Dutch pension funds may be forced to call on foreign board expertise as they face hundreds of potential board vacancies over the next 2-3 years, experts have warned. During a recent seminar on governance organised by asset manager F&C, several experts on a discussion panel responded positively to a suggestion from the audience that Dutch schemes should consider drawing on foreign board expertise.The discussion followed the prediction by Maas Simon, a partner at pension board consultancy Xudoo, that increased legal demands with respect to board-member expertise and time constraints – as well as the ageing of serving board members – would lead to 500-600 vacancies over the next few years.Mike van Engelen, a partner at pensions adviser Montae, said: “Foreign expertise is worth considering, as many themes within the international pensions sector are similar.” However, he argued that cultural differences would first need to be overcome.His view was echood by Casper van Ewijk, director at Netspar, the network for pension researchers and professionals, who suggested new people could provide a fresh look at old issues.Xander den Uyl, former vice-chairman of the €300bn civil service scheme ABP, pointed out that international expertise was already being used for investment decisions, while Tim Kamphorst, a headhunter and partner at The Executive Network, suggested that foreign experts might be deployed in asset management.“But it is unlikely that they can contribute in areas such as pension arrangements and specific Dutch legislation, including the financial assessment framework FTK,” he told IPE.However, a significant majority of the attending pensions professionals rejected the possibility of recruting top board members abroad.Jan-Jaap Dahmeijer, superviser at pensions regulator De Nederlandsche Bank, questioned whether Dutch schemes were putting sufficient effort into finding independent and capable board members.“Currently, women are hardly represented on the boards of pension funds,” he added.
However, the watchdog also noted that recoveries were limited by falling interest rates and rising life expectancy.According to the DNB, equity markets fell by 80% between June 2007 and the end of 2008, while interest rates fell by 20% over the same period.“Over the last five years, the equity index has returned to the initial level, whereas interest rates have fallen further,” it said, adding that the funding index remained somewhere in between.The regulator explained that, using the typical investment mix and interest hedge in the Netherlands, changes in interest rates would have a roughly 50% impact on coverage ratios, whereas equity market changes would have a 40% impact. The DNB’s evaluation of the recovery plans confirmed that 30 pension funds had to apply rights cuts last April, in order to achieve the required funding of 105%.The most recent round of discounts hit 650,000 active participants, 405,000 pensioners and more than 1.2m deferred members in total, while the weighted average of the cuts was 0.84%, according to the supervisor.It said that one pension fund had used the option to limit last April’s discount to 7%, and that the scheme would apply an additional cut in future. Equity investments and hedges of the interest risk on liabilities have been the main drivers for Dutch pension funds’ recoveries since the onset of the financial crisis, according to pensions regulator De Nederlandsche Bank (DNB). Following an evaluation of more than 140 short-term recovery plans, the regulator concluded that schemes with a relative large equity allocation in addition to an interest hedge showed the strongest recoveries.In 2009, approximately three-quarters of Dutch pension funds had to submit a five-year recovery plan, mapping out how they aimed to achieve funding of at least 105% at the end of 2013.The DNB found that the average coverage ratio improved by 15 percentage points over the last five years and attributed the increase largely to the strength of equity markets.
The moves comes at a time when the Dutch property market appears to be recovering and local institutions are seeking to take advantage of new rules that could force housing associations to sell assets.On Monday, APG increased its stake in housing company Vesteda.Earlier this year, Rabobank Pension Fund invested €50m in the residential fund.Bouwinvest chief executive Dick van Hal said the mandates showed institutional investors were “increasingly aware of the probably once-in-a-generation investment opportunities arising in the mid-priced rental sector in the Netherlands due to the upward turn in the cycle and the government’s moves to rebalance the housing market to attract private capital and boost supply”.Dekker said Bouwinvest “came out on top” during its due diligence of investment managers.“The important factors for us in this decision were the quality of the investment team and the portfolio and their solid track record on returns during the past few years,” he said.Bouwinvest claims the Dutch Residential Fund is the largest of its type on an “unleveraged basis”.It is one of three domestic property funds managed by Bouwinvest, which were all created out of BPF Bouw’s directly held domestic real estate portfolio.In 2010, the pension fund seeded the funds and effectively opened up its portfolio to other investors.This enabled it to reduce its exposure to the Dutch market without having to sell assets and to redeploy capital to international markets.The Bouwinvest Residential Fund portfolio consists of around 15,000 homes, mainly in the liberalised higher rental segment of the market and within the major urban areas of the Randstad conurbation – the strongest economic and most densely populated region of the Netherlands.The fund is developing approximately 1,900 homes. Dutch pension fund BPF Zoetwaren, which decided to allocate to real estate for the first time this year, has invested in its domestic residential market.The pension fund for the confectionary industry has invested €30m in the Bouwinvest Dutch Residential Fund, a €2.6bn vehicle managed by the investment arm of construction workers’ pension fund BPF Bouw.Leo Dekker, chairman of BPF Zoetwaren, said: “The pension fund decided after the findings of our last ALM study that we would start to invest in real estate from 2014.“Real estate provides a stable and sustainable return for the retirement income of our pensions, and now is a very attractive time to step into the housing market.”
Currently, the liability-matching portfolio accounts for 70% of the scheme’s assets, divided across euro-denominated bonds (62.5%), global government bonds (15%), credit (15%) and Dutch mortgages (7.5%).The portfolio’s aim is to finance 64% of the pension fund’s nominal liabilities.The scheme’s remaining assets have been placed in the return portfolio, meant to finance remaining liabilities, unexpected inflation, longevity risk and indexation. The return portfolio consists of equity, property, emerging market debt and high-yield credit.The new investment mix is expected to generate an extra return of 0.5-1 percentage points, according to the spokeswoman. Following the pension fund’s increased risk profile, its required coverage ratio – currently 107% – should rise, the scheme said.The Philips Pensioenfonds, which has a funding of 115% at the moment, said its financial position had gradually deteriorated as a consequence of its predominantly risk-avoiding investment portfolio.Since 1 January, the scheme has offered a collective defined contribution plan, with the employer contributing 24% of the combined salaries but not required to meet any shortfall.The pension fund reported a second-quarter return of 5.4%.It said its liabilities portfolio generated 6.2% due to falling interest rates, and that its return portfolio delivered 3.6%.The pension fund has also changed its board set-up, following the introduction of new legislation for pension fund governance on 1 July.Since then, it has had an independently chaired non-executive board of employer, social partners and pensioners, and an executive consisting of its chief executive and CIO as independent experts.The Philips pension fund has 57,400 pensioners and 31,300 deferred members, as well as 14,200 active participants.The scheme reported an investment result of 0.9% over 2013, following a 4.3% loss on its liabilities portfolio and a 14.3% return on its return holdings. The €16.7bn pension fund for electronics giant Philips is looking to improve its financial position by scaling back its risk-avoiding fixed income portfolio in favour of riskier investments. As a consequence, it is to replace some of its holdings in euro-denominated bonds with UK and US government bonds, as well as credit.In addition, it plans to exchange some bonds for equity, it said. A spokeswoman for the scheme told IPE the adjustment of the investment mix must result in a 60% liability-matching portfolio and a 40% return portfolio.
However, a trustee petition to UK courts to create a ‘qualifying insolvency event’ to allow the scheme to enter the PPF came too late – with operations wound down – leaving the scheme in limbo.Trustees continued to argue and petition courts for legal insolvency of the UK operations but failed in both the Court of Appeals and now the Supreme Court after yesterday’s ruling.After the Court of Appeals ruling and in anticipation of trustee failure in the Supreme Court, the UK government intervened to protect the scheme by changing the legal framework for PPF entry.The scheme is now expected to continue its PPF assessment but with uncertainty over who will cover pension payments and costs since the 2010 insolvency, as the scheme only entered assessment after legal changes made by the Department for Work and Pensions (DWP).Had it won yesterday’s judgment, the PPF could have assumed assessment began in 2010, thus providing financial assistance to pension payments from that date.This legal challenge, however, provides little clarity on the future outcome of similar potential insolvencies of EU parent firms with UK operations but no legal subsidiary.The regulation amendments passed by pensions minister Steve Webb after the Court of Appeal decision in 2014 may not aid other EU-based firms in similar circumstances.Martin Scott, partner at law firm Mayer Brown, said the legislation was done in such a way that it was almost inconceivable to see how it could apply to another pension scheme.“This is probably only going to help the Olympic Airlines case and will not help any similar EU company in a similar situation,” he said.“The decision provides a timely reminder that when an employer is based in the EU but is providing UK final salary pension schemes, it remains difficult to benefit from PPF protection.“It may prove crucial, once the local EU proceedings are underway, to start appropriate English insolvency proceedings as quickly as possible.”The ruling caps a long list of cases involving sponsor support and PPF protection for UK DB schemes.Last month, the Box Clever vs ITV case reached a new stage after the UK Court of Appeal referred it back to the Upper Tribunal after disputes over evidence.The Pensions Regulator and Box Clever trustees had been chasing ITV for s75 contributions for the failed digital venture’s scheme. The UK Supreme Court has ruled against the trustees of the Olympic Airline SA Pension Scheme on allowing an insolvency event, but members are still set to take advantage of the Pension Protection Fund (PPF).The case relates to the 2009 insolvency of Olympic Airlines, a Greek carrier, which entered insolvency in Greece while having UK-based operations and a defined benefit (DB) pension scheme but not a subsidiary firm.Legal wrangling has been on-going since 2010, with the trustees of the UK pension fund looking to secure the benefits of members via the PPF.The scheme carried a £16m (€22.3m) deficit at the time of its Greek sponsor’s insolvency.
Amundi, the French asset manager, has confirmed it is interested in taking over Pioneer Investments from its parent, the Italian banking and financial services group UniCredit.Amundi issued a statement following what it termed “rumours” in Italian newspaper Il Messaggero about the submission of a non-binding offer for the purchase of Pioneer by Amundi.The French asset manager said: “Amundi confirms its interest in Pioneer, consistent with the growth strategy presented at the time of its IPO.”However, it also said it denied the Pioneer valuation levels attributed to it. Reports have put the valuation at €4bn.“Amundi re-iterates that its acquisition policy adheres to strict financial criteria – in particular, a return on investment greater than 10% over a three-year horizon,” the firm said.UniCredit is selling assets to bolster its capital.The Italian group has said it would unveil the result of its group-wide strategic review at a London Capital Markets Day on 13 December.Other parties interested in buying Pioneer, according to news reports, are Poste Italiane, Australian group Macquarie and the UK’s Aberdeen Asset Management.At the end of July, UniCredit said it had ended talks with Spain’s Santander banking group about plans for a merger between Pioneer Investments and Santander Asset Management, even though an agreement was signed last November.It said a listing of Pioneer was possible.
The London Borough of Hillingdon Pension Fund has hired Legal & General Investment Management (LGIM) to oversee a £215m (€238m) index-tracking mandate.The local authority fund, which had £810m, hired LGIM to replace State Street Global Advisors, first appointed in late 2008.According to its most recent annual report, from March 2015, SSgA’s mandate for Hillingdon was worth £161m, equivalent to 20% of scheme assets.Philip Corthorne, chair of the fund’s pensions committee, cited a desire to cut management costs when describing the reasons for LGIM’s hire. “We have chosen LGIM because of its expertise in index-tracking fund management and its broad range of cost-effective pooled funds, which will enable us to take a step closer towards the government’s pooling agenda, with management and reporting of the mandate to eventually be carried out by the pool.”LGIM was among the first managers hired by the London CIV, the pooling vehicle for London’s local authority funds, and was set to manage a number of passive equity sub-funds.The manager is the largest single manager of local authority assets, overseeing £44bn, a figure significantly boosted after it won a £6.5bn passive mandate from seven pension funds in late 2015.
The Dutch industry scheme for the maritime construction sector has decided against merging with another pension fund.The €1.2bn Bpf Waterbouw said that continuing as an independent scheme would be the best option for all participants and pensioners.The board said it based its conclusion on a survey by consultancy Sprenkels & Verschuren into the pros and cons of joining one of the larger sector schemes, such as PGB, building industry scheme BpfBouw, or the fund for the merchant navy (Bpf Koopvaardij).The study was initiated by the board and the ‘social partners’ of employers and unions, with the latter considering joining the multi-sectoral scheme PGB for further pension accrual. However, the study found that, if Waterbouw transferred its pension rights to BpfBouw or Bpf Koopvaardij, the scheme would have had to cut pension rights straight away, because of its lower funding ratio relative to BpfBouw and Bpf Koopvaardij.Waterbouw had a coverage ratio of 104.6% at June-end, while the coverage ratios of Bouw and Koopvaardij stood at 110% and 109.7%, respectively.If Waterbouw joined PGB, the future chances of rights discounts would be bigger, the board concluded.Compared to the other pension funds, Waterbouw had a low interest rate hedge – 25% against 50%. It also had a relatively large securities allocation, with 44.7% invested in equity and 11.4% in property.Waterbouw, which carries out its administration in-house, compared favourably to the other schemes on cost, in particular regarding asset management costs.The employers and unions still need to decide whether Waterbouw is to continue as an active or as a closed pension fund.Contracting out the pension arrangements would not be easy, as the pension plan has a lower-than-average accrual rate. In addition, there is no part of employees’ salary that is exempt from pension accrual, unlike many other Dutch schemes.Waterbouw said it wanted to extend the one-year contract for companies that have voluntarily joined the pension fund to a five-year term, to reduce the risk of companies leaving the scheme suddenly.It also said that it would look into the options of contracting out its pension provision to decrease its vulnerability as a self-administering scheme.Bpf Waterbouw has 2,850 active participants, 3,205 deferred members and 5,785 pensioners.
Macron’s government has planned to move to a universal pension system by aligning the current multiple schemes that form a complex, fragmented system.In a report on its latest economic survey of France, the Organisation for Economic Cooperation and Development (OECD) said Macron’s plans should contribute to reducing public spending, and would strengthen labour mobility and reduce management costs.“The improved transparency would help address public concerns regarding inequities,” it said.The next step would be to gradually raise the minimum retirement age, it added.Pension spending in France amounts to 14.3% of GDP, one of the highest rates among OECD countries, according to the inter-governmental organisation. It raised its outlook for economic growth in 2017 for France from 1.3% to 1.7%, the highest rate for six years.Discussions about the pension reform are scheduled to start next year. Buzyn has previously spoken of implementing the reform in the next legislative period, starting in 2022.Read more about pensions in France in IPE’s 2017 edition of the Top 1000 European Pension Funds The French government has got the ball rolling on its pledge to reform the country’s pension system with the appointment of Jean-Paul Delevoye, a former minister, to the newly created post of high commissioner for pension reform.The high commissioner position is attached to the solidarity and health ministry, which is led by Agnès Buzyn. It was legally created via a decree published earlier this week, with the cabinet approving Delevoye’s appointment yesterday.He will be responsible for organising consultations with the main pension stakeholders, co-ordinating preparations for reform with ministers, drafting legislative and regulatory texts, and monitoring their implementation.Delevoye is a former French senator, and served as civil service minister under the Chirac presidency from 2002-04. He was formerly a politician for the centre-right UMP party – since renamed as the Republican party. He backed Emmanuel Macron in this year’s presidential elections, and was chosen to chair the nomination commission for the ensuing legislative elections.
More than 60 additional investors have signed up to Climate Action 100+, an initiative aimed at reducing greenhouse gas emissions.Climate Action 100+ launched in December 2017 with 225 investors on board and is now backed by 289 investors with nearly $30trn (€26trn) in combined assets under management, according to an update from the initiative.Asset owners such as Border to Coast Pension Partnership – a £43bn (€49bn) UK local authority pension asset pool – and Australian pension fund UniSuper are among the new signatories.“The growth of Climate Action 100+ among the global investment community in the last six months is more than we ever expected,” said Anne Simpson, investment director of sustainability at the California Public Employees’ Retirement System. “More investors and pension funds are coming together in partnership to engage with systemically important greenhouse gas emitters that are producing 85% of carbon emissions on climate change.“We are doing this because of the serious financial risks at play across the global economy.”The Climate Action 100+ investors have also added 61 names to their list of target companies. The companies were added because the investors considered them material to their investment portfolios. They either had significant opportunities to drive the low-carbon transition and help achieve the goals of the Paris Agreement, or were exposed to climate-related financial risks not captured fully by emissions data. Investors signed up to Climate Action 100+ have called on companies to improve their governance on climate change, curb emissions, and strengthen climate-related financial disclosure.Emily Chew, global head of ESG research and integration at Manulife Asset Management, said: “By adding additional companies to the focus list, we are expanding our potential impact on reducing systemic climate-change risks, and realising the economic benefits of the low-carbon transition.”Climate Action 100+ is coordinated by five partner organisations including the Institutional Investors Group on Climate Change and the UN’s Principles for Responsible Investment. ‘Still not quite too late’The news of Climate Action 100+’s expansion comes as the Archbishop of Canterbury, Justin Welby, told backers of another investor-led initiative on climate change they needed to “flex [their] muscles ever more clearly and ever more powerfully”.Speaking on the occasion of a conference to mark new research from the Transition Pathway Initiative (TPI) – a £7trn asset owner-led initiative to assess how companies are aligning themselves with the transition to the low carbon economy – Welby said the research was “illuminating in many, many ways” but that “we must distinguish process and outcome”.“The TPI is something that must produce outcomes,” he said. The Archbishop of Canterbury opened the market at the London Stock Exchange before addressing delegates at the Transition Pathway Initiative’s Asset Owners State of Transition Climate SummitLed by Simon Dietz at the London School of Economics, the TPI analysis presented at the event was of the electricity, coal, and oil and gas sectors and showed that, although companies had made significant improvements with regard to carbon policies and management processes, most were yet to adopt business strategies that aligned with the goals of the Paris Agreement.The £2.3bn Church of England Pensions Board (CEPB) announced at the event that it intended to develop an equities index building on the data and analysis produced by the TPI.Alan Fletcher, chair of the CEPB’s investment committee, said the board had held preliminary discussions with FTSE Russell and the Grantham Institute at the London School of Economics and wanted to invite other investors to work with it on the project.“Our announcement and invitation to you has come about as we are keen to bring our passive holdings into play in support of the low carbon transition and to better manage the risk that companies assessed poorly by TPI will not be well placed to manage the transition to a below 2 degrees of global warming,” he said.The CEPB had more than £500m invested in passive equities, according to Fletcher.He said he hoped the development would signal to companies “that asset owners are responding to the transition and moving their capital to those businesses that are best placed to manage this critical issue”.