A consortium of sponsors will be formed this autumn to prepare the way for the creation of a pan-European pension fund for researchers, according to Paul Jankowitsch, chairman of the task force for the IORP.He told IPE that interest was high and that “several very notable institutions” had already pledged their support for the project.“Currently, we as a task force are providing around 150 organisations, including universities and research facilities, with details on the project,” Jankowitsch said.The proposed scheme is not without its critics, however. EAPSPI, the voice of public pensions at the European level, as well as ESIP, the European Social Insurance Platform, have been sceptical of proposals for a Retirement Savings Vehicle for European Research Institutions (Resaver).They fear the scheme could eventually also include the first pillar and “create privileges” other groups of mobile workers would have to be granted as well.But Théodore Economou, CIO at the CERN pension fund, has called on all stakeholders to “study details of the vehicle once it is in place, before forming an opinion”.He added: “It is clear that, in 27 countries, some will participate and some not. But the vehicle will be open to those institutions that want to further research on a European level.”Economou said he was convinced the IORP would “facilitate the growth of Europe’s intellectual capital” – although he stressed his additional position as secretary of the Resaver task force was separate from his role at CERN and “did not necessarily mean” the Swiss research institute would join it.Another champion of the Resaver scheme includes Bill Stirling, who came out of retirement in 2013 to become director of the French Institut Laue-Langevin.Even before details of the fund were negotiated, he was “enthusiastic” about plans to create an IORP for researchers.“This scheme could be a very positive step towards helping with the very necessary mobility of researchers within Europe,” he told IPE.He himself has worked in Germany, France and the UK in various organisations and describes his own pension situation as “quite simply a mess”.Stirling is convinced a pan-European pension fund would help institutions to attract more “bright young scientists”, who today can be “very difficult to tempt from a safe university or lab position in their home country”.
The 21.9% return on Danish shares was 2.2 percentage points above the average market return.The pension fund said it had more than DKK10bn invested in the domestic equities market.Mortensen said July to September had been a challenging quarter and that the pension fund’s non-listed investments had provided a good, stable return in an otherwise falling market.He said equity markets the world over had been hit in the third quarter by nervousness due to speculation on interest-rate rises in the US, Greece’s debt problems, stagnation in China and a correction following a long bull market.“When the markets change direction, diversification and risk coverage are really important,” Mortensen said, “and in this case non-listed investments have had increasing significance, as interest rates have come down so far.”Non-listed investments, which constitute DKK29.5bn of the pension fund’s DKK133.5bn investment portfolio, generated a return of 4.2% in the third quarter alone and 13% in the first nine months of the year.Mortensen said Industriens had been building up a solid portfolio of unlisted investments over many years.“In a period such as the one we have been through, when quoted investments have been under pressure, the value this type of asset gives is clear to see,” she said.However, foreign shares, which account for DKK29bn of the portfolio, lost 0.8% between January and September, and the most heavily weighted asset type – corporate bonds, which account for DKK30.3bn of the portfolio – made a 1.8% loss in the period.Nominal Gilt-edged bonds made a 0.4% profit, and index-linked Gilts returned 0.9%. Denmark’s Industriens Pension reported a 21.9% return on its home-turf equity holdings in the first nine months of this year and said it outperformed in the domestic market through successful stockpicking.Reporting interim results, the DKK147bn (€19.7bn) labour-market pension fund posted an overall return for January to September of 3.8% before tax, compared with 8.2% in the same period last year.In absolute terms, the pretax profit was DKK4.9bn, down from DKK9.4bn.Laila Mortensen, chief executive, said: “This year our holding of Danish shares has done incredibly well once more, which proves the quality of the Danish businesses but also that we have been able to invest in the right companies at the right time.”
The new collective defined contribution (CDC) pension funds of banc-assurer ING and asset manager NN Investment Partners have replaced part of their listed real estate portfolios with investments in Dutch rented housing.In their fourth-quarter report, the CDC schemes – established in 2014, in the wake of the division of ING Group – said rented-housing income was inflation-proof and better matched its long-term liabilities.They made the housing investments through the Woningfonds of insurer ASR. Last year, SPF, the €800m occupational scheme for physiotherapists, invested €50m in the housing fund, after ASR opened it to institutional investors. Six institutional investors, including ASR, have invested €820m in total in ASR’s DCRF, with ASR having a 81% stake.The company declined to provide details on the fund’s intended volume.The fund focuses on residential property in the unregulated part of the market, with monthly rental prices of more than €710.ASR said it was aiming for an internal rate of return of 6-8%, with a direct return of at least 4%.Meanwhile, the €575m ING CDC Pensioenfonds announced an annual result of 1.4% for 2015, highlighting the 9.3% performance of its 33% return portfolio of equities and property.Its matching portfolio – predominantly euro-denominated government bonds – generated 0.1%.The €194m NN CDC scheme reported a 1.1% return for 2015 and said it made a 0.2% loss on its matching portfolio.It return holdings generated 9.3%.Both pension funds said they lost 1.3% on their currency hedge.During the fourth quarter, the ING CDC Pensioenfonds delivered a 0.2% return, while its NN counterpart produced a positive result of 0.1%.Both schemes reported quarterly returns of 5.9% and -1.9%, respectively, on their return and matching portfolios.The CDC schemes of ING and NN IP have 17,600 and 7,200 participants, respectively.Since the start of this year, Armin Becker, former director of the Pensioenfonds Arcadis, has been chief executive at both CDC schemes.
Europe’s market watchdog the European Securities and Markets Authority has revealed it expects the International Accounting Standards Board’s (IASB) new financial instruments accounting standard to have a major impact on financial institutions.The new standard takes effect for the reporting period beginning on or after 1 January 2018.In a report on enforcement and regulatory activities during 2015, ESMA said it would put out “two statements to inform the market and encourage listed companies to provide timely and relevant information on the expected impact of the new financial reporting standards once the endorsement timeline is clarified”.The second statement will relate to the IASB’s new revenue-recognition standard IFRS 15, Revenue from Contracts with Customers. The IASB launched its bid to develop International Financial Reporting Standard 9, Financial Instruments (IFRS 9), in 2009 in the wake of the financial crisis.Alongside a simplified classification and measurement model for financial assets, the new standard also features what its supporters describe as a more forward-looking impairment model for financial assets held at amortised cost.ESMA said: “IFRS 9 is expected to have a major impact on the financial statements of financial institutions, mainly because it will determine a material increase in the impairment losses, with effects on the performance, and require major changes in IT systems.”It remains unclear when the European Union will endorse IFRS 9.Although the European Commission and the European Financial Reporting Advisory Group support the standard, it has met with stiff opposition from many investors.ESMA’s main role is to promote the consistent application of International Financial Reporting Standards (IFRS) and foster convergence of enforcement practices across Europe.To this end, ESMA has a number of enforcement tools at its disposal to improve the quality of financial information and ensure the consistent application of financial reporting standards.Its 2014 ESMA Guidelines are intended to make sure issuers in the EU comply with the requirements of the Transparency Directive.Similarly, its 2015 ESMA Guidelines on Alternative Performance Measures are intended to promote the “usefulness and transparency of Alternative Performance Measures included in prospectuses or regulated information”.Since 2012, ESMA has also identified each European Common Enforcement Priorities in a bid to promote the consistent application of European securities and markets legislation and IFRS among issuers and their auditors.The 2015 look-back also reveals that, during 2015, ESMA and national enforcers examined 189 listed issuers’ compliance with IFRS in 26 countries, focusing on areas identified in the 2014 European Common Enforcement Priorities.These steps led regulators to take enforcement action against 40 issuers.
The second lot is to find a firm to help the pension fund design a methodology to measure and analyse exposure to climate change-related challenges in its real estate, infrastructure and private equity portfolios. “These portfolios’ exposure to climate change-related challenges will then be evaluated based on the developed methodology,” ERAFP said.The contracts will last for three years, and the deadline for submitting bids is 30 November.Earlier this week, the French pension fund announced an award of two contracts to ESG corporate analysis firm Vigeo.One is to assess ERAFP’s equity and corporate bond investments against the pension fund’s SRI criteria, and the other is to assess the fund’s sovereign, supranational and sub-sovereign bonds (SSA) portfolio on the same basis.At the same time, ERAFP warded three-year shareholder voting advisory contracts to Proxinvest and ISS.Proxinvest was awarded the mandate to analyse the shareholder meetings of French companies, while ISS won the mandate to analyse the shareholder meetings of international companies.The tenders for these mandates were announced by ERAFP in June.In other news, the Ethos Foundation and six Swiss pension funds have launched a programme to “engage” with companies listed abroad about governance, environmental and other matters.The initiative has been named the Ethos Engagement Pool International (EEP International).The group said it was aiming to raise companies’ awareness about corporate governance, as well as environmental and social responsibility best practice.The pension funds and Ethos said the move followed the dialogue programme that had already been set up with companies listed in Switzerland and was meant to facilitate the talks between investors and the companies they invested in internationally.The six pension funds are Caisse Inter-Entreprises de Prévoyance Professionnelle (CIEPP); Caisse de pension d’UNIA; CAP Prévoyance; Prosperita Stiftung für die berufliche Vorsorge; Abendrot Stiftung and Prévoyance.ne and Caisse de pensions de la fonction publique du canton de Neuchâtel.Collectively, they have assets under management of CHF15bn (€13.8bn).The Ethos Foundation is made up of more than 200 Swiss pension funds and other tax-exempt institutions, and says it aims to promote socially responsible investment and “a stable and prosperous socio-economic environment”. France’s ERAFP is launching a tender to find one or more specialist consulting firms to assess climate change-related risks and opportunities.The €23.5bn mandatory pension scheme for civil servants said the tender was being carried out to measure the exposure to climate risks in its portfolios, and that the task would be split into two lots.The first lot is to measure the exposure of ERAFP’s equity and bond portfolios to climate change-related risks and opportunities.This assessment will be based on indicators such as carbon footprint or contribution to the energy transition, and will evaluate the European, North American, Pacific and French equity portfolios, the international convertible bonds portfolio and the euro and US dollar-denominated corporate bond portfolios, as well as the pension fund’s government bond portfolios.
The hub – available at tcfdhub.org – also provides material to companies regarding how to conduct scenario analysis for different global warming outlooks.Messenger said that looking at scenarios in 15-20 years’ time would help businesses to explain and prepare strategies for different “potential avenues”, and enable them to change course when needed.CDSB, an international organisation aiming to advance environmental reporting, recently aligned its reporting framework with the TCFD recommendations.So far, CDSB has gathered reports, standards, legislation, regulations, frameworks, research papers, tools, webinars and guidance for the hub, covering various core aspects of the TCFD recommendations: governance, strategy, risk management, metrics, and targets.The TCFD guidance was published last year as a reporting framework for companies. Case studies of firms that have piloted the TCFD recommendations will be added to the hub in the next few months.More than 250 organisations have declared their support for the TCFD recommendations so far. The Task Force is chaired by Michael Bloomberg and was established by the chair of the Financial Stability Board, Bank of England governor Mark Carney. Its recommendations are voluntary. The Task Force on Climate-related Financial Disclosure (TCFD) has launched an online “Knowledge Hub” aimed at helping companies to implement its recommendations.The hub provides companies with resources on how to integrate climate management in their business, disclose climate information, and become resilient against risks arising from transitioning to a low-carbon economy.Simon Messenger, managing director at the Climate Disclosure Standards Board (CDSB), which also backed the Knowledge Hub launch, said that while a full embedding of the guidance into a business’ corporate governance and business model could take several years, it was critical for businesses as investors would assess the climate-risk profile of companies in their investments.“The investment community is increasingly starting to understand that organisations which will in the short, medium or long-term provide the best returns will be those best prepared for the future world in terms of the impact that climate will have on them,” Messenger said.
Investors are being discouraged from considering environmental, social and corporate governance (ESG) factors by a misunderstanding of what ESG means, according to the chief investment officer of one of the UK’s largest auto-enrolment pension schemes.Some of those involved in the debate were focusing on ethics rather than investment when discussing ESG issues, creating a barrier to adoption, said Nico Aspinall, chief investment officer at the People’s Pension.“A lot of people discussing ESG are still talking about ethics, not investment,” Aspinall said in an interview for a Pensions Policy Institute (PPI) report. Jargon was abundant, which was confusing those trying to get to grips with the issues, he added. “There are two worlds between institutional investment and [the] green lobby, and they risk speaking different languages,” the CIO said. “This is getting better, but there needs to be more bridge builders who can bring both groups together.”The institute’s report – written by its head of policy research Daniela Silcock – noted that there was confusion among trustees, independent governance committees, advisers and investment managers as to the purpose and definition of ESG.“Proponents generally agree that ESG is a confusing shorthand and does not necessarily reflect the philosophy behind the practice,” the report said.Another barrier to the consideration of ESG factors, according to the report, was the low level of involvement that pension scheme providers had with investment decisions.Almost all schemes invested in pooled funds or used third-party investment managers to make day-to-day investment decisions, but the extent to which ESG factors were taken into account varied between fund managers and it was difficult for trustees to distinguish between approaches, the report said.Many fund managers offered “ethical funds” to defined contribution (DC) scheme members, it added, but these would require people to make an active choice, generally at a higher cost than the default option.The importance of controlThe People’s Pension – a £5bn (€5.6bn) master trust scheme run by a not-for-profit organisation, B&CE – was moving towards taking more control of how it approached ESG, Aspinall said.Under its current approach, he said, the master trust did not have direct control of how investment managers voted and engaged on behalf of the pension scheme, “which means we compromise with other investors on issues and what actions to take”.“We want to do more here,” said the CIO.In another interview for the PPI report, Faith Ward, chief responsible investment officer at £30bn Brunel Pension Partnership, one of the UK’s new local government pension scheme asset pools, said advisers and managers were often “not fully informed about ESG, and they misadvise clients”.“Trustees and advisers need to be fully equipped to understand the relevance of potential ESG issues,” added Ward.The PPI report was sponsored by Redington. According to Lydia Fearn, head of DC and financial wellbeing at the investment consultancy, it did so because “it can sometimes feel that there are more questions than answers when it comes to ESG”.The PPI report can be found here.
However, responses were divided on the question of whether ESG considerations should be formally added to the investment manager’s fiduciary duty. The only country showing a majority in favour of this was the Netherlands with 57%, while Spain supported that idea the least, with only 34% calling it a good idea.Nearly three quarters (72%) of respondents opposed a legislative mandate that would override what clients wanted managers to consider as relevant investment factors.Svi Rosov, director of capital markets policy at CFA Institute and the report’s author, said: “Our survey highlights that a majority of investment professionals across the European Union are already using ESG factors in the investment analysis process, to ensure that all material impacts on the potential investment are considered.“These ESG factors are part of the standard mix when analysts are assessing their portfolio investments, yet there is great concern whether the regulator should legally mandate ESG or any other factors considered by the investment profession.”The EC’s sustainable finance action plan, published in May 2018, contained four proposals:The mandatory disclosure of sustainability risk by financial market participants;the introduction of a sustainability taxonomy, or rulebook, which would apply to products marketed as sustainable investments;the introduction of low-carbon and positive carbon impact benchmarks by the EC; andthe amendment of existing legislation so that clients’ ESG preferences become part of investment advice provision.In the run up to the action plan’s publication, the CFA said, some stakeholders had felt that explicit consideration of ESG factors should be made part of the fiduciary duty of investment managers. Policymakers should not attempt to force ESG considerations onto investors through new rules, research by the CFA Institute has said.The CFA surveyed 645 investment professionals and reported that, while the majority believed environmental, social and governance (ESG) factors should be taken into account in investment decisions, they rejected the idea of being legally forced into this.Some 85% of respondents said they believed it appropriate for institutional investors to take ESG factors into account when making investment decisions.The institute said few respondents favoured a regulatory requirement for ESG, as has been proposed by the European Commission: 60% agreed that any mandate to consider ESG factors during investment analysis should not translate into forcing the manager or client into an ESG investment policy.
Sweden’s four main national pension buffer funds – AP1, AP2, AP3 and AP4 – have ruled out investing in cannabis companies after a recommendation from their ethics committee.The AP Funds Ethics Council, the joint advisory body for the four main buffer funds backing Sweden’s state pension, recommended that the funds exclude cannabis companies from their investment universe.All four funds – which have combined assets of around SEK1.4trn (€137bn) – have accepted the advice, according to AP4.AP4 said: “The Ethics Council bases its analysis on the conventions that Sweden has ratified and whether companies in the AP funds’ holdings can be linked to conscious and systematic violations of those conventions. “The companies Aurora Cannabis, Canopy Growth and Aphria have all confirmed that they sell cannabis for private use and the Ethics Council therefore considers that the companies can be linked to violations of the UN convention on narcotic drugs.”Because of this, the council advised the funds to exclude these three companies, AP4 said, adding that it and the other three funds had followed this advice.Sweden has ratified UN conventions on drugs, one of which regulates narcotic drugs and limits their use to medical and scientific purposes.“The [conventions] today classify cannabis as one of the narcotic drugs that require the strongest control,” AP4 said.Trading in North American cannabis stocks has been particularly brisk over the past few months, with merger and acquisition activity in the sector making headlines.Canada’s move to legalise cannabis in October fuelled business hopes for the drug and related products.Cannabis, or marijuana, is now legal in several US states for recreational use, but still banned under federal law.US drinks giant Coca-Cola announced back in September that even though it had no interest in marijuana or cannabis, it was paying close attention to the growth of non-psychoactive CBD (cannabidiol) as an ingredient in “functional wellness beverages” around the world. “The space is evolving quickly,” it said, but added that no decisions had yet been made.
Jack said Centric’s aim is to keep on growing and to serve pension funds of any scale, but noted that his firm isn’t ready yet for the larger schemes.He added that Centric expects to keep a lid on costs because of its in-house automation capabilities.Last summer, Rijswijk-based AGH saw its stucture shaken as clients worried about its financial and organisational stability. Dutch ICT firm Centric plans to take over AGH, the current provider for the pension funds for hairdressers, butchers and millers.Alberto Jack, Centric’s commercial director, said the firm was in the due diligence phase and expected to complete the take-over in the first quarter of next year.Centric, which already serves 225,000 participants and pensioners for seven pension funds, could add the trio of sector schemes to its roster with an additional 155,000 participants and pensioners.AGH’s fourth pension fund client, the €1.7bn food trade scheme AVH, has separately decided to join the €29bn multi-sector pension fund PGB. Alberto Jack at CentricAt the time, its affiliated schemes had to provide loans to improve AGH’s liquidity, while wondering whether the organisation would have sufficient scale to survive.Its clients had also lodged complaints about the quality of its pensions provision.Last year, three pension fund clients called for action, urging AGH to do the necessary to make sure all internal processes were delivered accordingly.In their annual reports for 2017, the pension schemes referred to the conditional approval by an external auditor for the ISAE 3402 type II reporting, because of insufficiently implemented processes.This led to the pensions funds carrying out additional checks themselves.Gerard van de Kuilen, chair of the €1bn hairdresser scheme (Kappers), said he considered the take over plan as a positive development.Both the pension fund for butchers (Slagers) and AGH declined to comment.A press release issued by Centric quoted Peter Krul, AGH’s director, as saying that “Centric would offer the opportunity to guarantee our continuity and improve our service provision”.Jack said that AGH’s 50 staff could join Centric in Gouda, but they would keep on operating from Rijswijk for the time being.Centric, which started as pensions provider in 2017, serves the pension funds for the furnishing sector (Meubel), wood trade (Houthandel), concrete industry (Beton), travel sector (Reiswerk), hydraulic engineering (Waterbouw) as well as the Dutch company schemes of Thales and Yara.Most of its clients had been taken over from provider Syntrus Achmea when it ceased its services to industry-wide pension funds.