Fixed income was less positive, with negative returns of 5.9% on UK Gilts and 6.4% on global bonds, led mainly by poorly performing emerging market debt.Average pension fund allocations remain relatively stagnant compared with 2012, with around 46% in UK and global equities, 35% in fixed income and 16% in alternatives and real estate.Despite the negative fixed income returns, Ian Barnes, head of USB Global Asset Management in the UK, said funds would not necessarily be disappointed with the losses.“Being stung does not have to be a bad thing, as you are always hostage to the timing of investing in an asset class,” he said. “Emerging market debt is not being used for liability matching but for diversifying. It has still played a strong risk-reduction role, even if it has damaged returns.“I do not think we would see a knee-jerk reaction out of the asset class in the near term.”UBS GAM said discussions about, and allocations to, smart beta had become the most prominent change over the last year.The report highlighted a growing trend of using smart beta factors to target specific outcomes within portfolios, or using multi-factor strategies that are uncorrelated and add diversification to the remainder of the portfolio.Barnes said there was a confluence of influences leading to popularity of smart beta and its use as a diversifier.“Smart beta can be anything you want it to be,” he said. ”You do not even have to believe in the return argument, just that it will perform in a different way, and a different way to deliver equity beta.”Similarly, infrastructure’s popularity grew, with global assets invested into the class almost at levels seen before the financial crisis.However, Barnes said belief remained that there was still a “cliff edge” for investors with respect to allocations to the asset class.“This is more related to the governance hurdles,” he said. “The investment opportunity has been proven, and now the challenge is getting the money in the ground.”Barnes said the issue also related to infrastructure having high start-up charges, despite long-term benefits, and consistent regulatory pressure for pension funds to focus on fees.UBS’s study also found defined contribution (DC) assets were now growing at 8.8% per annum, with defined benefit (DB) assets slowing to 5%.The growth is driven by high allocations to equity from within accumulating DC funds, and the influx of assets via automatic enrolment, which picked up steam in 2013. UK pension funds are now actively working towards full-funding as asset returns fuelled by equities lifted schemes’ hopes, according to research.In UBS Global Asset Management’s annual Pension Funds Indicator report, the manager said achieving full-funding in the current low-yield environment had become the primary concern for pension funds.It said this correlated with the positive 11% asset performance experienced on average, making the aim more realistic when setting targets.Leading the returns for UK pension funds was global equities, providing 22.7%, closely followed by UK equities at 20.8%.
In a statement, he pointed out a Greek exit would “certainly unsettle markets and further increase volatility” but only over the short-term.Udo Bullman, MEP for the German social democratic party (SPD), a junior member in the German coalition government, expressed a markedly different sentiment at the beginning of the week.In a statement, he stressed neither the European Union, nor Greece, could have an interest in forcing an exit from the euro-zone.According to Bullman, Greece “will have to be saved from default” over the short-term.But he added it was time for “a paradigm shift” with which “construction errors like the Troika” have to be amended and “replaced by a growth-oriented, democratically legitimised institution”.Read about the opportunities Germany’s largest Versorgungswerk, BVK, sees arising from the ECB’s QE programme One in four investment professionals in Germany accept it is “likely” Greece will leave the euro-zone, while a minority think its departure is “very likely”.A survey by the German Federation of Financial Analysts and Asset Management (DVFA) among some of its 1,400 members found that only 3% believed the country’s exit from the single currency could be ruled out.However, almost two-thirds said the impact of such a measure would be neutral and another 27% even think it might be a positive development for capital markets.Only 35.8% expected a negative impact and Ralf Frank, secretary general at the DVFA, concurred that markets could see see a possible “cathartic effect” over the longer term.
Source: GSAMHowever, considerations about risk, governance, and capital efficiency meant that the asset classes perceived as offering the highest return opportunities were not necessarily the ones towards which the most money would flow, noted Comon.For example, although certain types of securitised assets, such as senior collateralised loan obligations (CLOs), offered attractive risk-return profiles, Comon said, Solvency II rules for insurers imposed relatively high capital charges, making CLOs “more of a non-European phenomenon”.Middle-market corporate loans, infrastructure debt, and private equity were the top three asset classes to which insurers anticipated increasing allocations, according to the survey.Just over a third of European insurers anticipated increasing their allocation to infrastructure debt and middle-market corporate loans, 23% to real estate equity, and 21% each to commercial mortgage loans and infrastructure equity. Insurers’ expectations regarding the credit cycle, inflation, rates and equity returns have changed significantly compared with last year, according to a survey carried out by Goldman Sachs’ insurance asset management arm.The annual survey – the asset manager’s sixth – captured the views of 317 chief investment officers and chief financial officers representing over $10trn (€9.2trn) in global balance sheet assets, roughly half the size of the total industry. It found that insurers had “dramatically” changed their expectations in several areas.Presenting the findings to journalists, Etienne Comon, head of insurance asset management for Europe, the Middle East, and Africa at Goldman Sachs Asset Management (GSAM), said that in previous years the changes recorded by the survey have typically been incremental. He said: “We think there are really significant changes in attitude on the part of insurers.”Last year three-quarters of respondents expected the credit cycle to be on its last legs, but this year only one-third of insurers believed the credit cycle was in its late stage. Only 2% of respondents in the 2017 survey expected credit spreads to widen significantly this year. “The ‘backpedaling’ view on the credit cycle has seen an increase in corporate credit allocations with a third of insurers planning to increase their exposure to credit risk,” GSAM said.On a net basis, 17% of insurers expected to increase credit risk, 7% were looking to increase equity risk, and 8% said they would increase duration.#*#*Show Fullscreen*#*# Source: GSAMAsia Pacific insurers were the most optimistic, with 55% intending to increase credit risk. This was up from 31% last year, with Goldman Sachs suggesting this was primarily due to fears dissipating about a recession in China.Private equity, US equities, and emerging market equities were expected to be the highest-returning asset classes.This contrasted with last year’s survey, in which US equities and emerging market equities were among the lowest for expected returns, while insurers anticipated government and agency debt to be among the best performers.#*#*Show Fullscreen*#*#
The UK’s Pensions Regulator (TPR) has put pressure on dividend-paying companies to ensure a balance between cash paid to shareholders and contributions to pension schemes, according to Willis Towers Watson.TPR yesterday issued its annual report on defined benefit (DB) pension scheme funding. In it, the regulator said it expected schemes “where an employer’s total distribution to shareholders is higher than deficit reduction contributions being paid to the pension scheme to have a relatively short recovery period”.The regulator did not give specific details of what would constitute a “short” period, but Graham McLean, head of pension scheme funding at Willis Towers Watson, said it was clear TPR wanted some companies to pay “a lot more” into their schemes.“Last year, the regulator said that the median FTSE 350 employer was paying 10 times as much in dividends as in pension deficit payments,” McLean said. “A one-to-one ratio would often be a huge change – though, for some employers, a smaller increase in deficit payments might make the recovery period short enough to get the regulator off their back.” TPR was criticised last year by politicians on the cross-party Work and Pensions Committee, who highlighted a 23-year recovery period for the BHS Pension Scheme as unacceptably long.TPR chief executive Lesley Titcomb emphasised to the committee that this was an outlier, with the average recovery period across UK schemes closer to eight years.Willis Towers Watson’s McLean said the regulator could have turned the spotlight on the balance between dividends and DB contributions as “plans to repair deficits are generally not on course”.“Previously, the regulator has been warned that demanding more money for the pension scheme would stop employers from investing in their businesses,” McLean said.“It is trying to reframe the debate from ‘pay off the pension deficit instead of investing in the business’ to ‘pay off the pension deficit instead of returning funds to shareholders’,” he added. ”It makes sense for trustees to look at contributions alongside cash leaving the business, but a dramatic change in dividend policy could raise an employer’s cost of capital and weaken its business.“While the regulator’s words can affect behaviour, they do not change the law. Some employers may stand their ground or make the case that this sort of increase in contributions is not appropriate in their circumstances. Others may put more energy into debating how the deficit gets measured in the first place.”Lynda Whitney, partner at Aon Hewitt, said the regulator’s stance was a warning “with the threat that TPR will take more action than in the past if they do not think there is a fair balance between the treatment of the legal obligation to the scheme compared to shareholders”.TPR has a difficult balance to strike. Research from the International Longevity Centre published last year claimed that deficit reduction contributions had taken almost £100 (€117) away from individual employees’ wage growth.Separate work by JLT Employee Benefits in January reported that the cost of DB benefits was proving a drag on employer payments to defined contribution schemes.
Private equity funds usually charge management fees based on assets including cash yet to be invested, and lock that cash in for several years. However, the new investment platform said that, if not all committed assets were used during the year due to a lack of available deals, assets would be returned.The pension fund clients of the three asset managers have invested 3-5% of their entire portfolio on average in private equity, most of which is allocated to pooled funds.Achmea IM has allocated 10% of its private equity holdings to co-investments and, according to Van Gisbergen, the company aimed to double this allocation in the coming years. Van Gisbergen said that the fund for 2019 comprised more than €100m, which would be largely invested in small and medium-sized companies with a market value of between €200m and €300m.Achmea, Blue Sky and SPF are to jointly take a minority stake, which would be scaled up to majority holdings through co-investment by a private equity fund.The three players expected that their combined clout would make them qualify sooner for co-investment deals.Van Gisbergen said: “In the past, we had little access to deals, as the large players, such as the €215bn PGGM, would be involved earlier.”Blue Sky Group runs €22bn for three schemes sponsored by Dutch airline KLM, while SPF Beheer manages €20bn for clients including the railways scheme SPF and the public transport pension fund SPOV.Achmea IM is the €130bn asset manager for institutional investors, insurer Achmea and general pension fund Centraal Beheer APF, part of the Achmea group. The Dutch asset managers Achmea IM, Blue Sky Group and SPF Beheer have established a joint platform for co-investments in private equity.The companies, which jointly manage €172bn, said the collaboration aimed to significantly reduce costs.“Although an external specialist would be needed for the adequate implementation of the programme, costs could be more than halved,” said Jos van Gisbergen, senior portfolio manager for private equity at Achmea IM.Pension fund clients would be able to decide each year how much they each wanted to invest.
Baumann told IPE that Sacra’s FRPS would have an investment portfolio of around €3bn, which would benefit from prudential treatment more compatible with the long-term character of its liabilities than that under Solvency II.The new occupational pension vehicles are subject to a regulatory framework combining elements of the first IORP directive and Solvency II. Most notably, the new pension funds are exempt from the latter’s capital charges and other financial requirements. Baumann said the FRPS framework “kept the best of both prudential regimes”.The government has previously said a shift to the FRPS regime could unlock “several dozen billion euros” to invest in companies, mainly through equities.A regular complaint about the Solvency II framework is that it discourages long-term investments.The European Commission is currently working on amendments to a Solvency II rule and yesterday the chairman of the European Parliament’s economic and monetary affairs committee reiterated its support “for a reduction of the current risk margin in order to boost the financing of the real economy and to encourage the insurers to invest in long-term projects”.The other two insurance entities that have turned to the FRPS framework have, or are planning to, set up an FRPS as a separate entity.Aviva France has been given approval to set up will be a €4bn fund, while healthcare provider Malakoff-Médéric has also sought authorisation to create an FRPS, which it has named MM Retraite Supplémentaire.Sacra was established in 1995 to act as the provider for the closed occupational pension plan for the insurance sector, set up in 1962. A third French insurance entity has moved pension assets out from under Solvency II and into a new occupational pensions vehicle.ACPR, the French prudential regulator, last month granted Sacra permission to operate as a “fonds de retraite professionelle supplementaire” (FRPS), the vehicle ushered in by a 2016 law known as “loi Sapin”.Stève Baumann, chairman of Sacra’s board, said that by creating the FRPS the insurance sector remained “cutting-edge”, having already been a pioneer when it set up a funded pension scheme in 1995.Sacra had “innovated by transforming itself entirely into an FRPS”, he added, indicating this was possible because Sacra only had a single contract, with FFA, the French insurance federation.
Kjetil Houg, chief executive of Folketrygdfondet, said: “We delivered a solid result in a negative market.”Over the past five years the fund has beaten its benchmark by an average of 1% a year, Folketrygdfondet reported.“The reason we do better than the market over time is that we choose the right companies and have avoided big losses,” Houg said. “We have also positioned ourselves well in the bond market and exploited several sources of return.”Houg took up the top role at Folketrygdfondet at the beginning of September 2018, coming to the management firm Oslo Pensjonsforsikring, where he was chief investment officer.The GPFN’s equity portfolio ended the year with an investment loss of 1.8%, while the bond portfolio produced a positive 1.7% return, the firm reported.Oslo’s stock market was one of the strongest bourses internationally in 2018 despite a significant fall in the oil price, the fund’s manager noted. It lost 0.7% over the course of the year, according to S&P CapitalIQ, while the S&P 500 fell by 7% and the MSCI Europe index collapsed by 17.3%The GPFN’s total assets slipped to NOK239.2bn at the end of December from NOK240.2bn a year before.Yesterday, its sister fund, the NOK8.8trn Government Pension Fund Global, reported a 6.1% loss on its investment portfolio, equivalent to €50bn, with falling equity markets in the first and fourth quarters pulling the fund’s value lower. This return was 0.3 of a percentage point below the benchmark, it said.However, the fund topped up its equity allocation and has recovered the losses since the start of 2019. The Government Pension Fund Norway (GPFN) – Norway’s domestically focused sovereign wealth fund – reported a 0.4% investment loss for last year but once more beat its benchmark.The return outperformed its target by 0.8 percentage points in 2018, it reported this week.Folketrygdfondet, which manages the NOK239.2bn (€21bn) fund, attributed the portfolio’s relative success to picking the right companies within its limited hunting ground.The GPFN invests primarily in Norway with a 15% allocation to the other Nordic countries, and only in equities and bonds.
The Danish Financial Supervisory Authority (FSA) has warned pension funds against giving false or misleading information to customers wishing to leave, at a time when competition in the sector is hotting up.The warning follows reprimands for AP Pension for breaches of good practice for insurance distributors, after the firm gave misleading information to customers who had requested to have their pension scheme moved to another provider.Ulla Brøns Petersen, director at the Danish FSA within its consumer affairs office, said: “We want to send a clear message to the pension industry that customers must be able to rely on the accuracy and truthfulness of the information provided by the companies.“In addition, customers must have balanced advice on both advantages and disadvantages when faced with having to make an economic choice.” Brøns Petersen said that increasing levels of competition in the Danish pensions sector had caused companies to put systematic strategies in place to retain pensions deposits, even though customers were changing providers.“This case underlines the necessity for guidelines in this area to ensure that customers get fair and loyal treatment,” she said.The FSA said some AP Pension customers had received letters from the provider stating that they would incur a transaction fee of 1% of their savings in the form of a spread between the buying and selling prices of funds, after requesting transfers to other providers.Letters also told customers they would miss out on future bonus allocations, which had at the time not been set.On top of the three reprimands, the watchdog issued AP Pension with an official order to inform those customers who did not move their funds what they may have lost on the basis of these letters, and about their rights and options.AP Pension said in a statement that it regretted the case and would advise customers in accordance with the FSA’s order.The watchdog said that talks had been taking place in the industry for some time about new guidelines for companies’ behaviour around the transfer of pension schemes.
Carillion was declared bankrupt in January 2018, with its defined benefit (DB) funds entering the assessment process for acceptance into the Pension Protection Fund.LifeSight was the first master trust to be approved by the UK’s Pensions Regulator under its new authorisation regime for multi-employer DC schemes. It has 105,000 members and £4.2bn in assets under management.Capita master trust allocates £320m to sustainable multi-factor fundThe Atlas Master Trust – set up by Capita – has awarded UK-listed asset manager Schroders a £320m mandate to run sustainable equities.The allocation is to Schroders’ sustainable multi-factor equity fund, launched in October last year. The asset manager has run Atlas’ default investment strategy since 2017.Paul Trickett, independent chair of Atlas’ investment sub-committee, said: “ESG investing is high on the agenda of many members and employers and, ever since its inception in 2015, the Atlas Master Trust has had a strong ESG philosophy underpinning everything it does.“Recognising its importance, I’m delighted that Atlas has become one of the first master trusts to more explicitly incorporate ESG into its default lifestyle strategies, via the funds managed by Schroders, demonstrating that the Atlas trustees are pro-actively seeking to continually develop and enhance Atlas for the benefit of its members.”3i pension fund insures £95m of liabilities with L&G Private equity investment house 3i has insured roughly £95m worth of its DB pension scheme’s liabilities with Legal & General (L&G).The buy-in transaction covered roughly 20% of the 3i Group Pension Plan’s liabilities for pensions currently in payment, according to L&G, and followed a £200m buy-in with Pension Insurance Corporation in 2017.Carol Woodley, chair of the trustee board of the £975m scheme, said it had been de-risking its investment strategy “for a number of years”, shifting its asset allocation in favour of bonds alongside the insurance transactions.The deal with L&G was “a positive step towards further improving the long-term financial security of members’ benefits in the plan”, she added. The pension fund trustees of collapsed outsourcing company Carillion have agreed to transfer the group’s defined contribution (DC) funds into Willis Towers Watson’s LifeSight master trust.Three Carillion DC schemes were transferred in January, Willis Towers Watson announced today, with LifeSight taking on 4,100 new members and £267m (€310m) in assets.Dianne Day, client director at Independent Trustee Services (ITS), which acted as trustee of the DC schemes, said LifeSight had been flexible to reflect the “particular needs of unfortunate scheme members whose sponsoring employers went into liquidation”.Fiona Matthews, managing director at LifeSight, added: “Carillion’s pension schemes have a unique set of circumstances, and we were delighted to be able to work with ITS to accommodate their particular requirements and for members to benefit from the member-first LifeSight service.”
The granite kitchen is one of Mrs Andrew’s favourite rooms.While the area now has all the amenities one could want, from the Westfield shopping centre, Ikea and Costco, to the North Lakes train station, Mrs Andrews said it was still peaceful.“It’s not the hustle and bustle of the city and the services are very impressive to us.” The home at 16 Kennedy Court, North Lakes, is for sale.A STATEMENT home that made the most of every inch of its 832sq m block were the requirements John and Jenny Andrews gave to their architect when they built their North Lakes house five years ago.Mrs Andrews said they wanted a property that stood out and the two-level home at 12 Kennedy Court was the result. Mrs Andrews also likes to look out over the pool.The Andrews’ home has polished timber floorboards and soaring ceilings, and Mrs Andrew’s favourite space in the home is the open-plan living area downstairs.“The main living area has the most magical outlook over the swimming pool (and) my granite kitchen is unbelievable,” she said.The residence has all the mod-cons, from a LG laser screen and projector and Jamo speaker system, as well as ducted airconditioning and vacuum, CCTV, intercom and Vergola rain sensor electronic screens. The floorplan of 16 Kennedy Court, North Lakes. The entry to the house is breathtaking.“We wanted a statement, something different to what anybody else has got … and we wanted it to have massive skillion roof lines,” Mrs Andrews said.“It was designed to for the block; to flow and fit every piece of space.” More from newsFor under $10m you can buy a luxurious home with a two-lane bowling alley5 Apr 2017Military and railway history come together on bush block24 Apr 2019Outdoors is an alfresco dining area.The couple lived in the suburb for more than 13 years, forecasting North Lakes’ boom ahead of their time.“It’s young and vibrant and Brisbane can only grow one way — that’s out,” Mrs Andrews said.“We believe everything we need, want, and desire is fast coming to North Lakes, and we knew that would happen.“It just takes time.”