The under-investment was particularly pronounced in the Asia Pacific region, according to the study, where institutions were currently 134bps under-invested and expected to boost their target allocations significantly next year.“The volume of annual investments has increased significantly in 2013, as investment teams played catch up with target allocations,” the survey’s authors said.The weight of the new capital likely to be ploughed into property markets can be expected to have broad implications for the industry, they said.It will affect transaction volumes, fundraising, lending activity and property valuations, they said.“Although certain industry research has indicated the property markets are frothy, we believe the supply of capital may sustain current valuation and financing metrics,” including capitalisation rates and the cost of debt capital, the authors said.Institutions’ investment objectives are increasingly global, the survey found, with these driving cross-border capital flows and investment activity, while investments in real estate private funds are rebounding.This indicated, according to the authors, that investors are increasing their appetite for risk in an effort to seek higher returns.Institutions are also continuing to shift from direct investing to outsourcing to third-party managers, they said. Institutional investors around the world are on the verge of allocating large amounts of capital to new property investments, and the pace of annual investments in the asset class is set to continue accelerating well beyond 2014, according to a survey from Cornell University.Institutions are now under-invested in real estate by an average 97 basis points compared with their target allocation, and they expect to increase their target allocations by an average of 52bps in 2014, the 2013 Institutional Real Estate Allocations Monitor survey found.The survey was produced by Cornell University’s Baker Programme in Real Estate and Hodes Weill & Associates.The survey, conducted for the first time, included responses from 198 institutional investors from 26 countries, representing more than $7trn (€5.1trn) of assets under management and more than £400bn in real estate investments.
The report looks at the various pension-tracking systems, either aimed only at first-pillar savings or, in the case of Ireland and the UK, ensuring that workers do not lose sight of occupational savings built up over the course of a working life spent at different employers.Falco Valkenburg, chair of the AAE’s pensions committee, said the report was about offering access to better information and promoting understanding across the sector.“Pension-tracking services could play a key role in improving the information and understanding about pensions for all European citizens,” he said.The report builds on an earlier paper by the AAE on how a pan-European tracking system could be constructed, noting it should build on the experience of existing national tracking services, such as those in place in the Netherlands and Denmark.The European Commission is currently investigating the feasibility of a European tracking system – referred to as TTYPE – with the help of pension providers including PKA in Denmark and PGGM in the Netherlands.The group published its preliminary results last May and is expected to present a new report by the end of the month.,WebsitesWe are not responsible for the content of external sitesReport on pension tracking in European member states A pan-European pension tracking service might be stifled by individual EU member states’ ability to share a member’s personal information, the Actuarial Association of Europe (AAE) has warned.Publishing a detailed report on tracking systems used or planned by six member states – Belgium, France, Germany, Ireland, the UK and Hungary – it concluded that the use of a unique identifier to link state and occupational pensions savings would be of use but added that this would only be helpful if the data could be accessed by all relevant parties.“But this is not always possible for personal data protection reasons,” the report notes.“Mostly, this unique identifier can only be used by government-controlled organisations.”
The planned website would be shaped like the TTYPE, the European tracking system currently being developed by a group of pension providers including APG, PGGM, MN and Syntrus Achmea.The European Commission will partly finance the project, which will ultimately cover all EU member states.Bollen said the project would serve as a pilot for a European pensions register, “as setting up such a facility must start somewhere because involving all member states would take a very long time”.She added that cross-border rights posed an urgent problem in the border area of the three countries, and that Maastricht University already had much experience with cross-border issues.More than 100,000 Dutch, Belgian and German employees work in bordering countries, according to data from Statistics Netherlands (CBS).Bollen said the project would be carried out in co-operation with TTYPE, the Dutch pensions register, as well as Dutch providers.She suggested it would take at least three years before the website could be operational.The Netherlands introduced a pensions tracking system – a joint initiative of pension funds, insurers and the social security bank SVB – in 2011. Maastricht University in the Netherlands has announced it will develop a register for cross-border pension rights between the Netherlands, Germany and Belgium as a pilot for a EU-wide facility.The tracking system will show how much cross-border workers should accrue to achieve the desired pension level, according to Anouk Bollen, director of ITEM, the university’s research centre for cross-border co-operation and mobility.She said the new website would draw its data from the Dutch and Belgian central registers – Mijn Pensioenoverzicht.nl and Mypension.be, respectively.She added that a co-operation with Osnabrück University would aim to clarify how German second-pillar data could be added, “as Germany lacks a central tracking system, and many pensions are on corporate balance sheets and also paid by companies”.
Building company and property developer Plegt-Vos has become the first Dutch company to place its pension arrangements with a Malta-based IORP.It said pension rights for 80 of its employees were being accrued under defined contribution arrangements, and that the €1m scheme was run by an entirely independent board.According to Jan Snijders, CFO at the company, the Maltese scheme is more flexible and costs less relative to the standard DC plan in the Netherlands.The CFO said his company also had a significant say in the preferred asset mix, as well in setting criteria for sustainable investments. He added that pension assets were invested defensively at the moment, with a 90% allocation to fixed income – including high-yield bonds – based on the participants’ preference.Snijders indicated, however, that the company wanted to raise the equity allocation to 20%, or even 25%, once the pension assets had increased.Asset management is being carried out by Maltese company Curmi & Partners, while Dutch KAS Bank acts as custodian.Plegt-Vos said the board’s function had been fully outsourced to Dutch company Worldwide Pensions.The board – consisting of three Worldwide Pensions employees – is to meet the pension committee of Plegt-Vos a “couple of times” a year. Richard Cok, director of Worldwide Pensions, said he was also preparing to transfer the pension arrangements of a Dutch law firm, an agricultural company and a travel agency to Malta.He said it took more than a year in total to obtain the required approval from Dutch supervisor DNB and Maltese watchdog Malta Financial Services Authority.
Agnes Grunfeld, vice-president at MSCI and author of the research, wrote: “Our findings confirmed at least some of the short-term concerns over a widening gap between pension obligations and funds set aside to meet those obligations.”UK pension deficits have spiralled following the country’s vote in June to exit the European Union.At the end of October, the combined defined benefit fund shortfall was £328.9bn (€385bn), according to the Pension Protection Fund.MSCI analysed 5,296 companies from Europe, North America, Asia and Japan.In addition to breaking down the company results by country, MSCI also looked into results for each industry.Among 1,457 European companies in the sample, semiconductor firms, pharmaceutical companies and banks were among the worst ranked sectors.MSCI also “flagged” companies that ranked in the weakest 20% of their industry peer groups.The UK had the highest proportion of its companies flagged as among the weakest – 38%. The UK’s defined benefit sector has the weakest funding position in Europe, according to research by MSCI.The index company used reported pension scheme funding data to calculate the ratio of underfunded pension liabilities as a percentage of annual company revenues, indicating not only pension shortfalls but also sponsoring employers’ ability to fund them.The UK’s average of a 7.8% “underfunded ratio” across 103 companies was the worst in Europe and the second worst globally, beaten only by the US.Germany, Luxembourg and Belgium also had ratios above 7%, although the latter two were based on far smaller sample sizes. Source: MSCIMSCI’s underfunded ratio calculations for European companiesGrunfeld said: “While the overall level of underfunded pension liabilities for the 18 [European] countries in our sample is only 4.7%, on the basis of this single measure, Great Britain’s pension funding status is weaker than other European countries, having the highest percentage of companies flagged and also the highest underfunded ratio relative to revenues.”A report published last month by Pension Insurance Corporation and Llewellyn Consulting estimated that deficits for FTSE 100 company pension schemes were depressing share prices by as much as £340bn.MSCI’s report can be downloaded here.
Swiss Pensionskasse are demonstrating an appetite for infrastructure assets as they seek to diversify their alternatives exposure.Speaking at the Institutional Retirement and Investor Summit in Vienna last week, Roger Mohr, chief financial officer at the CHF300m (€245m) pension fund for the Swiss air rescue service Rega, said the fund was seeking further diversification for its alternatives portfolio via infrastructure debt.“Infrastructure debt allows us to skim the illiquidity premium and for our fund it does not matter if 20% to 30% of the portfolio is less liquid,” he said.The Pensionskasse currently invests 16% of its assets in alternatives, with an increasing share of that being out to work in infrastructure and private equity. “Our strategic allocation is 19% but not all our capital calls have been invested yet,” Mohr said.When Swiss government bonds turned negative, new investments were made in “alternatives in the fixed income segment”.Mohr said: “Back then those were insurance-linked securities and catastrophe bonds, but those have become quite expensive already, especially when hedged in [Swiss francs].”For the CHF12bn ASGA Pensionskasse in Switzerland, infrastructure was also the way forward to further diversify the alternatives portfolio, said Sergio Bortolin, CEO.“But we are struggling to find new investments at the right time, so we are using proxy investments with higher liquidity to be able to take out the money when necessary,” he said.After a strategic review of the alternatives segment – which makes up around 17% of the portfolio – the pension fund began reducing its exposure to hedge funds, as the performance expectations hedged to Swiss francs were no longer being fulfilled.“We are also switching from a fund-of-funds construct to an individual fund to have more access and control over the around 300 hedge funds we are investing in,” Bortolin added.However, for investors like Pensionskassen in Germany – which are a completely different construct compared to the pension funds of the same name in Switzerland – investing in alternatives is much more difficult.Andreas Hilka, board member at the €7.9bn German Hoechst Pensionskasse, cited regulation as a limiting factor: “There are very strict rules for German Pensionskassen like stress tests and a requirement to be fully funded at all times. This means we cannot be invested economically correctly at all times.”Referring to credit risks in the portfolio, such as investment grade and high yield bonds, Hilka said: “Those have generated a lot of performance over the last [few] years but now we would like to reduce the credit risk. However, based on our risk specifications there are no risk-adjusted alternatives.”Charlotte Klinnert, CFO at the €750m Pensionskasse for the German Red Cross, said the cost of alternatives was a limiting factor.“Complexity is an issue which renders some alternative investments unaffordable, they simply are not worth the effort,” she said.In addition, the Pensionskasse had a low capacity for risk, Klinnert said. The core portfolio of bonds, equity and real estate was balanced to match the fund’s risk profile, meaning that “alternative investments like infrastructure are no option for us”.
The DC scheme, which has been the main scheme for new joiners since 2009 and covers the majority of current BT employees, will also be upgraded for the benefit of existing members. Proposed changes include increasing BT’s standard maximum contribution rate to 10% for all members “and introducing other improvements”, the telecoms giant said in a statement.Andy Kerr, CWU deputy general secretary, said: “The new hybrid pension is an innovative solution that will share future risk between BT and our members.“In the defined contribution scheme, all of our BTRSS members paying core contributions will be getting an increase in company payments – as well as key allowances counting towards [the] pension for the first time. This is clearly a major improvement.”The agreement affects around 20,000 non-management employees. In February the company agreed a deal with another trade union, Prospect, to close the DB scheme to around 10,000 managers, who will join the BTRSS.The proposals have been put to a vote, and CWU has recommended that BTPS members accept the agreement.Melrose pension statements ‘misleading’, says GKN Melrose Industries has offered to pay up to £1bn into the pension schemes of GKN as part of its bid to take over the UK-listed engineering group.However, GKN’s board has accused the bidder of making “misleading” comments about the state of the pension schemes in connection with its offer.Melrose yesterday said it had made a formal proposal to the GKN pension scheme trustees, which it claimed represented almost twice the value of the deficit reduction package offered by GKN as part of a proposed sale of its driveline business to Dana. GKN today said Melrose’s comments were “misleading as to the true status of GKN’s pension obligations”. It reiterated the elements of a binding agreement it reached with the UK pension trustees, which was conditional on Melrose’s offer lapsing or being withdrawn.Earlier this month Melrose wrote to the UK parliament’s Business, Energy and Industrial Strategy Committee, on request of the politicians, to clarify its intentions with respect to GKN and its pension schemes.It had previously said it would invest some £150m in GKN’s UK pension schemes within 12 months of acquisition, and has defended itself as having “an excellent track record of managing pension schemes”.UUK speeds up expert panel creation UK universities are accelerating the creation of a panel of independent experts to review the valuation processes for the Universities Superannuation Scheme (USS).Universities UK (UUK), which represents UK higher education bodies, and its main union, the UCU, agreed last week to form the panel as part of mediation talks to inform future valuations. However, UUK said it was to be introduced immediately in order to address concerns over the current valuation.The panel will consider issues of methodology, assumptions and monitoring. It will have an independent chair, involve academics and pension professionals, and will liaise with both USS and the Pensions Regulator. The terms of reference and panel composition are to be announced shortly.Last week’s mediation talks led to UUK and UCU reaching an agreement over the future of the country’s largest pension scheme, but union branches rejected the agreement. UCU yesterday said it had “an incredibly strong mandate” for further strikes.Green light for south-west LGPS funds’ pooling effortsBrunel Pension Partnership, the £28bn asset pooling vehicle for 10 local government pension schemes (LGPS), has received regulatory authorisation.This paves the way for it to provide investment management services for its LGPS shareholders ahead of the government’s pooling deadline next month.Dawn Turner, CEO of Brunel, said: “This is an important milestone for us and means we are on schedule to deliver the benefits of LGPS investment pooling for our clients.”The LGPS pools have to be up and running by the start of April, although one – the £43.7bn Border to Coast Pensions Partnership – has agreed a three-month extension.Four of the eight have been authorised by the Financial Conduct Authority (FCA), and while two (ACCESS and Wales Pensions Partnersip) have appointed external providers to set up pooled funds. BT is to close its defined benefit (DB) pension scheme and work with the Communication Workers Union (CWU) to set up a hybrid scheme, the two parties have announced.The agreement follows more than 10 months of “exceptionally tough” discussions, according to the CWU.BT has pledged to set up a new hybrid pension plan with both DB and defined contribution (DC) elements. The new plan will be made available to members of the £49.3bn (€56bn) BT Pension Scheme (BTPS), which the company intends to close to future accrual from 31 May.This timetable was subject to the trustees being able to resolve “some complex administration-related issues”, the company said. The hybrid pension plan is due to be set up later this year following further discussions between BT and the CWU.In the meantime, current BTPS members will be moved to the company’s existing DC plan, the BT Retirement Saving Scheme (BTRSS). Ex-BTPS members will be entitled to additional transition payments for up to 10 years. Clifton Suspension Bridge in Bristol, where Brunel has its main office
“Today, investors are seeking to assess, understand and measure the wider implications of their investment choices,” he said. “They have access to multiple third-party ESG ratings from research houses, which offer widely divergent assessments.“Feedback from asset owners highlights frustration at the lack of clarity and investment relevance of many current ESG approaches, and the resulting uncertainty that exists concerning the likely impact on financial returns of non-financial factors.“We have sought to address these limitations and provide our portfolio managers with an additional tool to best identify the value generated by well-run, sustainable businesses or those that are on the path of improvement.”Mac Ryerse, lead analyst for the US in the responsible investment team, said the system used “big data” and cloud computing to “systematically provide focused information” to the company’s investment analysis and research.Columbia Threadneedle has €412bn under management globally, according to IPE’s 2018 Top 400 Asset Managers survey. Columbia Threadneedle Investments has developed a proprietary company rating system that it claimed was “putting the ‘investment’ into responsible investment”.The tool combines an assessment of how well a company manages its “financial stewardship” with a view of how well it manages its environmental, social and corporate governance (ESG) risks. Both aspects are combined into a single, forward-looking rating from ‘one’ to ‘five’.The company’s equity portfolio management teams began using the research tool in 2018 and it is being rolled out to fixed income investment teams this year, it added.Iain Richards, who heads the asset manager’s global responsible investment team, which helped develop the tool, indicated that it was at least in part a response to feedback from asset owners.
A German state fund could help plug a future financing gap in the country’s pay-as-you-go public pension system and help safeguard its credit rating, according to researchers at credit rating agency Scope.Germany is facing a large gap between contributors and beneficiaries in its state pension system as baby boomers retire. Scope has previously identified this as one of the major threats to Germany’s long-term credit rating in its view.The rating agency carried out a scenario analysis for a state pension fund similar to funds proposed by Clemens Fuest, president of think-tank ifo, in December last year and economist Volker Brühl, managing director of the Centre for Financial Studies in Frankfurt. Brühl has proposed the creation of a sovereign wealth fund, to be financed from tax and, if necessary, “a moderate debt level”, to ensure sustainability of the state pension system. Scope’s scenario analysis built on work carried out by the economist. It found that the state could pay out between €30,000 and €40,000 annually to people after the age of 67 from 2039 if contributions to the fund started now.Under Scope’s assumptions the German government would pay around 1% of GDP per annum into the fund, partly coming from taxes and partly from new debt issued on the market.The assumed expected net return on investments was 4% per annum on average. The researchers noted that a sample of 36 public pension funds in the OECD had shown average real returns of above 4% per annum, even after the financial crisis in 2008.Bernhard Bartels, analyst at Scope and author of the report, noted: “Though a state pension fund is not designed to finance today’s pension needs, it could help to satisfy younger generations’ future claims, with current fears these generations will come away empty-handed at the same time as being obliged to finance their parents’ and grandparents’ pensions.”Multiple credit rating benefitsFor Scope, the increased security for future generations was one effect of the state fund that could help “further anchor Germany’s AAA sovereign credit ratings”. It reasoned that people who need to worry less about their retirement income spend more and thus help keep the economy running.A state fund could help “lower future government liabilities” in the state pension system, and increased debt issuance “improves the country’s status as a benchmark issuer, thereby creating better liquidity for German bonds”.In addition, an internationally diversified portfolio could mean that the fund’s investment income was anti-cyclical to developments in the German economy.Apart from seeing the proposed fund as a means of topping up first-pillar retirement income for all citizens, Scope also said the fund could serve as a general savings vehicle for the German public.Citizens could defer parts of their savings or private pension contributions to the fund instead of putting them in third pillar pension vehicles or second pillar top-ups.For the payout phase the researchers indicated they would recommend a choice between lump-sum payments and retirement income.“Thereby, the fund combines a beneficial public scheme with individual freedom on the size of optimal future pension levels with a guaranteed minimum,” wrote Bartels.Scope’s report (in English) can be downloaded here.
Halvarsson said the figure was encouraging, adding that, for the first time, more than 10% of listed companies had a female board chair. In addition, the proportion of female chief executives rose 9%, from 8.4% last year.The study also found that proportion of companies with at least 25% female board members had increased to 254 of the 332 companies involved. Newly elected women on supervisory boards tended to be younger than their male counterparts, it reported.The 2019 Kvinnoindex covered 332 primary and secondary-listed companies on the NASDAQ Stockholm index.A global study published by State Street Global Advisors (SSGA) earlier this year identified 1,265 companies that did not have a single female board member, up from 1,228 in 2017.SSGA said that, from next year, it would vote against “the entire slate of board members” on nomination committees if a company does not have at least one woman on its board, and has failed to engage with the manager’s diversity project for three straight years.Dutch and UK investors have also increased their focus on board diversity for companies and pension funds so far this year.Companies without a female board memberChart Maker The proportion of women on the supervisory boards of Swedish companies is still too low, according to the head of the SEK335bn (€31.4bn) Swedish national pension fund AP2.According to AP2’s latest Female Representation Index (Kvinnoindex) figures the percentage of women on the non-executive boards of firms listed on the NASDAQ Stockholm has risen only slightly, from 33.9% in 2018 to 34% in 2019.Eva Halvarsson, chief executive of the Gothenburg-based pension fund, said: “In the last five years the yearly increases have been greater. So, while this is the highest recorded level and the proportion continues to grow, I hope that this trend will not stagnate, as 34% is still too low.”The study, which the fund has conducted annually since 2003, also found that the proportion of women in executive positions increased to 24%, from 23.2% in 2018.