An increasing number of asset managers are willing to negotiate over performance-based fees, conceding these should only be paid when outperformance is 2 percentage points above the agreed benchmark.In a study conducted by bfinance, the consultancy said it was important for asset owners to ensure their fee structures were not counterproductive, as an absence of fee caps could incentivise managers to take unnecessary risks.It also recommended that asset owners consider a rolling benchmark outperformance as a measure for performance fees, but conceded there had been a trend whereby a “significant” number of active managers were willing to compromise on fees.The report said around one-third of asset managers monitored allowed for a fee structure where outperformance remuneration was only awarded once they exceeded the benchmark by 2 percentage points. “This was not the case when we conducted the same survey three years ago,” the consultancy noted. “The alignment of interests between institutional investors and their managers through performance-based fee elements is a trend that bfinance applauds.”It further found that 22% of active managers would propose a fee structure whereby outperformance was rewarded as soon as a 1 percentage point outperformance occurred.When examining a sample of 100 managers, the report also found little correlation between shortlisted managers and fees initially quoted, therefore recommending that asset owners concentrate on selecting the manager best suited to its demands and later focus on fee negotiations.Ian Shea, head of equities at bfinance, said: “Counter-intuitively, the correlation between high-quality asset management and fees is weak. “The most adept managers are also those that are most inclined to be competitive on fees and inclined to work with asset owners to find creative performance fee solutions.”Fees paid to managers have become a contentious issue in a number of countries in recent years, with both the Swiss and UK authorities paying greater attention and forcing the disclosure of costs.Dutch pension fund PFZW, meanwhile, has sought to introduce penalty clauses for external managers that underperform.For more on asset management fees and how pension funds are tackling them, see a recent Special Report in IPE
Month: September 2020
The Dutch Parliament has approved the government’s Bill for the introduction of the APF pensions vehicle, designed to serve as an alternative for pension funds considering liquidation.The APF offers pension funds with various arrangements the ability to operate under a single, independent board, whilst keeping their assets ring-fenced.During the debate on the Bill, Parliament approved an amendment that will allow pension funds to place their basic plans and additional voluntary schemes into separate rings, for reasons of “fiscal hygiene”.MPs also supported an amendment that would allow the merger of participating schemes’ individual stakeholders groups into a single collective body. The APF is a third type of pension fund and is meant to replace the API – the defined benefit vehicle for cross-border schemes that never really took off.However, mandatory industry-wide pension funds are not yet allowed to exploit the APF option.Jetta Klijnsma, state secretary for the Social Affairs Ministry, said she was still looking into the risks of market interference, “which would come at the expense of pension funds’ participants”. The APF proposals have been approved by all stakeholders, including regulators and the Dutch Pensions Federation.In other news, Klijnsma announced that she will soon be launching a scheme that enables participants in a defined contribution pension fund to buy annuities in two stages, starting with a two-year period at the date of retirement. The temporary measure is meant to address the one-off mandatory purchase of full annuities at retirement, which often leads to poor pensions when interest rates are low. However, Klijnsma warned that the decision was not “risk-free” and reminded MPs demanding a quick solution that a previous five-year measure that ended in 2014 produced lower pensions for the 100-odd retirees who used it.The temporary measure is to precede formal proposals earmarked for December.Helma Lodders, MP for the liberal party VVD, recently announced that she also plans to present an initiative to tackle the problem.
EIOPA is the only ESA to have two stakeholder groups, a unique feature it and industry members have defended after the European Commission suggested it should only have one group.The argument for EIOPA to retain separate stakeholder groups for pensions and insurance is captured in the OPSG and IRSG response to the Commission’s 2014 report.The Commission is due to publish a White Paper on the ESAs’ funding and governance this quarter.An industry-wide levy rather than funding from the EU and national budgets is on the table.In its position paper, the EIOPA stakeholder groups take issue with the Commission’s view that “the impact of Stakeholder Groups has been limited and the resources required to set them up and run them are extensive”.Instead, the OPSG and IRSG represent “good value for money”, they said, with EIOPA information indicating that running both groups cost €135,000 in 2015, or 0.68% of the total budget.The impact of the SGs’ work “is difficult to measure”, according to the groups.In their position paper, they note that, although there is evidence EIOPA does take on board detailed comments from the SGs, “there is a feeling from the SGs that, when an SG expresses a strong disagreement with or concern about an EIOPA proposal, while the concern is listened to, the ability to impact EIOPA’s direction is limited”.The paper continues: “This is further strengthened by the fact there seems to be little awareness of the SGs’ role and their opinions outside of EIOPA.”Commission attendance ‘disappointing’To increase the impact and visibility of their work, the OPSG and IRSG suggested several changes.These include allowing for direct exchanges between the SGs and EIOPA’s board of supervisors, involvement in parliamentary hearings with the chair of EIOPA, and more interaction with the Commission.The first point, according to the position paper, could involve the board of supervisors inviting representatives from a SG to provide views on a topic to be discussed, which “would be especially of value if a decision were to be made where the SG has strong concerns or a view that differs from the proposals made by EIOPA”.As to the second, the stakeholder groups said it “would be useful” to attend and contribute to meetings of the European Parliament’s Economic and Monetary Affairs Committee (ECON) when the chair of EIOPA is reporting to it.A similar recommendation is made in relation to the Commission, with which the stakeholder groups believe they should have more involvement.Philip Shier, who was chair of the OPSG until the group started a new, third mandate last month, said it was “disappointing that a representative of the European Commission was unable to join the meetings on a regular basis, as the group felt this would be beneficial to all parties”.In their position paper, the OPSG and IRSG recommended a Commission representative attend SG meetings on a regular basis “to be aware of the discussions and views”.Another suggestion is for the Commission “to confirm it has considered the SGs’ opinions when it takes advice from EIOPA and to have a discussion with the SGs where the SG’s opinions differ from EIOPA’s advice”.Shier’s comment was made in a foreword to an activity report for the OPSG that was in office from September 2013 until March this year.That was the second term for the OPSG, with 21 of the 30 members stepping down at the end of its mandate.The new OPSG, which will be in office until September 2018, had its first meeting last month.Matti Leppälä, previously deputy chair, succeeded Shier as chair of what is the third OPSG.In his foreword to the OPSG activity report – his “labour of love” for the past few weeks, as he recently told IPE – Shier said the primary objective of the recommendations made about the role of stakeholder group is “maximising the benefit the European institutions (and European citizens) obtain from the work done by the SGs”.Separately, the activity report includes suggestions for improvement of future OPSGs, which were drawn from comments made by OPSG members at the end of the second group’s mandate.These include providing information to newly appointed members, possibly by way of an EIOPA induction course, that all own initiative reports clearly identify the target audience and objective before a relevant project commences.Another suggestion is to allow for a “transition process” between OPSG mandates to avoid certain issues being missed during the changeover period.This happened this year, as the last OPSG was unable to complete a response to an EIOPA consultation on an EU single market for personal pension products (PPPs) before its mandate expired, but the deadline for responses (26 April) was before the first meeting of the new OPSG (28 April). The stakeholder groups of the European Insurance and Occupational Pensions Authority (EIOPA) want to increase the visibility and impact of their work, according to a joint statement that also rejected the European Commission’s questioning of their and other stakeholder groups’ value.In a position paper, the Occupational Pensions Stakeholder Group (OPSG) and the Insurance and Reinsurance Stakeholder Group (IRSG) said both groups had undertaken “considerable work and provided valuable, broadly based and relevant input to EIOPA on a range of insurance and pensions issues by way of consultation responses and own initiative statements”.The comment is part of the groups’ response to a report from the European Commission, published in August 2014, on the operation of the European Supervisory Authorities (ESAs) and the European System of Financial Supervision (ESFS).EIOPA is one of the three ESAs, set up in the wake of the financial crisis. The ESAs, together with national authorities and the European Systemic Risk Board (ESRB) and another body, constitute the ESFS.
“These deals pave the way to competitive longevity reinsurance pricing for small and medium-sized schemes, which are more exposed to so-called ‘concentration risk’ where there is potential for greater variability in members’ life expectancy due to diverse pension amounts.”Spike in transfers from DB schemesConsultant and actuarial firm Barnett Waddingham reported an 80% increase in transfers out of defined benefit (DB) schemes in the past 12 months.The figure was based on a sample of 10 of the largest schemes in a wider survey the firm conducted looking at DB trends.It reflects a significant increase in interest from DB scheme members in accessing the UK’s ‘pension freedoms’, which allow defined contribution scheme members more flexibility with their retirement options. DB members are permitted to transfer their guaranteed pension to a non-guaranteed DC scheme.Andrew Vaughan, partner at Barnett Waddingham, said: “The private sector’s big schemes are the industry’s trendsetters. The activity we are seeing in liability management programmes as a result of the pension flexibility changes in 2015, as well as the evolution of liability-driven investment strategies which are now often focused on targeting a bulk annuity transaction, will inevitability work their way down to smaller schemes.”Elsewhere in the survey, which covered UK pension funds with more than £1bn in assets, the company reported that 57% of schemes have a deficit, although this is an improvement on the 67% figure from last year.Just 3% of UK schemes were open to new members, Barnett Waddingham said. Nearly two thirds (60%) of final salary DB schemes were closed to new members, with a further 37% closed to both new and existing members. Career-average DB schemes were more likely to accept new members, the firm said, with 29% still open.Private sector schemes’ funding improves in JuneDeficits of private sector pension funds shrunk during June despite asset values falling, according to three consultants’ estimates.JLT Employee Benefits reported an aggregate funding shortfall of £176bn across all private sector DB schemes, with the aggregate funding level remaining steady at 90%. The deficit figure was a marginal improvement on May’s shortfall of £183bn. Aggregate assets fell by 2.6% during the month, JLT said, while liabilities fell by 2.7%.Charles Cowling, director at JLT Employee Benefits, said: “Many pension schemes will be carrying out actuarial valuations now and beginning to agree new deficit recovery contributions. Even though deficits may have improved a little in recent months, for many pension schemes they will still be much higher than in 2014 when deficit contributions were last agreed.“So, there may still be some very difficult discussions between companies and trustees over the coming months. But maybe the current respite delivered by buoyant markets is an opportunity for trustees and companies to explore liability settlement options for DB pension schemes, before market conditions turn and deliver another unwelcome surprise.”Figures released this week by PricewaterhouseCoopers also reported a fall in liabilities across private sector DB funds. However, its Skyval index’s deficit figure was far higher at £460bn, and the funding position far worse, at 77%.Meanwhile, Mercer’s monthly survey of FTSE 350 schemes showed the aggregate shortfall fell slightly to £131bn at the end of June. Mercer’s data gave an aggregate funding level of 85%.Ali Tayyebi, senior partner at Mercer, said: “The apparent stability of the deficit hides the fact that liability values varied by nearly £30bn between their high and low values during the month. This highlights the potential for continued volatility in deficits in scenarios where assets and liabiliies do not track so closely to each other.” Zurich Assurance has struck a longevity hedge transaction with the UK pension fund of Skanska Construction Services.The deal – the sixth such transaction between Zurich and Skanska – covers roughly £300m (€342m) of liabilities and is a “named life” policy, covering 1,000 pensioners and their dependents.Harvey Francis, chairman of the trustee board, said the deal had helped “improve the security of benefits for all members by removing the uncertainty of future costs to the fund arising from existing pensioners living longer than forecast”. Suthan Rajagopalan, head of longevity reinsurance at Mercer and lead adviser on the transaction, added: “Before these six transactions – which are approaching a total of £1.5bn – ‘named life’ longevity hedges were exclusive to only the largest schemes with over £500m of pensioner liabilities and deal sizes averaged £2bn.
At the same time incentives are to be introduced for people to work beyond that age limit.Funding gaps facing the first pillar buffer fund AHV/AVS from 2020 are to be filled by an increase in value-added tax (VAT). The gaps are set to arise as a result of retirements in the baby boomer generation, with a major dip in the buffer fund’s finances due around 2024. The fund is due to run out of assets by the end of 2030 at the latest, according to calculations previously run by Switzerland’s federal social security office.The government also indicated that the ministry of the interior would be arranging talks between employer and employee representatives to discuss a reform of the second pillar.Stakeholders had agreed to negotiations “without any fixed expectations on any outcome”, it said. However, no details or a timetable were given for the reform of this part of the Swiss pension system. This new two-pronged strategy for changes to the Swiss pension system became necessary after the “Altersvorsorge 2020” reform package failed to be accepted in a referendum in September last year. This had addressed the first and second pillars together.If financing by a VAT increase is chosen as the best way to prop up the first pillar buffer fund then this proposal would have to be put to a binding referendum again because any VAT change has to be sanctioned by the voting Swiss population.The government stressed that despite the now two-pronged approach to a reform “the overall goals remain the same”.Those were to: “maintain the current pension pay-out level, ensure sufficient financing of the retirement provision over the medium-term, and better serve the need for flexibility”. The Swiss parliament is to be presented with a reform draft for the first pillar by the end of this year.This means the ministry of the interior will have to come up with a legal draft for consultation before the summer holidays.The Swiss government decided this at the end of last week.The government wants to increase the statutory retirement age for women to 65 to match that of men.
The €25bn Rabobank Pensioenfonds said the active management of its equity portfolio didn’t add value last year following an investment loss that was 2.25 percentage points short of its benchmark.In its annual report for 2018, the pension scheme for the Dutch bank said its 31.2% equity holdings had lost 7.5% during the year, relative to a 5.3% decline in its benchmark.The negative equity performance was a main contributor to the scheme’s overall loss of 2.5% last year, it said.The scheme’s annual figures showed that the negative result was predominantly due to a 2.2% loss on its currency hedge, which was not offset by gains of 0.5% and 0.3% from its equity and interest rate hedges, respectively. Rabobank’s head office in UtrechtContrary to the conclusions of academic research, the scheme indicated that returns from value and size factor strategies had also fallen short of the market index for more than five years.Responding to comments from its accountability body, the board said it would continue to evaluate its investment policy and adjust if necessary.Asset class returnsRabobank’s 46.5% allocation to fixed income – consisting of euro-denominated government bonds, Dutch residential mortgages and high-yield credit – generated 0.9%.Alternatives holdings delivered a negative result of 1% on balance, with commodities and risk parity-based credit losing 13% and 0.9%, respectively.In contrast, private equity and infrastructure gained 17.4% and 14.2%, respectively. The scheme’s property allocation gained 11.8%.The pension fund said it had recalibrated its private equity programme by reducing the number of managers and increasing the amounts invested per manager, in order to cut costs.It added that it had participated in new funds, including a fund aimed at repositioning and privatising parts of companies, and had further extended its holdings through co-investments and secondaries.Rabobank also committed an additional €140m to infrastructure, and said it expected to reach its target allocation of 2.5% in 2022. At the end of 2018, its portfolio totalled €357m. Since 2010, the Rabobank scheme has applied a factor investing strategy – including momentum, value, size, quality and low-volatility factors – for its equity holdings through specialised managers.
On the sensitive point of the retirement age, prime minister Philippe said the legal retirement age would stay at 62, but that longer working lives were the only solution to a shrinking old age support ratio and that an “equilibrium age” needed to be set at 64, with a “bonus malus” system.This would mean that a full pension would only become payable from the age of 64, with reductions for earlier departures and top-ups for later retirement.One of France’s largest trade union groups, CFDT, has been supportive of the move to a universal points-based system to replace the current 42 different schemes, but today said by pursuing the introduction of this equilibrium age the government was crossing “a red line”.CGT, a hardline trade union, called for more industrial action in the wake of the speech, which it said showed the government remained “deaf” to demands from various constituencies.Philippe dedicated a portion of his speech to concerns and calls emanating from certain professions, including the so-called “liberal” professions, which have fears about the fate of the financial reserves built up in their retirement schemes.The prime minister sought to assuage these fears, saying the reserves would stay with the schemes; there would be no “siphoning to close this or that deficit”. TimetableIn terms of the timing of the application of the reform, Philippe unveiled that a pensions reform bill would be submitted to the cabinet on 22 January 2020 and discussed in parliament at the end of February. He pledged a gradual adoption of the new system.It would start operating in 2022 for those entering the labour market from that year, while the generation born in 1975 and before would switch to the new system from 2025. Workers less than 17 years from retirement and current pensioners would be unaffected by the introduction of the new system. In a keenly anticipated speech about the government’s pension reform the French prime minister today defended the move to a universal points-based system but outlined some measures and commitments intended to address concerns about the contentious project.The speech comes after several days of strikes and demonstrations about the reform. Initial reactions from trade unions suggest the government will continue to face vocal opposition.Addressing concerns about pension levels not being maintained under the proposed new system, Edouard Philippe said the law would provide guarantees about the value of a pension point, and that the social partners – trade unions and employers – would be responsible for fixing its value and evolution, under the control of parliament.The switch to a universal system where each day worked generates pension entitlement points was one of president Emmanuel Macron’s main campaign pledges two years ago. Today there are 42 different retirement regimes for different sectors or professional groups, with varying rules for contributions and benefits. In his speech the prime minister also said the social partners would also be given responsibility for deciding, at the latest by January 2021, measures to return the French pension system to financial equilibrium.Last month Conseil d’Orientation des Retraites, which monitors the French retirement system and makes public policy recommendations, forecast a deficit in the system of between €7.9bn and €17.2bn in 2025, equivalent to between 0.3% and 0.6% of GDP.
Publica, Switzerland’s largest pension fund, plans to overweight its portfolio in companies with “promising and high-quality patents” in the renewable energy sector against other companies, based on its climate efficient equity index, deputy chief investment officer Patrick Uelfeti told IPE.A recently developed MSCI index takes into account expected tax costs on CO2 emissions over a period of 30 years against the market capitalization of a company, patents for the reduction of greenhouse gas emissions, and costs caused by climate change on business operations.“The patents are classified and evaluated according to their relevance and their market potential,” Uelfeti added.In its report on climate-related opportunities and risks for 2019, Publica said it excluded investing in the coal sector, preferring renewable energies, wind farms or photovoltaic systems, through a strategic asset allocation of 3.5%. “Publica has been excluding coal producers from its stocks and corporate bonds portfolios since 2016, because investors are insufficiently compensated for these risks and efforts are underway in various countries to phase out coal-based electricity production,” Uelfeti said.The market value of Publica’s investments in renewable energies totalled CHF154m (€140m) in 2019, up from CHF84m in 2018, according to the report.The report also said the fund exercised its veto right to stop financing on the investment process of infrastructure projects that carry risks, including climate risks.It used its veto right in the past to stop financing a pipeline in North America built to transport bitumen due to its impact on nature, human life and the associated financial risks.“Publica has a veto right for all investments in infrastructure, and thus the possibility to support, based on the same risks and returns, investments in renewable energies or social infrastructure,” the deputy CIO added.The veto right is also a tool that Publica uses to apply so-called “positive criteria” in its financial analysis to screen out investments in infrastructure based on environmental, social, and governance (ESG).“Otherwise positive criteria are currently not explicitly considered in the portfolio,” he added.Publica is taking further steps to integrate the analysis of climate-related opportunities and risks in its investments strategy. From 2022, an analysis of climate scenarios will help to design investment strategies based on the asset and liability management (ALM).This year, Publica is taking part in the climate impact assessment of the Federal Office for the Environment (BAFU) with a further developed version of the PACTA software that also takes into account real estate assets in Switzerland along with equities and corporate bonds.According to the PACTA analysis, the exposure of its total assets to sectors with transition risks for climate change is around 5%, particularly bonds and equities.Bonds have the largest exposure to fossil fuel, electricity and automotive sectors, and equities to fossil fuel, electricity, and cement and steel sectors.With the exception of the automotive sector for equities, both the corporate bond portfolio and equity portfolio are less exposed to climate-relevant sectors compared to the overall market, the report said.Dialogue with companies is essential to address issues that are important for investors, such as climate-related opportunities and risks, or child labour, for instance, Uelfeti said.Publica relies on constructive engagement because as a minority shareholder it has a small stake in the companies it owns, he said.To read the digital edition of IPE’s latest magazine click here.
55 Flecker St, WhitfieldHe said the Barrys had already bought their new home, so the property must be sold this weekend.Both homes have four generous bedrooms, with built-in cupboards and the master suite includes a private bathroom, walk-in wardrobe and “Romeo and Juliette balcony” along with two bathrooms.A formal entry and over-sized rumpus on the lower level make for a grand entrance and plenty of room for the kids while the adults enjoy some time in each other’s company on the enormous decks at the front of each property.There is also the potential subdivision, subject to Cairns Regional Council approval. 55 Flecker St, Whitfield.Owners Robert and Annette Barry have lived in one of the houses for the past 21 years and were immediately attracted by the sweeping views out towards Cairns CBD.The other home is rented out and the occupants of both houses share a pool.“We’re not in each other’s pocket. Both houses are identical,” Mr Barry said. “Our favourite part of the house is the upstairs section – the dining room, lounge, kitchen area is all one big room and from there you walk out onto the balcony. 55 Flecker St, Whitfield“The visitors love the view – it’ll never be built out. There’s also plenty of room in the double garages and it is a very quiet area, it is a very nice area to live and Flecker St is not a through road.”More from newsCairns home ticks popular internet search terms3 days agoTen auction results from ‘active’ weekend in Cairns3 days agoThe Barrys made some minor changes to the properties over the years, putting in a lush tropical garden and dividing the lawn into sections with retaining walls. But, the retirees have decided to downsize.“It is only the pair of us,” Mr Barry said.“I’ve been retired for about six years now, my wife’s been retired for 10 years. We’re not going to go into a retirement village but we are going into a smaller house. 55 Flecker St, Whitfield.TWO homes on one block of land is always a good deal, but two homes in the hills of one of Cairns’ premier suburbs has to be a property dream come true.That is exactly what any savvy buyer will get at 55 Flecker St, Whitfield, which goes to auction on Sunday. 55 Flecker St, Whitfield“As an older person, the structure of the house is very solid and strong. There’s no timber frame in it at all. It’s all solid brick. We’ve got upstairs separated from downstairs, and there is a cyclone-proof section downstairs.“I would suggest we’ve had a renter (in the other property) solidly except for one period of about three weeks and that was brought about because we retiled the place.“The current tenant has been there for four or five years and we understand they’re very happy.”Selling agent Wayne Vowles from Vowles Real Estate said the property was perfect for those in the market for spacious living and great entertainment space.“This property is unlike any other currently on the market, extremely comfortable as is, yet with the elevation that warrants future renovations is so desired,” Mr Vowles said.
REIQ chief executive Antonia Mercorella. Photo: Claudia Baxter. The vacancy rate in Cairns has tightened to 1.3 per cent, according to the REIQ.Landlords also have the upper hand on the Fraser Coast, where the vacancy rate fell to 1.1 per cent during the quarter.More from newsParks and wildlife the new lust-haves post coronavirus13 hours agoNoosa’s best beachfront penthouse is about to hit the market13 hours agoBut the Townsville market was the biggest mover of the quarter. The vacancy rate there moved from a weak 4.3 per cent to a very tight 1.5 per cent in the first three months of the year. MORE: Property beats the gym any day An average three-bedroom house in Cairns is now $45 a week more expensive to lease than it was a year ago. Cityscape of the Cairns CBD. Picture: Brendan Radke.Gladstone’s rental market moved into the healthy range in the March quarter for the first time in six years, tightening from 4.2 per cent to 3.5 per cent.“This market has been gradually improving since it peaked at 11.3 per cent vacancies in March 2016,” Ms Mercorella said.“The inexorable downward trend has consistently suggested an improving market with rental supply and demand trends now the closest to intersecting in almost seven years.”The Greater Brisbane market remained steady at 2.2 per cent during the quarter, while the inner Brisbane market tightened significantly — from 4 per cent to 2.1 per cent. The no vacancy signs are going up fast as vacancy rates tighten across Queensland.QUEENSLAND is fast becoming a landlord’s market, with property investors in the box seat as vacancy rates continue to tighten. The regional markets are now home to some of the hardest places in the state to rent a property, with strong demand and limited supply pushing up rents, according to new figures from the Real Estate Institute of Queensland. The rental market in Cairns tightened to 1.3 per cent in the March quarter, with rents increasing by $10 to $15 a week. RELATED: Worst of downturn could be over Ms Mercorella said apartment oversupply in inner Brisbane peaked in the March quarter of 2017 when the vacancy rate reached 4.4 per cent. The outer Brisbane regions of Ipswich, Logan, Moreton Bay, and Redland are tight at a combined 2 per cent.Terry Ryder of Hotspotting said the Cairns, Townsville and Toowoomba markets were worth a look for would-be investors, along with Gladstone, which suffered a significant blow during the resources downturn.