The financial management will be delegated to Loomis, Sayles & Company and Robeco Boston Partners, respectively.The standby mandate has been awarded to Morgan Stanley Investment Management.The portfolios will be invested mainly in US equities with a long-term investment horizon and the objective of outperforming the MSCI USA index.The management will also be conviction-based, with no tracking error limit.Investment will be based on an in-depth fundamental analysis of each portfolio line, involving regular dialogue with target companies.The asset managers will analyse each portfolio line in the light of the ERAFP’s SRI guidelines, either in-house or using outside providers.As an indication, the amounts to be invested over a three-year horizon could amount to around €300m, ERAFP saidThe initial term of the contracts will be five years, with the possibility for ERAFP to renew each contract for three successive one-year periods.The French pension fund currently has more than €15bn invested in accordance with a wholly SRI approach.As a signatory of the UN Principles for Responsible Investment, in 2006, it has adopted an SRI Charter based on the following five fundamental values: respect of the right of law and human rights; social progress; social democracy; the environment; and proper governance and transparency. ERAFP, the French civil service pension fund, has awarded two active mandates and one standby mandate for the management of US equities.The pension fund initially launched a restricted call for tenders in March.It said it awarded the mandates in line with it policy of broadening its investment universe and in accordance with the five values of its socially responsible investment (SRI) charter.Following a selection process, ERAFP awarded the active mandates to Natixis Asset Management and Robeco Institutional Asset Management.
The manager should be the first external investor in the portfolio companies, and ideally the only one apart from the family owning the portfolio company, according to the search.The pension fund has a strong preference for mid-sized and smaller funds, with assets under management of between $100m and $500m.It also strongly prefers “very seasoned management”, with a manager who has already launched at least two such funds in the past decade, according to the search.The closing date for responses is 10 January 2014.Meanwhile, a German pension fund is looking to award a $250m mandate to invest in European including UK investment-grade credit, also using IPE-Quest.According to search QN1366, the fund is looking for a core investment style and an active process.The benchmark for the portfolio is to be the Barclays Capital Euro Aggregate ex Treasury, and tracking error guidelines should range between 0.5% and 2.5%.Respondents should state performance to 9 September, net of fees, and have a track record of at least three years, though a five-year history is preferred.They should also have experience with German KAGs, according to the search.The closing date for responses is 17 January 2014.In a third IPE-Quest, QN1367, a German pension fund is searching for a manager to run a $250m US investment-grade credit mandate.The portfolio should be benchmarked against the Barclays Capital US Aggregate ex Treasury index, with tracking error of between 0.5% and 2.5%.The successful firm should have assets under management of at least $7.5bn and experience with German KAGs. A large Swiss pension fund is looking for an investment manager to run a $20m (€14.5m) pan-European private equity portfolio, using IPE-Quest.The manager search is being conducted by a consultant based in Switzerland on behalf of the fund.The pension fund is looking for a manager using a growth style and an active process to achieve significant long-term outperformance against listed equity.According to the IPE-Quest search QN1365, the manager’s main investment strategy should be financing the growth of family-owned businesses in Europe.
The existing third pillar, which offered a single, guaranteed “transformed” fund, was closed to new members in November 2012 and replaced by so-called “participation” funds of different risk profiles but without a minimum guarantee, while the minimum contribution rate that qualified for an additional state contribution was trebled.RPS was also one of the six companies to participate in the newly created voluntary second pillar, a system the Social Democrat-led coalition intends to abolish by 2016.At the end of 2013, according to data from the Association of Pension Funds of the Czech Republic, RPS had 1,037 out of a total 91,027 participation fund members, and 12,163 second-pillar members out of a total 81,962.PSČP, part of Italian majority owned Generali PPF Holding, had the highest number of second-pillar accounts (29,220), the second highest number of participation fund members (23,552) and a leading 26% of the 4.9m transformed fund membership.Tomas Kofron, RPS spokesman, said: “Last year, as a new pension company, we managed to get a 14% market share in the second pillar, and we managed to get a highest yield for our clients.“Nevertheless, the actual political situation does not allow us to further develop our investment, and therefore we will continue with a strong partner.“We will continue to offer our services in long-term finance planning via other products such as mutual funds.”Vladimír Bezděk, chief executive at Česká pojišťovna’s pension company, told IPE: “Our company is the long-term leader in the Czech private pension market.“I am convinced we are able to offer attractive returns on the deposits and special services, including online service of accounts, to our new clients.“Along with the acquisition of the client base of Raiffeisen Pension Company, there is also significant expansion of our company’s distribution capacity through the branch network of Raiffeisenbank.”The value of the transaction has not been disclosed. Raiffeisen penzijní společnosti (RPS), the Czech pensions subsidiary of Austria’s Raiffeisenbank, is pulling out of the republic’s pensions market, citing the new government’s plan to abolish the second pillar.RPS will be transferring its clients to Penzijní společnost České pojišťovny (PSČP), with the transaction, pending regulatory approval, set for completion in the second half of 2014.The Austrian bank has had a long-standing cooperation with Česká pojišťovna in pensions.Raiffeisenbank only entered the Czech pensions market in late 2012, when the system was being radically overhauled.
PFA, Newton Investment Management, The Pensions TrustPFA – Peter Hermann has been appointed by Danish pension fund PFA as director in a newly created role. He will be responsible for the area of health and prevention, as well as heading up the company’s actuarial department. The current head of the PFA actuarial department, Niels Erik Eberhard, will be leaving his position. Hermann will take up the new role on 1 May. He comes to PFA from Nordea Life & Pension, where he was a director, but before that, until 2011, he was working at PFA.Newton Investment Management – Following a strategic review, Newton has decided that lead management roles on its active equity and equity income pooled vehicles would be “most effective if kept distinct”. As a consequence, Christopher Metcalfe has been appointed as the new lead manager on the Newton Higher Income Fund, replacing Richard Wilmot, who will continue to lead on the Newton UK Equity Fund.The Pensions Trust – Stephen Nichols has resigned as chief executive, a position he has held since 2007. He first joined The Pensions Trust in 2002. The Trust will appoint an interim chief executive, until a new chief executive can be put in place.
“In particular, with long-term private investments, the practice is still very much focused on performance-related fees,” she told FD.She also cited the challenge of co-operating with other pension funds on the issue, “as it could be considered market manipulation”.A spokesman for APG – asset manager for the €334bn Dutch civil service scheme ABP – said the scheme had not taken a bonus-malus approach in its recent negotiations with external managers.He said APG preferred that external managers also take stakes in any given investment.“That way, they will also feel the pain of a low return,” he said. “In our opinion, this is more effective than punishing them.” PFZW, the €156bn pension fund for the Dutch healthcare industry, has said it has not yet succeeded in negotiating bonus-malus fee arrangements with external asset managers.According to local news daily Het Financieele Dagblad (FD), a PFZW spokeswoman said: “The asset managers have not just agreed like that – it has turned out to be a difficult subject.”Last April, Peter Borgdorff, PFZW’s director, announced that his pension fund would seek to penalise external asset managers for poor results.Yet, according to PFZW’s spokeswoman, changing the industry’s current culture has proved “very difficult”.
The government argues that some two-thirds of second-pillar members would be better off, in terms of future retirement benefits, by saving all their contributions in the first pillar.The industry disagrees.Miroslav Kotov, head of the investment department at Allianz-Slovenska DSS, told IPE: “The two-pillar pension system is suitable for everybody, as it diversifies risks of demographics in Slovakia.“Nobody knows what pensions would be available from one pillar system in coming decades. The first pillar is in every year deficit and must borrow money to cover its liabilities even now.”Jiří Čapek, general manager at ING DSS, elaborated that the government’s reasoning applied to only a small number of specific cases – older workers earning below the monthly minimum wage, those who were members for less than five years before retirement, and the unemployed who have unable to contribute to the second pillar for any length of time.Čapek does not subscribe to the view that a full transfer to the first pillar guarantees a higher pension.“It’s important to draw to the attention of second-pillar savers the fact money in the accounts of those who decide to leave it will be moved to the account of the Social Insurance Agency, and not to their personal account (as many people think),” he said.“The monies of the people who leave the second pillar will be used for present pensioners. The second pillar also offers members other advantages, such as personal ownership of their pension savings, and their [ability to be inherited].”The industry also believes the current focus on the low payouts for the first tranche of retirees eligible for second-pillar pensions is misleading.According to Sociálna poisťovňa, as of 4 February, 221 members had applied for a second-pillar pension, with 14 signing a contract.“For clients who were 10 years in the second pillar and are retiring now, the first pillar covers more than 90% of their pensions,” Kotov said.“The second pillar should cover the remaining 10%. Therefore, the difference between the two pensions is only a few euros per month.” Slovakia’s government has rushed through legislation establishing the terms for re-opening the second pillar.During the three-month window beginning 15 March, the 1.5m-odd members of the system can decide whether to leave, in which case all their savings will be transferred to Sociálna poisťovňa, Slovakia’s Social Insurance Agency.Unlike the Polish reforms of 2014, where the first pillar was the automatic default for second-pillar members who failed to declare their intentions, Slovak fund members will have to, as in the previous three re-openings, file a request to leave.In the last one, which ended in January 2013, some 90,000 members were sufficiently convinced to leave.
All withholding tax barriers to cross-border investments should be removed, he added.This meant that member states should respect the case law of the EU Court of Justice, reciprocally and automatically recognise pension funds, and simplify their processes.The Commission’s code of conduct provides an overview of problems faced by cross-border investors and explains how more efficient tax procedures can be put in place.It sets out a range of practical steps member states can take, such as establishing a single point of contact in tax administration to deal with questions from investors on withholding tax.Valdis Dombrovskis, vice-President in charge of financial stability, financial services and capital markets union, said the code of conduct was another step towards a single market for capital.“Today’s code of conduct should help investors to avoid long delays and high costs when claiming withholding tax refunds,” he said. “We will now work closely with member states to make sure that the new code of conduct delivers tangible results.” Withholding tax rules can be particularly complex for smaller investors, with some of them not even pursuing possible tax repayments, according to the Commission.“Today’s Code of Conduct should help investors to avoid long delays and high costs”Valdis DombrovskisIts guidelines are in the form of a code of conduct intended to result in quick, simplified and standardised procedures for refunding taxes where appropriate.PensionsEurope has campaigned for improvements to withholding tax refund processes for some time and said the code of conduct was “warmly welcome”. Member states should make a strong political commitment to respect it, said Pekka Eskola, senior economic adviser at the Brussels-based umbrella association.He told IPE: “I would like to thank the European Commission for the excellent co-operation with PensionsEurope during the last years on removing the withholding tax refund barriers to cross-border investment in the EU. “The WHT refund processes are complex, expensive and long-lasting. Often, they can last even 10 years and cost half of the expected refunds, as costly tax advice in foreign languages is needed. Since the legal outcomes are uncertain, given that the legal recourse involves several levels of jurisdiction, often pension funds do not assert their justified reclaims.” The European Commission has come up with guidelines to make it easier for investors to reclaim withholding taxes linked to investments in a foreign country.Withholding tax (WHT) is taken at source in the EU country where investment income is generated, but is often taxed again in the member state where the investor is resident.This can result in double taxation, and although investors have the right to claim a refund when this occurs, in practice refund procedures are “currently difficult, expensive and time-consuming”, the Commission said.The overall cost of withholding tax refund procedures has been estimated at €8.4bn a year – a combination of the costs of reclaim procedures, opportunity costs (delayed refunds meaning that the money cannot be used for other purposes), and investors choosing not to pursue refunds because of the complexity involved.
British Airways (BA) has offloaded much of the risk in the smaller of its two huge defined benefit (DB) pension schemes, after the Airways Pension Scheme (APS) agreed a £4.4bn (€4.9bn) buy-in with Legal & General – the largest pensioner bulk annuity transaction ever seen in the UK.The APS and Legal & General said the bulk annuity buy-in would cover around 60% of all the scheme’s pensioner liabilities.Virginia Holmes, chair of the APS Trustee, said: “Today’s announcement is the culmination of much hard work undertaken over several months and we are pleased to be taking this significant step in the scheme’s de-risking journey.” She said the contract – the latest in a number of insured arrangements the scheme had entered into – showed “the vision and determination of the trustee to reduce risk and increase security for members”. The deal includes about £1.7bn of existing longevity reinsurance contracts that the scheme went into via a captive insurer with Canada Life Reinsurance and PartnerRe a year ago.The parties said APS was now 90% hedged against all longevity risk, following the buy-in and allowing for previous pensions insurance deals.PwC acted as lead transaction advisers for the APS Trustee, which was also advised by Allen & Overy, Eversheds Sutherland and Willis Towers Watson.Legal & General was advised by Clifford Chance.Nigel Wilson, chief executive of Legal & General Group, said the second half of 2018 was likely to be a record six months for his company’s pension risk transfer (PRT) business, and that it expected to announce more deals in the next few months. “We are actively quoting on £27bn of UK PRT deals demonstrating the strong demand for insurance, supported by increasing affordability, as trustees seek to improve security for members and companies look to remove legacy liabilities,” he said.Ben Stone, pensions director at PwC said that completing a transaction as large as the APS deal in what is the busiest ever year for pension buy-ins showed that the market was working well.Meanwhile, consultancy Hymans Robertson commented as an outsider to the deal, saying it expected the trend of bulk annuity mega-deals to continue into 2019.“We also expect other pension schemes who have previously put in place a longevity swap to look to convert these into a buy-in as the pricing for conversion is attractive,” said James Mullins, partner and head of risk transfer at the firm.BA’s APS covers nearly 22,000 pensioners of the formerly state-owned UK national carrier.The scheme, which had assets of £7.6bn at the end of March this year, was originally set up back in 1948 and closed to new members in 1984.It is second in size to BA’s subsequent DB scheme, the New Airways Pension Scheme (NAPS).
Caroline Escott, PLSAThe PLSA said schemes that did not engage with regulators or advisers and where there was little to no actual governance taking place presented a different challenge from those that were engaging but needed to improve to ensure they achieved quality standards.“Therefore, TPR should focus on targeting disengaged schemes rather than putting new obligations on all schemes,” the association said. “There are substantial parts of the market which are already delivering high quality provision.”As part of this focus, it said, TPR should weigh whether it was sufficiently targeting the use of its existing powers to raise scheme governance standards.Last month, the regulator said its annual DC survey showed that most smaller trust-based DC schemes fell short of governance and trusteeship standards and should leave the market.While executive director David Fairs also highlighted that some trustees were running small schemes to a comparatively higher standard, he said people saving for their retirement were generally far better served by big schemes than small. A UK pensions trade group has defended smaller pension schemes, countering conclusions from The Pensions Regulator (TPR) last month that most smaller trust-based defined contribution (DC) schemes should be wound up.Responding to TPR’s consultation on the Future of Trusteeship and Governance, the Pensions and Lifetime Savings Association (PLSA) said it welcomed the regulator’s decision to scrutinise scheme governance and administration over the next 12-18 months.However, it warned that schemes were dealing with a lot of regulatory and industry change, so any requirements had to be “purposeful, proportionate and pragmatic”.Caroline Escott, policy lead for investment and stewardship at the PLSA, said: “In particular, [TPR] must allow good schemes of all shapes and sizes the space to continue to thrive.” Potential changes also had to be made “as part of a clear-sighted and coherent assessment of the bigger issues around scheme governance, which we hope will form an explicit part of TPR’s thinking on this area over the coming months”, she said.
Many do not publish their results at all, some only partially publish their results, and only a fraction publish the entire PRI assessment report, the analysts said.There has been strong growth in the number of PRI signatories recently.The Scope analysts said it was positive that signatories were subject to an annual assessment by the PRI, but that they were critical about the fact that the PRI’s appraisal was solely based on a self-assessment by signatories and that so far there was no independent verification of the data.Many PRI signatories were now achieving top marks in many of the different areas of the PRI assessment, the analysts noted.In the report, they said that only complete transparency would allow all market participants to judge how individual PRI signatories implement or ‘live’ the topic of responsible investment, and how comprehensively and successfully they take account of ESG aspects.The PRI has a data portal through which asset owners can find asset managers’ reports, but the analysts said this was not ideal as solution because signatories had to request access to be able to see other signatories’ reports, and the targeted entity had to approve the request.PRI: Steps taken in relation to 2019 assessmentA spokesman for the PRI said it welcomed feedback regarding all aspects of its operations, and explained that although it relied on signatories to report, various processes were in place to increase confidence in the data.These included a reporting tool that asks signatories to adjust responses when inconsistences in data are spotted. The PRI also analysed and compared the data, and after reporting it validated the data checking for contradictory responses, major year-on-year changes or outlier data points.He also noted that PRI had taken several steps to validate and test the calculations and results of the 2019 assessment, including – as noted by the Scope analysts – engaging PwC to assist it in reviewing its processes following the 2018 PRI assessment and reporting. There is not enough transparency surrounding the results of the Principles for Responsible Investment’s (PRI) annual assessment of asset manager signatories, analysts at Germany’s Scope Group have said.In a report published by Scope Analysis – a part of Scope Group that provides ratings and research on investment funds and asset managers – they called on the PRI to weigh in more on signatories to make the results available ideally to all market participants and in full, or as comprehensively as possible.They noted that not all of the information that flowed into PRI’s assessment was publicly accessible, and it was up to signatories to decide if and in what form to communicate about the outcome of the assessment.As a result, there were considerable differences between asset managers’ approach to publication of results, with implications for comparability.