UK pension funds have been “remarkably remiss” in not engaging more with their own government on infrastructure spending, according to the chairman of the £41bn (€48.5bn) BT Pension Scheme, who urged schemes to collaborate more on projects.Paul Spencer, also chair of the British Airways and Rolls Royce pension funds, said schemes should try to learn from each other and “shouldn’t be reinventing the wheel”.He told delegates at the National Association of Pension Funds annual conference in Manchester that infrastructure was a prime example where a more proactive approach was needed.Discussing the UK government’s medium-term estimate that £320bn would be needed for infrastructure projects, he said infrastructure minister Lord Deighton was “totally convinced” pension assets were required to meet those funding goals. “But are we collaborating?” he asked. “Are we getting together to work with the government to provide that money in a way that gives us super, long-term, inflation-linked cashflows, which are exactly what we need?”Spencer said UK funds were simply not doing enough in the infrastructure sphere and “nothing like the size we should be doing”.He noted that the government had instead been courting Chinese, Canadian, US and Australian institutional and pensions investors as a way of funding projects.“We’ve just been remarkably remiss in the UK pension fund world of working with our own government in saying ‘why are giving this to these people? You need us.’”Spencer said he was hopeful funds would soon become more proactive, and that he had furthered the debate, having sorted “internal issues” at the funds he chairs.He asked: “Can we get ourselves in a better position as pension funds to work with government to jolly well take some of this business at rates that are attractive to us, rather than seeing it go to some of the overseas funds?”
The regulator said its analysis had shown that most pension companies should improve this to match best practice in the industry.On average, pension firms had 7% of total assets in alternatives, and many companies expect that figure to rise, it said.Overall, pension fund investment in alternatives is concentrated in a small number of funds, according to the end-2012 data.Almost 60% of the total in alternative investments was held by the five largest investors, Finanstilsynet said.In some cases, funds should take a more critical stance about ongoing valuations of their alternative investments, it said.Although several companies mentioned liquidity risk, some said they were not exposed to this because they followed a buy-and-hold strategy, and so did not need to assess this risk type separately, the regulator said.However, companies nevertheless need to assess liquidity risk continuously because a change in the credit rating of the assets could lead the firms to reduce their credit risk by selling before maturity, it said.Other risks associated with alternatives mentioned by the pension funds include political risk, administrator risk, legal risk, model risk, financing risk (gearing), natural disaster risk, technical risk and correllation risk, Finanstilsynet said.The analysis follows a fact-finding exercise conducted in 2012 when pension funds reported details of their alternative investment holdings.In all, Danish pension funds had DKK152bn (€20.4bn) invested in alternatives, including private equity, alternative credit, infrastructure, agriculture and hedge funds, the regulator saidIt added that the prospect of many years of low yields in Denmark and Europe has prompted many pension providers to shift part of their investment towards alternatives to gain higher returns. Danish pension funds need to be clearer about the risks they are taking with their alternative investments, the country’s regulator has said.Financial watchdog Finanstilsynet said it would step up its focus on alternative investments through inspections, as well as in other ways.Carsten Mygind Feldt, deputy department chief at Finanstilsynet, said: “Some firms should analyse to a greater extent whether there is a sufficient liquidity premium and make sure they are paying enough attention to the valuation of the investments – for example, through sensitivity analysis.”But he said the general impression was that companies did tend to evaluate the relationship between return and risk in their alternative investments.
Boyle spent more than a decade working in senior management roles at catering and foodstuffs firm Compass Group and Rentokil Initial, as well as 15 years within the banking industry.Until last September, he was also director and COO of the Shareholder Executive, the body within the UK government responsible for management of state-owned companies, including the Green Investment Bank.Joanne Segars, chief executive of the National Association of Pension Funds, congratulated Boyle on his new role.“Boyle joins at a busy time when the Regulator’s focus is on making sure the Government’s flagship automatic enrolment policy is successfully delivered and that it’s new strategic objective is implemented around DB regulation.“We look forward to working with Mark on these challenges and those ahead,” she said.Webb, meanwhile, thanked O’Higgins for his work over the past three years.“Michael has successfully overseen major initiatives, including the launch of automatic enrolment, and I wish him every success for the future,” the Liberal Democrat minister said.O’Higgins joined the regulator in early 2011, replacing its first chairman, David Norgrove, after he served two three-year terms. The UK government has named the new chairman of the Pensions Regulator, appointing a former banker as successor to Michael O’Higgins.Pensions minister Steve Webb said Mark Boyle, who will assume the role from April, was a “proven leader” with a wealth of experience.The incoming chairman is currently independent non-executive chairman of the UK Land Registry and has worked at Lloyds Bank and Kleinwort Benson.Commenting on his four-year tenure – a year longer than appointments for previous postholders – Boyle said: “I look forward to leading the board and ensuring the regulator continues to deliver its objectives while at the same time playing an active part in dealing with the challenges faced by the broader pensions industry.”
Also in discussion is how to deal with the shortage of offsetting trades for swaps.Unless decided otherwise, rules under the European Market Infrastructure Regulation (EMIR) mean the pension exemption will run out in August 2015. The legislation, intended to mitigate risk of catastrophic financial meltdown, has been stepping up its rules on trading in derivates since September 2013.The Commission’s forthcoming report is likely to be based on a study from London consultancy firm, Europe Economics – ‘Possible technical solutions for the transfer of non-cash collateral as variation margins by pension scheme arrangements (PSAs) in respect of centrally cleared over-the-counter (OTC) derivative transactions’.It was further instructed to assess “the costs and risks of the various solutions and their impact on the retirement income of future pensioners”.PensionsEurope, representing Europe’s occupational pension schemes, is concerned that clearing would increase pension fund costs, thereby leading to lower payouts to pension beneficiaries.Its basic viewpoint includes that derivates are used for hedging, and never for speculation, which would be banned under IORP rules.The current position of the Commission is that it is in the process of deciding whether to extend or not the temporary exception of IORPs from clearing.Yet Nicolas Gauthier, a European Commission official, noted at a recent Brussels conference that some pension funds “were already clearing”. Gauthier also mentioned “future meaningful international convergence”.He raised the subject of “risk of arbitrage and risk to security” and referred to the need for “cooperation between [international] regulators in order to achieve reform”.The conference, on reform of OTC derivative markets, was organised by the Brussels think-tank the Centre for European Policy Studies (CEPS).Addressing IPE at the conference, the secretary general of the Brussels-based European Association of CCP Clearing Houses, which opened its doors earlier this year, said: “We understand the pension sector’s problem, and we are committed to finding a solution.”Rafael Plata indicated that one relevant issue involved the type of collateral a clearing house was willing to accept.Normally, a CCP would insist on high-grade collateral to avoid being put at risk, he said.The clearing organisation would have the last say.Philip Whitehurst of LCH.Clearnet, a CCP, told IPE that pension funds had in recent years developed and implemented liability-driven investment (LDI) strategies to free up cash to use for high-yielding investments.The challenge now, said Whitehurst, is to ensure pension schemes are using swaps with adequate collateralisation, whilst retaining scope to seek additional alpha.The product manager at LCH.Clearnet, which is majority owned by London Stock Exchange Group, added that recent figures from the International Swaps & Derivatives Association (ISDA) showed that the global notional outstanding OTC value had now grown to $710trn (€521.5trn). Results of debates on how much extra time pension funds will be granted for their present exemption from having to process derivative trades via central counterparty clearing houses (CCPs) will emerge, probably on 14 August, when the European Commission presents a report on the matter.Indications from different sources, which prefer not to be named, are that solid efforts are currently in hand to accommodate pension fund interests, which object to the extra cost they could face.One item on the table is the category of collateral that clearing houses may be willing to take.An item is whether a pension fund might be able to offer non-cash collateral.
AP3, JP Morgan Asset Management, Kames Capital, UK Sustainable Investment and Finance Association, Mirabaud Asset Management, Finisterre Capital, BNP Paribas Investment Partners, Macquarie SecuritiesAP3 – Jonas Victorsson has joined Sweden’s third pensions buffer fund at the end of May as a senior portfolio manager, running alpha mandates within the equity long/short sector. He joins from Swedbank Robur, where he worked for seven years as portfolio manager for Swedbank Robur Technology, Folksam Framtidsfonden and SwedbankRobur Kommunikationsfonden. Before that, he spent almost seven years as a portfolio manager at AP1.JP Morgan Asset Management – Christoph von Reiche has been appointed to the newly created role of head of JPMAM’s institutional business for Europe. He joins from Goldman Sachs Asset Management, where he held a similar role for Germany and Austria. Von Reiche joined GSAM in 2003.Kames Capital – Peter Ball has been appointed interim head of institutional business. Ball has previously been on the board of JLT Employee Benefits, where he was responsible for the investment management and investment consulting businesses. Before then, he led the UK institutional business at JP Morgan Asset Management for 10 years. UK Sustainable Investment and Finance Association (UKSIF) – Lesley Alexander, chief executive at HSBC Bank Pension Trust, has been appointed chair at UKSIF, effective from 1 July. She replaces Martin Clarke, who is stepping down after he finishes his second two-year term in the role. Before joining HSBC, was worked at EMI as head of pensions.Mirabaud Asset Management – David Basola has been appointed head of business development activities for the Italian market. He will serve the needs both of institutional and wholesale investors in Italy, Malta, Monaco and Ticino (Switzerland). He joins Syz Group, where he has worked since 2006. Before then, he worked at GAIM Advisors in London.Finisterre Capital – The emerging market asset manager has appointed Kevin Bespolka as co-portfolio manager to the Finisterre EM Debt Fund, sub-fund of the Principal Global Investors Funds. He will co-run the fund alongside the manager Christopher Watson. Bespolka joins from Napier Park Global Macro Fund, where he served as CIO and chief executive.BNP Paribas Investment Partners – Patrick Mange has been appointed to the newly created role of emerging markets strategist. He joined BNP Paribas Group in 2001 as head of investment strategy for BNP Paribas Asset Management. Since 2009, he has served as deputy chief executive in charge of investment for Shinhan BNP Paribas.Macquarie Securities – The institutional equities arm of Macquarie has appointed Mark Dwyer and Graham Cook to its Portfolio Solutions group in London. Dwyer joins as a head of Portfolio Solutions EMEA from BNY Mellon, where he was managing director and head of the EMEA Beta & Transition Management. Graham Cook was most recently a director on the same BNY Mellon team and joins as senior transition manager.
SBZ, the €3.8bn pension fund for care insurers in the Netherlands, has said it is looking for employers to join the scheme to increase its scale.In its annual report for 2013, the board said it was weighing its options for making its pension proposition more attractive to a larger group of companies.It said it had already started adjusting its scheme to basic arrangements, offering choices to employers that have not signed the collective labour agreement (CAO) for care insurers.Currently, SBZ provides pensions for 12,420 active participants, 7,000 pensioners and 20,405 deferred members affiliated with 53 employers. Although the pension fund returned 3.3% on investments, it closed 2013 with a loss of 0.25%, following a loss of 2.7% on its 80% interest hedge, caused by increased interest rates.In addition, it lost 0.9% on its dynamic investment strategy, after reducing the exposure to equity risk just before equity markets started picking up, it said.However, also due to rising interest rates, the scheme’s liabilities fell by 2.4%, lifting its funding from 111.6% to 114%.SBZ said it largely continued its defensive strategic asset allocation, adding that it decided to replace 5% of its euro-denominated government bonds with Dutch residential mortgages.It also re-allocated part of its developed-market equity portfolio to defensive investments and started investing in the equities of small and medium-sized emerging markets. Its 27% equity allocation returned 19.5% last year, with emerging market equities also outperforming their benchmark.In contrast, the pension fund incurred a 3.1% loss on its 63% fixed income allocation, as a consequence of rising interest rates.Combined alternative investments returned 4.75%.The scheme pointed out that it was unable to specify respective returns yet, as its portfolios for indirect property, infrastructure and private equity are still under construction.Earlier this year, SBZ decided to reduce its interest hedge to 70% and refrain from hedging the risk on emerging market currency, as it expects the currencies of fast-growing economies to appreciate.It also said it opted for a one-tier board, with the non-executive members in the supervisory role, rather than continue with its board model of equal representation.SBZ reported administration costs of €159 per participant, and 0.58% and 0.19% on asset management and transactions, respectively.
A European pension fund is seeking a manager for a CHF200m (€165m) opportunistic real estate mandate, using IPE-Quest.According to search QN 1443, the fund is looking to invest in opportunistic and value-added private properties across the US, Asia and Europe.The fund said that only multi-manager fund options would be considered, with the firm required to have local staff to evaluate the regional opportunities.Any interested manager should have at least $3bn (€3.7bn) in similar mandates, but the pension fund did not set an overall minimum threshold for assets under management. Additionally, managers should have at least five years of investment experience, with a decade-long track record preferred. Applicants have until 3 September to apply, stating net of fees performance to the end of March 2014.The IPE.com news team is unable to answer any further questions about IPE-Quest tender notices to protect the interests of clients conducting the search. To obtain information direct from IPE-Quest, please contact Jayna Vishram on +44 (0) 20 7261 4630 or email [email protected]
Italy’s second-pillar pension scheme for journalists has appointed six new asset managers for as many active and passive mandates, as it reshaped the structure of its DC funds, offering two new investment options.From January next year, members of the €500m Fondo Pensione Complementare dei Giornalisti Italiani (FPCGI) will be able to choose between a ‘Prudente’ and a ‘Mix’ fund option, as well as the default ‘Garantito’ fund.BlackRock Investment Management UK and Credit Suisse Italy have been appointed to passively manage a sovereign bond and a corporate portfolio, respectively, both part of the Prudente fund.Intesa Sanpaolo was also awarded a passive equity portfolio within the Prudente fund. Within the fund, AXA Investment Management was selected as the active manager for a ‘risk budget’ mandate.The Mix fund will be managed by Amundi, which was awarded a passive bond mandate, and by Pictet & CIE, which obtained an active ‘risk-budget’ equity mandate.The ‘Prudente’ fund invests up to 25% in equities, whereas the ‘Mix’ one can allocate up to 50% to the stock market.The ‘Garantito’ default fund, managed by Italian insurer Cattolica Assicurazioni, guarantees a return equal to the annual appreciation of TFR (Trattamento di Fine Rapporto), the inflation-linked termination indemnity contribution set aside by employers.FPGI said in a statement that, through the new appointments, it is pursuing “the optimisation of investments and costs” and “greater diversification of the portfolio”, and moving from an approach that was based on balanced mandates to one based on “active/passive strategies that are capable of adapting flexibly to market trends”.The choice of appointing one manager for each mandate was made “to avoid concentration of risk levels”, added the statement.Elsewhere in Italy, minibond fund Fondo Progetto MiniBond Italia, set up by investment manager Zenit, completed its first closing, receiving commitments from institutional investors to the tune of €30m.The fund’s objective is to reach a size of €100m, and the deadline for subscription to the fund is July 2015.But the company said it plans to begin investing around €15m over the next few months.The fund added that 20 institutional investors including casse di previdenza, banks, insurance companies, foundations, family offices and asset managers were participating in the first phase of fundraising.Last summer, asset manager Pioneer Investment launched a €200m minibond fund, and BNP Paribas Investment Partners Sgr raised €56m for a similar fund.The market for minibonds funds, launched by Mario Monti’s government at the end of 2011 in a bid to stimulate lending to SEMs, now sees 30 such funds listed on the Extramot Pro segment of Borsa Italiana, the Milan Stock Exchange.
Mitesh Sheth discusses the cult of personality in asset management, and what investors should do when key personnel leave for pastures newThe word guru comes from the Sanskrit meaning spiritual master, or seer, one who dispels darkness. It is also used to convey a sense of gravitas or weighty with knowledge. A guru is often put on a pedestal as someone special, or one who has special powers and insights. Even today our use of the word guru in fund management refers to someone who is a subject matter expert, a master, a genius, someone who possesses insight that baffles others.Why are they different?It is not clear what makes a guru; this is a much-disputed subject. Some academics consider genius to come from innate talents – that some people’s brains are just wired differently. At the other end of the spectrum are those who say it takes roughly 10,000 hours of practice to achieve mastery in a field. I think you need both. If you’re naturally good at something, you’re more likely to enjoy it and be inclined to spend hours practicing your craft. Either way, in every field whether it be music, sports, science, and so on. we can see people who are outliers, possessing extra-ordinary skill and insight. Fund managers are no different.Why do they leave?Morningstar research suggests that fund managers have an average tenure of 4.5 years. That seems frightfully short. I feel fund management stars stay longer than this on average, as they recognise the value the firm, culture and tools bring. But gurus can and do leave.Why? They can get frustrated by a feeling of carrying others, they may want a greater share of the economics than a firm is willing to give them, they may want their name on the door, they may want a smaller fund to replicate the success of their earlier years, they may want less distraction, less politics and every once in a while they are actually pushed out (they can become a real burden, hold the business hostage and ultimately need to go).So what should you do?It’s not obvious whether pension funds should stay with the firm or follow the gurus. You have to ask the question, why did you invest in the first place? What was the strategic rationale for the investment? Is it the underlying security, in which case you may still have the assets, or is it more the manager’s individual selection skill? Also critical to understand is how liquid and secure are the assets?An early warning systemOne successful approach is to identify and communicate from the outset where there is a key person dependency. So it is at the point at which you are about to hire a new manager that you can most dispassionately determine what would cause you to fire that manager.One of our crucial flags is key-person risk. This enables our consultants to warn the client in advance that if this person or team leaves we anticipate making an immediate recommendation to liquidate and ensuring they invest knowing they have the governance in place to do this.We have found that on a number of occasions in the past 12-18 months that having identified this dependency clearly from the outset, clients are able to move quickly upon the news of a critical departure.Maybe we shouldn’t invest with gurus in the first place?In some cases that is true, but it would be too convenient to say you should never have invested with a star in the first place. Most fundamental strategies will have exposure to key people risk.The best that we can advise is to know that and prepare for the worst before we ever invest.Mitesh Sheth is director of strategy at the London-based consultancy Redington
The investments should provide financing for companies in the early stages of development (early stage and later stage).Up to 10% of a fund can be invested in seed financing.Each mandate is for 12 years, with the possibility of three one-year renewals.Interested parties have until 6 December to apply.The procurement is another step in the implementation of FRR’s €2bn allocation to unlisted domestic assets.It is reviewing proposals for two other tenders, one for private debt and another for private equity funds of funds.It hopes to finalise these procurement processes by the end of the year.A spokeswoman for FRR told IPE a fourth tender could still be launched, although the reserve fund has not yet decided for which market segment this should be. France’s €36.3bn Fonds de Réserve pour les retraites (FRR) has put out to tender mandates for up to €200m in venture capital investment in French companies.The pension reserve fund is looking to award as many as four mandates as part of its programme to invest in French private equity.The call for tender is divided into two lots for up to two mandates each, with as much as €50m-100m earmarked for each lot.Each mandate would be to create and manage a segregated venture capital fund, which would invest exclusively in companies with registered headquarters in France.