Trustees for the underfunded Irish Airlines Superannuation Scheme (IASS) have been granted up to 25 years to address the deficit, according to one of the fund’s main sponsors.In a statement to the Irish Stock Exchange, Aer Lingus said the Pensions Board had “communicated to the IASS trustee” that it expected the fund to comply with the minimum funding standard within 25 years, following initial discussions that saw a request for a 70-year recovery period reportedly rejected by the regulator’s chief executive Brendan Kennedy.However, the 25-year window seemingly granted to the IASS is significantly longer than the deadline for other Irish defined benefit schemes, which need to comply with the reinstated MFS and new 10% risk reserve by 2023.The statement by Aer Lingus added that the 25-year deadline had “imposed constraints” on the trustees, resulting in benefit cuts of 11-25% and higher return assumptions of 5% per annum for its recovery plan to address the current €769m deficit. Offering details of the fund’s proposed investment strategy, the statement added: “The IASS trustee has proposed a cessation of IASS benefit accrual and a liability-driven investment strategy underpinned by investment in a fixed income portfolio targeting a yield of 5% per annum.”The Irish flag carrier also said it would “continue to engage in discussions with the IASS trustee regarding the proposed investment portfolio and benefit reductions”.However, it stressed: “It remains the responsibility of the IASS trustee to submit an appropriate proposal to the Pensions Board to address the funding difficulties in the scheme.“The company, therefore, expects the IASS trustee to move forward with the submission of this proposal as soon as is practicable.”Aer Lingus said agreement with the Board represented a “crucial preliminary step” prior to “other key steps”, a reference to its need to approach shareholders with a proposal to set up a new defined contribution (DC) fund for workers affected by the IASS benefit cuts.The airline’s statement comes days after union IMPACT condemned the suggested benefit cuts after both companies involved in the multi-employer IASS and employee representatives were briefed on the trustee’s latest proposals.
“Europe’s patchwork of national pension laws remains the main stumbling block for cross-border pension pooling,” Cerulli said.Noting that cross-border pooling could remain “wishful thinking” unless the European Union harmonises tax systems, he added: “One manager abandoned hope that divergent regimes would be ‘melted together’ by pressure from the euro-zone’s debt crisis.”France’s UMR Corem previously considered the launch of an OFP in an attempt to avoid Solvency II legislation.A source close to the situation later told IPE that French regulator Autorité de Contrôle des Assurances et des Mutuelles sent the fund a letter “advising” them against the move. Only around one-third of asset managers considering the launch of a cross-border pension fund would opt for a Dutch Premium Pension Institution (PPI), according to research conducted by Cerulli Associates.According to the company’s European Defined Contribution Markets Report, more than half of respondents it surveyed said there were not interested in launching a cross-border fund, while a further 28.6% said they would consider such a move, but employing a vehicle other than the PPI.The research noted that uncertainty surrounding the Dutch legislative framework may be deterring some respondents from considering the PPI, while Cerulli also noted that a US manager responding said the vehicle was “not worth working with”, as the fees associated were too low.The respondent also said the Belgian Organisation for the Financing of Pensions (OFP) had been marketed better than the Dutch alternative, potentially explaining why only 14.3% of respondents were considering pooling through the PPI.
The other finalist in the search was RARE Infrastructure.In a board-meeting document, Matt Landy, senior vice-president and analyst at Lazard, cited “some very interesting opportunities” in Italy, particularly in the toll road sector. He pointed out that they had performed well through the Italian recession and were trading at huge discounts to intrinsic value.Lazard will aim to generate defensive, low-volatility returns that exceed inflation by placing capital in a range of global companies considered to be preferred infrastructure. This would include regulated utilities, toll roads, airports and broadcast towers. These entities are monopoly-like assets that tend to generate a stable, consistent pattern of return, it said.Lazard looks to outperform inflation by 5% over rolling five-year periods.Brookfield plans to invest in four major regions of the world – Europe, North and South America and Asia Pacific. It plans to focus on transportation, energy, water and communications.In a board-meeting document, it said the European market appeared to be bottoming but added that investors needed to remain wary of the periphery. The kinds of infrastructure that has bottomed, it said, include airports, seaports and toll road traffic.Alaska Retirement also made a $75m commitment into the KKR Real Estate Partners Americas commingled fund.Steve Sikes, state investment officer at Alaska, said: “We felt the commingled fund presented a good higher-return complement to our existing real estate portfolio. “The targeted returns for the fund are in a range of 16% to 20%.”All of the capital will be invested in North America and Western Europe. The capital will be invested in a number of strategies including property-level equity, debt, special situation transactions and businesses with large real estate holdings.Sikes was non-committal as to whether Alaska would invest more capital into real estate in 2014. “We evaluate real estate opportunities as they present themselves,” he said. “We may make additional commitments if we find a strategy compelling.” The Alaska Retirement Management Board has added $225m (€163.5m) to its real assets portfolio through investments in infrastructure and real estate.The pension fund has selected Lazard Asset Management and Brookfield Investment Management as its separate account managers to manage public infrastructure investments.Each was awarded an allocation of $75m.This decision was the outcome of an infrastructure manager search conducted by Callan Associates.
The CDP’s ‘Global Forests 2014’ report, backed by pension investors including the Environment Agency Pension Fund, Sweden’s KPA, Finland’s Keva and the Netherlands’ APG, urged companies to address commodity-linked deforestation, which often forms part of a company’s work with soy beans, palm oil, biofuels and cattle products.The report found that only half of manufacturers and retailers using soy had specific policies in place to monitor the risks associated with deforestation, compared with all of the producers approached and active in the soy market.The discrepancy was significantly lower in the timber and biofuel industries, whereas cattle products and palm oil had around 20 percentage points’ difference between manufacturers and producers.Norway’s Storebrand excluded more than 20 companies from its investment universe earlier this year, including 11 involved in the palm oil industry.Its move followed the Government Pension Fund Global’s divestment from Wilmar International that was used to raise questions as to whether several large Dutch funds should remain invested in the company.A group of investors last year called on companies to ensure palm oil production did not lead to deforestation.The report comes shortly after the CDP released a report on water management that urged pension funds to be “proactive” over the management of water risks.,WebsitesWe are not responsible for the content of external sitesLink to CDP’s 2014 Global Forests report Pension investors should pay greater attention to the risks of deforestation and encourage companies to look at the associated business risks, as a new report showed inconsistent disclosure policies across timber, palm oil and biofuel supply chains.Paul Simpson, chief executive at the CDP, the NGO behind the report, said some investors were beginning to see the risks posed by deforestation, and cited last year’s divestment by Norway’s Storebrand from certain palm oil companies as an example.Freddie Woolfe, associate director of corporate engagement at Hermes Investment Management, added that forests should be viewed as important in capturing excess carbon emissions and ensuring water risks are kept low.“For a heavily diversified universal asset owner such as a pension fund, which is focused on long-term wealth creation, destruction of such a valuable ecosystem with no comparable alternative makes no sense,” he said.
Aviva Investors’ prospects could be strengthened significantly after rumours of a deal between its parent company and Friends Life were confirmed. With the expected transfer of Friends Life’s assets from rival managers to Aviva Investors in the event of a merger, the asset manager was highlighted as a potentially key beneficiary, as two of the UK’s largest insurers confirmed ongoing talks.Friends Life currently outsources a large amount of its asset management and, by the end of 2014, will have £12.2bn (€15.4bn) with Schroders, significant legacy mandates with AXA Investment Managers and F&C Asset Management, and around £20bn in-house.In March, Friends Life announced that it would shift equity and multi-asset mandates to Schroders from F&C, reducing F&C’s assets under management (AUM) by 17%. In a statement to the stock market, however, Aviva said the combination of itself and Friends Life would create one of the UK’s leading asset management businesses.“The transaction is expected to lead to a substantial increase in profits and assets under management at Aviva Investors through the addition, over time, of Friends Life’s [assets], materially increasing Aviva Investors’ total AUM,” Aviva said.This would help turnaround Aviva’s struggling asset management arm and could trigger a significant shift of assets away from Friends Life’s existing providers.Aviva Investors has struggled in recent years, suffering outflows and an inconsistent management structure.Current chief executive Euan Munro joined in January 2014 after two interim CEOs took charge after the sudden department of Andrew Moss in 2012.Munro has since been charged with overhauling the asset manager and introducing new products such as the AIMS multi-asset strategy.At the end of 2013, the asset manager had £241bn in AUM after suffering £5bn in net outflows over the course of the year.Mark Wilson, chief executive at Aviva, described the manager’s 3% contribution to the group’s operating profit in 2013 as “inadequate”.AUM at the company has since fallen to £234bn at the end of June.Based on the current offer and general agreement between the two boards, Aviva’s offer for Friends Life shares would see any deal reach more than £5bn.Friends Life shareholders would own 26% of the new group, and the combined business would have 16m customers in insurance and savings.In 2013, Aviva made £2.8bn in operating profit before tax, compared with Friends Life’s £436m.According to reports, the move has been triggered by changes to the at-retirement defined contribution (DC) market that saw the removal of compulsory annuitisation.Aviva and Friends Life were both major providers of individual annuities.However, Aviva shifted focus to its bulk annuities business to make up for falling sales.According to market commentators, Friends Life had been looking to move into the bulk annuity space, building up human resource from now-defunct bulk annuity providers Lucida and MetLife.Any offer for the insurer has yet to be finalised, with Aviva having until 19 December to announce a firm takeover intention.The company said there was currently no certainty the insurer would proceed with a deal.
Folksam, Varma, BRAM, Covip, Cometa, UBS GAM, Ukraine National Bank, Carne, Investec, William Blair, Irish LifeFolksam – Anders Sundström has announced he is stepping down as chairman at the Swedish insurer and pension provider over possible conflicts of interest due to his chairmanship of major Swedish bank Swedbank. He will resign at the company’s next annual general meeting in April. The company said in a statement that its nomination committee would propose a new chairman at the meeting. Sundström was president and chief executive at Folksam from 2004 to 2013, and was subsequently elected as chairman of Folksam Liv in April this year.Varma – Ilkka Oksala, Berndt Brunow and Jyri Luomakoski have been appointed to the board of directors at Finnish pensions insurance company Varma, having been elected by the supervisory board. Oksala is director of the Confederation of Finnish Industries, Brunow is chairman of the board at Oy Karl Fazer, and Luomakoski is president and chief executive at Uponor Corporation. The three new members will take up their roles on 1 January, replacing chairman Kari Jordan and board members Lasse Laatunen and Karsten Slotte.Bradesco Asset Management (BRAM) – Reinaldo Le Grazie has been appointed chief executive after the departure of Joaqium Levy, who left to become finance minister in the Brazilian government. Le Grazie joined BRAM in 2011 as fixed income director. He was promoted to chief executive after Brazilian president Dilma Rousseff won her second term in October’s election, inviting Levy into government. Le Grazie began his career in 1984, working in the Treasury department for Lloyds Bank in Brazil. Covip – Italy’s pensions regulator has appointed Francesco Massicci as interim chairman, as the four-year tenure of Rino Tarelli drew to an end last week. Massicci, who was already a member of Covip’s board of directors, will chair the organisation until a new chairman is appointed next year. During Tarelli’s tenure, Covip published its ‘investment policy document’, requiring second-pillar pension funds to state their investment policy and build internal risk-management capacity.Cometa – The €8.3bn Italian pension fund for employees of the mechanical industry has elected a board of directors and board of auditors that will oversee the fund’s investment decisions and compliance with by-laws. The new boards are made up by 12 and six members respectively, equally split between representatives of employers and employees.UBS Global Asset Management – John Fraser, the manager’s chairman, has stood down from his role to become the secretary of the Treasury for Australia. Fraser will take up his new role mid-January. He joined the asset manager’s banking parent in 1993 in Australia, and eventually led its asset management as chief executive, before appointing Ulrich Koerner in late 2013, taking up his chairmanship. He began his career with the Australian Treasury.Corporate Non-state Pension Fund of the National Bank of Ukraine – Oleh Kurinnyi has been appointed director for the corporate pension fund of the national bank. He joins after 14 years at Dragon Capital, the last eight as director of Dragon Development. The governor of the bank, Valeriia Gontareva, appointed Kurinnyi.Carne – Martin Anderson and Neil Clifford join the investment manager advisory firm, adding support to its Alternative Investment Fund Manager Directive (AIFMD) team. Anderson joins from RBC Investor Services, where he oversaw the bank’s sub-custody network, while Clifford joins from Irish Life Investment Managers, where he was head of alternatives. Both will be based in the Dublin office.Investec Asset Management – Jeff Boswell and Garland Hansmann are to join in March 2015, leaving current roles at Intermediate Capital Group (ICG). Both will lead Investec’s global credit team, focusing on developed markets. Boswell joined ICG in 2008 and Hansmann in 2007 in portfolio management and high-yield investment roles.William Blair – Peter Gibson has joined the asset manager as head of consultant relations. Gibson joins from M&G Investments, where he was client director and head of consultant relations for its multi-asset and equity business. He also held roles as an investment consultant at KPMG.Irish Life Investment Managers – Eoin Keating has been appointed to the Irish insurer’s asset management division as head of defined contribution portfolio management. Keating joined in 2007 and worked on a range of roles in defined contribution and defined benefit investment roles.
They were also far too ready to simply assume that market volatility must signal Chinese economic weakness. They should ponder the quip from Paul Samuelson, one of the best-known US economists of the twentieth century, who joked that the stock market had predicted nine out of the last five recessions. Of course it is possible that there are underlying problems facing the Chinese economy but these have to be investigated rather than asserted.Unfortunately the often poor understanding of China does not end with the vast army of rent-a-quotes which has grown alongside the Asian giant’s economic importance. Even those with a comprehensive and sophisticated knowledge of China sometimes make misleading pronouncements.The fundamental shortcoming of much analysis is that it tends to take a blinkered approach. Essentially it looks at a market event – such as the recent China volatility – and asks what it means for investors. Typical answers might be that investors should take a more selective approach to Chinese assets or that recent market concerns are overdone.Of course it is part of the job of asset management groups to give guidance to their investors and even potential investors. It is only right and proper that they should do so. The problems arise when those working within this particular framework are asked to draw more general conclusions about the state of China.Reality is much more mediated than such approaches allow. In other words, the world is a more complex place with the connections between different developments often taking convoluted forms.The tricky relationship between the financial markets and the real economy has already been mentioned. In China’s case it is clear that it is trying to negotiate a relative slowdown from its long phase of rapid catch-up growth to a more mature phase of development. It is aiming for an economy that is more based on high technology and more urbanised. It also hopes to allow the population to consume a greater share of economic output.To put it another way, China is trying to avoid what is sometimes called the middle-income trap. It is no longer poor but it still has to negotiate difficult obstacles before it can become rich.However, it is not at all clear how this transition relates, if at all, to the recent bout of market volatility. There are no easy answers to this question. It is one that demands in-depth investigation rather than sound bites.Another key complexity, and one that receives far too little attention, is the interaction between China and the West. It is arguably this relationship, rather than developments in China itself, which explains the West’s panic reaction to recent Chinese volatility. The obsessive focus on China’s short-term market obscures the chronic weaknesses of the developed economies that date back as far as the 1970s.Over the past 15 years the West has become ever more dependent on growth in China in particular and emerging economies more generally. Without China’s rapid economic growth the plight of the atrophied advanced economies would be even worse than it is today. Cheap Chinese goods and plentiful Chinese credit have played a key role in buoying up the developed world.The specific context to the recent equity sell-offs is the West’s difficulties in weaning itself off extraordinary monetary policy and ultra-low interest rates. When quantitative easing (QE) was first introduced in response to the 2008-09 financial crisis it was considered a temporary measure. Yet, several years later, even the US and UK have not managed to overcome this form of monetary addiction. Although they have ceased making new bond purchases they have not yet reduced their stock of assets. Economic growth would no doubt look even more anaemic without this stimulus.In the euro-zone’s case it has only recently started full-blown QE. Its economic plight is if anything even worse than that of the large Anglo-Saxon economies.The panicky global response to China’s market gyrations is largely a symptom of the West’s own insecurities. No doubt China faces formidable challenges in managing its economic transition but the developed economies are fearful of sinking ever deeper into the mire.Daniel Ben-Ami is deputy editor of IPE The global equity sell-off that followed the recent volatility in the Chinese markets says more about the plight of the western economies than it does about China. To understand the significance of recent events it is necessary to take a broader view than most asset managers, says Daniel Ben-AmiOne of the few investment outcomes that is virtually guaranteed is that times of high volatility bring out the worst in market commentators.This shortcoming was abundantly clear in the recent round of turmoil that started in China. Even those pundits who would probably struggle to locate China on a map felt free to pontificate. Stick a microphone in front of their face and they were sure to come up with some banalities. For example, established investors could lose out as a result of falling share prices or alternatively new investors could take advantage of buying opportunities.Such analysts generally found it unnecessary to encumber their comments with facts. Few seemed aware that the fall in the Chinese stock markets had been preceded by a substantial rise. Nor did they generally realise that the central bank’s decision to devalue the renminbi followed a substantial appreciation of the currency.
It also noted that Hayes had, in his initial report to Parliament from July, suggested an expansion of such full-funding requirements to all new or additional schemes.“Again, we are supportive of being fully funded at all times as an ambition,” the association said.“We need to be realistic and understand there will be situations where there is an underfunding.”It later suggested cross-border funds should be treated no differently than their domestic counterparts, and be allowed to submit funding proposals.Where underfunding occurs, schemes should determine if it was the result of decisions made by management or other, external problems, and then implement a recovery plan.The AAE suggested that, where underfunding was found to be the result of mistakes by management, then the recovery plan should stipulate measures to ensure better management is put in place.Hayes in October distanced himself from amendments for the funding of “new or additional [cross-border] schemes”, submitting revised wording that will be put to vote by the Economic and Monetary Affairs Committee (ECON) next week.European parliamentarians have also been urged to vote in favour of a number of responsible investment provisions when meeting on 1 December.In a letter by Eurosif, the UK’s ShareAction, 2 Degrees Investing, WWF and other NGOs, the signatories urged MEPs to reinstate provisions requiring pension funds to conduct risk assessments of climate and environmental risks.“The European Parliament has the opportunity to take a leadership role in seeking to protect pensioners’ financial futures through promoting a culture of responsible investment,” the letter said.It also urged MEPs to back any one of three similar resolutions by ECON members Anneliese Dodds and Paul Tang, UK and Dutch members of the Socialists and Democrats, or Bas Eickhout, a Dutch MEP and member of the Greens.These resolutions argued that a beneficiary’s best interest and environmental, social and governance (ESG) matters were not incompatible.The letter said studies by the Principles for Responsible Investment and the UK’s Law Commission had shown that the duty was often interpreted as requiring a short-term focus on returns, excluding long-term, ESG considerations. “As such, MEPs must use the opportunity presented by the revision of this Directive to clarify the law in this regard,” it said. The successful passage of one of the amendments would once again raise the issues of fiduciary duties, less than a month after the UK’s “extremely disappointing” decision against amending domestic law.,WebsitesWe are not responsible for the content of external sitesLink to paper by Actuarial Association of EuropeLink to letter signed by ShareAction, Eurosif Cross-border pension funds should not be subject to full funding requirements, the Actuarial Association of Europe (AAE) has argued.Releasing its position paper on the revised IORP Directive, the association repeatedly sided with MEP Brian Hayes but questioned the IORP rapporteur’s attempts to extend more stringent funding requirements to all new schemes launched.The paper said it supported the parliamentarian’s notion that “unnecessary obstacles” holding back the launch of cross-border pension funds should be removed but argued that requiring funds to cover liabilities at all times was one such obstacle.“We would note that the requirement to be fully funded caused [the] closure of the many existing cross-border arrangements when the Directive came into effect,” the paper added, citing examples of cross-border provision between Ireland and the UK.
Geroa Pentsioak EPSV, the multi-sector pension fund for workers in Gipuzkoa, a province in Spain’s Basque Country, has announced a return of 5.13% for calendar 2015 on its €1.7bn investment portfolio.This compares with a 9.39% return for calendar 2014 and takes the average annual return since the fund’s inception in 1996 to 6.51%.But in contrast with last year, when fixed income drove results, equities provided higher returns over 2015.Geroa Pentsioak is a unique concept in Spain, providing supplementary pension cover for medium and low-paid workers rather than for those with higher incomes. Its investment policy is to generate a return that is 2-3 percentage points above Spanish inflation.Fixed income dominates the portfolio, with a 58% allocation as at end-2015, while 30% was in equities.Within the fixed income allocation, Spanish government bonds made up 6.1% of the total portfolio, with 4.4% in bonds issued by the Basque government, 2.3% by the Portuguese government and 2% by Italy.For fixed income securities subject to market volatility, Geroa has been decreasing those assets with the worst risk/reward ratio, both in terms of duration and credit risk type.Specifically, the pension fund has reduced assets with very low returns, such as mortgage bonds, government bonds and straight bonds.Where fixed income assets are subject to market valuations, the pension fund has increased those securities with a short duration and slightly increased the ultra-long bonds for the purpose of obtaining higher coupons.In addition, Geroa has significantly lowered exposure in the medium-long end of the curve for government bonds.For equities, it has upped the weighting in finance and lowered the weighting in industries and materials.In terms of geography, exposure to Europe has been increased, whereas exposure to the US, Latin America and Japan has gone down.Meanwhile, there is also an emphasis on investing in the local economy.Investments in the Basque Country and Navarra form 11% of the total portfolio.This includes 2.46% invested in Orza, an asset manager set up to invest in Basque businesses, in which Geroa has a 50% stake.Geroa’s annual report emphasised the slowdown in emerging markets, with many countries experiencing weak growth, or even recession.It also said European macroeconomic data had only begun to show a slight improvement as a result of the European Central Bank’s policies, notably its asset purchase programme.“If there is significant downward correction in developing countries and in core sectors such as steel production and mining, incipient European recovery may be nipped in the bud,” it warned.
Border to Coast Pensions Partnership, one of eight UK public pension asset pools, is seeking UK equity managers for its first mandate.The pool, a collaboration between 12 funds in the Local Government Pension Scheme (LGPS), has launched a tender for an equity portfolio worth up to £1.25bn (€1.4bn) to be split between three asset managers.According to the tender notice, Border to Coast wants managers with “each with a distinct style or role to play in contributing to the overall portfolio target”.It is seeking multiple investment styles, including value, growth and smaller companies strategies. When the manager line-up is finalised, the combined UK Equity Alpha Portfolio will target an annual return of at least two percentage points above the FTSE All Share index net of all external manager fees and expenses, the tender notice said.Managers applying for the tender should have at least a three-year track record for their strategy as of March 2018.Applicants have until midday UK time on 27 July to submit their offers via the pool’s manager selection consultant Mercer.The full tender details are available here.According to recent council documents, Border to Coast is also working on global and regional equity funds for launch later this year. Border to Coast is headquartered in LeedsBorder to Coast aims to pool roughly £43bn of assets from its member LGPS funds: Bedfordshire, Cumbria, Durham, East Riding, Lincolnshire, North Yorkshire, Northumberland, South Yorkshire, Surrey, Teesside, Tyne & Wear, and Warwickshire.It is led by CEO Rachel Elwell, who joined in December from Royal London, while John Harrison is the pool’s interim chief investment officer.Fiona Miller – a driving force behind the creation of Border to Coast while head of pensions at Cumbria County Council – is the pool’s chief operating officer.The board is chaired by former Railpen chief executive Chris Hitchen.As of March-end 2017, UK equities managers already running mandates for Border to Coast members included Columbia Threadneedle, BlackRock, Mirabaud, Majedie, UBS Global Asset Management, and Schroders.Legal & General Investment Management ran passive UK equity funds for several member funds, while Teesside, Lincolnshire and East Riding pension funds all ran UK equity allocations in-house.