Switzerland’s first-pillar AHV fund is shifting its portfolio away from alpha towards bonds, according to Christoph Zimmermann, head of external investments.In a panel discussion at the Swiss pensions conference Fachmesse 2. Säule, Zimmermann said the CHF30bn (€24.5bn) fund had now invested 10-15% of its 70% fixed income allocation in senior loans, high-yield bonds and emerging market debt.He said another segment the fund was looking to for diversification was convertible bonds.“We have had positive experiences with senior-loan fund products, especially in Europe, as they are very liquid, which was not the case in the past,” he added. Marco Netzer, chairman of the board at AHV, pointed out to IPE earlier this year that the portfolio served the needs of three different funds combined under the Compenswiss umbrella.This, he said, necessitated a relatively conservative approach to investment.The fund also manages money for invalidity compensation scheme IV (CHF4.7bn) and EO, the scheme for people in military service or on maternity leave (CHF600m).At the conference, Zimmermann said the the AHV was “very content with the equity share of 24% ex real estate equities”, which adds another 6% to the fund’s equity allocation.He said the fund had “not yet looked into smart-beta strategies” such as low volatility or dividend strategies, as “around 50% of a total return on equities comes from dividends anyway”.“This means you already have a spread between the dividend yields and bonds, which is very comon in Germany, France, Switzerland and the UK at the moment and slightly less so in the US – this makes the case for a Nestlé share rather than a bond,” he said.This year, the fund will “continuously add indirect Swiss real estate funds” to the portfolio, as costs for the funds “have come down over the last year, from which we are profiting”.Infrastructure, on the other hand, was “not an option” for the AHV, as the fund has a shorter time horizon relative to other schemes, Zimmermann said. At the same time, the AHV has also announced it would diversify its real estate exposure to other parts of Europe and the US.
Month: September 2020
“A Swedish investor would therefore theoretically be able to achieve better diversification (lower risk) with sustained yield by reducing the bias towards the domestic market,” it said.However, the government’s report said the counter-argument was that the Swedish stock market had produced a higher nominal return over longer periods than other major exchanges.Between 2001 to 2013, the Swedish stock exchange produced average annual returns of 8% compared with the MSCI World in euros, which returned an annual average of 1.6% over the period.The report also recommended reviewing and defining the funds’ investment rules on bonds, as well as strategies for unquoted assets.Several of the funds had come close to the 30% floor on investment in bonds in 2013, it said.Over the last few years, it noted, the funds increased their allocation to alternative assets to around 15% from 5%.Of around SEK150bn (€13.5bn) the funds had invested in alternatives, SEK30bn was invested in non-listed assets, the report said.It said this development indicated there was reason to look at the possibility of the buffer funds working together in the area of non-listed investments to build skills and create cost synergies. The AP funds performed well in comparison with similar funds in other countries.In comparison with seven other such institutional investors including ABP in the Netherlands and CalPERS in the US, over the period 2004 to 2013, only Denmark’s ATP produced a nominal return higher than that generated by the AP buffer fund system.ATP returned 8.7% over the period, while the AP funds returned 7.1%.The report said ATP had benefited from a high proportion of fixed income assets combined with falls in interest rates until 2013.Last year, the AP funds as a whole produced a stated return of 13.5%, up from 11.6% the year before. Over the period 2001 to 2013, the return was 4.7%, above the 3.3% increase in the Swedish income index over the same timespan.The income index shows average income and is the basis for adjustments of debt in the country’s income pension system.Total fund assets in the AP fund system rose to SEK1.06trn at the end of 2013, up from SEK958bn at the end of 2012.The report acknowledged that the AP funds pension system was set to change in the summer of 2016 according to measures agreed by the Pension Group.Under the agreement, five of the pension funds — excluding AP7 — are to be restructured into three funds, and a single principal is to be appointed to set targets for the funds’ asset management and design a reference portfolio. Sweden’s AP buffer funds should reconsider their heavy home investment bias in light of the theoretically higher risk the approach poses, the government has said.In its 2013 annual report on the six funds — AP1 to AP4, AP6 and AP7 — the government said that, like other pension funds, the buffer funds tended to be overweight domestic assets compared with foreign investments.The report said: “Funds should clearly disclose the reasons for this ratio and comment on this in terms of expected returns and risk, and how this benefits the Swedish pension system.”The first to fourth AP funds had about 14% of assets allocated to Swedish equities, it said, adding that this was significantly more than a global index would indicate.
The membership expansion is now set to continue in the next few months.KLP said a further 16 local authorities and around 150 enterprises had decided to transfer to KLP, meaning it would gain another 50,000 new members in the last six months of the year.Initially, it said, six local authorities had decided to transfer on 1 July this year.However, after the Pensions Office (Pensjonskontoret) – which supervises the provision of public sector occupational pensions within the Norwegian Association of Local and Regional Authorities (KS) area – had decided to allow other transfers at the half-year point, another 10 authorities had followed suit, it said.Sverre Thornes, KLP’s chief executive, said: “These transfers to KLP represent one of the largest influxes of new members to KLP’s pensions schemes ever.”He said the institution was facing the changed market situation by continuing to focus on value creation through good returns, low costs and good service.“It is important for us,” he added, “to show public sector employees and our customers we take good care of pension assets by providing good results.”The fact the growth in pensioners is happening without increasing staff numbers means lower costs for KLP’s clients in the future, he said.Reserves increased by NOK21.6bn (€2.6bn) in the first six months of this year because of the new customers transferring in.KLP’s solvency capital stood at NOK59.5bn at the end of June, up from NOK47bn at the same point in 2013, and equated to 18.6% of insurance funds with interest guarantee, up from 17.2%.The group posted a return on capital rises to 3.6% in the first half, compared with 2.8% in the same period last year, saying shares, short-term bonds and property had been the most important contributors to overall returns.Total assets for the KLP Group rose by around 10% to NOK442bn from NOK399.3bn at the end of December. Norway’s KLP has said that not only has its membership increased by 100,000 in the first half of this year as a knock-on effect of the decision by Storebrand and DnB Livsforsikring to withdraw from the public occupational pensions market, but a further 50,000 members will join before the end of the year.In its second-quarter interim report, the public service pension provider said it took on an extra 100,000 members by the end of June – a figure it previously predicted for the whole of 2014 – including 17,000 pensioners.Its active membership reached 401,249 at the end of May.In the first half, it said 42 local authorities and around 50 enterprises had taken their pension scheme to KLP, as life insurance companies Storebrand and DnB Livsforsikring left the public occupational pensions market.
A search – supported by consultant PwC – for a new provider concluded that Blue Sky Group offered the best “price-quality ratio”, as it specialises in non-insured company pension funds, the scheme’s board said.A spokesman for Zwitserleven said the insurer was disappointed about the pension fund’s decisions and that it had submitted a “market-consistent quote based on its specification”.“However, it has indicated that other providers had a better proposition on board support,” he said.According to the scheme’s board, costs at Blue Sky Group – including costs for actuaries and accountants – would be lower.In other news, the €370m pension fund of energy giant Chevron is to liquidate itself and transfer pension rights to insurer ASR.Pensions accrual will now occur in a new external defined contribution plan.Because Chevron has scaled back its activities in the Netherlands substantially, no more than 100 workers are to participate in the new scheme, it said.According to Kees Klink, the pension fund’s chairman, the drop in the number of active participants triggered the scheme’s liquidation.The Pensioenfonds Chevron was among the few remaining scheme’s with final salary arrangements.Thanks to a coverage ratio of 127% at the scheme, the board has been able to negotiate a deal with ASR where participants will be granted ongoing indexation based on the European consumer index, in addition to a one-off, partial compensation for indexation in arrears.“Under the new financial assessment framework, the latter would have been very difficult,” Klink added. The €2.7bn pension fund of banc-assurer SNS Reaal has replaced its pensions provider, SNS Reaal subsidiary Zwitserleven, with Blue Sky Group, pensions provider for the large KLM pension funds.Eelco Blauw, the scheme’s director, cited changing legislation as the chief reason for the decision.“Legal requirements for pension funds increasingly differ from those for insured pension arrangements,” he said.“Our scheme was the only uninsured one with Zwitserleven, which mainly focuses on insured pension plans.”
It also retained much of the European Commission’s initial wording that would allow pension funds to question a regulator’s decision in court – powers not granted under the 2003’s Directive.“Multinationals will be extremely reluctant to invest the time and effort in working with all the stakeholders to proceed with the transfer if the transferring regulator can simply refuse to transfer on the grounds of their opinion,” Kelly said.“It also means it will be more difficult for multinational companies to sustain existing mature DB plans without the tool of combining these.”The ACA added that the veto could “kill” defined benefit cross-border activity, despite attempts by member states to relax the procedure whereby cross-border funds could be established – such as funding requirements.The number of cross-border funds has been limited since the initial IORP Directive was transposed, stagnating for three years from 2010 and only increasing from 82 to 86 at the end of 2013.French pension fund UMR was in 2012 considering the transfer of its assets to a Belgian organisation for financing pensions (OFP).In 2013, IPE was given to understand that the French regulator, Autorité de Contrôle des Assurances et des Mutuelles, “advised” the scheme not to proceed. The UK’s Association of Consulting Actuaries (ACA) has raised concerns that the latest draft of the IORP Directive will hamper a pension fund sponsor’s ability to transfer pension assets across European borders.Its chairman Paul Kelly said it was “perverse” the Directive, ostensibly meant to promote cross-border activity and enable the easy transfer of assets, would make it “extremely difficult” to do so.Kelly cited wording in the latest Council of the EU compromise draft that said the regulators of the IORP’s home member state should have the ability to, according to him, “refuse to transfer on the grounds of their opinion”.The latest draft, drawn up in late November, said regulators from home member states should be able to stop a transfer of assets should it consider the interests of members not “adequately protected during and after” the transfer.
Employees at Nestlé and Nespresso Austria are now covered under the company’s German Pensionsfonds NPF, marking the first time a German Pensionsfonds has received the OK to do cross-border business.Earlier this year, Nestlé failed to pool its pension plans in Belgium and the Netherlands after their respective workers councils rejected the proposal. In Austria, however, the workers council is fully behind the transfer, as it will increase the number of people eligible for a pension plan.Currently, workers at Nestlé Austria – but not those at Nespresso – are covered by a pension plan managed by Austrian VBV-Pensionskasse AG. Bettina Nürk, a board member at Nestlé Germany and successor to Peter Hadasch as head of pensions, said: “It makes sense to use the in-house expertise we have in Germany and take control of our own asset and risk management.”The German pension plans – including a Pensionskasse, a Versorgungskasse, a Rückdeckungskasse and the Pensionsfonds – are run by the Nestlé subsidiary Neversa.Nürk said setting up the cross-border plan, first mooted in 2012, had taken “quite a while” and that the company had expected the process to be “easier”, given the passage of the EU Portability Directive.But Michaela Plank, a principal at Mercer Austria, who helped Nestlé set up the plan, said: “The way is now paved for more cross-border plans.”She said the Nestlé deal had increased the Austrian regulator’s expertise in cross-border pension plans significantly.The Nestlé Pensionsfonds, founded in 2008, now has €280m in assets under management.Approximately €3m will be transferred from the Austrian Pensionskasse by the end of the year.In total, 500 Nestlé employees and 300 Nespresso staff will be covered by the cross-border pension plan.“The first cross-border contributions were made in July, and the existing active members will be transferred to the NFP before year-end,” Nürk said.He described Austria’s insurance tax incurred on transfers, however, as a “nuisance”, as it entailed a double-taxation on contributions.Retirees were one of the major problems for Nestlé’s pension plan, as, under German law (§112a para 1a VAG), cross-border Pensionsfonds have to make insurance-linked pension payouts, even if the Pensionsfonds itself is unit-linked.So the company re-insured retired members’ assets via its own Rückdeckungskasse vehicle; this pays pensions to the NPF, which, in turn, pays members. Under the cross-border pension plan, the company contribution will be 1% of salary below income threshold and 7.5% of salary above it.Additionally, Nestlé will match voluntary contributions of 2% under the threshold with another 1% and contributions of 10% above the threshold with another 2.5%.Gabriele Staubmann, head of HR at Nestlé Austria, took pains to stress that the decision to set up a cross-border plan was not due to dissatisfaction with VBV’s services.
When Danica recently began searching for someone to replace him, it said it was targeting a candidate with the right strategic focus, as well as international experience.Harder will start work at Danica Pension on 1 March 2016.He will be responsible for the actuarial, risk management and financial departments and will be a member of the executive board, the company said.He comes to Danica from the role of senior vice-president within Danske Bank’s corporate and institutions division, which he has held since 2009.Before this, he worked at UBS Investment Bank in London, focusing on financial risk management, and subsequently in jobs at Goldman Sachs and then Merrill Lynch. Denmark’s Danica Pension, the country’s second-largest commercial pensions provider, has hired Claus Harder from its parent Danske Bank to replace outgoing CFO Jacob Aarup Andersen.Per Klitgård, chief executive of the DKK327bn (€43.8bn) pensions firm, said: “With his broad financial insight, his international network and his great experience with big clients in the corporate and institutions division, Claus is absolutely the right CFO for Danica Pension.”Aarup Andersen is leaving Danica Pension at the end of this month to act as deputy for Danske Bank’s current CFO Henrik Ramlau-Hansen, before taking over from him when he resigns on 1 April 2016.Aarup Andersen has made big investment strategy changes at Danica Pension since he joined the company in May 2014, shifting the focus to direct investments and making high-profile hirings to put a team in place.
The Irish government is to launch a reserve fund and may partially support the scheme with assets from its existing sovereign development fund, the Ireland Strategic Investment Fund (ISIF).Releasing the summer economic statement earlier this week, minister for finance Michael Noonan said the government would stand by its pledge in the programme for government to launch the so-called rainy day fund.Noonan said that, from 2019, at which point the government is expecting to run a balanced budget, it would put aside €1bn a year to be used to offset any future economic slowdown with potential stimulus measures.Documents released as part of the economic statement say: “Proposals for the operation of the rainy day fund and the circumstances under which the amount would be deployed as a fiscal support for the economy will be developed.” The document adds that the Department of Finance will issue a consultation by early next year detailing the “proposed operational modalities, including inter alia the trigger for deploying the fund”, with details to be discussed with the Oireachtas, Ireland’s parliament.“The government,” it continues, “will also consider the merits of using any one-off receipts (such as windfall corporate tax receipts – or, indeed, other windfall tax revenues) or part of the Ireland Strategic Investment Fund to capitalise the rainy day fund.”The Irish Fiscal Advisory Council, a statutory body offering independent assessments of government policy, has supported the establishment of a rainy day fund.The council’s most recent report from the beginning of June notes that such a fund could help successive governments withstand pressures to relax fiscal policies in times of a budget surplus. It adds: “An appropriately designed rainy day fund could give the government scope to operate counter-cyclical fiscal policy to boost the economy during future downturns.“It could also help the government to avoid the need for forced fiscal consolidation in the event of a sudden loss of market access.”A spokesman for the Department of Finance was unable to say whether financing would come from the €7.9bn segment of the ISIF being used to stimulate economic growth, or if funding would be diverted from the directed portfolio, used by the government in 2009 to buy stakes in Allied Irish Banks (AIB) and Bank of Ireland.He noted that any decision on use of ISIF funding would be discussed by parliamentarians when the consultation got underway.ISIF’s directed portfolio was most recently valued at €13.5bn and returned 15.3%, partially aided by a revaluation of AlB to €4.33 per share, up from 1.3 cents per share in 2014.The discretionary portfolio, meanwhile, which sees investments scrutinised by an independent investment committee chaired by former HSBC North America chief executive Brendan McDonagh, returned 1.5% last year and has committed capital to a number of projects that aim to boost economic growth.The National Treasury Management Agency’s former chief executive John Corrigan has previously predicted capital within ISIF’s discretionary portfolio would be committed within five years, meaning the majority of the portfolio’s capital is likely to be deployed by the end of 2019.
President Donald Trump has now declared that diplomacy is a waste of time when it comes to North Korea, overruling Rex Tillerson, his secretary of state.Investors are getting acclimatised to regular bouts of risk aversion when the latest North Korean provocative act of a missile launch or and nuclear test occurs. It is easy to dismiss the aggressive military posturing of North Korea as driven by just the actions of a paranoid leadership.There may well be some truth to this, but Trump’s response of threatening “fire and fury” the like the world has never seen before in response – and shying away from further talks – harkens back to the very reasons why North Korea, unlike Vietnam, still harbours such hate towards the US.Korea has certainly experienced what war with the US meant in the past in terms of civilian casualties. Numbers vary significantly depending on the source. According to one (Beyond Numbers: The Brutality of the Korean War by Ji-Yeon Yuh) , an estimated 5m people were killed during three years of warfare. Of these, 1.2m were soldiers including 217,000 for South Korea, 406,000 from North Korea, 600,000 from China and 36,000 for the US, with 5,000 from other UN allies.The remaining more than 3m deaths were Korean civilians. Given a population in 1950 of 30m for the whole Korea, this represented 10%. Many of these were killed in massacres, or executed as political prisoners by either the South or North Korean armies.The capital city of Seoul changed hands four times during the three years of war, with each change accompanied by massive political killings of civilians. There has never been a formal peace treaty signed.Now, the Seoul area accounts for half South Korea’s 51m population – all within easy range of North Korean artillery. North Korea has become the “hermit kingdom”, cut off from the outside world (in the eyes of Americans at least). The underlying ruthlessness and cruelty of the regime seems clear from the accounts of refugees.Myths surrounding key issues, such as the craziness of its leaders or the influence of China, detract from a rational approach to dealing with the regime. Trump blames previous US administrations for allowing the situation to get out of hand.Caution may have been a realistic option in the past. However, Colin Kahl, a national security adviser to the Obama administration, has suggested that the inevitable progress in North Korea’s capabilities – to the level where it would be able to hit the US itself with a nuclear armed intercontinental ballistic missile – is a gamechanger.It poses the dilemma: Would the US trade San Francisco for Seoul? If Trump has the mindset that diplomacy is not an option, then the problem becomes that the longer he waits for a military confrontation, the more time it gives to North Korea to develop its capabilities to retaliate – even if suicidally – through attacking the US mainland.It would be nice to believe that the US may have moved beyond tolerating huge numbers of civilian deaths provided US military casualties were kept to a minimum. But instead of reassuring the US’s democratic allies in east Asia, Trump has done the opposite:It is not just investors who are hoping that diplomacy triumphs over warmongering.There may be a game-changing development in North Korea’s capabilities, but perhaps the end objective should be a formal peace treaty and the eventual demilitarisation of the Korean peninsular. It may mean guaranteeing the existence of the Kim regime and possible withdrawal of US troops from South Korea, but if that ensures a demilitarised Korea, it seems a better option all round. (This, however, will require China and Russia as guarantors – which may be more of an issue with North Korea than the US.)North Korea may still win its ultimate objective – the preservation of the regime. But for the rest of the world, that is a small price to pay to avert catastrophe.
Two of the Netherlands’ largest pension schemes have hit out at plans to bring in a new accrual system.In its quarterly report, BpfBOUW, the €55bn scheme for the building sector, said that replacing the average pensions accrual with a degressive one – granting younger workers proportionally more pension rights – was “unnecessary”, and that it was “worried” about switching from collective to individual pensions accrual.In the opinion of BpfBouw, a new system based on individual pension pots would provide participants with less clarity about their future pension income.The scheme also emphasised the importance of risk sharing between generations, as well as the possibility of negative financial buffers, which isn’t an option for the Netherlands’ new government coalition. Negative financial buffers allow funds to run at a coverage ratio of less than 100% without having to implement pension rights cuts immediately.BpfBouw’s criticism follows recent calculations assessing the financial impact of a pensions contract with individual pension assets and collective risk sharing.The outcome suggested that such a contract would generate a lower result for members than current pension arrangements, as a result of less risk sharing and lack of negative financial buffers.“The option of temporary negative reserves during long economic cycles offers wealth benefits and prevents good and bad luck generations among participants,” explainedDavid van As, director of BpfBouw, said the ability to use “temporary negative reserves” during long economic cycles prevented different generations experiencing better or worse outcomes.“With individual pension assets, it is less clear to young participants what their future pension income and purchasing power will be,” he said. “Younger workers in the building sector specifically want clarity on this.”Van As also pointed out that workers and employers were not desparate to abolish the average pensions accrual, and added that providing compensation to negatively affected participants would be very complicated.The director called for more pension obligations for the large and growing number of self-employed workers in the building industry who don’t have to join the pension fund.The €68bn metal sector scheme PMT was also critical of a new pensions contract comprising individual accrual and some degree of collective risk sharing.Benne van Popta, employer chairman, recently said that changing the pensions accrual while also introducing a new pensions contract was a “recipe for disaster”.When asked by IPE’s Dutch sister publication Pensioen Pro, he said that the issue of negative buffers as part of a risk-sharing mechanism would come back on the negotiating table.Recently, the new government coalition said that it would allow the pensions sector extra time to come up with its own proposals.Jan Berghuis, PMT’s employee chair, also demanded provisions for workers in hard manual jobs “like plumbers, metal workers and car mechanics, who have difficulties reaching retirement in good health”.SPOV, the €3.8bn sector scheme for public transport, said it was also very sceptical about abolishing average pensions accrual and the introduction of individual pension pots.Peter-Paul Witter, the scheme’s chairman, argued that many participants often started as temporary workers in the sector, and only later become participants in the pension fund.“Abolishing the average accrual would mean much lower pensions for them,” he pointed out.The €396bn civil service scheme ABP and the €189bn healthcare pension fund PFZW, however, were much more optimistic about the new pensions contract.In the opinion of ABP, an individual pension better matches participants’ demands.However, a spokeswoman acknowledged that the new contract offered less certainties, but noted that the most optimal elaboration of collective risk sharing is still being investigated.In a weblog, Peter Borgdorff, PFZW’s director, recently said that individual pensions could help to increase confidence in the pensions system “as people can clearly see what happens with their pensions money”.