The Polish government may be softening its earlier stance on the decisions workers can make regarding their savings, while proposed changes to the second-pillar fund (OFE) system remain in the discussion stage.In September, the government – in changing the system from a mandatory to a voluntary one – proposed to make the Polish Social Insurance Institution (ZUS) not only the default option but also an irrevocable one.Workers who chose in the first instance to continue saving in the OFEs could subsequently change their minds and move over fully to ZUS.Later that month, prime minister Donald Tusk indicated that those who defaulted to, or chose, ZUS could have a window every 2-3 years to switch back to an OFE. The government has thus far circulated a document to the Sejm, the lower chamber of Parliament, detailing the history of the second-pillar system, the many stakeholder views and the reasoning behind its proposed overhaul.The Polish Chamber of Pension Funds (IGTE) has pointed out that, in its summary of pension funds’ financial results, sourced to the Polish Financial Supervision Authority (KNF), the document has shrunk the aggregate profits made in 2012 from PLN37.4bn (€8.9bn), as stated in the KNF’s quarterly report, to PLN11.1bn.According to the IGTE, this was yet another example of the government manipulating the facts to demonise the second pillar.The most controversial proposal involves removing OFE holdings in Polish state and state guaranteed debt to ZUS, redeeming the debt and banning the funds from investing in these securities in future.In October, deputy finance minister Wojciech Kowalczyk told the press the current 5% foreign investment limit – which the European Court of Justice ruled in December 2011 as being in violation of the free movement of capital – would be raised to 30% by 2016.After the ruling, the government had envisaged a more gradual acceleration, to 30% by 2021, although it had not got round to changing the necessary legislation.At the same time, Kowalczyk reiterated that the OFEs would nonetheless be banned from investing in foreign sovereign debt, as to do otherwise would be inconsistent.He envisaged that there would be no problem with EU legislation in this respect.The government has stressed it wants the OFEs to invest more of their assets in what it termed the “real economy”, essentially corporate and municipal bonds.Even if the OFEs subsequently bought up all the issues on the market, they would not come close to replacing the PLN121.7bn of state bonds they held in their portfolios at the end of June.According to Fitch Ratings’ quarterly review of the Polish non-governmental bond market, as of the end of the second quarter, outstanding corporate bonds of more than a year’s tenor totalled PLN34.2bn, and PLN16.1bn in the case of municipal bonds.Furthermore, the local and regional governments are being put under tighter spending restrictions in 2014, which will reduce their need for issuing debt.The ban on sovereign bonds could nevertheless prove the undoing for the proposed reform.At the end of September, Irena Wóycicka, secretary of state in the presidential Cabinet, told the press the ban was questionable because it increased the risk for fund members by preventing the OFEs from investing in more stable instruments during periods of stock market decline.While president Bronisław Komorowski has yet to issue a statement, he will ultimately have to sign off on the draft law, or alternatively return it to Parliament or refer it to the Constitutional Tribunal.
Local authority funds in England and Wales remain cash-flow positive, largely due to returns from investments, a report has shown.The Local Government Pension Scheme (LGPS) Advisory Board, set up by the government to monitor the performance of the English and Welsh funds, published the first annual report covering all of the nearly 90 schemes in the two countries.The report showed that the average funding ratio for the 2012-13 financial year stood at 79% across the schemes, with total assets of £180bn (€213bn) compared with liabilities in excess of £227bn.It also found that schemes received £12bn in income over the course of the year, exceeding the £9.2bn in benefit payments made during the same period. However, last financial year’s contributions only stood at £8.3bn, leaving investment returns of £3.1bn to prevent the system from becoming cash-flow negative.Kris Hopkins, the junior minister at the Department for Communities and Local Government responsible for the LGPS, welcomed the report’s publication.“By bringing together the data from all English and Welsh funds, the Shadow Scheme Advisory Board has helped usher in a new standard of transparency for scheme members, employers and taxpayers alike,” he said.“This will also provide a comprehensive and clear reference document for the scheme as a whole.”According to the report, the funds invested the largest amount of their assets, £73.5bn, in pooled investment vehicles, without offering a breakdown of what underlying assets these held.It added that a further 38% of assets were invested in standalone UK or overseas equity mandates, and £17bn in fixed income.The remaining £10.5bn were invested, directly or indirectly, in property and the final £9.8bn in undefined ‘other’ assets.In his remarks, Hopkins stressed the importance of the sustainability and affordability of the LGPS, shortly after the funds switched to a career-average, rather than final salary, approach for future pension accrual.His department is currently mulling how to cut costs among the local authority funds, with a ban on active investing considered.For more on the debate between active versus passive, see the active management Special Report in the current issue of IPE,WebsitesWe are not responsible for the content of external sitesLink to the LGPS Advisory Board’s first scheme annual report
An undisclosed European pension fund has tendered a $200m (€160m) microfinance debt mandate using IPE-Quest.According to search QN1468, the client’s preference is for a segregated account or single investor fund.Asset managers should have a three-year track record (preferably five) and at least $500m in assets under management (AUM).Minimum AUM and track record are strict limits. The closing date for applications is 28 November.Interested parties should state performance – gross of fees – to the end of September.For any questions regarding this search, please email [email protected] Questions will not be accepted after the 25 November. For full information, please go to http://www.ipe-quest.com/search.htm.
Maria Rissanen, analyst at TELA, said: “Despite the economic uncertainty during the past year, the returns have so far been quite good.”Return sources came from many different sources throughout the year, she said. Geographically, the occupational pension schemes invested more in Finland than in the rest of the euro area, with €45.6bn invested domestically in the nine months to the end of September and €43.5bn elsewhere in the single-currency zone, TELA said. Over the last 10 years, domestic investments had increased by around €20bn, it said.Rissanen said earnings-related pension funds had won their highest returns in the period from equity investments, and from private equity in particular.“In the current investment environment, it is difficult to get much return from fixed income investments,” she said.TELA said there had been no significant increase in pension insurers granting loans to companies, in spite of the economic situation. Rissanen said it seemed the availability of finance was not a major problem for Finnish companies. “Companies are getting competitive funding from sources other than pension insurance companies,” she said. Pension schemes in Finland’s earnings-related pensions sector returned an average of 6.1% on their assets over the first three quarters of this year as equity allocations grew.Finnish pensions alliance TELA reported data showing assets in the sector grew to €172bn by the end of September, up by €2.5bn, returning a nominal 6.1% since the start of the year. In its investment analysis, the alliance showed pension funds’ share of equities had increased over the period, while fixed income and real estate investments had fallen.At the end of September, the overall allocation to equities and equity-type investments was 48.1%, with 42% in fixed income and 9.9% in property.
Both funds cited equity as their strongest performer, with listed equity returning 11.7% at VER and 12.6% at Keva.Timo Löyttyniemi, who was last year appointed vice-chairman of the EU Single Resolution Board for banks and will leave his current position by the end of February, noted that signs of growth were still outstanding across the global economy, despite improvements in the US.He added that low inflation expectations had meant monetary policy remained “lax”.“This enabled low interest rates, and, consequently, the return on fixed income investments and equities was sound despite intense fluctuations,” he said. Both funds also saw noticeable year-on-year improvements in returns from their fixed income holdings, with VER’s portfolio seeing performance up 6.5 percentage points, to 4.9%, over 2013.For its part, Keva also saw fixed income return 4.9%, improving on the 0.4% return from 2013, but CIO Ari Huotari said the coming year would only see limited potential for improved returns.Private equity was the local government fund’s strongest performer, returning 22%, with real estate returning 5.6% and a small commodities portfolio suffering a loss of 36%. Keva and the Finnish State Pension Fund (VER) have seen double-digit returns on equity holdings and renewed strength in fixed income portfolios, with both schemes beating their 2013 results.Jukka Männistö, chief executive at the local government pension provider, said Keva’s 8.7% return in 2014 was an “excellent testimony” to the work of its in-house investment team.“The markets were very restless throughout the year and consequently showed great fluctuations,” he said. “Notwithstanding the challenging market conditions, we performed well.”Keva outperformed VER, which said investments had returned 7.8% over the course of the last year, up from 6.4% in 2013.
The Dutch pension fund of US pharmaceutical company Johnson & Johnson has finally completed its transfer to Belgium after a three-year process.According to Wijnand de Valk, the scheme’s chairman, Dutch supervisor De Nederlandsche Bank (DNB) has also agreed to transfer existing pension rights, and the pension fund is now fully subject to Belgian legislation, according to Dutch financial daily Het Financieele Dagblad (FD).“It was not a simple task,” the FD quoted DeValk as saying. “There was a lot of distrust among participants, and the process required much time and consultation.”Dutch pension funds’ interest in the Belgium option is increasing, as multinational companies tire of the extensive regulatory pressure in the Netherlands, and seek to increase efficiency by combining Dutch and Belgian schemes, and possibly those in other countries as well. Last year, risk adviser Aon and two other international firms announced their intention to move their pension funds to Belgium.However, Aon has not yet taken a final decision, as its announcement raised concerns among its public and its sheme’s participants, with a number of them establishing a stakeholders association, according to the FD.It quoted René Mandos, chairman at the scheme, as saying: “Some mistakenly fear supervision in Belgium is inadequate. Belgium still is the best option, and that’s why the company is busy consulting all stakeholders. Because it is a complicated process, it requires a lot of fine-tuning, and therefore takes a lot of time.”At Johnson & Johnson, the biggest stumbling block was to get the support of all participants, De Valk said.“Initially, people were very distrustful,” he added. ”The process required meticulous implementation.”According to De Valk, pensions under Belgian rules are “better for everybody”.“The strict governance requirements made it difficult for our small pension fund to stay in the Netherlands, as the trustees had to set aside a disproportionate amount of time,” he said. “Participants now have the benefit that rights cuts are not possible, as the employer must fill in any shortfall.”In Belgium, capital requirements are less strict, and discount rates for liabilities are higher than in the Netherlands.Countering criticism that Dutch pension funds chiefly want to move south because of the “lighter” regime, De Valk took pains to explain that his pension fund discounted liabilities in Belgium against the same rate as in the Netherlands.
It is also alleged that, as a result of SQM’s bribery scheme and defendant’s false statements, the price of SQM American Depositary Shares (ADSs) was artificially inflated between 30 June, 2010 and 18 June, 2015, peaking at more than $66 (€60) a share in July 2011.TWPF claims it suffered losses of more than $4.4m on its shares during the period as a result of SQM’s securities violations.SQM had applied to have the lawsuit dismissed on the grounds of failure to state a claim, and “forum non conveniens” (the power allowing courts to dismiss a case where another court or forum is much better suited to hear it).But Judge Edgardo Ramos, of the district court for the Southern District of New York, held that the plaintiff had adequately alleged that SQM made materially false and misleading statements in its Securities and Exchange Commission (SEC) filings regarding its compliance with applicable law, effectiveness of internal controls, and financial reporting.Judge Ramos also rejected assertions that the claims should be addressed in Chile, because the documents were filed with the SEC in the US, and relied upon by investors to purchase ADSs on the New York Stock Exchange. He said: “The US has a strong interest in upholding its federal securities laws… The defendant claims that the court will have to interpret a novel issue of Chilean law, because a Chilean court has not determined whether [the] actions constitute a criminal tax violation. However, plaintiff alleges strictly federal securities violations – to which SQM has already admitted.”Last January, SQM paid a total of $30m to settle cases brought against it by both the US Department of Justice and the SEC.Patrick Daniels, partner at Robbins Geller Rudman & Dowd, the lawyers acting for TWPF, said: “There are no class actions in Chile and as an emerging market, there are very significant concerns as to the independence and fairness of the judicial system. European – or any other – investors would not have much recourse if the US case was not available to pursue.”Daniels added: “The US case is only for the US-listed ADSs, but is large enough to have a significant impact on SQM going forward. There will be enough leverage on the case in the US to influence the board’s and executives’ behaviour, and ‘fix’ some of the major problems that led to the breakdown of governance and internal audits.” A UK public pension fund has been given the green light to file a lawsuit in the US against a Chilean mining company accused of bribery.The £6.4bn (€7.6bn) Tyne and Wear Pension Fund (TWPF) – which provides pensions for local government employees in the north-east region of the UK – is lead plaintiff in an investor action against Sociedad Química y Minera de Chile (SQM) and individual executives. SQM is one of the world’s largest producers and distributors of speciality fertilisers and industrial chemicals.The case alleges that SQM made materially false and misleading statements and failed to disclose that it made secret, illegal payments – primarily through its then CEO, Patricio Contesse – to electoral campaigns for Chilean politicians and political parties, as far back as 2009.SQM is also accused of filing millions of dollars worth of fictitious tax receipts with Chilean authorities in order to conceal the payment of bribes, and producing financial statements which were materially false and misleading at all relevant times.
Were the proposals to be enacted, pension providers fear the government would nationalise pension assets in a move similar to other countries in central and eastern Europe, including Hungary and Poland. One senior figure said the sector needed to act, referring to a “last call to save the sector”.Pension managers have been reluctant to criticise the Social Democrat government directly, however, and it is hoped that the increase will be removed from draft legislation or watered down to a more palatable level. Romania’s finance and pensions sector is continuing to fight a government proposal that it fears could kill off the funded second pillar.The proposal, included in general fiscal measures published at the end of last year, would introduce a minimum capital requirement of up to 10% of annual pension contributions. No provider would be able to comply, IPE understands, which would effectively force second pillar providers out of business.Although the requirement would apply from end-June 2019, an effective deadline of April is looming. This is the date by which pension companies must state their intention to comply with the measures in their audited annual reports.Romania’s funded pension system manages assets of over RON25bn (€5.3bn) for 7 million citizens. It follows the so-called World Bank model of pension savings, channelling contributions from the first-pillar system to funded accounts. Lucian Anghel, Bucharest Stock Exchange“Romanian private pension funds are the most important domestic institutional investors”Lucian Anghel, Bucharest Stock ExchangeAt a conference organised by the Bucharest Stock Exchange this week, 60% of attendees in an electronic poll thought a workaround would be possible.Representatives of the finance sector were keen to emphasise the importance of the second-pillar funds to the domestic economy.Radu Hanga, president of the Romanian Fund Management Association (AAF), said: “The economic growth of Romania is, and will be, strongly linked to the development of the capital market and on the availability of long-term funding for local companies.“This is why we consider that the growth of the local fund management industry and of the private pension system are the key elements for our future and should be part of our country’s long-term strategy.”Lucian Anghel, chairman of the Bucharest Stock Exchange, noted that the pension system had achieved annualised returns of over 8% in the last decade, which he said were among the highest in Europe.“This can be considered exceptional at global level, being high above the inflation rate and government bond yields,” he said. “Private pensions have brought exceptional added-value to participants, increasing their accumulated amounts. “Romanian private pension funds are the most important domestic institutional investors. They hold above 10% of the domestic market capitalisation of the Bucharest exchange and have contributed essentially to all IPOs that ran on the stock exchange.“In this way, they contributed to the business development of Romanian entrepreneurs and created added-value, supporting economic growth and the increase of the population’s welfare in the last 10 years.”
Private equity and infrastructure posted strong gains for ABP, but commodities and equity draggedABP posted an overall loss of 2.3% for 2018, despite outperforming its benchmark by 0.6% due to gains from alternatives, with private equity and infrastructure delivering 15.4% and 12.4%, respectively.In contrast, it lost 8% on commodities, chiefly due to falling oil prices.The civil service scheme also reported positive returns from fixed income (0.4%), real estate (3.3%) and its interest rate hedge (0.4%).It lost on its holdings in equity (down 5.9%) and its currency hedge (down 1.9%).Strategic investment mixABP’s strategic investment mix of 60% securities and 40% fixed income remained unchanged in its new three-year investment plan, based on an asset-liability management study, the annual report said.The scheme said it would raise its holdings in real assets and infrastructure “as these matched its long-term horizon, contributed to the diversification of its assets and would reduce its risk profile”.The pension fund also widened the scope for its interest rate hedge from “at least 25%” to “25-50%”.It added that it would no longer hedge inflation risk, as this position had returned 0% in 2017 and 2018.The Netherlands’ largest pension fund said it was anticipating a ‘no-deal’ Brexit through adjusting derivatives contracts and seeking a sufficient number of counterparties.It added that it was also preparing for increased volatility on financial markets, as well as reduced market liquidity, by hedging its currency and interest rate exposures and managing liquidity.Costs downABP attributed a reduction of asset management costs – by 4.5 basis points, to 60bps – to reduced management and performance fees for hedge funds and private quity. Last year’s €4.4bn returns on the two asset classes far exceeded the €960m of costs, it said.Administration costs dropped from €76 to €72 per participant last year.ABP’s funding level fell from 103.8% at year-end to 102.4% in March. Its coverage ratio must be at least 104.2% at the end of 2020 in order to prevent rights cuts in the subsequent year. Indexation in arrears had increased to 16%.The civil service scheme has almost 3m participants and pensioners in total, affiliated with 3,645 employers. Hedge fundsThe civil service scheme also reiterated that it would keep investing in hedge fund strategies “if they were a responsible choice and a proper addition to other asset classes under the criteria for return, risk, costs and sustainability”.Last year, ABP’s 4.9% allocation to hedge funds returned 8.5%. It attributed the gain in particular to funds specialising in turning around ailing companies, although its holdings in trend-following strategies generated disappointing results.The pension fund added that it no longer considered hedge funds as a separate asset class, and that it would redistribute its current holdings across other asset classes. Dutch civil service pension fund ABP plans to develop a new investment portfolio aimed at supporting the transition to renewable energy in the Netherlands.In its annual report for 2018, it said it wanted to aid local use of sustainable energy as part of a wider plan to support the Dutch economy.The €431bn scheme said that, until now, it had been difficult to find sufficient investment volume in the local economy. In 2018 it invested 7% of its assets in the Netherlands.The energy transition fund would explicitly target smaller innovative projects and companies involved in generation, distribution and use of energy, ABP said.
The Eiffel Tower is also closed today due to the strikeA specific contentious feature of the reform plans is the mooted introduction of a “full pension age” of 64, although the legal retirement age would still be 62.Last week prime minister Edouard Philippe reportedly demonstrated a degree of potential compromise with regard to the pension reform, although mainly on the timing. He indicated the reform would not apply to those born after 1963, but be pushed back to generations five to 10 years older.More details about the reform project are due to be presented next week before it heads to parliament in early 2020.The strikes could last for days, prompting many to allude to mass protests in 1995 that forced a government climbdown on a planned welfare reform that included pensions. Strikes got underway today in France over the government’s pension reform plans, with teachers and workers at state-owned rail and metro operators among those taking part.According to French media, disturbances include 90% of cross-country trains being cancelled and 20% of flights, while 11 metro lines and some 400 schools are shut in Paris.Hardline trade unions such as the General Confederation of Labour (CGT) and the Workers’ Force (FO) are against the planned pension reform and among those calling for the nationwide strike, and there is also opposition from unions representing professions such as lawyers and accountants.An overhaul of the pensions system is a major pillar of the French government’s reform agenda. It is aiming to introduce a universal points-based system where people’s pension would be calculated in the same way regardless of their occupational status. The current system is complex overall, comprising more than 40 different mandatory regimes, each with different rules about contributions and benefits.