The ministry separately decided to include environmental damage in the list of concerns over which the sovereign fund should actively engage with companies, leading to a reprieve for mining company AngloGold Ashanti following a recommendation by the Council that it be excluded.Instead, NBIM has been asked to monitor AngloGold’s efforts to improve its track record over the next five years, at which point it and the Council will re-assess the company’s position within the GPFG’s investment universe.In its initial recommendation, the Council stressed there was an “unacceptable” risk AngloGold was the cause of severe environmental damage at its mines in Ghana and had contributed to “serious and systemic” human rights violations.However, the ministry – now controlled by the new conservative coalition government following the September election – has approved the exclusion of five companies.Timber company WTK Holdings Berhad, Ta Ann Holdings Berhad, Zijin Mining Group and Volcan Compañia Minera have been excluded over concerns of environmental damage, while Zuari Agro Chemicals was excluded over concerns it was “contributing to the worst forms of child labour”. Dutch oil giant Shell has escaped potential exclusion from the Norwegian Government Pension Fund Global (GPFG) after a request to place it under observation was denied by the country’s Ministry of Finance.The Council of Ethics, responsible for monitoring listed companies and recommending whether they should be excluded from the fund’s investment universe, recommended Royal Dutch Shell be placed under observation over its environmental record in Nigeria.The company’s activities in the Niger Delta are alleged to have led to “severe” environmental damage to the area, due to what the Council deemed “extensive” oil spills.Instead of placing Shell under investigation, the Ministry of Finance asked Norges Bank Investment Management (NBIM) to include oil spills in its active engagement effort and discuss the matter with the company in which the GPFG owned a 2.34% stake at the end of last year. read more
It also singled out the UK and Denmark, where most responding pension funds adopted a clear distinction and 44% of respondents said it simplified the portfolio-construction process.The survey also found pension funds often measure liability risk but do not put in any formal hedges against it.One-fifth of respondents did not measure liability risk.“This is still a worryingly high percentage, given that this measurement is an essential part of a sound asset-liability management (ALM) process,” the report said.EDHEC also found that only two-fifths of respondents align the duration of bond holdings to the duration of their liabilities, which may represent the lack of liability matching.However, of the funds that do implement LDI, only a third match duration.“This is surprising, given that duration matching is usually considered the first step towards the immunisation of the funding ratio against interest rate changes,” EDHEC said, while acknowledging it may be due to the lack of available bonds with long maturities.“Too many pension funds are still more concerned with standalone performance than risk management,” it added.“Many remain asset-only rather than ALM funds and do not take sufficient account of the impact of their liabilities in their asset allocation policy or risk management.”With regard to dynamic LDI, which allows periodic revisions to the allocations to performance-seeking and liability-hedging portfolios, a growing split is occurring between Northern and Southern Europe.EDHEC said that, while 38% of respondents adopted dynamic LDI or are considering doing so, it was limited to Netherlands, Denmark, the UK and Germany. Despite awareness of liability-driven investment (LDI), pension funds are failing to truly adopt the model, with only half operating a split between performance-seeking and liability-hedging portfolios, according to the EDHEC-Risk Institute.In a survey of 104 mainly European investors, EDHEC found that 80% were fully aware of the LDI strategy.The institute described the paradigm as creating two distinct portfolios within pension funds, one for performance and access to risk premia and the other to hedge against impacts on liability values.However, its research found that only half of respondents implement a formal separation of the two portfolios. read more
Institutional investors are making many of their investment decisions chasing ideas that are unsuitable for them and reflect past return trends, according to Cambridge Associates.The consultancy’s global head of pensions practice, David Druley, said this kind of attitude could once again be seen in the growth of smart-beta strategies in Europe, the UK and the US.Smart beta – the term used to describe equity or fixed income investing that follows a systematic, rules-based strategy to achieve exposure to beta factors – has been growing in popularity.Research from asset manager State Street Global Advisors suggested 40% of institutional investors across the US and Europe already allocate to smart beta strategies, while a further one-quarter are thinking to make allocations. Further data from intelligence provider Spence Johnson has estimated European funds will have around €211bn in smart-beta allocations by 2018.Durley, while acknowledging the effectiveness of some smart-beta strategies, warned that a rush of capital into these strategies would immediately make them more expensive and produce lower returns, two of the decisive factors when investors allocate capital.“If enough people put significant amounts of money into various smart-beta strategies, it can very quickly become overvalued beta,” Druley said.“Therefore, it will likely neither be lower risk nor generate higher returns, which is what these strategies are promising.“How many of the strategies are really smart beta? And how many are just differing factor bets such as an overweight to small and mid-cap stocks, or low-beta stocks or to quality stocks?”He said the rush of capital to the strategy was simply another example of investors chasing lost returns and evaporated ideas, not unlike pension funds moving to a value overweight after the market crash ended in 2003.In the 2000-03 bear market, institutions became convinced value strategies carried less risk because they protected capital well as tech stocks burst, significantly affecting pension funds riding the equity wave.The funds believed these strategies would outperform the market because they had done so over longer periods of time.However, it was more down to the strategy being under-owned, and subsequently undervalued, before the crash, Druley said.By the time the next next crash came in 2007, pension funds had allocated large sums to value strategies, believing the investment style would help protect capital in the long-run.However, during the last downturn, value strategies in some cases lost more than other investments, according to Druley.He said this was due to many of the component investments being financial stocks, which were also undervalued during and after the 2003 crash.“Value strategies did worse than the market, in some cases dramatically,” Druley said.“The cheapest-looking stocks were in many cases financials that got hit the hardest, and other value stocks weren’t unusually cheap.“We saw how surprised everyone was in the last financial crisis that value didn’t offer great protection from the bear market. A similar thing is likely to happen again in the future. We are always fighting the last war.” read more
Almost all (94%) said it was a trusted source of information, while 89% considered the regulator to be independent.Interim chief executive Stephen Soper said: “We’re aware one of our biggest challenges lies ahead with the automatic-enrolment process. I am therefore pleased 77% of employers believe we are effective in maximising compliance with their AE duties.”In other news, the Miki Travel Pension Scheme has begun the wind-up process for its scheme by insuring all of its £45m (€57m) of liabilities with Pension Insurance Corporation (PIC).The scheme, set up 40 years ago for the travel firm, had been closed to future accrual and new members.Both the scheme and sponsor were advised by Jelf Employee Benefits.Lastly, the funding ratio at defined benefit (DB) pension plans belonging to the FTSE 350 have fallen to their lowest level since August 2010, according to Mercer.The monthly ‘Pensions Risk Survey’ saw liabilities increase by £6bn over the month of July to £699bn, calculated on an IAS 19 basis.This left a deficit of £116bn, significantly higher than the £96bn seen at the end of 2013.The funding ratio at the end of July was 83%. The UK pensions industry has given The Pensions Regulator (TPR) positive feedback in its annual Perceptions Tracker report.The study looks at how the industry rates the regulator’s ability to carry out its statutory objectives.Some 69% said the regulator’s performance over the last year had been good, or very good, in line with last year’s survey.One-third of the respondents said their perception of the regulator had improved as a result of its work in tackling pension liberation scams. read more
He warned that the current returns could be seen as factor that would reduce future returns, particularly for bonds.“It is important that the sector remain vigilant,” he said.“Persistently low interest rates will bring about lower returns in the future. Seeking more profitable asset classes must go hand-in-hand with better risk management.”In Belgium, changes are in the offing concerning a distinguishing feature of the workplace-based pension system.This is the present application of legal provisions, under the Loi relative aux pensions complémentaires (law on occupational pensions).Neyt has described this law as making Belgian occupational schemes a “compromise” between defined benefit and defined contribution. The law, dating from 2003, obliges employers to achieve a nominal return of 3.25%, not taking into account inflation. This means employers may have to top-up funding to reach the target.Neyt pointed out that this burden on employers was set during the 2003-04 period, when inflation, at 2%, reduced the effective cost to employers.But now inflation is slightly negative, which is resulting in political pressure to relax the law, which could well be realised.Neyt also called for a reform of the guaranteed legal minimum return on pension fund contributions, which he said should be fair, transparent and easy to manage.As of the end of December 2014, the average asset allocation for a pension fund in the BAPI sample was 47% in bonds, 34% in equities, 13% in ‘other’ investments (mainly insurance, infrastructure, private equity and convertible bonds), 5% in real estate and 2% in cash. Belgian pension funds nearly doubled their investment returns last year over the year before, with average gains of 11.86% compared with 6.73% for 2013, according to the Belgian Association of Pension Institutions (BAPI).BAPI said the continued low level of interest rates boosted overall returns for the 52 pension funds surveyed.The 11.86% return figure is provisional, based on reports from individual funds with a capital value of approximately €14bn (the total under management is around €20bn).Yet BAPI president Philip Neyt said he did not expect to see, when the final figures are consolidated in April, any serious change in the present figures for 2014. read more
Industriens Pension, Nordea, AP Pension, Aon Hewitt, Philips, Vatenfall, MP Pension, Hymans Robertson, Capital Cranfield Trustees, State Street Global Advisors, ETF SecuritiesIndustriens Pension – The Danish labour-market pension fund has found a replacement for its outgoing CIO, appointing Karsten Kjellerup Kjeldsen to take overall charge of investment in the role, with effect from April 2016. Kjellerup Kjeldsen will come to the DKK139bn (€18.6bn) pension fund from the role of head of liability-driven investments and head of advisory and trading at Nordea Life & Pensions.AP Pension – Denmark’s DKK103bn (€13.8bn) mutually owned pensions provider is expanding its investment team for alternatives to meet greater staffing needs for its current property investment activity, as well as future plans. Peter Olsson, previously AP Pension’s head of property investments, has now been promoted to the position of managing director of the pension fund’s property unit, AP Ejendomme.Aon Hewitt – Yvan Legris has stepped down from his role as global chief executive of Aon Hewitt’s consulting business at the end of December 2015. He will continue to help with client and leadership transitions until the end of June. Legris’s responsibilities are being assumed by other existing senior leaders. Cary Grace will lead the Retirement & Investment group on a global basis, while Michael Burke will lead the Talent, Rewards and Performance group. While Legris says he has no immediate plans for the future, his long-term ambition is to “contribute to the leadership of a global humanitarian organisation”. Philips – Jan Hoogeveen has been appointed as global head of the pension funds of Philips Lighting. He will be responsible for the company’s pension schemes in 40 countries, with total assets of €27bn, including the €17bn pension fund in the Netherlands. Hoogeveen’s role is a new position following the division of Philips into companies for lighting and healthcare. He arrives from Nordic energy company Vattenfall, where he has been director of compensations and benefits. Before then, he was global employee benefits manager at Swedish packaging firm Tetrapak.MP Pension – Egon Kristensen has been chosen as chairman of the supervisory board of Denmark’s MP Pension, the pension fund for Danish M.A.s, M.Sc.s and PhDs, which is currently administered by Unipension. He began his duties this week following the selection of the new board in December. He has been a member of the board for the last three years, and works as a grammar school teacher at Ikast-Brande Gymnasium. Separately, Lis Skovbjerg has been selected as deputy chairman of the supervisory board, having been on the MP Pension board since 2013 as a member with particular technical expertise. She holds several other board positions in Denmark’s financial sector and was previously a director of Sampension.Hymans Robertson – David Walker is to succeed Linda Selman as head of LGPS Investments, assuming overall responsibility for LGPS investment policy and advice, as well as the development of services for Hymans Robertson’s LGPS investment clients. William Marshall will become head of LGPS Investment Clients. Selman is planning to retire.Capital Cranfield Trustees – Tony Filbin has been appointed chairman of the board, replacing Bob Bridges, who has been chairman for the past three years. Bridges will continue his role as a trustee board member to a number of pension schemes. Filbin has been a non-executive director with Capital Cranfield since 2014. He was previously managing director for workplace pensions at Legal & General. State Street Global Advisors – Philippe Roset has been appointed head of SPDR ETFs for the Netherlands. Prior to joining State Street, Roset spent three years as head of Benelux for ETF Securities. He was also previously vice-president for Benelux business development and capital markets team associate at iShares. read more
He said Bpf Tex’s social partners would be able to change the accrual rate if the price of a pension were to change in future.According to Borm, the textile industry’s social partners had accepted a possible rights cut of 2%.He added that the scheme’s 140 pensioners would be exempt from a rights discount, as this would have little impact on its coverage ratio.Henk van der Kolk, chairman at Detailhandel, told IPE sister publication Pensioen Pro that providing flexibility during the merger process was of particular importance to his scheme, and that maintaining many different pensions plans was not its primary goal.Traditionally, the €21bn pension fund PGB has been seen as the scheme offering differentiated pensions accrual and contributions for each sector it serves.Borm acknowledged that PGB had been shortlisted as a potential merger partner but said its use of the market interest rate as a merger criterion would have been very disadvantageous for Bpf Tex’s predominantly young participants.Bpf Tex has 18,400 participants and deferred members, compared with Detailhandel’s 1m participants.The former spent €373 per participant on administration and 0.26% on asset management, while the latter spent €50 and 0.22%, respectively.Bpf Tex’s funding stood at 100.5% as of the end of August, while coverage at Detailhandel stood at 105.8%. Bpf Tex, the €260m pension fund for the wholesale textile industry in the Netherlands, is looking to join Detailhandel, the €18bn scheme for the retail industry.It said merging with Detailhandel would increase its flexibility on pensions accrual and contribution levels, thereby improving the scheme’s chances of bridging a 5-percentage-point funding gap.Bpf Tex is the first pension fund to join Detailhandel since the retail scheme fashioned itself as a “magnet fund”, seeking to attract other funds in the retail and wholesale – both food and non-food – sectors.Joost Borm, chairman at Bpf Tex, said his pension fund would seek to exploit the flexibility afforded by the merger to bridge the funding gap between his scheme and Detailhandel through reduced pensions accrual relative to Detailhandel’s arrangements over the first year. read more
Inadequate greenhouse gas emission disclosures could mislead investors and undermine initiatives aiming to address climate change, according to a new project aiming to tackle the problem.Launched in Dublin yesterday, the 100% Club is a joint academic and industry initiative attempting to challenge companies around the world to take responsibility for disclosing all of their annual Scope 1 greenhouse gas (GHG) emissions.Scope 1 emissions are direct emissions from sources owned or controlled by companies – as opposed to indirect emissions, such as those stemming from the use of a company’s products.According to the 100% Club, out of thousands of listed companies that report a number for their Scope 1 emissions, in 2016 only 20 disclosed all such emissions. Beni StabiliNorthern Trust AvivaNorske Skog Companies invited to join 100% Club AbbvieKGHM IRPCVerisk Analytics AdidasMicrosoft CofinimmoRoyal Dutch Shell Fiat ChryslerTokio Marine Charles Donovan, director of Centre for Climate Finance and Investment, Imperial College Business School“We are in a confusing position, where you have all this information but people are still saying they can’t make decisions based upon it,” he said.He added that he had yet to see a commercial index that, in his opinion, “represents what we understand to be the real financial risks associated with climate change and accurately ranks companies accordingly”.Andreas Hoepner, professor in operational risk, banking and finance at University College Dublin and working with Donovan on the 100% Club, also highlighted the implications of inadequacies in GHG reporting for climate change-related efforts being undertaken by asset owners.“To provide asset owners any chance of aligning their portfolios with climate goals scenarios and responding thoroughly to [the Task Force on Climate-related Financial Disclosures], it is paramount that the vast majority of corporations listed on equity or bond markets take complete and public accountability of their Scope 1 GHG emissions,” he said in a statement.How does it work?The 100% Club aims to promote complete GHG emissions disclosure by recognising and “celebrating” those companies that meet its criteria.To get onto the organisation’s list of complete reporters, any company that reports 100% of its Scope 1 GHG emissions according to Bloomberg is invited to submit a statement of completeness to the 100% Club.The 20 companies that have been invited as “member companies” so far are from a range of sectors, including pharmaceuticals, banking, and oil and gas.Donovan said the initiative was focusing on Scope 1 emissions as a first step because it wanted to be “patient”. EquinorSaipem Some companies that were not quite able to capture all of their Scope 1 emissions for technical reasons were admitted to the organisation’s list, provided they made a “quantitative statement of completeness”. According to the 100% Club’s criteria, at least 95% of emissions must be measurable.Charles Donovan, director of the Centre for Climate Finance and Investment at Imperial College Business School, one of the founding institutions, said incomplete emissions reporting data prevented investors from being able to properly manage the financial risks associated with climate change.“Completeness matters because investors are seeking to understand how companies within a sector are adapting and changing, or not” Charles Donovan, Imperial College Business SchoolUnless a company captures 100% of their emissions, investors cannot monitor the rate of change over time, he said, “and our belief is that it’s the rate of change that signals to investors what their strategies are”.“This is why [completeness] matters, because investors are seeking to understand how companies within a sector are adapting and changing, or not,” he told IPE. Deutsche BankSafestore Holdings HenkelUnibail-Rodamco Westfield “If you can get to 100% on the easier stuff then you can build a stronger foundation to get to 100% on the slightly trickier stuff,” he added.The initiative was not about adding to companies’ reporting burden, he emphasised, but about asking them to check the emissions information they do report for completeness.In some cases it transpired that all companies would need to do is self-certify the completeness of their data, just as they would with respect to financial statements.“We will probably find some companies that have to spend about five seconds to get onto our list, but it’s a crucial threshold to pass,” said Donovan.This article was updated to correct Andreas Hoepner’s title read more
“But in these years I have to say it’s one of our duties to try to change this public opinion, and to tell our customers that if you would like to finance growth across Europe, you have to do much more with private equity than is happening now.“The UK is different, but in continental Europe there is a big lack of private equity, so it’s necessary that we all do more of this and develop a private equity culture,” said Böhm.Peter Tind Larsen, head of alternative investments at Danish pension fund PFA, said that when it came to infrastructure investments in particular, it was possible to take advantage of a public relations angle.“If you can make return requirements add up, then you can find some pure-play ESG healthy assets that you can spend some positive PR on,” he said.But there was also a flip side to this, Tind Larsen said.“One of the challenges on my side was active ownership, because at least when you go direct you are exposed if things go sour,” he said.“You might have representation on the board in direct ownership, so with good reason you are held responsible if something goes wrong,” he said.Meanwhile panellist Alberto Gómez-Reino, head of institutional asset allocation at Spain’s BBVA Asset Management, speaking in his capacity as a manager of the corporate pension fund EDP España Pension, acknowledged that a lack of public information was a problem with private equity as an asset class.“We essentially consider private equity as a way to help companies, so this is something generally good,” he said.But when a pension fund invested in companies – whether via public or private equity – he said it was exposed to many different risks.“The way your clients understand this risk is crucial so for us, so there is a teaching process before introducing these assets, about why they are different from traditional asset classes.“We are very transparent with this kind of investment. But if you buy a public equity there is also a risk, there’s always a risk,” said Gómez-Reino. Negative public perceptions of certain types of alternative investment – private equity in particular – present a challenge for pension funds, as the sector increases its exposure to such assets mainly due to low bond yields, a panel discussion at the IPE Conference in Copenhagen concluded.Chairing a session on alternatives this week, Ian Prideaux, chief investment officer at the family-owned Grosvenor Estate, asked three European pension funds whether investing in alternatives brought them any public relations (PR) problems, noting that a German member of parliament had once described PE funds as being like locusts.Christian Böhm, chief executive officer of Austrian pension fund APK, said: “For us as a pension fund it’s just another asset class, but from the public perception it’s different.”In certain regions of the German-speaking world, PE funds were also seen as enemies, he said. read more
“At the same time, we can discuss the individual company’s climate strategy with management and how they can reduce the climate impact, so that they can, for example, be at the forefront of the stricter climate regulation to come in the future, and the increasing demand for green solutions,” he said.It still made sense from a return perspective to invest in companies with a small climate footprint within their specific industry, Kobberup said, adding that Danica Pension would focus on reducing CO2 emissions further in the next few years.The pension fund, which had DKK450bn in total assets at the end of the first quarter, attributed its relatively low carbon emissions to having fewer investments in sectors with high emissions, such as energy production and supply.In addition, it said, it invested in shares in the automotive and energy industries whose carbon footprints were smaller than the sector average.Looking for IPE’s latest magazine? Read the digital edition here. The CIO of Denmark’s Danica Pension has warned it could be harder to produce investment returns from companies that do not have a climate-friendly business plan, as the Danske Bank subsidiary pledged to reduce carbon footprint of its portfolio.Publishing its first climate report, Copenhagen-based Danica Pension reported CO2 emissions related to its equity and corporate bond investments were 33 tons per DKK1m (€134,000) invested at the end of 2019 — which it said was 21% less CO2 than the global benchmark for these asset classes.Poul Kobberup, Danica Pension CIO, said: “If the companies do not set a climate-friendly course, there may be an increased risk that they just don’t have a relevant long-term business model, which could harm our ability to generate returns.”Kobberup said gathering the CO2 data gave the fund a precise overview of how investments were performing in climate terms, and allowed it to compare them. read more
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