As of the end of June, the VEB managed RUB1.7trn (€39.2bn), the NSPFs RUB887.6bn and the asset managers 34.3bn.A law in December 2012, due to take effect at the start of 2014, cut the molchani contributions to 2%, with the remaining 4% moving to the pension fund run by the PFR.This law is now to be ditched, with the molchani contribution slashed to 0% – on the reasoning that these passive investors have no interest in a funded system – although the decision deadline has been extended from the end of 2013 to 2015.It has also been proposed to restrict the opportunity for workers to change their retirement fund from once every year to every five years.More controversially, all second-pillar contributions in 2014 – some RUB244bn – will be frozen.Vladimir Potapov, chief executive and global head of portfolio management at VTB Capital Investment Management, said: “The money will be retained by the state pension fund, and, judging by the finance minister’s recent statement, is supposed to become a sort of an air bag that will be activated in case an emergency breaking of the national economy occurs.“But it is not certain at the moment. The retained saving can also be spent for social projects or can reduce the state transfer to the state pension fund budget in 2014.”Russia’s economy, heavily dependent on oil and gas revenues, has slowed alarmingly.According to the World Bank, this year’s GDP growth is expected to fall to 1.8%, the slowest rate since the 2009 recession.This, in turn, has put pressure on government revenues, with the consolidated budget set to fall to a deficit.Meanwhile, all the NSPFs will have to convert from their existing status as non-profit organisations to joint-stock companies.The non-profit status lacked ownership transparency and was prone to many abuses including a major mis-selling scandal, and clients transferred on the basis of falsified documentation some 18 months ago.In May, Russia’s Audit Chamber launched an audit into the performance of the NSPFs over the previous 10 years to calculate the profits they generated for their clients in relation to inflation, as well as uncover any illegal activities.For some NSPFs, the conversion will be complicated.“For aggregated reporting of holdings, which will incorporate pension funds, it’s quite probable that, instead of a big non-state pension fund specialised both in work with pension reserves and pension savings, we will see two funds,” Potapov said.“One of them will be a joint-stock company, and the other one will stay as a non-commercial organisation and resume its work with pension reserves.”He sees the 100-odd funds shrinking in number to 40-80, with the larger ones acquiring the weaker ones, along with their clients.The converted NSPFs, along with the VEB fund, will switch to IFRS accounting standards and require licensing by Russia’s central bank, which, as of the start of September, took over pensions and other financial market regulations from the Federal Financial Markets Service.While many NSPFs will have to leave the market, in principle, the change in their legal status is welcomed.Alexander Lorenz, chairman of the council at Raiffeisen Pension Fund in Moscow, said: “We have been advocating for some time that this will be a good development.“But do we need a freeze in contributions with all the negative repercussions for the local capital market?”While president Vladimir Putin, who has the final say on these laws, has explicitly ruled out any ultimate confiscation of contributions, this freeze – alongside the uncertainty about whether they will be returned, and, if so, with any interest – will create untold headaches for the pension funds’ business models.As Lorenz told IPE, in the case of pensions contracts signed in 2013 for next year, the funds will for now not receive any assets for the distribution costs they have already incurred, and no-one knows as yet whether the funds, pending central bank licensing, will be able to sign new contracts in 2014.Under another new law, the newly licensed companies would be expected to sign up to a new guarantee scheme similar to Russia’s bank deposit insurance programme.“It would alleviate some issues that have been hampering us for some time, such as having to provide long-term principal guarantees, that would allow us to invest long term,” said Lorenz.The flip side is that the scheme would inevitably create additional bureaucracy and costs.Lorenz said he was hoping for a general overhaul of the current second-pillar fee structure – 15% of investment income – to one that also factors in contribution levels and assets under management. Russian ministries have finally unveiled a range of changes to the mandatory second-pillar pension system, leaving confusion in their wake.The contribution rate has been slashed once again.Until now, workers born on or after 1 January 1967 have had 6% their of gross salary paid to either a non-state pension fund (NSPF), the fund run by the state-owned Vnesheconombank (VEB), or have this portion in the first-pillar Pension Fund of Russia (PFR) but administered by private asset managers.The VEB fund is also the default option for the molchani (‘silent ones’) who failed to choose an NSPF or asset manager themselves.
The underfunded Irish Airlines Superannuation Scheme (IASS) aims to return 4.5% per annum over the next 25 years to address its deficit, according to the latest draft funding agreement.In a note to the Irish Stock Exchange, the fund’s main sponsor – national flag carrier Aer Lingus – said that while the draft had yet to be submitted to the Pensions Board, it nonetheless expected the proposed scheme restructuring to be completed by the end of the year.Under the terms of the latest proposal, the IASS general employees scheme would cut current pensions in payment in accordance with the revised priority order – resulting in 90% of benefits to €60,000 a year and 80% for all benefits above.Active and deferred members would see their accrued benefits cut by 20%, while all three would no longer be entitled to indexation increases. According to the statement, the IASS trustee would also implement a liability-driven investment strategy, as previously announced.However, the new draft lowered the required annual return by 0.5 percentage points, to 4.5% a year over the 25 years of the funding proposal.Aer Lingus said it stood by its previous proposal to fund a new defined contribution arrangement with €110m to compensate the scheme’s active members but added that it would “reassess the matter” once it had examined the draft proposal in detail.In a statement, it said: “The draft funding proposal summarised in the recent letter from the IASS Trustee has not yet been submitted to the Pensions Board, and it remains the responsibility of the IASS Trustee to do this.“The Company therefore expects the IASS Trustee to move forward with the submission of this draft funding proposal as soon as is practicable on the basis that it represents a viable solution which would result in a better outcome for the affected parties than the forced winding up of the Scheme.“Gaining the Pensions Board’s approval for the draft funding proposal is a crucial preliminary step that must be completed before the other key steps can be taken.”The Pensions Board last year appeared to reject a draft proposal that would have seen the IASS take up to 70 years to meet the regulator’s funding standard.A 25-year period would still be significantly longer than granted to other schemes, which are expected to comply within a decade of submitting their proposals.Funding proposals were due to be submitted to the Board nearly eight months ago, at the end of June last year.
Only 0.9m are less than 50% on track.Some 8.8m at risk of under-saving earn between £22,700 and £52,000 (€28,480-65,240) on annual basis, and are classed in the middle to high earnings bands.The government also said higher-income groups could benefit from increasing contribution rates to workplace pensions, but said more work was needed to find the perfect balance between contribution rates being high enough to provide adequacy, but not too high to discourage pension saving entirely.It said reforms to the state pension and auto-enrolment had reduced the number of people under saving by around 1m.Pensions minister Steve Webb said the state safety net would now allow many to maintain a comfortable retirement.“This new research shows that, by saving just a little more, a huge number of working people could make their future retirement so much more comfortable,” he added.In other news, the Pension Protection Fund (PPF) has taken over the 75.1% ownership of Harworth Estates Property Group previously held by the trustees of the industry-wide mining pension scheme, after its transfer into the lifeboat fund.The fund also confirmed it had taken control of other assets from the pension fund, which entered the PPF in July last year.The privatised entity of British Coal, UK Coal, saw its two pension schemes enter the PPF after the company restructured to avoid liquidation.The schemes were given a controlling stake in the property company formed as UK Coal was split into two separate mining and property companies, by then parent Coalfield Resources.As part of the deal, the PPF took an interest in the restructured UK Coal with debt instruments.CFO of the PPF, Andrew McKinnon, said: “We consider Harworth Estates to be a valuable asset, and we welcome the ongoing discussions with Coalfield Resources to maximise the value in this business for shareholders.”Coalfield Resources retains ownership of the remainder of Harwarth. A report from the Department for Work & Pensions (DWP) showed that almost 12m people were still at risk of not saving enough for retirement, despite government interventions to increase pensions savings.The government said its reforms, namely auto-enrolment, had made significant differences in retirement savings for lower earnings.However, middle to higher earners are at risk for an inadequate retirement, it said.While 12m people are saving too little, some 6m are 80% of the way to an adequate income.
Finland’s Veritas Pension Insurance has announced “excellent” first-quarter returns of 5.5% from its investment portfolio – worth €2.6bn as at 31 December 2014 – chiefly because of its listed equity performance.The pensions insurer said that while the return on the whole equity portfolio was 11.9%, listed stocks returned 14.3% over the three months to 31 March 2015.The overall equity return was a reflection of equity markets performing especially well in Europe, it added.Nina Bergring, the company’s CIO, said: “The market’s trust in the recovery of the European economy strengthened clearly in response to the launch of the quantitative easing programme by the European Central Bank at the start of the year.” She added: “In Europe, share prices rose significantly more than in other markets, and overall interest rates fell to a record low level.“The interest rates on German government bonds are currently negative for maturities of up to eight years, and the rate on 10-year bonds is also approaching zero.”The fall in interest rate levels helped Veritas achieve a 2.6% return from its fixed income allocation.However, Bergring said the pursuit of higher yields meant increased risk-taking.She said actions by central banks had increased liquidity in the market, which had the effect of forcing long-term investors to shift from safe asset classes to riskier investments in the hope of returns.“The problem for long-term investors is no longer just low yield expectations for medium-term investments but also the fact that, from this point on, the advantages of diversification that have in the past helped to secure the portfolio are likely to be almost non-existent,” she added. Turning to the immediate future, Bergring warned that the return for the rest of the year would be affected at the very least by the situation in Greece, and by future liquidity measures taken by the US Federal Reserve Bank.She also drew attention to the slowdown in China’s economy, which continued during the first quarter of the year.Bergring said a question mark remained over how skilfully the Chinese government would manage the deceleration.Meanwhile, Veritas’s solvency strengthened throughout the quarter, with solvency capital equal to 33.6% of technical provisions as at 31 March.Solvency capital is now 2.5 times the solvency limit.
The UK’s South Yorkshire Pensions Authority has awarded a £250m (€344m) fixed income mandate to Royal London Asset Management.The local authority pension fund had been looking for a manager for a buy-and-maintain portfolio consisting largely of sterling-denominated bonds, according to an EU contract award notice. The mandate could also include bonds from major markets abroad, as long as the currencies are hedged back to sterling and meet the overall aim of the mandate.The search was managed by consultancy Mercer. The portfolio, to be managed on a segregated basis, amounts to around 5% of the pension scheme’s total assets.The pension fund said at the time that the portfolio should have broad exposure across regions, sectors and company size bands, but that this diversification should be within set limits.In all, there were 33 offers as a result of the tender.
BMO GAM, Insight Investments, Mercer, Aberdeen, Forum Pour L’Investment Responsible, Hermes, Tikehau Capital, NN Investment Partners, Schroders, MSCI, Mirabaud, Deutsche Asset & Wealth Management, Pioneer, Allianz GI, City Noble, ArabesqueBMO Global Asset Management – Andrew Jones, Richard Ferris and Laura Gray have been appointed to the institutional client management team for the asset manager formerly known as F&C. Jones and Ferris join as directors for consultant relations and client relations, respectively. Jones comes from Insight Investments, while Ferris joins from Mercer’s fiduciary management business. Gray comes in as a client manager in the institutional distribution business and joins from Aberdeen Asset Management. Forum Pour L’Investment Responsible – Thierry Philipponnat has been appointed chairman of the French responsible investment organisation after a vote on 16 June. Pacale Sagniier of AXA Investment Managers, Philippe Dutertre from AG2R La Mondiale and Hervé Guez from Mirova have been appointed vice-presidents. Eight investment managers also renewed their membership to the organisation, with the board made up of 12 members.Hermes Investment Management – Patrick Marshall is set to become head of private debt and CLOs at the UK asset manager, as it looks to move into the private lending market. Marshall joins from Tikehau Capital, where he was responsible for the direct lending business in London, and setting up a CLO programme. NN Investment Partners – Ivan Nikolov has joined as a senior portfolio manager on the Dutch asset manager’s convertible bonds (CB) team. Nikolov will work in the London office and is to report to Tarek Saber, head of CB strategies. He is to focus on supporting the NN Global Opportunities Fund. He joins from Aberdeen Asset Management.Schroders – Ashley Lester is to join the UK asset manager as its global head of research within the multi-asset and portfolio solutions business. He comes across from MSCI, where he was head of fixed income and multi-asset research. Before then, he was head of market risk research at Morgan Stanley. He will join the business in New York and report to Nico Marasi.Mercer – Martine Ferland, currently leader of the retirement business in the Europe-Pacific region, has been promoted to president of EuroPac. She succeeds Simon O’Regan, who has been named the firm’s president of North America. Ferland joined Mercer in 2011 from Towers Watson, where she was retirement business leader for Canada, and spent over a decade at Towers Perrin. Mirabaud Asset Management – Paul Schibli has been appointed as a senior portfolio manager for Swiss equities after leaving Deutsche Asset & Wealth Management, where he was head of the Swiss equities team. Schibli will work alongside Patrick Huber across a range of funds and stock-picking business lines.Pioneer Investments – Angel Márquez has been hired as an institutional senior sales manager in Switzerland. Márquez will report to Switzerland head Rainer Lenzin and joins the French asset manager from Allianz Global Investors, where he was responsible for institutional and consultant business development.City Noble – Birgitta Bostrom has been appointed as an associate at the consultancy to help grow its advisory business. She moves over from Schroders, the asset manager, where she managed a team of fixed income product managers and executives.Arabesque Partners – Robert Eccles has been appointed chairman of the asset management firm, formerly part of Barclays Bank. Eccles is currently professor at Harvard Business School and is known for his work on sustainable investing and ESG research. Eccles was founding chair of the Sustainable Accounting Standards Board and a member of the International Integrated Reporting Council.
Denmark’s biggest commercial pensions provider PFA is buying three solar photovoltaic (PV) plants in England from Danish firm European Energy, which developed the power plants, in a deal that involves an option to buy three more.PFA, which manages DKK545bn (€73.2bn) in assets, said the investment was part of its new strategy of putting money directly into the green energy sector.Henrik Nøhr Poulsen, director at PFA Asset Management, said: “This is a very interesting investment, and it is one of the first steps in our new strategy, which, among other things, involves a greater focus towards direct investments in renewable energy.”He said the investment was the company’s first in solar energy, as well as its first direct investment in energy where it owned 100% of the business. He said the parks, with a 20-year guaranteed feed-in tariff, would help ensure a stable long-term return for PFA’s customers, involving low risk in the current low-interest-rate environment.PFA did not say exactly how much the deal was worth, only that it paid European Energy – which develops onshore wind and solar PV projects – something between DKK100,000 and DKK1m for the plants.The three solar parks have a total installed capacity of 15 MW, but the deal includes an option to buy three more plants, which would increase total installed capacity to 29 MW.“Both PFA and European Energy expect that the takeover of the remaining three parks will fall into place during the last six months of 2016,” PFA said.European Energy said the deal still depended on several normal conditions being fulfilled, including formal confirmation of the applicable feed-in tariff.One of the solar plants PFA has bought will supply electricity for Nissan’s Sunderland factory, which produces the Japanese firm’s electric car, Nissan Leaf, alongside other models.
The bulk annuity market is poised to experience a “capacity crunch” in the medium-term, according to consultancy Hymans Robertson, which has pointed to a shortfall of at least £65bn (€76bn) in 10 years time, as growing demand from UK defined benefit (DB) schemes outstrips insurers’ supply. The consultancy forecast that annual demand for bulk annuity buy-ins from UK private sector DB schemes will grow threefold by 2026, to £350bn.It added that the predicted demand will exceed the capacity in the market, at least over the medium-term.James Mullins, head of buyout solutions at Hymans Robertson, said: “To give a sense of the scale of the mismatch, if we were to assume a 5% increase in insurer capacity year-on-year, then in 10 years that would equate to £225bn of supply.”This would amount to a £125bn shortfall.“Even when taking a more optimistic year-on-year growth of 10% over the next ten years we’d still be looking at a £65 billion shortfall,” added Mullins.Such a “capacity crunch” could arise despite “plenty of supply” at the moment, according to the consultancy.This has implications for pricing, which is currently “keen”, it said.“[W]hen we reach the point that demand to transact buy-ins outstrips supply from insurance companies, insurers will inevitably offer better pricing to the pension schemes that have already completed a buy-in,” said Mullins.The consultancy’s findings are based on an analysis of all DB pension schemes sponsored by FTSE350 companies, which it then scaled up to cover all UK private sector DB schemes.It said that DB pension schemes and insurance companies will look to buy gilts of more than £300bn over the next 10 years.UK pension funds’ unwilligness to part with gilts was said to be behind the Bank of England recently failing to meet its buying target for long-dated government bonds as part of its quantitative easing (QE) programme. Hymans Robertson also surveyed all insurers active in the bulk annuity market as at the end of June 2016, asking them about their appetite and capacity for deals over the next 12 months.This included Prudential, which Hymans Robertson noted has since confirmed that it will be withdrawing from the bulk annuity market.This leaves seven insurers active in the market, although Hymans Robertson expects new entrants, not least because strong demand from pension schemes makes it “an attractive source of business for insurers”.The findings were presented in the consultancy’s first annual risk transfer report.
Amundi is joining forces with the French alternative and atomic energy commission (CEA) to create an independent asset management company focused on private equity financing of technical innovation projects in France.The new company, Supernova Invest, will take over funds currently managed by CEA Investissement, a subsidiary of the energy commission (Le Commissariat à l’énergie atomique et aux énergies alternatives), but is also intended to create and manage new “capital innovation” funds for third parties.Those involved said they expected Supernova to have more than €200m in assets under management by June. It is aiming to reach €1bn by 2020, according to a statement from Amundi and CEA.CEA Investissement and Amundi Private Equity Funds (PEF) will each have a 40% stake in the new company, and the CEA Investissement team will own the remaining 20%. Funds managed by Supernova are intended to provide capital for companies at different stages of development, from start-ups to mature companies, the statement said. Financing is to support two major types of technical innovation: “breakthrough innovation”, based on intensive development of disruptive technologies, and “innovation through use”, based more on mature technologies in the digital economy.One of the company’s first clients is Crédit Agricole, which has entrusted Supernova with the management of a new fund, for which it has raised €50m so far. Christophe Gégout, deputy managing director of the CEA and chairman of CEA Investissement, said: “The creation of Supernova Invest represents the alliance of the CEA’s credibility in technological innovation and the best in private equity management with an experienced, highly successful investment team, that of CEA Investissement.”The creation of Supernova Invest is not the first time Amundi has joined forces with outside industry for an investment partnership. In 2014 the French asset manager teamed up with French energy group EDF to create a €1.5bn infrastructure joint venture.Investment industry at ‘existential crossroads’The CFA Institute has published a study, the “Future State of the Investment Profession”, which it said describes “an industry at an existential crossroads”.According to the institute, the study warns that investment industry leaders have to transform their business models as they may otherwise jeopardise the future of their companies.To help industry leaders it has developed a series of planning scenarios derived by combining megatrends affecting all industries with other forces specific to the investment industry.The study also includes findings from a survey of 1,145 industry leaders on topics such as leadership skills, investment trends, and business models.Findings include:73% of respondents expected environmental, social, and governance factors to become more influential;70% expected to see more assets going into passive investment vehicles;63% expected profit margins at asset management firms to remain flat or to contract; and57% expected institutional investors would look to reduce costs by insourcing more investment management activities.The report can be found here.Asset manager investor targets growthiM Square, a European investment and development platform targeting stakes in asset management companies, is in discussions with “several North American institutional investors” in relation to a second fundraising round, it said in a statement today.It is aiming to raise €200m before the end of June, it said, and to reach €400m in the next 2-3 years. iM Square said this would enable it to acquire stakes in 5-7 asset managers in the US and Europe.In 2016, it acquired a French asset management company, which led to the creation of iM Global Partner, the group’s first distribution platform. This has begun marketing funds, according to the statement.The company was launched in 2015, with Amundi, Eurazeo, and the Dassault Groupe/La Maison as joint founding shareholders.
The UK should consider introducing a form of Chapter 11 bankruptcy for pension funds to allow more companies to restructure their obligations, according to Cardano’s Kerrin Rosenberg.The consultancy firm’s chief executive was responding to today’s announcement of a restructuring of the British Steel Pension Scheme (BSPS).The Pensions Regulator has granted “initial approval” for a regulated apportionment agreement (RAA), involving a £550m cash injection and BSPS taking a 33% stake in Tata Steel UK, its sponsoring employer.A new scheme with “modified” benefits will be set up to replace the current BSPS and minimise the impact on the Pension Protection Fund (PPF). Rosenberg said the BSPS case had “made it clear that the normal PPF route won’t always lead to the best outcome for trustees and pension scheme members”.While TPR emphasised that RAAs remained a rare tool that it did not often approve, Rosenberg said recent cases involving Halcrow and BHS indicated that it was a solution for “significant” schemes.“What has historically been an exception to the rule is now becoming more common than the rule itself,” Rosenberg said. “Surely that is a clear sign that the rules need to change. Pension funds that are very unlikely to meet their promises need another option beyond insolvency.”He continued: “A more robust system would allow stressed pension funds to restructure and separate from sponsors who are unable to afford their costs any longer. What this delivers is a more realistic promise to scheme members, without the destruction of value that comes with the current PPF route.”Currently, pension scheme members who transfer to the PPF before their retirement date have their benefits capped at 90% of what they were initially promised. The PPF does not grant inflation-linked benefits.“If stressed pension funds were allowed to restructure in a more transparent way, a pension fund equivalent of Chapter 11, risk could be better shared between the company, the members and the PPF,” Rosenberg said. “Companies could be freed from pension obligations they simply cannot afford and members could get a better deal than entering the PPF.”In February the UK government launched a formal discussion paper regarding reforms to rules for defined benefit pension schemes – including potentially streamlining the RAA process.TPR has also floated the idea of allowing stressed pension schemes to be separated from the employer on the basis of scheme viability rather than the risk of employer insolvency.