyers said.The chapter suggested savers should be able to exert an influence on the provider used for their auto-enrolment offering – an option currently unavailable without foregoing the employer’s contributions – as a means of ensuring their best interests were served.,WebsitesWe are not responsible for the content of external sitesLink to Redington’s Age of Responsibility report The future of defined contribution (DC) pensions in the UK must see the debate move away from a focus on absolute pot sizes and again examine the issue of retirement income, former government minister John Hutton has said.Hutton – a secretary of state for work and pensions who went on to pen a review of local government pension schemes for the current coalition government – questioned whether people knew how much workers needed to put aside for retirement and what kind of payments any pension pot would make possible.Speaking at the launch of Redington’s ‘Age of Responsibility’ report, he said: “It doesn’t help if all we talk about is the size of the pension pot. It tells us very little about the sort of income we might generate and the lifestyle this income might support.”Hutton spoke in favour of a national retirement savings target of 15% – significantly above the minimum rate of 8% under auto-enrolment from 2018 – and warned against the consequences of not improving savings rates.last_img read more

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Institutional investors dissatisfied with companies’ ESG reporting

first_imgThe quality and quantity of information on environmental, social and corporate governance (ESG) performance companies make available is unsatisfactory for most institutional asset owners, wealth managers and pension plan consultants, according to a new survey.In its first responsible investing survey, RBC Global Asset Management also found that only 30% of respondents said they considered ESG investing to be a source of alpha.This is in spite of an increasing amount of research concluding that various responsible investing factors lead to better financial returns, the asset manager said.Ben Yeoh, senior portfolio manager at RBC GAM said: “It is striking to see asset owners remain doubtful of ESG’s efficacy even as so much capital pours into ESG-related investments.” He said this showed many investors had yet to understand the financial benefits of ESG.“That gap, between the empirical data and perception in the marketplace, represents an opportunity that can be exploited with thorough, fundamental analysis of environmental, social and governance considerations,” he said.Only 17% of respondents said they were somewhat or completely satisfied with the quality and quantity of ESG-related data from companies in the survey based on responses from 90 individuals, mostly from the US, compared with 43% who indicated some level of dissatisfaction.RBC GAM said this broad dissatisfaction was likely to lessen in the next few years because of progress being made by organisations such as Sustainalytics, MSCI and the Carbon Disclosure Project.In the survey, 40% of respondents said they thought of ESG as a risk mitigator, against 33% who did not think of it this way.However, 62% of respondents said they believed the fossil fuel free movement was a lasting investment issue rather than a fad.last_img read more

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Robeco to stop charging for external research costs under MIFID

first_imgThe €148bn Dutch asset manager Robeco has announced that it won’t charge its clients for the costs of external investment research as of 1 January 2018.Up to now, these costs have been included in transaction costs, but under the Markets in Financial Instruments Directive (MIFID II), these costs must be made transparent. MIFID II comes into force at the start of next year.The asset manager argued that billing research costs separately would be impractical.Recently, the €47bn manager Kempen Capital Management also indicated that it would absorb research costs in response to MIFID II. According to Dutch financial daily newspaper Het Financieele Dagblad (FD), Peter Ferket, head of investments at Robeco, said charging customers through a research payment account (RPA) would require keeping track of which investment team used what research, while the different investment teams at Robeco would not be allowed to share the data.“This goes against our investment philosophy, in which knowledge sharing is essential to achieving good investment results for our clients,” Ferket said.He indicated to the FD that he expected that RPAs to be a temporary solution: “We think that most parties will bear the costs themselves ultimately, as you need to have a very good explanation to your clients.”The daily quoted a spokesman of Actiam – the asset manager of insurer Vivat – as saying that the company was still considering all options. The same went for BNP Paribas Investment Partners.UK-based managers Jupiter, Woodford Asset Management, and M&G have all decided not to pass the costs of research on to clients.last_img read more

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Allianz ‘still to agree price of investment research’ under MiFID II

first_img“We said we’re going to consume what we think we need to consume and monitor that very carefully,” he said. “We’re going to determine what we think we will pay for what we consume. We will have those conversations with our counterparts. Hopefully they will go well and we can agree a fair price.”If agreement on the price could not be reached, the manager may decide to drop the firm as a research provider, Utermann suggested.There needed to be a price discovery in the market as to what should be paid for external research as there was a large disparity between the prices being quoted by banks, he said.Utermann’s comments come amid concerns about implementation of MiFID II, the wide-ranging financial legislation that requires asset managers to pay explicitly for external investment research for the first time.The ethos of MiFID II Allianz Global Investors (AllianzGI) has not yet agreed the price of investment research with its providers, according to the chief executive of the €498bn asset manager.It had agreed with sell-side firms in advance that they would settle a price after the end of the first quarter, Andreas Utermann told a press conference on Wednesday.Uetermann said the manager – part of the giant Allianz insurance group – was in the process of reviewing the first quarter’s activity, including what external investment research it had consumed and what it proposed to pay for it.It had not entered into agreements with sell-side firms to purchase services. According to Chris Turnbull, co-founder of the Electronic Research Interchange, the response from some asset managers has not been in line with “the spirit” of MiFID II.He said some asset managers seemed to still be using “broker voting systems” to determine how much to pay each supplier for research consumed, rather than implementing “ex-ante” research payments.Turnbull told IPE that the “ethos of MiFID” was to have asset managers agree what they would pay for research upfront and for that service to then be delivered.“The whole thing about research in the view of the regulator was that it’s not linked to execution, therefore it’s not linked to the amount of transactions,” he added.Different asset managers were taking different approaches and, ultimately, “there is no right or wrong because nobody’s had their processes or how they do things checked,” he said.Earlier this month Turnbull noted that the Financial Conduct Authority (FCA), the UK regulator, had allowed investors limited three-month trials of broker research content.Elsewhere, the industry association for independent research providers has said the “current market for research under MiFID II is not functioning effectively” and that this could be to the detriment of the end investors.According to a statement last week, Euro IRP said more than 60 independent research firms raised their concerns at a meeting in London at the end of February attended by the FCA.Chris Deavin, chairman of Euro IRP, emphasised that the organisation and its members welcomed the new directive. However, he added that there was genuine concern from its members that the core intent of MiFID II was being undermined by how sell-side and buy-side firms were applying the new rules within “their provision and use of investment research services”.He added: “More needs to be done now to ensure that a vibrant, independent research sector, offering high-quality, differentiated products and ideas, can flourish going forward.”last_img read more

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ABP divests from palm oil firm amid public criticism

first_imgThe Netherlands’ biggest pension fund is to divest a stake in South Korean firm Posco Daewoo, as a subsidiary is involved in chopping down rainforests for palm oil plantations in the Indonesian province of Papua.ABP, the €408bn Dutch civil service scheme, said in a statement that the company was too slow in responding to communications from its asset manager APG about tackling issues.“As a result, we have lost faith in the company’s willingness to improve,” the pension fund said.However, Dutch environmental group Milieudefensie claimed that ABP had divested its €300,000 stake as a result of pressure from ABP’s members as well as the pressure group itself. Milieudefensie said that the palm oil firm had destroyed 27,000 hectares of rainforest during the past few years, displacing the local population and depriving them of their livelihood.The pressure group said it also wanted ABP to divest a €157m stake in Posco, the parent company of Posco Daewoo.“If ABP were to really invest sustainably as it claims, it should divest from the entire industrial palm oil sector,” the group argued.TV show criticismMilieudefensie highlighted that ABP had recently received a ‘Scaredy-Cat’ trophy from Dutch consumer programme Kassa, after it declined to account for the now-divested holding on camera.At the time, ABP said nobody was available to comment because of the school holidays.José Meijer, vice chair of the scheme, said she regretted “that the viewers have missed us, as we are keen to account, and never shy away from issues”.ABP’s investments in palm oil firms total €17m. It said it was actively encouraging sustainable and responsible production of palm oil.In 2016, the pension scheme introduced a new investment policy that not only took into account return, risks and costs, but also assessed how sustainable and responsible its investments were.ABP said this policy must guarantee that it invested in equity and bonds of companies that are ahead on sustainability and responsibility factors by 2020.It would only invest in other firms if it had faith in their ability and willingness to improve, it said.last_img read more

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Nordic insurer seeks developed market bond manager via IPE Quest

first_imgTracking error for the strategy should be between 0.5% and 2%. Asset managers should have at least $3bn in assets under management for the asset class, and $10bn as a firm. Ideally they would have a track record of at least seven years, but three years is the absolute minimum.Interested parties should state performance gross of fees to 30 November. The deadline is 7 January at 5pm UK time.The IPE news team is unable to answer any further questions about IPE Quest, Discovery, or Innovation 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 3465 9330 or email jayna.vishram@ipe-quest.com. A Nordic insurance company has launched a tender for a $50m (€44m) global developed markets fixed income mandate on IPE Quest.According to QN-2498, the unit-linked insurer is looking to invest in investment grade bonds, and seeking active managers.The focus, it said, should be on “bottom-up security selection with a macro overlay”.The benchmark for the mandate is the Bloomberg Barclays Global Aggregate Corporate index.last_img read more

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Mandate roundup: Ircantec awards five mandates worth €2.8bn [updated]

first_imgA spokeswoman for Candriam said its slice of the mandate would be managed according to its “European equity innovation” process with a socially responsible investment “filter”.Metzler wins €1bn currency overlay mandateA German pension fund has awarded a €1bn currency overlay mandate to Metzler Currency Management.According to a statement from Metzler, the Protestant Pension Fund outsourced the mandate to Metzler’s currency team in March. French public sector pension scheme Ircantec has awarded five mandates worth a combined €2.8bn for global and European equities.The €11bn scheme has split a €2.4bn actively managed European equities allocation between Mirova, CPR Asset Management, Candriam and Allianz Global Investors.BNP Paribas Asset Management has been assigned to manage a separate €400m factor investing mandate focused on OECD countries outside Europe.In each case, the investments will be held in segregated mandates, according to a contract award notice published last week. Winchester Cathedral in HampshireThe £6.6bn (€7.6bn) pension fund for the county of Hampshire in England has hired JP Morgan Alternatives Asset Management to run a private debt portfolio.A spokeswoman for Hampshire Council said the pension fund had made a 5% strategic allocation to private debt.According to a contract notice issued last week, the Hampshire Pension Fund has appointed JP Morgan for an initial five years, with the option to extend “for an indefinite period as needed”, dependent on performance.The contract notice stated that Hampshire wanted the manager to “deliver high-quality risk-adjusted returns” through a bespoke fund-of-funds strategy.This article was updated on 14 May 2019 to add further details of the Hampshire Pension Fund mandate.center_img Credit: Adam JonesA protestant church in Marburg, GermanyÖzgür Atasever, head of currency management at Metzler Capital Markets, said: “More and more clients are asking for systematic foreign exchange (FX) management because regulatory transparency requirements have become stricter and FX risks have grown significantly.“Our systematic hedging strategy allows efficient and cost-effective management of FX risks without sacrificing the opportunity to participate in positive price performance.”The pension fund is a member of Germany’s Community of Municipal and Church Retirement Pensions.Metzler Asset Management has €75.7bn in assets under management, according to IPE’s 2018 Top 400 Asset Managers survey.Italian teachers’ fund shakes up manager line-upFondo Espero, the €1.1bn Italian pension scheme for education staff, has appointed Groupama to run euro-denominated bonds and money market funds.According to Espero’s website, European fixed income accounts for 20% of its strategic asset allocation in its €896m growth section, while money market funds account for 10%.The pension scheme has also hired Unipol to runs its €202m guaranteed section, which is predominantly invested in short-term fixed income instruments.In March, Espero hired Vontobel to run global bonds – which have a 20% target allocation in the growth section – and Epsilon to run a mandate to manage “tail risk”, worth 1% of the investment portfolio. The two managers replaced PIMCO.Hampshire Pension Fund names JP Morgan to private debt mandatelast_img read more

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