Danish pensions: A small and medium-sized victory

first_imgRecognising that the long-awaited national implementation of the EU’s Solvency II regulatory regime for insurers is still a way off, the Danish government and the country’s pensions industry have now extended a deal on the discount yield curve.It is the latest – and, regulators surely hope, the last – national exercise to tweak the curve used by pension funds and insurance companies to calculate the amount they need to set aside to cover pension guarantees.But this time, the government has incorporated other measures from its own agenda into the agreement.It has won agreement from the pensions industry to work towards increasing the financial help funds offer to Danish business. Back in December 2011, the Danish financial regulator, Finanstilsynet, acted to save pension funds from the pressure stemming from the yield differential between Danish and German government bonds, which was depressing their on-paper solvency levels.It brought in a new alternative discount yield curve based on a 12-month moving average of the yield differential between Danish and German government bonds.Six months down the line, however, the government stepped in with a new deal to help the pension funds out of the bind they found themselves in – this time as a result of generally low bond yields.In a pact signed with pensions industry body Forsikring & Pension (F&P) and Finanstilsynet, the Ministry of Business and Growth bundled changes to the discount yield curve with measures to bolster pension fund reserves – including restrictions on the level of bonuses and dividends they were allowed to pay out.Under that June 2012 agreement, the long end of the discount yield curve was raised to a level said to equate to normal market conditions, and be in line with long-term projections for growth and inflation.For maturities of more than 20 years, yields were extrapolated using an ‘Ultimate Forward Rate’ (UFR) of 4.2%, based on long-term growth and inflation expectations.This use of the UFR matched the EU Commission’s proposal for Solvency II, it was argued, therefore taking the national regulatory system towards its inevitable destination.The other points inserted into the June 2012 agreement were steps the pension funds had to take to avoid cross-generational redistribution, statements that the funds should cut the use of nominal guarantees on pensions and make more effort to consolidate.Specifically, pension funds were banned from setting account dividends at more than 2%.The latter point has since caused some friction between industry and government, with some funds insisting on their right to set higher payouts to customers, and others seeking individual clarification on whether they were permitted to do so.While extending the yield curve for a further two years to dovetail with expected implementation of Solvency II in January 2016, the new agreement reached just before Christmas 2013 reiterates the account dividend cap – but clarifies the circumstances under which pension funds may exceed it.The deal also includes a pledge to promote pension fund lending to small and medium-sized enterprises (SMEs), with the parties agreeing to work to strengthen SME access to capital resources, while giving pension companies an acceptable return.F&P has agreed to make members aware of the potential of new investment products based on pools of corporate loans.Minister for Business and Growth Henrik Sass Larsen said he was glad all parties in the talks had supported boosting SME access to financing – partly by promoting the options available through the new law on corporate bonds.“The agreement benefits pension customers and the companies that pension funds invest in,” he said.F&P chairman Christian Sagild declared that the association was very pleased there was now clarity about how the discount yield curve would be in the period before the European rules came into force.On the business financing initiative, he said there is no doubt the pension funds will be very interested in investing for the benefit of society.But the right conditions have to be in place, he stressed, and pension savers have to make a good return from these investments.“That’s the case for corporate bonds as well,” he said.last_img read more

Strathclyde targets Glasgow Airport as it ramps up infrastructure holdings

first_imgStrathclyde, the UK’s largest local authority fund, is bidding to acquire a stake in Scotland’s Glasgow Airport, as the £13.5bn (€16.5bn) scheme further expands its infrastructure holdings.A spokesman for Strathclyde confirmed the fund’s interest to IPE, while the €30bn Partners Group said reports of its involvement in the consortium, as well as that of Zurich Airport, were accurate.Strathclyde’s potential acquisition of Glasgow Airport would further expand its infrastructure portfolio and existing commitments.The fund in December approved a £32m commitment to Lloyds Bank UK Infrastructure Partners, an investment that would grant Strathclyde a seat on the vehicle’s advisory committee and allow it to achieve its final target of £250m in capital. Sitting within its New Opportunities Portfolio (NOP), Strathclyde’s commitment would be drawn down over a four-year period, according to a presentation by executive director of financial services Lynn Brown, with self-liquidation within five years of the final drawdown date.Brown said the investment had “a number of attractive features”.She added: “It is run by an established team, which has been very successful in this sector for nearly 15 years and has completed 72 infrastructure transactions, 71 of which have now been successfully realised.”The commitment would also see Strathclyde take on construction risk, although the presentation outlined that these would be “mitigated”.The presentation concluded by asking the investment to be approved, adding: “The proposal offers the opportunity to invest in a fund with substantial visibility in respect of its seed investments, with the transactions being sourced and monitored by a very successful and experienced team.”The commitment now reduces the remaining capital within Strathclyde’s NOP to £90m, excluding its £100m in seed capital to the Pension Protection Fund-backed Pensions Infrastructure Platform.In a separate presentation from the same meeting, Brown outlined that Dalmore Capital, the manager appointed last December to manage the PIP’s assets, would invest “primarily” in the secondary public private partnership market.“The fund will target secondary equity stakes in traditional areas such as health, education and transport and also OFTOs (Offshore Transmission Operators)” the presentation said.“Alongside other stakeholders, this means the fund will receive a contracted level of income payments, based on the availability of the asset.”Brown also outlined that the PIP would have the option to invest “a small proportion in ungeared PPP or solar projects”, noting solar farms’ “very high” inflation-linkage.last_img read more

ESAs call for investigation of asset managers’ systemic relevance

first_imgThe report grouped risks into three main areas: the low profitability of financial institutions in the low yield environment, increasing interconnectedness of bank and non-bank entities, and potential contagion from China and emerging markets.“The financial service industry struggles to offer adequate level of profitability and increasingly turns to a search-for-yield behaviour,” said Bernardino.“Therefore, it is crucial the supervisory community adopt a forward-looking perspective, challenging business model sustainability.”The report notes that the low-interest-rate environment was putting pressure on the investment fund industry, insurers and banks.If prolonged, it also poses “significant challenges” to the resilience of defined benefit occupational pension funds, it adds.This, it says, is shown by the results of EIOPA’s stress test of pension funds, as announced in January.It repeats EIOPA’s conclusion that the stress test show IORPs are generally more vulnerable to market stresses than increases in longevity, and reiterates the deficits revealed by the stress test: €78bn on a national balance sheet basis and €428bn using a “market-consistent approach”, when sponsor support and pension protection schemes are not taken into consideration.The report also highlights the risks posed by the increasing role played by non-bank and non-insurance financial institutions (NBNIFIs) in financing the economy.It flags a 65% growth of euro-area investment funds over the past five years and says the size of the financial system beyond banks and insurers is equivalent to 87% of the banking system in the euro-area.“The development of the marked-based funding is […] raising concerns regarding the interconnectedness between investment funds, banks and insurance companies,” according to the ESAs’ report.Asset managers, it says, are the group impacting on the performance of companies in the other two sectors.This is a reversal of the situation before 2012, when banks’ performance was most influential.“This evidence is consistent with the growing importance of the asset management sector in terms of interconnectivity,” the report says.Referencing a graph showing interconnections among banks, insurers and asset managers, the report notes that the active role recently played by asset managers “calls for further investigation, also with regard to their potential systemic relevance”.Only banks and insurers are designated systemically relevant under current regulations, but NBNIFIs, despite their valuable role, “also increase the potential for spill-over effects and add to complexity”, according to the report.“In this context,” it says, “negotiations around the finalisation of criteria for the definition of systemically important NBNIFIs are pending at the international level.”The ESAs called on regulators to continue to support market-based funding measures – for example, by developing regulation for non-bank loan origination models.They should, however, pay close attention to “ancillary, intrinsic risks”, such as concentration risks, cross-border exposures and regulatory arbitrage. A report from the joint committee of the European Supervisory Authorities (ESAs) has reiterated the risk posed to defined benefit occupational pension funds from sustained low interest rates, as revealed by EIOPA’s stress test, and warned of the implications of the rise of non-bank lending.The report, released yesterday, is on “risks and vulnerabilities in the EU financial system”.The joint committee is chaired by Gabriel Bernardino, chairman of the European Insurance and Occupational Pensions Authority (EIOPA).The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) are also represented on the committee.last_img read more

Carillion fund defies regulatory pressure with ‘alternative de-risking’

first_imgRegulators must relax restrictions on pension funds wishing to diversify investments, according to Robin Ellison, the chairman of trustees at UK construction company Carillion.Ellison, who in addition to chairing the £2bn (€2.5bn) Carillion pension scheme is a lawyer at Pinsent Masons and a former chairman of the UK’s National Association of Pension Funds, said that the UK’s pensions regulator lived “in the 19th century”, pushing funds towards an excessively prudent investment approach which constrains their ability to meet their liabilities. However, speaking at last week’s IPE 360 conference on risk & asset allocation at the London Stock Exchange, he added that accountants and actuaries shared the blame for Carillion’s pension fund having “ridiculous investments”.“Historically they [the investments] have been considered the right thing to do,” he said. The UK construction company’s closed defined benefit scheme’s investments are split nearly evenly between fixed income – mostly government bonds – and equities, with a deficit of around £1bn, according to Ellison.Acknowledging that The Pensions Regulator (TPR) pursued different objectives to pension funds’, he nonetheless bemoaned the pressure that it exerted on UK schemes to invest in government bonds to de-risk. The thinking behind that stance, according to Ellison, was easily explained. “If we go bust it looks better for them [TPR] if we are in government securities.”The European Insurance and Occupational Pensions Authority (EIOPA) and the OECD are also part of the problem, according to Ellison, noting that the latter had published a guidance note saying it is wrong for pension scheme trustees to seek higher yielding investments.“The regulatory pressures are intense to do the conventional thing, and we think this is a mistake,” he said. “At the moment we think the conventional way of de-risking for us is an foolish and expensive thing to do.”And although “we may be wrong”, he said, the Carillion scheme was therefore moving to what Ellison branded alternative de-risking, which involves diversifying by investing in higher yielding assets such as infrastructure, mezzanine debt, and forestry assets. Source: Thomas Alexander PhotographyRobin Ellison (r) and Philippe Desfossés speaking at the IPE 360 Risk & Asset Allocation conference at the London Stock Exchange on 10 June 2016.“It’s not a perfect solution, but if we have sufficient diversification we think we’ll be in a better position,” he said.Carillion has adopted a philosophy of avoiding “reckless prudence”, added Ellison, a phrase repeatedly used by Michael O’Higgins, the former chair of TPR.“The phrase has resonated with me,” said Ellison. “In other words being prudent to an excessive degree, so prudent that you damage the pensions you are trying to pay.”Other panellists also took aim at regulators, including ERAFP chief executive Philippe Desfossés.“Regulators don’t get it,” said the head of the €23bn French scheme for civil servants, in a reference to the low yield environment and the pressures facing pension funds.He has previously warned of the dangers for pension funds from the European Central Bank’s monetary policy, and re-iterated his concerns that pension funds will not be able to survive unless rates increase.To the extent that pension funds are considered as a sort of pass-through, he said, collecting money today to transfer it far into the future, the sector should be “authorised to invest massively in what contributes to growth, basically productive capital and infrastructure”.Instead, however, his scheme was “encouraged” to invest in government bonds, he said.“The timing could not be more awful,” he said. “They are encouraging us to de-risk our balance sheet by investing in things that don’t pay anything.“We should try to convince the regulators just to change the regulatory framework to make it possible to invest much more in alternative de-risking.”last_img read more

BP investors press company on climate change reporting, targets

first_imgBP investors yesterday overwhelmingly backed a shareholder resolution calling for the oil and gas major to describe how its strategy is consistent with the goals of the Paris Agreement on climate change.More than 99% of votes cast were in favour of the resolution, which was initiated by investors acting as part of the engagement initiative Climate Action 100+.The resolution was expected to pass. Co-filed by nearly 60 institutions owning 10% of BP’s voting shares between them, including six of the UK’s 10 largest fund managers, it was also backed by BP itself.Stephanie Pfeifer, CEO of the Institutional Investors Group on Climate Change (IIGCC), said the ultimate level of support for the resolution at the AGM “sends a clear message that investors expect companies to act on climate change”. “With the resolution passed, BP is now legally bound to set out a strategy to ensure it is aligned with the goals of the Paris Agreement,” she added. “The company believe they already meet this objective, so it’s now down to them to show this is the case.”According to Bruce Duguid, head of stewardship at Hermes EOS, which jointly led the IIGCC/Climate Action 100+ engagement group on BP, the resolution was “carefully designed to have the high ambition of a strategy consistent with the goals of the Paris Agreement, combined with robust reporting requirements by which to demonstrate this, while leaving flexibility for the company to set the precise strategy”.Scope 3 ‘heroes’Investors were also asked to vote on another shareholder resolution at the BP AGM, co-ordinated by Dutch campaign group Follow This.It called on BP to include within its targets emissions from the use of its energy products, which are known as Scope 3 emissions. The resolution was not backed by the company and received 8.35% of the vote; 6% of voting shareholders abstained.Follow This’s Mark van Baal said 8% was impressive for an NGO resolution, and noted that the resolution received more backing than when the equivalent resolution was first tabled at Royal Dutch Shell. Shell is the only oil and gas major to have set targets for Scope 3 emissions.Jeanne Martin, senior campaigns officer at pressure group ShareAction, said: “There’s clearly appetite for BP to set emissions reduction targets for its clients’ products, with some of BP’s largest investors already announcing that they would call for this if BP failed to deliver a Paris-consistent strategy in a year’s time.”Van Baal said the institutional investors that voted for the Follow This resolution were “climate heroes”.last_img read more

​Dutch watchdog: Bundled advice and asset management ups costs

first_imgThe actual survey, conducted by research body SEO Economisch Onderzoek, showed that at the end of 2017, 66 pension funds had opted for both investment advice and asset management from the same provider.The study involved 31 investment advisers. At 21 of them, all pension fund clients also bought asset management services, according to the regulator.The watchdog said it couldn’t explain higher costs based on expensive investments, the managers’ performance or achieved surplus returns.It suggested that purchasing a package of investment advice and asset management could be beneficial for the co-ordination between the adviser and the manager, leading to a tailor-made approach.“To small and medium-sized schemes, this could outweigh higher asset management costs as a consequence of the bundling of services,” it said.The watchdog further found that changing asset managers could increase costs by up to 8.3% in the year of the switch.It suggested that these transfer costs could reduce a scheme’s willingness to change asset managers, and argued that this posed a competition risk at the expense of pension funds and their participants. Pension funds that buy both investment advice and asset management from a single service provider incur approximately 10% in additional costs relative to schemes purchasing the same services from different players, according to Dutch competition watchdog ACM.It said that an exploratory survey into possible distortion of competition between asset managers had found that the additional costs applied especially to small and medium-sized pension funds.The supervisor added that schemes that buy the services from a single player tend to stick longer to such arrangements.ACM drew its conclusions on data of 135 pension funds spanning the period 2012-2017 as well as on interviews with market players and experts.last_img read more

​AP7’s default fund lags premium pension private funds in first half

first_imgOver the last 10 years, Såfa has produced an average annual return of 13.5% however, easily beating the average annual 7.8% return of the private funds, according to AP7’s interim report.Because Såfa is a life-cycle fund, AP7 explained that the distribution between equity and fixed income differed for different cohorts, so the return varied for savers of different ages.Total risk for the default fund – standard deviation over 24 months – had been 14.5% compared to 10.2% for the average private premium pension fund, the fund reported.“AP7 Såfa’s higher risk is largely due to the fact that AP7 Såfa has a high stock market exposure for young savers,” the pension fund said, adding that because the proportion of savers over the age of 55 in the default fund was still low, so was its proportion of interest-bearing instruments.AP7’s equity fund – by far the larger of its two building-block sub-funds – ended the first half with a 7.8% investment loss, while the bond fund produced a 0.75% gain, which was 0.05 of a percentage point below benchmark.Although the equity fund staged a strong recovery in the second quarter following dramatic market falls in March from the COVID-19 shock, AP7 said this bounce back had been dampened by the strengthening of the krona against the dollar.“In Swedish kronor, the American market is down by about 3.5%. Emerging markets that make up almost 17% of the equity fund have developed somewhat more weakly where the decline measured in Swedish kronor amounts to about 5%,” the pension fund said in the report, referring to the half year ending 30 June.In the reporting period, AP7 said its operations had focused on portfolio management and the strategic work to increase the fund’s diversification, for example through investments in small companies and risk premiums.AP7’s combined assets of both funds declined to SEK629.4bn at the end of June from SEK674.2bn at the end of 2019.AP7 is facing a major overhaul as the current broad reform of the premium pension system in Sweden rolls on, with a bill including changes to its overall target as well as its investment rules due to come into force next April.Looking for IPE’s latest magazine? Read the digital edition here. The equity-dominated default fund run by AP7, the largest of Sweden’s national pension funds, underperformed its benchmark in the first half of this year, and made twice the loss suffered by private funds in the premium pension system.In its interim report for January to June, the Stockholm-based fund revealed an average 7.2% loss for the default fund, Såfa – a result it said was 1.4 percentage points worse than the benchmark.In the same period, AP7 said the privately-operated premium pension funds produced an average return of 3.2%.The premium pension system is the defined contribution portion of Sweden’s state pension, in which individuals can choose from a range of private investment funds or be included in AP7’s default fund.last_img read more

Immaculate Queenslander to go under the hammer

first_img73 Armstrong St, Hermit Park“People have some real emotional attachments to these Queenslanders and they seem to frequent them in much larger numbers,” he said.More from news01:21Buyer demand explodes in Townsville’s 2019 flood-affected suburbs12 Sep 202001:21‘Giant surge’ in new home sales lifts Townsville property market10 Sep 2020“This would be great for someone who wants to live in a Queenslander but doesn’t want to do any renovations and a lot of the time it’s a financially better option to find something that’s already renovated.“The owners have kept the renovations very authentic and the extension and pool ties in really well with the rest of the house.” 73 Armstrong St, Hermit ParkThe facade of the home, which dates back to the 1920s, features weatherboards and ornate fretwork framed by a white picket fence.Inside there are wide, pine timber floorboards, high ceilings, casement windows and plantation shutters. The master bedroom has a walk-in wardrobe and ensuite. Outside there is a north facing back deck and in-ground pool.The property was near good schools and amenities while being a five-minute drive to the CBD. Mr Dank said it would make a great family house.“I think the person who buys this will have either grown up in a Queenslander or are a family living in a cottage or smaller Queenslander and they want a bigger house,” he said. “It has a pool and is on a larger block so it really would suit a family.” 73 Armstrong St, Hermit Park, will be open for inspection on Sunday from 1.30pm-2pm. For more information call Dean Dank on 0412 036 276. 73 Armstrong St, Hermit ParkONE of Hermit Park’s finest Queenslanders has been listed for sale and is attracting plenty of interest ahead of auction day.73 Armstrong St will go to auction on November 27 at 6pm at Explore Property’s auction event at The Ville.The five-bedroom, three- bedroom, two-car accommodation house is on a 809sq m block and has been meticulously renovated while paying respect to its Queenslander roots.Explore Property principal Dean Dank is marketing the property and said more than 30 groups had inspected the house.last_img read more

Three offers in a week sees Virginia house sell for $1m

first_imgThis Virginia house, at 57 Pilliga St, sold after one week on the market.A SPLIT-level house on a street that spans two suburbs has sold for $1 million, the second highest house price in the suburb’s 140-year history.Three offers were made on 57 Pilliga St, Virginia in its first week on the market. The house, on a 627sq m block, was bought by a lawyer who needed to move his family from Morayfield to be closer to work in the inner city. <<>> The master bedroom with ensuite and walk-in wardrobe.Originally built in 1950, it had been renovated to include a butler’s pantry, laundry room with separate storage room, and airconditioned open plan living areas. Pilliga St spans Virginia and Wavell Heights, with Virginia’s median house price $70,000 less than its neighbour.“If this house had been in Wavell Heights we could have been looking at $1.1 million,’’ Mr Hamilton said. The laundry with external access and a separate linen room.center_img This house is two doors away from the Wavell Heights border where the median house price is $70,000 more.“We listed it on Tuesday, had three offers by Saturday afternoon and it was sold on Sunday,” LJ Hooker’s Dean Hamilton said. CHECK OUT HOUSES FOR SALE IN NEIGHBOURING WAVELL HEIGHTS More from newsFor under $10m you can buy a luxurious home with a two-lane bowling alley5 Apr 2017Military and railway history come together on bush block24 Apr 2019A stylish renovation opens the house to a functional deck.CoreLogic data shows that six properties have sold for over $1 million in Virginia, however only two of those were zoned Residential A with 22-24 Royal St, selling in 2016 for $1,040,000. SEE WHAT ELSE IS FOR SALE IN VIRGINIAlast_img read more

Logan man pays $2 deposit for property in 1967

first_imgThe house at 39 Lamorna St, Rochedale South, is for sale.IMAGINE putting down a gold coin in exchange for a block of land.They were notes in those days, but when Jeffery Bennett bought his property at Rochedale South in 1967, $2 was all he needed. More from newsParks and wildlife the new lust-haves post coronavirus14 hours agoNoosa’s best beachfront penthouse is about to hit the market14 hours agoHe did most of the interior fit outs himself in 1968.Later, they added an extension on the front and back of the home, and in 2013 Mr Bennett completely gutted the property, giving it a contemporary spruce up.“It took about 12 months and the inside and outside are now as you see it today,” he said.The house now has four bedrooms and two bathrooms, as well as multiple living areas and an office.Polished timber floorboards flow through the home, and the kitchen has crisp white cabinetry, with glass doored display cabinets in the front of the island bench. However he gutted and fully renovated the property in 2013.Mr Bennett had spent many hours outside in the garden over the years.“I was a very keen gardener.“The backyard was so big, I used to grow vegetables and I supplied half the neighbourhood with vegetables because I could.” Out in the alfresco dining area was one of his favourite areas.In the front yard, Mr Bennett created a perfectly manicured formal front garden, complete with a bridge and wetland-type area.However, Mr Bennett said there was more than enough room for a pool on the 1591sq m property, should a buyer desire to add one.While June sadly died 13 years ago, Mr Bennett has been more recently enjoying the 39 Lamorna St property with his partner, Jean, however they have decided it is time for a sea change.Video Player is loading.Play VideoPlayNext playlist itemMuteCurrent Time 0:00/Duration 0:51Loaded: 0%Stream Type LIVESeek to live, currently playing liveLIVERemaining Time -0:51 Playback Rate1xChaptersChaptersDescriptionsdescriptions off, selectedCaptionscaptions settings, opens captions settings dialogcaptions off, selectedQuality Levels720p720pHD576p576p432p432p270p270pAutoA, 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 Rate1xFullscreenStarting your hunt for a dream home00:51 Jeffery Bennett put down just a $2 deposit for his property — in 1967.“The block of land was $1025 and I paid a $2 deposit for the contract,” Mr Bennett said.“You can’t even get a slurpie for $2 these days, or so my grandkids just told me.”The following year Mr Bennett, and the lady who would soon become his wife — June — built their first home together.last_img read more