29 Sep

Standard setter warns companies over treatment of asset-backed funding deals

first_imgThe cheese manufacturer Dairycrest last year also put in place an asset-backed funding arrangement to protect its pension fund against the fallout from its insolvency, granting the scheme time-limited ownership over maturing cheese stock.The FRC said that, following enquiries from the Financial Reporting Review Panel, a number of companies had “revised either the arrangements or the amounts recognised”.Richard Fleck, chair at the FRRP, said: “It is important companies and their advisers be aware that the FRRP will ordinarily open an enquiry into the financial reporting of any company in which material pension liabilities are reclassified from debt to equity.”Asset-backed deals have grown in popularity in recent years, with the number of deals put in place doubling over the 12 months to October.However, the Pensions Regulator has previously warned that such deals could increase risk for pension funds where advisers failed to anticipate all implications of the structure. UK sponsors should not seek to transform pension liabilities into equity through the use of contingent-asset funding arrangements, the Financial Reporting Council (FRC) has warned.In a statement, the standard setter expressed concerns that a number of companies appeared to opt for an asset-backed funding arrangement so their future contribution payments could be reflected as equity within consolidated accounts.“This has a favourable impact on financial solvency, gearing and reported comprehensive income, notwithstanding that the company has retained the obligation to fund the pension deficit,” it said.It noted that specifically asset-backed arrangements employing Scottish Limited Partnership – such as the property partnership set up by UK retailer Kingfisher in 2011, among other asset-backed arrangements – allowed companies to provide collateral in place of higher contributions.last_img read more

29 Sep

Insurance company tenders large-cap equity mandate using IPE-Quest

first_imgTracking error guidelines for the mandate range from 0.5% to 2.0%.Applicants should supply performance data net of fees to 31 March.The deadline for responses is 15 May. Meanwhile, a charity based in Europe is interested in finding an asset manager to run a global emerging market equities mandate.The charity, which has not been named, is conducting a preliminary review via IPE-Quest’s Discovery service, to see which managers are available before any more formal request for proposal or information.The investment style for the equities mandate is to be growth, using an active process.The inquiry is numbered as Discover 21, and the IPE-Quest number is QN1407.The closing date for responses is 16 May. A Europe-based insurance company is looking for an asset manager to run a $50m-100m (€36m-72m) global developed market equities mandate, according to a search on IPE-Quest.In search QN1406, the unnamed investor is searching for a firm to manage an all/large-cap, global, developed market portfolio using an enhanced index style.The benchmark is to be the MSCI World TR USD.Managers should have at least $500m in assets under management for the mandate, and a minimum of $2bn under management as a firm.last_img read more

29 Sep

Illiquidity concerns increase over ‘missing party’ in fixed income markets

first_imgAsset managers have warned against increasing illiquidity in fixed income markets amid concerns institutional allocations are causing scarcity of assets and price bubbles.Several well-documented factors have forced European pension funds into higher-yielding fixed income assets, with some sovereign bond yields at all-time lows.Sub-investment-grade corporate debt has increased in popularity, including the use of sovereign debt from lower-rated European countries.Pension funds have shifted vast amounts of assets into these areas, with demand for assets now hampering future supply. Pascal Blanque, CIO and deputy chief executive at French asset manager Amundi, recently told IPE he would “accept any phone calls” regarding the availability of corporate debt.And Mike Karpik, chief executive at State Street Global Advisers (SSgA), said recent conversations with institutional clients showed a focus around tail-risks and acknowledging that valuations had moved into the top deciles, with markets feeling “bubbly”.“There are all these pockets of euphoria,” he said. “Yields are down in high yield, while Italian bonds are down to a level people did not think we would see.”Karpik highlighted investors with SSgA were questioning illiquidity risk increasingly.He added that, given the change in the regulatory landscape and the “retreat of opposite parties”, bid-offers had widened.“I worry about the amount of liquidity, particularly in corporate debt and structured products,” he said.The rush of capital into the fixed income markets in previous is easily highlighted by the dramatic fall in yields in recent years.Data sourced by Bloomberg and Merrill Lynch, and provided by M&G Investments, showed average European investment-grade yields falling from 2.7% over three years to 1.97% over one year.Similarly, European high-yield average coupons fell from 7.16% to 4.85%.The retreat of investment banks and primary dealers, which provided liquidity during the global financial crisis, could have a significant impact should asset values begin to fall and institutional investors start a run.Figures from AllianceBernstein showed that, by the end of March 2013, when the Federal Reserve Bank of New York discontinued its data monitoring, primary dealer holdings of corporate debt had fallen by almost 75% since mid-2007 to $58bn (€42bn).However, alongside this, corporate bond markets had grown by 62% over the same period to $5.8trn.Karpik said: “I worry, in the next crisis, when you need players and two sides to create liquidity, the other side won’t be there. The last one saw a lot of people and participants, but now it is substantially less.”Despite the rise in issuance in fixed income products, demand for these assets from pension funds is still causing concern.Andreas Koester, head of tactical asset allocation at UBS Global Investment Management, said managers were facing capacity constraints, particularly since investment banks were no longer “warehousing” trades.He also warned investors that derivatives would not save them from issues of illiquidity in fixed income markets, essentially because enough investors were using these products for the same issues to occur.“Investors need to stop thinking they are five minutes smarter than everyone else,” he said.last_img read more

29 Sep

ERAFP’s equities relative carbon footprint grows after North American allocation

first_imgFrench supplementary civil service pension scheme ERAFP says the carbon footprint of its equities portfolio has increased slightly against the broad equities benchmark, after an increase in allocation to North American stocks.In the latest update of the carbon footprint measurement of its portfolio of shares in major publicly-traded companies, ERAFP said that as of December 31, 2014, the portfolio emitted on average 16% less CO2 per million euros of revenue than the reference index MSCI World.While it described this performance as excellent, it also said this gap compared to the MSCI World was narrower than in 2013, when it had been 19%.The pension fund said: “This is due to changes in the geographic allocation of the various categories of the portfolio.” ERAFP’s categories included euro-zone stocks, international stocks and others, it said.“Among other things, the 2014 launch of contracts for North American stocks, which offer a structurally less satisfactory performance in this area, had a negative impact,” ERAFP said.The fact that the stocks it held had a lower carbon footprint than the reference index was mainly due to the pension fund’s best-in-class approach applied within each sector, it said.It said selection of securities now contributed measurably more to the good performance of the portfolio in terms of low carbon intensity, than did the process of sector allocation.“The positive effect of selecting securities from companies with lower-than-average carbon emissions illustrates the impact of ERAFP’s best-in-class strategy,” it said, adding that this was particularly so for its European stock portfolio.Within this portfolio, it had worked with manager Amundi to cut the carbon footprint of one fund in this category by 40% without excluding any sector, ERAFP said.The pension fund also said it had joined the Portfolio Decarbonization Coalition, an initiative sponsored among others by UNEP and the Carbon Disclosure Project.Separately, asset manager Comgest said it had won a €400m mandate from ERAFP together with RobecoSAM.It said its Asia and Japan equity team would manage the mandate, focusing on Pacific-Rim equities and using a responsible investment strategy.Philippe Desfossés, chief executive of ERAFP, said Comgest’s team had a disciplined investment philosophy with a successful long term track record in combining strong performance.last_img read more

29 Sep

IOSCO seeks to temper ‘systemic risk’ proposals for asset managers

first_imgThis – and not other measures – should be the immediate focus, he said.He said this review should take precedence over other work being done on identifying systemically important asset management firms, meaning the FSB’s plans should be shelved until further notice.“A full review of asset management activities and products in the broader global financial context should be the immediate focus of international efforts to identify potential systemic risks and vulnerabilities,” Medcraft said.“After the review is completed, work on methodologies for the identification of such entities should be reassessed.”There are several members of IOSCO who also sit on the FSB, which means that, should this be a universal IOSCO view, discussions to enforce capital buffers on systemically important asset managers could be shelved.In what some perceive as a rejection of the FSB’s view that asset managers are systemically important and thus need additional regulation, IOSCO said it now wanted to use the review to see whether there was a problem before working out a solution to the issue.Views coming out of IOSCO on the systemic risk debate will be welcomed by the asset management industry, which strongly opposes the notion of systemic importance based purely on assets under management.As the FSB consultation closed earlier this month, the world’s largest asset manager, BlackRock, condemned the FSB’s blanket approach to looking at AUM.The manager said AUM metrics would create false positives and false negatives.It also argued that, given the transmission channels identified for analysis by the FSB, leverage should be used as a basis over AUM, should the FSB insist on moving forward.Within the latest consultation, on which the FSB will report back on by the autumn, pension funds were excluded from being classed as systemically important.BlackRock, Vanguard and asset management umbrella groups argued pension funds should not be excluded given that the firms were agents for investors.They said the FSB should take a more holistic view of the investment management industry. The International Organisation of Securities Commissions (IOSCO) – the umbrella group for market regulators – has dampened plans to categorise large asset managers as systemically important by calling for an alternative review of the market.IOSCO has previously been working with the Financial Stability Board (FSB) on its consultation on whether non-bank non-insurer (NBNI) financial institutions such as asset managers and pension funds are systemically important to financial markets.Switzerland-based FSB is an organisation of financial market policymakers and central bankers, chaired by Bank of England governor Mark Carney.However, an outcome of the IOSCO conference in London was chairman of the board Greg Medcraft proposing a full review of asset managers in a global financial context.last_img read more

29 Sep

Strong domestic equity market helps ATP achieve 12% return

first_imgDenmark’s supplementary labour-market pension fund ATP produced a 12% return on investments in the first half of the year, with growth driven by a buoyant domestic stock market.ATP’s chief executive Carsten Stendevad said: “The yield was especially high on shares, property and infrastructure in a half-year which was characterised by extreme interest rate fluctuations.”In its interim report for January to June 2015, the pension fund said the return on investment before tax and expenses was DKK11.5bn (€1.5bn) in absolute terms.Among the five risk classes that comprise ATP’s DKK100bn investment portfolio, three — credit, equities and inflation — saw a positive return, while interest rates and commodities ended the period with a loss. Equities generated a DKK7.0bn return, DKK5.1bn of which came from listed Danish equities, equating to a 31.1% return.“The return was achieved broadly across the portfolio, but was driven, in particular, by holdings in Genmab A/S and Novo Nordisk A/S,” ATP said in the report.Shares in biotechnology company Genmab rose 56% over the first six months of the year, while pharmaceutical firm Novo Nordisk saw its share price appreciate by over 38%. ATP’s investment portfolio only accounts for around 20% of its total assets, as the lion’s share of assets is invested in a hedging portfolio meant to underpin the yield guarantees it offers its members.ATP saw total assets shrink to DKK691bn by the end of the reporting period from DKK704bn at the end of December.However, assets had grown compared to the same point last year, when they had totalled DKK641bn.The bonus potential — the sum used in the investment portfolio — grew to DKK100.5bn at the end of June from DKK95.8bn at the end of December.The hedging portfolio made a loss after tax of DKK20.0bn in the first half of the year.The pension liabilities the portfolio is designed to protect decreased by DKK18.6bn over the same period as interest rates increased, putting the net loss arising from hedging activities that had to be absorbed at DKK1.4bn.But ATP described this difference as satisfactory since it amounted to less than a quarter of a percent of the guaranteed benefits of DKK590.2bn.The pension fund said it updated its life expectancy projection as part of the first-half accounting.“The increase in Danish life expectancy observed was higher than expected in the past year,” it said.The rise in projected lifespans for ATP’s members in 2015 was two and half months for women and three months for men, it said.This led to ATP increasing provisions for future pensions by DKK3.7bn, which equated to 0.6% of guaranteed benefits, it said.last_img read more

29 Sep

Dutch government fears losing UK as partner on EU pensions

first_imgOmtzigt had asked how the government would ensure it found new partners on the EU pensions dossier.In Klijnsma’s opinion, it was good that the review of the IORP directive had been completed, as it would provide clarity about European legislation during the coming years. The new IORP directive will be evaluated in six years’ time. However, the state secretary emphasised the importance of staying focused and keeping in touch with other EU member states, the European Commission, and the supervisor for the sector, the European Insurance and Occupational Pensions Authority. Omtzigt referred to an earlier statement by Gerard Riemen, director of the Netherlands’ Pensions Federation, who had also noted that the country would “lose a partner in Brussels” when the UK leaves.Riemen predicted that finding a new partner would be difficult, “because of the differences between the predominantly capital-funded Dutch pensions system and the pension arrangements elsewhere in continental Europe”.Earlier, Dutch pension funds had made clear they feared the uncertainty for investments and their funding that Brexit was causing. The Dutch pension fund assocation expressed concerns about the impact of Brexit on EU pension legislation negotiations even before the referendum last year. The Dutch government has added its voice to concerns from the country’s pension funds that the UK’s exit from the European Union will mean the loss of an ally on pension matters.  Jetta Klijnsma, state secretary for social affairs, has indicated that the cabinet fears losing a partner on the pensions dossier as a result of the UK leaving the EU. Answering questions in parliament last week, she said that Pieter Omtzigt, MP for the Christian Democrats (CDA), had rightly noted that the Netherlands’ best partner on pensions is to leave the EU.“This is a worrying development indeed,” she said.last_img read more

29 Sep

Accounting, de-risking moves bolster Swiss pension plan funding

first_imgThe amendment made it easier to treat 1e plans as defined contribution schemes under international accounting standards. According to Willis Towers Watson, the legal change had “a substantial impact” on de-risking strategies.Eileen Long, senior actuarial consultant for occupational pensions at Willis Towers Watson, said many companies that did not already offer such plans were thinking of introducing them so that pension arrangements weighed less on their balance sheets.“This is a measure to stabilise the volatility of pension liabilities and a de-risking strategy that alleviates some long-term risks pension funds face today,” she said.“In addition, many policyholders gain flexibility and freedom to choose a pension adapted to their means.”The return on the companies’ pension assets was around 7.8% on average in 2017, according to Willis Towers Watson, with investment strategies little changed overall compared with 2016.The surveyed companies held around 35% of their portfolio in equities, 40% in bonds and 25% in real estate and alternative products.The study was of companies in the Swiss Leader Index, which contains 29 holdings of the Swiss equity markets and includes the largest listed companies in the country.See the June issue of IPE Magazine for more about Switzerland’s 1e plans The coverage ratio of leading Swiss companies’ pension plans increased by 5% in 2017, with accounting changes and de-risking measures contributing to the development, according to a survey by Willis Towers Watson.The pension liabilities of the 29 largest listed Swiss companies surveyed decreased by CHF3.6bn (€3.1bn), while assets grew by CHF900m. This took the coverage ratio from 80% in 2016 to 85% in 2017, according to international accounting standards.According to the consultancy, accounting changes and de-risking measures contributed to this development.  It highlighted changes to the law on so-called 1e pension plans. Last year, the Swiss parliament voted to abolish the legal minimum guarantee for the 1e plans, which offer individual investment choices for higher earners.last_img read more

29 Sep

Mandate roundup: Compenswiss targets $500m for EMD local currency

first_imgCredit: Waldo MiguezLuxembourgLuxembourg’s €18bn pension reserve fund has tendered out €5bn in passive equity and bond mandates on behalf of its investment vehicle, which invests the majority of the reserve fund’s assets.Fonds de Compensation (FDC) is looking to award a €1.955bn euro denominated bond mandate, a €2.285bn global bond mandate, and a €675m emerging market equity mandate.The global bond mandate requires the exchange rate risk to be hedged.A spokesman for the fund told IPE the mandates were originally awarded in 2010 and would reach their legal maturity next year.According to the sovereign investor’s 2018 annual report, Credit Suisse Asset Management currently holds the euro denominated bond mandate, BlackRock the global bond mandate, and State Street Global Advisors the emerging market equity mandate.FDC said the launch of the request for proposal was approved by the board in July. The CHF37bn (€33bn) manager of Switzerland’s social security funds is seeking to invest $500m (€449m) in emerging market local currency bonds via an actively managed fund.In a request for proposal document, Compenswiss said any emerging market bonds were eligible for the universe, with limits to apply on quasi-sovereigns, corporate bonds and non-local currency bonds.Performance would be measured against JP Morgan’s diversified global emerging market bond index (JP Morgan GBI-EM Global Diversified), with a target of annual outperformance by an average of 100 basis pints, net of all fees, over a four-year cycle.The maximum tracking error target is 5%. The deadline for initial proposals is 10 October. A “long” request for proposal document is to be released on 1 November.The search is available via IPE Quest. According to search QN-2569, Compenswiss wants managers to have at least $5bn in assets under management as a firm, and a track record of at least three years. Applicants should state performance gross of fees to 30 June. Luxembourg’s FDC tenders out €5bn trio of passive mandateslast_img read more

28 Sep

Chapel Hill Roman palace hits the market

first_imgREAL ESTATE: 11 Wandella St, Chapel HillIS THIS home a fairy castle or Roman emperor’s palace?One thing is for sure — there is no other home like this Chapel Hill stunner in the world.The house at 11 Wandella St, also known as Wandella House, was commissioned by local artist and glazier Warwick Blair, who was inspired by his love of the Mediterranean.Original artwork by Mr Blair is scattered throughout the home, including various stained-glass windows, some of which are surrounded by ornate cathedral ceilings.Rob and Samantha Lovegrove have had the privilege of owning the property since 2011, and Mr Lovegrove said the home was special from the moment you walked in the front door.“There’s a stained-glass window as soon as you walk through the door,” Mr Lovegrove said.“It’s an Italian lake scene and it doesn’t matter what kind of day you’ve had, you feel more relaxed as soon as you look at it.“The stained-glass in the main sitting room is pretty spectacular.“The home is really grand without being too pompous.”Other rooms have coffered ceilings, while outside are roman-style columns.More from newsParks and wildlife the new lust-haves post coronavirus17 hours agoNoosa’s best beachfront penthouse is about to hit the market17 hours agoMr Lovegrove said the intricacies of the home made it great for entertaining, with guests always having something to look at.He said his favourite space of the home was an alfresco area, which overlooked the pool.“We call it the piazza,” he said.“It’s beautiful to see the sun setting or the stars from there.“We set up an outside cinema so we watch the occasional film out there, or have drinks with friends.”Mr Lovegrove said the area was private, backing on to bushland.“It’s in a cul-de-sac with very little traffic,” he said.“You could hear a pin drop.”Video Player is loading.Play VideoPlayNext playlist itemMuteCurrent Time 0:00/Duration 9:24Loaded: 0%Stream Type LIVESeek to live, currently playing liveLIVERemaining Time -9:24 Playback Rate1xChaptersChaptersDescriptionsdescriptions off, selectedCaptionscaptions settings, opens captions settings dialogcaptions off, selectedQuality Levels720p720pHD288p288pAutoA, selectedAudio Tracken (Main), selectedFullscreenThis is a modal window.Beginning of dialog window. Escape will cancel and close the window.TextColorWhiteBlackRedGreenBlueYellowMagentaCyanTransparencyOpaqueSemi-TransparentBackgroundColorBlackWhiteRedGreenBlueYellowMagentaCyanTransparencyOpaqueSemi-TransparentTransparentWindowColorBlackWhiteRedGreenBlueYellowMagentaCyanTransparencyTransparentSemi-TransparentOpaqueFont Size50%75%100%125%150%175%200%300%400%Text Edge StyleNoneRaisedDepressedUniformDropshadowFont FamilyProportional Sans-SerifMonospace Sans-SerifProportional SerifMonospace SerifCasualScriptSmall CapsReset restore all settings to the default valuesDoneClose Modal DialogEnd of dialog window.This is a modal window. This modal can be closed by pressing the Escape key or activating the close button.Close Modal DialogThis is a modal window. This modal can be closed by pressing the Escape key or activating the close button.PlayMuteCurrent Time 0:00/Duration 0:00Loaded: 0%Stream Type LIVESeek to live, currently playing liveLIVERemaining Time -0:00 Playback Rate1xFullscreenCoreLogic Brisbane Housing Market Update – August 201809:25last_img read more