“As the discount rate is usually considered a significant actuarial assumption, ESMA expects issuers to disclose any significant judgements that management has made in its determination in accordance with paragraph 122 of IAS 1 – Presentation of Financial Statements,” it said.“In addition, issuers should provide disaggregation information on plans and fair value of the plan assets when the level of risk of those plans is deemed to be different as required by paragraphs 138 and 142 of IAS 19.”The regulator further noted that the financial impact of IAS 19 revisions – which saw changes introduced that affected how companies could smooth expected returns of DB funds – should be disclosed in an additional statement.,WebsitesWe are not responsible for the content of external sitesLink to ESMA’s European Common Enforcement Priorities The European Securities and Markets Authority (ESMA) has warned financial regulators they must guarantee that companies publish the actuarial assumptions underlying their pension liabilities to ensure a consistent approach to reporting across the European Economic Area (EEA).Publishing the European Common Enforcement Priorities for 2013, ESMA chairman Steven Maijoor noted that a consistent approach was important to allow the accuracy on which investors relied.“Considering the focus on asset quality in the financial sector, listed financial institutions and their auditors should pay particular attention to properly measuring financial instruments and the accurate disclosure of related risks,” he added.The regulator said in its statement that it would like to remind issuers of the “importance of disclosing the significant actuarial assumptions” used to calculate the present value of any defined benefit (DB) obligations incurred by the company.
Danish pension fund PFA said it is increasing its exposure to small and medium-sized enterprises (SMEs) in Denmark by raising its stake in Kirk & Thoresen Invest.PFA — the country’s largest commercial pensions provider — said it decided to boost its ownership stake in the private equity firm to 30% from 16%. A PFA spokesman declined to say how much the investment would cost.Henrik Heideby, managing director of the £417bn pensions company, said: “For a long time we have wanted to support small and medium-sized businesses more and therefore the thousands of Danish jobs that are a part of Danish economic life.” Heideby already sits on the board of Kirk & Thoresen Invest, which has holdings in library supplier Biblioeksmedier, air purifier, Lesni, and supplier of native and exotic meats, Dencon, amongst others.Apart from increasing its stake in the firm, PFA said it was also making a loan facility available to Kirk & Thoresen. “We don’t have the set up internally in PFA to screen the market to see which of these smaller companies have the necessary potential,” Heideby said.“Apart from that, these types of investment often require you as the investor to give concrete leadership and economic advice to the businesses concerned,” he said.PFA did not have the set up to act as a business doctor, he said.Heideby said the pension company’s desire to support SMEs was not driven by idealism.“We are not philanthropists, we will invest in companies we believe will give a good return,” he said.Heideby said PFA would like to make more investments of this type.“With this model I believe we, as a very big institutional investor, will also have the opportunity to work on projects that are so small that we would normally not get involved in them,” he said. PFA said it also had investments in Erhvervsinvest and SE Blue Equity, which invested in SMEs in Denmark.The Danish government has made moves to encourage the country’s pension funds to lend to SMEs since bank lending has become harder for the companies to come by as a knock-on effect of the financial crisis.At the end of last year, it extracted a pledge from the pensions industry to to promote pension fund lending to SMEs as well as working to bolster their access to capital resources.This was part of larger deal to ease the pressure on the level of reserves pension funds needed by extending a previously altered discount yield curve.
Reiner Schwinger, managing director at Towers Watson, said he was pleased by Schmidt-Narischkin’s joining the company.“He will put his many years of experience in client and provider-facing roles to good use, developing further tailored holistic products and services for Towers Watson,” he said.Deutsche said it had not yet appointed a replacement, but that Schmidt-Narischkin’s duties would be assumed by Alexander Preininger, global co-head of client solutions, in the interim. Towers Watson Germany has named Nikolaus Schmidt-Narischkin as its new director of consulting services.Schmidt-Narischkin, who in his new role will work to grow the consultancy’s presence in the German market, joined Deutsche Bank’s corporate banking business in 1990.In 2004, he was named head of DB Advisors’ pension solutions division, substantially growing the business in his time.Since 2008, he has been a board member at Deutsche Asset Management and, most recently, was head of EMEA client solutions at Deutsche Asset & Wealth Management – the new asset management business formed by the bank after the sale of several of its companies fell through.
The use of alternative credit within defined benefit (DB) portfolios is used for both opportunistic investing and tactical asset allocation, research shows.A report, produced by CREATE-Research, into investor views on asset allocation and emerging markets found that while asset classes generally fall into either category, alternative credit is used in both.The same was found in emerging market equities.Research among 700 pension funds, pensions consultants, asset managers and sovereign wealth funds found 56% would use alternative credit for medium-term investing, matched with 48% for short-term opportunities. Within emerging market equities, 50% would use the asset class for tactical asset allocation, and 53% for opportunism.Emerging market corporate bonds were also picked by the majority of investors for opportunistic investments, compared with only 26% that would hold a medium-term allocation.The research, sponsored by Principal Global Invetsors, also looked at investor views on emerging markets.It found the proportion of investors looking for bond and equity opportunities in emerging markets jumped between 2012 and 2014.In 2012, only 15% of respondents said they would use emerging market bonds for opportunistic investing, compared with 51% in 2014, while over the same period those who would use them for buy-and-hold investing dropped from 44% to 34%.Jim McCaughan, chief executive of Principal Global Investors, said he interpreted this development as an indication of banks’ weakness.“Emerging market corporates that needed debt five years ago probably went to a European bank,” he said.He said, due to the financial crisis and regulatory changes, the shift away from banks had led to an increase in issuance for investment management firms and pension funds.“This included local currency, so investors are seeing this issuance, but also the volatility, and use it opportunistically rather than structurally,” he said.“You can also play them both long and short on currencies, as well as on the bonds.”The report also highlighted a growing consensus among institutional investors of a divergence between emerging economies and how different markets will grow in future.Sentiment for China remained strong. However, fellow BRIC nations India, Russia and Brazil all saw significant negative sentiment.Investors also expected developed and emerging economies to see a convergence among asset-class correlation and liquidity, but for buy-and-hold investing to remain a developed market concept.“This suggests a lot of trust in markets, or at least in the inevitability of adopting the Western system,” McCaughan said.“I’m not sure if that’s correct, but there is a widespread belief global best practices will spread to emerging markets.”
It stated that TERs in transparent collective investment schemes – such as investment funds, trusts and investment companies – are to be included in the calculations as well.However, this still left out transaction costs and taxes in collective schemes, TERs in non-transparent (some private equity funds, hedge funds, funds of funds, etc) collective schemes and implicit transaction costs and taxes on the top investment layer, which are not covered by the regulation or the OAK decree.Swiss consultancy c-alm did include those added, hidden costs in its initial report on the second pillar in 2009, commissioned by the Social Ministry in preparation for the structural reform.In it, c-alm calculated a 0.57% cost share, an estimate borne out by subsequent calculations, most recently in 2012, at a slightly lower 0.51% – yet still well above the 0.42% reported by ASIP.But c-alm said it expected more and more collective investment schemes to increase transparency and eventually be included in the TER calculations for Pensionskassen.Ueli Mettler, a partner at c-alm, told IPE: “It is a matter of reputation for asset managers. They do not want to see their products on the so-called ‘black list’ of non-transparent vehicles in a Pensionskassen’s annual report.”He added that UBS had been one of the first to start calculating a synthetic TER for its fund-of-fund offering, and others are following.If all of the currently still non-transparent vehicles are calculating a TER, the costs reported by Pensionskassen could increase by as much as one-third, c-alm estimates.Another trend, according to Mettler, is the inclusion of implicit transaction costs in the calculations, which, on average, adds another 15-20% to the reported costs.Those are not calculated by the provider and can only be estimated by pension funds.However, Mettler warned against including “too many estimate-based figures” and assumptions into the total calculation, as this would be “a path back into the mist”.Currently, more than 98% of all collective investment schemes in the second pillar have attained transparent TER status.However, costs in non-transparent vehicles are likely to be considerably higher than the average.Larger Pensionskassen have reported lower asset management costs on average, and mostly have committed to 100% transparency on fees.The largest Pensionskasse in Swizterland, the CHF36bn (€29.4bn) Publica – as well as the CHF27bn BVK, the pension fund for the canton of Zurich – fully disclose their asset management costs.At Publica, the cost slightly increased last year to 0.22% (from 0.19% in 2012) due to “more expensive” emerging market investments, the Pensionskasse noted in its annual report.The BVK, however, cut its asset management costs from 0.22% to 0.19% year on year – in 2009, costs had been at 0.46%.At the CHF8.7bn Aargauische Pensionskasse (APK), cost transparency is “almost 94%”, with the TERs of some products “not yet fully in line” with OAK calculation requirements.The costs amount to 0.50% of assets, far higher than at Switzerland’s larger funds. Swiss Pensionskassen are paying on average 0.42% of their managed assets in asset management fees, according to a survey by pension fund association ASIP.But experts have warned this does not paint the whole picture, as ASIP’s figure reflects only the costs that must be reported under new regulations and do not cover costs from private equity funds, hedge funds or funds of funds, which do not report a TER, or implicit costs in collective schemes.As part of the reform implemented over the last two years in Switzerland’s second pillar, all Pensionskassen must now report a total expense ratio (TER) on individual investments and include explicit transaction charges and taxes from the top investment layer, as well as global custody, ALM and monitoring costs.In April 2013, the top supervisory body – the Oberaufsichtskommission (OAK) – sent out a decree to add to the new regulatory provisions.
Smart joined in June from consultancy Aon Hewitt, which he joined in December 2012 as senior researcher for bond managers.Prior to that, he spent nearly three years as managing director at Switzerland’s Helvetica WMP.However, Smart spent the majority of his career at Lazard Asset Management, leaving Invesco in 1995 for his new role.Prior to his departure in 2009, he was the firm’s UK head of fixed income.Sara also joined in June, after nearly five years at the PPF as principal fund manager, in charge of asset allocation and investment strategy.In June, he told IPE the lifeboat fund would look into building its funded hedging strategy following concerns over the price of derivatives trades.Prior to joining the PPF, Sara spent more than nine years at HSBC Global Asset Management, starting his career at WestLB Asset Management in 1994.BP IM declined to comment on either appointment.Both appointments come after Sally Bridgeland resigned as chief executive of the fund.Bridgeland, who had been chief executive of BP Pension Trustees for nearly seven years, left in April and has since confirmed she will join Dutch outsourcing advisers Avida International.The fund slightly underperformed its 15% benchmark in 2013 – the last full year under Bridgeland’s tenure – returning 14.7%. BP’s £19bn (€22.7bn) pension fund has increased its in-house capacity, hiring new heads of fixed income and investment strategy.BP Investment Management (BP IM) has named Ian Smart as head of fixed income and the Pension Protection Fund’s (PPF) Opkar Sara as head of investment strategy.In his new role, Smart will be responsible for more than £3.3bn in fixed income holdings, spread across the fund’s £2.6bn fixed interest and £469m index-linked bond portfolio.It holds a further £201m in UK fixed income as part of its pooled investments.
Norwegian pension providers should increase their exposure to domestic private equity to improve the country’s growth prospects, an in-depth government report has suggested.According to the productivity commission, the state should also recognise that regulation has acted as a barrier to competition in the provision of public sector pensions, with the report pointing to the departure of DNB and Storebrand, leaving only KLP to bid for local authority provision.The commission’s initial, 542-page report will now be examined by the government before a second paper puts forward concrete reform proposals on how the Norwegian economy should adapt as the role played by the oil industry declines.It noted that there had been a marked fall in interest from domestic private equity funds since 2007, when the industry agreed to 160 first commitments. The figure fell to just 15 a year by the end of 2013.The report said insurer DNB only had allocated 2% of its assets to unlisted equity “and thus had little significance as a source of financing of innovation and start-up operations”.It concluded that there was room for long-term investors, including pension providers, to increase their role in funding start-ups and small and medium enterprises (SMEs).Lending to SMEs has been hotly debated inside the European Union, with better access to funding for enterprises a cornerstone of Jean-Claude Juncker’s €315bn investment plan.However, respondents to a recent IPE survey remained uncertain about their role in meeting this funding shortfall.The commission also said the current predominance of KLP was an example of how regulation was acting as an entry barrier to competition in the local government pension market.It noted that both Storebrand and DNB had closed their local government businesses as the arrangement led to the current provider being favoured, even when a contract was up for tender.KLP saw its membership increase dramatically after both rivals withdrew from the market, with an inflow of 150,000 new savers last year.The report further argued that, as the level of oil production was predicted to be stable over the next decade, and the Government Pension Fund Global’s real return was expected to remain above its 4% target, the government would be able to divert more of the sovereign fund’s resources into domestic spending.Under the current budget rule, a government cannot spend more than 4% of the NOK6.7trn’s (€764bn) assets per year, with the figure based on an assumed investment return of 4%.The most recent budget earmarked spending of just under 3%, allowing the current and future governments to offset any decline in the oil industry’s output with higher spending.A 2013 report estimated that the petroleum industry would see its contribution to GDP halve by 2030 from a current level of 14%.However, the estimates were based around a long-term crude oil price of $94, compared with current levels between $50 and $60.For more on the Government Pension Fund Global’s approach to investments, see IPE’s recent interview with Norges Bank Investment Management chief executive Yngve Slyngstad
The European Insurance and Occupational Pensions Authority’s (EIOPA) first sector-wide stress test has concluded that pension funds’ ability to transmit financial shocks to other market participants is limited.EIOPA – which stress tested 140 defined benefit (DB) funds and 64 defined contribution (DC) funds in 17 markets across the European Economic Area – identified a number of areas in need of pension fund and regulatory attention. It concluded, for example, that DB funds would need to double sponsor support and benefit cuts to offset the impact of its two main scenarios.These scenarios predict steep deficit increases arising from a “demand shock”, leading to a drop in equity markets, or a broad decline in asset prices coinciding with a commodities supply shock. “This makes them vulnerable to a situation in which prices and interest rates decrease at the same time.“Second, a further decrease in interest rates would also directly lead to an increase in the technical provisions and thereby worsen the solvency position of an IORP even further.”However, EIOPA conceded that the likelihood of either scenario materialising was “small”, and that is designed the scenarios to be severe in a historical context.DC stress testsThe scenarios for DC funds examined the risk of two asset price shocks, two low-return scenarios and an increase in longevity and their impact on a fund member’s replacement rate.EIOPA said the impact on replacement rates was “most severe” where low interest rates were combined with higher inflation, due to the impact of a member’s future purchasing power.The supervisor also questioned the ability of DC funds to hedge, noting that matching the duration of fixed income holdings to a fund’s life cycle would “not always be successful”.It said the asset price shock scenario assumed strong increases in credit spreads of government corporate bonds, which were above the decline in the risk-free rate – reducing the effectiveness of hedging.“Similar conclusions can be drawn for (the few) IORPs that hedge inflation risk through inflation-linked bonds,” it added.“Such strategies are designed to work when real yields move in line with real risk-free rates, but a sudden rise in the credit spreads on inflation-linked bonds will reduce its effectiveness.”Risk of contagionThe supervisor also concluded that the direct links between the pension sector and other financial institutions were limited, reducing the risk of IORPs transmitting financial shocks.“However,” it added, “the extent to which IORPs may act as stabilisers of markets depends on their investment behaviour.”EIOPA warned, for example, that while most of the 224 pension funds participating the stress test were buy-and-hold investors, that mentality did not apply to the sector as a whole.“Those IORPs that represent the majority of pension assets expect to rebalance allocations to assets that have suffered the steepest price falls, most notably listed equities,” it said. “Hence, as sellers of government and corporate bonds and buyers of non-fixed income assets, they might support the stabilisation of those segments that would be hit the hardest in the adverse market scenarios.”EIOPA also pointed out that there could be a secondary impact on the real economy from increasing DB deficits, as sponsors were asked to increase contributions.,WebsitesWe are not responsible for the content of external sitesLink to EIOPA stress test results It found that IORPs were better able to deal with a sudden 20% decrease in mortality, noting that while the impact was not negligible, fallout was “relatively limited” when compared with the impact of its market scenarios.Additionally, it found that low-return scenarios had more of an impact on young DC members’ replacement ratios than longevity increases.DB scenariosLooking in detail at the impact of the market scenarios on DB funds, EIOPA found that its first scenario would depress private equity and hedge fund markets, while impacting unlisted infrastructure projects.“In turn,” EIOPA added, “market-based inflation expectations over the short to medium term would continue to fall, while the expected timing of the return of inflation to central bank targets would remain unchanged.”It said its second scenario would have a greater effect on deficits, citing the “sharp” increase in inflation stemming from higher oil prices and associated import prices following a depreciation of the euro against the US dollar.“Both scenarios would impact IORPs in two ways,” it added, noting the large share of equity and property holdings across the pension investment universe.
The business plan also proposed including Lithuania, which does not currently have an NTS but would be included at this stage due to the small number of local pension providers in need of connection.“Connecting Austria (which has an NTS) and its direct neighbours (which do not have an NTS but have a small number of data providers) will expand the nucleus that started by connecting Poland in Step A,” the business plan adds.“Similarly, connecting the NTS of France will increase the area that started with the [national tracking services] of Belgium and the Netherlands.”Eventually, the remaining European Economic Area countries would also be connected to the ETS.ETS costIn line with the draft business plan published earlier this year, the per-member cost of the ETS was estimated at €0.03, which the consortium estimated would produce revenue to finance the not-for-profit managing entity, STEP, of no more than 10% of that produced by existing NTS.“If all estimated 280m Europeans (within the age range of 25-65) are connected, this should generate enough revenue (and, in time, a lower fee),” the business plan adds, without estimating the likelihood of such a high uptake.It also called on the European Commission to support the project financially.In a letter sent to Marianne Thyssen, commissioner for social affairs, to coincide with the report’s publication, Peter Melchior, chairman of the TTYPE steering committee of Denmark’s PKA, calls for Commission funding.“We calculated that, after the deduction of membership fees [of €3m], approximately €17m is needed in the first five years to cover the costs of developing, connecting and running the ETS,” Melchior writes.“We therefore strongly recommend the European Commission grant substantial financial support.”Melchoir also urges various stakeholders to build on the goodwill built up since the TTYPE Consortium first gathered and push ahead with the launch of the ETS.“Among parties in Europe, there needs to be enough willingness and executing power to step in and do this,” he writes.“The risk here is losing time and momentum. Political and financial support from the EC for future years is a prerequisite. Without sufficient EC support, STEP will not be able to realise its goals.”Speaking at the TTYPE launch event, Thyssen said the Commission was politically committed to the project and would aim to supply funding for the first step of the ETS connecting the Netherlands and Belgium – estimated in the business plan to cost €3.3m.She added that the Commission would later this year also tender for a provider to launch the ETS. The TTYPE consortium – comprising Danish pension provider PKA, Dutch providers PGGM, APG, MN and Syntrus Achmea and the UK and German construction-sector funds B&CE and SOKA-Bau – has been working on the plan since March 2015. A pan-European pension tracking service will take six years to break even and initially be reliant on grants from the European Commission, the venture’s final business plan shows.Unveiling its last business plan after more than a year of intensive work, the TTYPE Consortium – short for Track and Trace Your Pension in Europe – said it envisaged the staged rollout of a European tracking service (ETS), beginning in countries with existing national tracking services (NTS) and significant cross-border worker flow, with initial costs of €13.3m across the three-stage launch.The first step of the process would be for a proof-of-concept to be trialled in the Netherlands and Belgium, eventually being deployed across the Scandinavian countries and Poland.The second step would see the ETS rolled out across countries neighbouring the seven initial participating member states already in possession of an NTS, such as Latvia and Estonia.
The number of pension providers in Lithuania is set to shrink to five following Danske Bank’s decision to sell its pensions business to Swedbank.Yesterday, Danske Bank signed an agreement with Swedbank investicijų valdymas to transfer, for an undisclosed amount, 100% of its shares in Danske Capital Investicijų Valdymas, its Lithuanian pension fund management company.The takeover, pending approval from Bank of Lithuania, is expected to be completed by the third quarter.Danske Bank noted on its website that the planned company shareholder change would occur at no cost to its pension fund participants, and have no effect on the number of pension fund units or unit values. The sale marks part of Danske Bank’s Baltic strategy to focus on corporate and private banking.In March, Lithuania’s Competition Council approved Danske’s transfer of its retail banking services to Swedbank, a transaction completed earlier this month.Last month, Danske Capital sold its Estonian pensions business to LHV Varahaldus.For Swedbank, the acquisition will strengthen its position as Lithuania’s biggest pensions provider.As of the end of March, according to Bank of Lithuania data, its five second-pillar funds had in total 745,192 members, a market share of 38.85% and assets of €745m (34.63%).Danske, the smallest of the providers, had respective shares of 1.75% and 3.29% in its four funds.Danske, unlike Swedbank, is also active in the much smaller third-pillar sector, where it runs a single high-equity fund.This had, as of the end of March, assets of €1.7m, or 2.84% of the total, and a membership of 1,371 (2.84%).The transaction represents a further consolidation in Lithuania’s pensions sector.In 2014, INVL Asset Management, part of the Invalda Group, acquired the pensions businesses of MP Pensions Funds Baltic, as well as 100% of Finasta Asset Management, including the latter’s pension funds.Recent results in the Lithuanian pensions sector have been unspectacular, with the 21 second-pillar funds recording an average nominal return of -1.18% year to date, while the 12 third-pillar funds returned -1.22%.Despite the recent losses, second-pillar assets increased by 4.8% year on year to €2.1bn and membership by 4.5% to 1.22m.The asset growth was boosted by this year’s increase in overall contributions.While the base rate remains unchanged at 2%, the 2015 additional members contribution of 1%, matched by a state contribution of 1% of the previous year’s average salary, both increased to 2%.