Month: September 2020

IPE Views: Should sustainable investment be seen as separate but equal?

first_img“The only difference for a targeted ESG investment is that I want to know what is your impact strategy and how are you going to reach those goals,” Koelewijn said. “What problems are you solving?”His view is seemingly shared by royalty. In a pre-recorded speech at the NAPF in Manchester, Prince Charles once again waded into the debate.The Prince of Wales insisted that, in light of growing pension liabilities, the focus on “quarterly capitalism” – a problem highlighted by John Kay in his recent review of long-term investing – was becoming “increasingly unfit for purpose”.“Now, I know old habits die hard and that it is difficult to make the first move,” the heir to the British throne told delegates, “but is there not a case for ensuring your portfolios are resilient in the long term? Could you do so by incorporating sustainability into your mainstream strategy, rather than having it sit in a subordinate silo?”In the ongoing debate on ESG investing and its place in the investment universe of pension funds, it is questionable if this seemingly artificial divide should remain. Others point that the divide in place could also be a danger to sustainable investment taking hold.Addressing the PRI in Person conference in South Africa earlier in the month, Erika Karp of Cornerstone Capital insisted that the surrounding debate should no longer be about ideals, but rather pragmatism.“The language of sustainability – whether it is SRI, sustainable investment, the double or triple bottom line, impact investing, values-based investing – they all are good, […] and the opposite is implied to be bad,” she said.“This is where it gets divisive,” she added, countering that the debate was not one of values, but creating value.All this would point to the idea of a separate but equal portfolio for long-term, sustainable investment being a concept no longer fit for purpose. Investors must abolish the silo, and begin viewing sustainable investing as part and parcel of everyday activities. Conduct a quick straw poll of pension investors, such as the one conducted at the National Association of Pension Funds (NAPF) annual conference, on whether they are sold on the idea of sustainable investing offering returns above that of the regular portfolio, and you will often be met with a wave of scepticism.The scepticism comes despite outspoken support for sustainable, or impact, or targeted environmental, social and governance (ESG) investing, to name but three nom de plumes bestowed to an approach that, essentially, asks if the investment is as beneficial to the here and now as it is to the future.Mainstream support for a sustainable approach to investing has been growing steadily ever since the UN published its Principles for Responsible Investment in 2005, and it has attracted support from a number of large pension investors over the years.PGGM’s corporate strategy and innovations manager Wouter Koelewijn recently said any such investment should be viewed as part of the “same game” as any other commitment, and was backed by a counterpart at the Norwegian local government pension fund KLP.last_img read more

AP1 appoints PIMCO’s Angberg to newly created CIO role

first_imgAP1, one of the Swedish national buffer funds, has appointed Michael Angberg as CIO in a new role at the fund.Angberg joins from PIMCO in London, where he was head of business development for the Nordic region.Ossian Ekdahl, head of communications and ESG at AP1, said the buffer fund was responding to the increasing demands of the CIO and chief executive roles with the new hire.“We are appointing a CIO to add resources to both the role of CEO and CIO,” he told IPE. Until now, Johan Magnusson has held the dual role of chief executive and CIO.Prior to his role at PIMCO, Angberg, who joins AP1 on 9 December, was head of institutional derivatives sales at BNP Paribas and earlier head of Goldman Sachs Asset Management’s institutional sales for the Nordic region.He has also worked for AXA Investment Management and CERN.Magnusson said in a statement that Angberg would lead and continue to develop the fund’s asset management capabilities where his broad experience would be of great benefit for AP1.The buffer fund, with assets of SEK246bn (€27.5bn) returned 4% for the first six months of the year.On average, the fund has returned 6.1% annually over the past 10 years, which is above the target of 5.5%.The fund has been at the forefront of increasing alternative investments and has in recent years added farmland as well as exposure to subordinated and mezzanine debt in what it calls its ‘new investments’ portfolio.In addition, the fund is making its first foray into emerging markets small caps and boosting its allocation to active managers in the region.In 2012, the fund invested nearly SEK10bn in hedge funds over the course of the year, citing its wish to reduce equity risk exposure but retain high returns.Its strategic allocation is approximately 50% equities, 30% fixed income and 20% hedge funds, real estate, private equity and the ‘new investments’ portfolio.In Sweden, the AP funds have been subject to a broad review in order to future-proof the funds.The government enquiry, chaired by Mats Langensjö, in 2012 has yet to result in any changes to the system.last_img read more

ATP leads Danish exodus from Principles for Responsible Investment body

first_imgSix Danish pension funds have rejected the body behind the UN’s Principles for Responsible Investment (PRI) over governance problems at the organisation, but say they will continue to follow the principles themselves.ATP, Industriens Pension, PensionDanmark, PFA Pension, PKA and Sampension said they had decided today to leave the private organisation behind the PRI.In a joint statement, they said: “We have (…) over a sustained period of time observed with concern that the governance of the PRI organisation does not live up to the basic standards we as investors would expect of the companies in which we invest.”They said they would remain outside the organisation “until it again lives up to basic requirements for good corporate governance – including restoring membership democracy in the organisation. “We will continue to be dedicated supporters of the six principles on which the organisation was originally founded.”The PRI organisation had no immediate comment on the move by the Danish pension funds.In the joint statement, the pension funds said they had tried many times to improve the conditions within PRI, but without success.ATP said it was mainly dissatisfied with the PRI organisation because of its lack of democracy and transparency.“The reason for the lack of transparency and democracy is that the management of the organisation in 2010-11 on its own initiative changed the organisation’s original constitution radically without involving its members at the time – including ATP – or obtaining their consent,” the statutory pension fund said.This change of governance means ATP and all the other affiliated investors are no longer members of PRI, and the organisation’s original annual general meeting has been abolished.ATP and the other affiliated investors are now no longer able to influence the purpose, accounts, budgets, membership fees or working programme of the organisation – issues that would normally be discussed at such an AGM, it said.The change also means that only indirect elections are held to the new management body within PRI – the PRI Association Board, it said, adding that there was no transparency in how to achieve election to this board.“ATP and the other affiliated investors are no longer able to submit proposals of any kind for a binding vote among the affiliated investors, and ATP and the other affiliated investors need a minimum of 10% backing from other investors to achieve any kind of non-binding and consultative vote,” the pension fund said.On top of this, it said there was no real transparency about what was discussed and decided in PRI’s managing bodies – the PRI Advisory Council and the PRI Association Board.Niels Erik Petersen, CIO at Unipension and a member of the PRI Advisory Council, said he had strongly advocated improving the governance structures in the organisation since he became a member of the council in 2010.“I believe this is the best way – and the only way – of making changes,” he said.The PRI should lead by example concerning good corporate governance within its own organisation by means of transparency, openness and integrity, Petersen said.“PRI has not reached this goal yet, but we are working collaboratively and determined towards this,” he said.Raj Thamotheram, an independent strategic adviser, said the governance of PRI had been rather weak and the quantity of growth had been at the expenses of quality of membership commitment and alignment.But he took issue with today’s action by the Danish pension funds, saying engagement with public policy was critical.“We can’t stock pick our way out of climate change, corruption or other market-wide systemic issues, however good we individually feel our funds to be,” he said. Thamotheram said he believed PRI’s leadership was now on top of the challenge. He said attention had to be focused on the real-world impact of the PRI and get the organisation’s internal governance to align with that. “That’s something the Danish funds must surely agree with as long-horizon investors – this will be hopefully turn out to be a storm in a tea cup,” he said. The six Danish pension funds said that, because they were leaving the PRI organisation, from 2014 onwards, they would be unable to report to the organisation on their implementation of the six principles.“We will, however, continue to report on how our individual organisations work with responsible investment – including our compliance with the six principles,” they said.In their joint statement, the Danish funds said they would, as individual investors, “give serious thought to re-entering the organisation if it proved that its governance had improved to a satisfactory level”.last_img read more

ABP unlikely to grant indexation for next two years

first_imgDutch civil servants are facing several years without inflation compensation, Corien Wortmann-Kool, the new chair of the €345bn pension fund ABP, has suggested.During her first public presentation on Tuesday, she said that ABP would not be granting indexation either this or next year.ABP’s decision came on the back of what Wortmann – a member of the European Parliament’s Economic and Monetary Affairs Committee while she was MEP –  called “the unfortunate timing of the introduction of the new financial assessment framework (nFTK)”.Stricter rules for indexation had coincided with ever-decreasing interest rates – the criterion for the discount rate for liabilities – and were having a detrimental effect on pension funds’ coverage ratio, she pointed out. Since 2008, ABP’s 2.8m participants had incurred indexation in arrears of 10%.Under the nFTK, pension funds can start increasing pension rights no sooner than a funding ratio of 110%, rather than 105%.At December-end, ABP’s coverage ratio was 104.7%, but this level is likely to drop. The scheme is to publish its new funding figures later this week.However, in Wortmann’s opinion, the good news was that the nFTK had also reduced the possibility of rights cuts. Under the new rules, discounts are only inevitable if a pension fund’s coverage has been lower than 105% during five consecutive years.Responding to Klaas Knot, president of supervisor DNB, who recently suggested that people were saving too much, Wortmann warned against a further reduction of tax-facilitated pensions accrual.She argued that punishing saving would be “dangerous”.”In 2040 the ratio of workers to pensioners would have been halved to two to one, while care costs would have risen significantly in the wake of ever-increasing longetivity.”Commenting on the nationwide debate about a new and sustainable pensions system, Wortmann said that ABP would prefer individual pensions accrual combined with collective arrangements.However, she also made clear that the civil service scheme was not ready yet to choose between defined benefit and defined contribution arrangements as the future solution.“We advocate innovation and improvement of both,” she said, “to enable the social partners to make a choice, or to combine the best elements of improved DB and DC”.According to Wortmann, an ABP survey had suggested that 80% of its participants wanted to have choices for their pension, and that they preferred the option of a temporary additional contribution to a temporary premium reduction.Participants also wanted a say in when their benefits should start or whether to take a part time pension, she added.The ABP chair further announced that “open and honest” communication about what ABP’s participants could expect about indexation perspectives would become a top priority, “as this was crucial for their confidence in the scheme”.She added that ABP would offer its participants “solid and transparent standard choices without complexity”, adding that the pension fund would also provide a better insight into the consequences of individual choices.The planned intensified communication would include the use of simple and clear language, stressed the new chair, who indicated that, for example, ABP’s 126-page explanation of how the pension plan worked needed to be simplified.last_img read more

Hayes defends IORP full-funding proposals for all pension funds

first_img“In my report, I have proposed that all IORPs – cross-border and domestic – should be fully funded at the moment the IORP starts funding a new, or an additional, scheme.”James Walsh, EU policy lead at the UK’s National Association of Pension Funds, previously warned that the amendment put forward by Hayes risked impacting companies that were consolidating individual funds after a merger.He also questioned whether changes to a scheme’s deeds or new accrual rate would risk being seen as the launch of a new fund.“It’s a question for lawyers, but you could make the case that it constitutes a new scheme,” he told IPE in July.Hayes also argued that the revised IORP Directive should at no point become a “bureaucratic nightmare” for funds, and insisted it would not inflict additional costs on pension funds or members.However, the MEP did argue in favour of greater harmonisation of pension transfer activity, an area the Commission’s initial proposal had only sought to tackle by addressing cross-border transfers, arguing the changes would make transfers “safer”.“We should not have a lower standard in member states than that which applies at a cross-border level,” he said.“This is ultimately in the interest of members and beneficiaries.” Brian Hayes, the MEP in charge of the revised IORP Directive’s passage through the European Parliament, has defended amendments that would see full funding imposed on all European pension funds.Speaking at a meeting of the Economic and Monetary Affairs Committee (ECON) earlier this week, the IORP rapporteur argued that his proposed amendments would make the Directive a “principles-based” piece of legislation that distanced itself from the European Commission’s preferred ‘one size fits all’ approach.Hayes, an Irish MEP, noted that he had put forward changes covering the full funding of schemes, which, under the 2003 Directive, require cross-border entities to be fully funded at all times.Addressing the committee’s chair, Hayes said: “As we heard during our public hearing, [full funding] is one of the greatest obstacles for cross-border activity.last_img read more

PME to double residential-mortgage investments to €2bn

first_imgJeroen van Hessen, partner at the DMFCO, said mortgage investments currently returned between 2.5% and 3%.He said this had declined by approximately 1 percentage point compared with January, however, due to the drop in interest rates.PME is the seventh pension fund to invest in residential mortgages through the DMFCO.Last month, the €60bn metal scheme PMT doubled its commitment to Munt Hypotheken to €2bn.At the same time, PGB, the €19bn pension fund for the printing industry, doubled its commitment to €1bn.Dutch pension funds are looking increasingly to residential mortgages as an alternative for low-yielding government bonds.Due to growing demand for residential mortgage investments, the DMFCO has more than tripled its initial target of €3bn to €10bn.At the moment, Dutch pension funds have committed €5bn in total to Munt Hypotheken. PME, the €39bn pension fund for the Dutch metal industry, has said it will double its stake in residential mortgages to €2bn through an investment in Munt Hypotheken of the Dutch Mortgage Funding Company (DMFCO). Marcel Andringa, executive board member for asset management at PME, said the scheme had “killed two birds” with the investment.“We invest in the Dutch economy through an established player, and we also achieve attractive and stable returns against a limited risk,” he said.He said it was also important to PME that Munt Hypotheken issued mortgages against an “attractive” rate, making it easier for people to get onto the property ladder. last_img read more

Strathclyde scrutinises equity holdings over carbon emissions

first_imgHowever, in aggregate, the carbon footprint of Strathclyde’s equity portfolio was 7% lower than that of the MSCI All Country World Index.The carbon footprint assessment “provides a basis for targeted climate change engagement”, wrote pension fund director Richard McIndoe in a report to the board.In his report, McIndoe said stock selection by the fund’s active managers had improved carbon efficiency of the overall portfolio but that this was offset by sector allocation.“Carbon efficiency,” McIndoe wrote, “is impacted by an overweight allocation and weak stock selection in the carbon-heavy construction and materials sector, and the fund’s underweight position in banks does not capitalise on this sector’s low-carbon credentials.”However, direct exposure to oil and gas “contributes a net reduction in carbon intensity through sector allocation and stock selection”, he added.Passive mandates were, on aggregate, 9.6% less carbon-intensive than the benchmark.Strathclyde has considered allocations to passive low-carbon products but decided against investing due to a lack of track records for FTSE and MSCI products, as well as concerns about complexity and costs.More than 60% of Strathclyde’s portfolio was invested in active and passive listed equity at the end of October.In addition, Strathclyde’s board agreed to sign up to the Institutional Investors Group on Climate Change, having identified it as “the most appropriate” of the industry bodies it considered, “given its exclusive focus on climate change issues”.Strathclyde will be the 13th UK public pension – and the first from Scotland – to join the group, which consists of asset owners and managers from across Europe.Meanwhile, the fund also awarded an emerging market debt mandate to Ashmore.The pension fund tendered the mandate earlier this year and intends to allocate 1.5% of its portfolio to Ashmore, equivalent to roughly £280m based on the funds value at the end of October.Strathclyde posted a third-quarter return of 7.4%.In the first three quarters of the year, the fund gained 22.4%. The Strathclyde Pension Fund has identified the 10 biggest contributors to its equity portfolio’s carbon footprint and pledged to engage with them as shareholders, according to documents from its most recent board meeting.The £18.7bn (€22.2bn) fund also plans to discuss carbon output with one of its asset managers, Oldfield Partners.Oldfield’s mandate accounted for 45% of Strathclyde’s active equity carbon emissions at the end of March, despite making up just 10.5% of the pension scheme’s active equity allocation.It also holds the two most carbon-intensive companies identified in the assessment.last_img read more

New research plots top sources of ESG risk for UK DC default funds

first_imgHuman capital, business ethics, product safety, and data privacy and security are the most material environmental, social or governance (ESG) issues a typical UK defined contribution (DC) default fund’s equity portfolio will be exposed to, according to newly released research.The research was commissioned by the UK pensions trade body, the Pensions and Lifetime Savings Association (PLSA), and carried out by Sustainalytics, an ESG data and research provider.Doug Morrow, associate director on the thematic research team at Sustainalytics and author of the study, said the research “sits at the confluence of two major trends in the UK”: the growing use of DC plans, and an increased interest in ESG investment strategies.The research assessed the equities allocation (71%) for a typical DC default fund based on data from a Schroders FTSE Default DC Schemes report, and then plotted the most prominent ESG risks for a model portfolio. Key findings included that “human capital, business ethics, product safety, and data privacy and security stand out as the most material ESG issues from an overall portfolio perspective”.It said “[s]ome investors may find this surprising” given these issues receive relatively less coverage, but that they are “of central importance in many of the industries that happen to be overweighted in a typical DC default fund, including banks, pharmaceuticals, and food products”.These industries accounted for more than 19% of a typical default fund’s total allocation, according to the research.The PLSA said the research found human capital to be the single biggest source of ESG risk at the companies in which DC default funds invest, accounting for 11% of the ESG risk to which they are exposed.According to Sustainalytics’ Morrow, pension funds can mitigate the key ESG risks in DC default funds by using products that track an ESG index. He cited the example of HSBC UK Pension Scheme’s decision to use a Legal & General climate “tilted” index fund for its equity default option.Passive products are a “cost-effective” solution, said Morrow, especially given the UK’s 0.75% charge cap for default auto-enrolment funds.Morrow also recommended for DC schemes to consider global equity asset allocation from an ESG risk perspective. According to Sustainalytics its analysis showed that schemes “can reduce ESG risk in their default funds by tilting towards UK equity”.Schemes should also be “forceful stewards”, according to the report.Luke Hildyard, policy lead for stewardship and corporate governance at the PLSA, said: “The PLSA commissioned this research to better understand the scale and type of risk facing DC pension savers. The findings demonstrate the importance of stewardship activities around issues including human capital, business ethics, data security and climate change.“Over the coming year we will be developing further resources to help our members engage with asset managers and investee companies around these issues.”last_img read more

Wider stakeholders and trust at heart of revised UK corp gov code

first_img“To make sure the UK moves with the times, the new code considers economic and social issues and will help guide the long-term success of UK businesses,” he said.The FRC is currently subject to a government-commissioned independent review following criticism of its role in the wake of the collapse of contractor Carillion.With a renewed focus on the application of the main principles and fewer provisions, the new code was “shorter and sharper”, the FRC said.Specific changes included a requirement for boards to describe how they have considered the interests of stakeholders – such as their employees, customers and suppliers – when performing their duty under section 172 of the UK’s Companies Act.Company boards should also improve engagement with their workforces through either one of or a combination of a director appointed from the workforce, a formal workforce advisory panel, or a designated non-executive director.“The UK’s corporate governance framework is based on a system of shareholder primacy, but public opinion has shifted to focus on boards’ responsibilities towards other stakeholders including their workforce, their suppliers, and the broader community in which they operate,” wrote Paul George, executive director of corporate governance and reporting at the FRC, in a blog on the updated code.The changes to the code tie in with the government’s introduction of secondary legislation requiring companies of a certain size to explain how their directors have complied with the section 172 requirements.To address public concern over executive pay, the 2018 code stated that remuneration committees should take into account workforce remuneration and related policies when setting director pay levels.“Importantly, formulaic calculations of performance-related pay should be rejected,” said the FRC.The new code also strengthened expectations for companies to report back when there was a significant vote against a board recommendation for a resolution at a general meeting.David Styles, director of corporate governance at the FRC, told IPE this was “one of the weakest areas of reporting” under the outgoing code.In an attempt to remedy this, the 2018 code stipulates that, when 20% or more of votes have been cast against a board recommendation for a resolution, companies should explain what actions they intend to take to consult shareholders to understand the reasons for this, and to provide an interim report within six months.The Investment Association (IA), the UK’s asset management trade body, has been maintaining a public register of companies that experienced a “significant” vote – defined as 20% or more – against a resolution at a general meeting.An asset manager welcomeThe IA was positive about the new code.Andrew Ninian, director of stewardship and corporate governance at the trade body, said: “We are pleased that the code sets out the importance of boards understanding the views of all stakeholders as this will help ensure that directors are making the best long term decisions by considering the impact on all their material stakeholders.”Combined with continued investor pressure, the expectations set out in the new code with respect to executive pay “should help to deliver changes in remuneration outcomes”, he added. The Financial Reporting Council (FRC) today unveiled a new corporate governance code for the UK that broadens the scope of governance to emphasise the importance of companies’ relationships with a wider range of stakeholders than just their shareholders.The FRC said the revised code “puts the relationship between companies, shareholders and stakeholders at the heart of long-term sustainable growth in the UK economy”.“It calls for companies to establish a corporate culture that is aligned with the company purpose, business strategy, promotes integrity and values diversity,” added the audit regulator.FRC chairman Sir Win Bischoff said the new code had an “overarching theme of trust” and was “paramount in promoting transparency and integrity in business for society as a whole”. Saker Nusseibeh, CEO, HermesSaker Nusseibeh, chief executive of Hermes Investment Management, also welcomed the revised code, highlighting that it “emphasises the need for the alignment between companies, shareholders and stakeholders as a means to generating greater long-term, sustainable value”.“The code places an obligation on boards to articulate the company’s purpose beyond its balance sheet, which encourages companies to place greater weight on their relationships with all stakeholders,” he added.“Moreover, the renewed focus on the application of the principles and the FRC’s wish to see clear and meaningful reporting is a welcome addition.”The FRC said that investors and their advisors should avoid tick-box and “mechanistic” evaluations of companies’ explanations.last_img read more

​Swedish funds lobby group attacks premium pension reform plan

first_imgThe group said the investigation proposed gathering all the power and capital in the system – which it said would eventually amount to SEK4trn (€376bn) – within a new government agency, which would procure the premium pension funds that savers are to be allowed to choose from.The proposal sets out an enlarged role for national pension fund AP7 in the next phase of the reform, building on its current duty as provider of the default option within the system.According to a government report, at the end of 2018 AP7 managed 42% of the assets in the premium pension system, with assets across all providers amounting to SEK1.1trn. Fredrik Nordström, Fondbolagens FöreningNordström went on to say that freedom of choice in the premium pension system is limited to about half of Swedes – those who had made an active choice of funds – and, under the new plan, there were significant risks such as power being concentrated among a few giant funds.“One should also be aware that funds that are not allowed to participate in the PPM procurement will lose their economies of scale, which of course will have negative spread effects on other parts of the market such as occupational pension savings,” he said.He also criticised the fact that, according to the investigation, when the new procured funds marketplace was introduced, the fund choices savers had previously made would be annulled and money forcibly transferred to funds the savers had not chosen – but which the officials of the authority thought were equivalent.On top of this, he said, the association had received signals that successful and popular funds did not want to be part of the system proposed by the inquiry.Excessive risk and affected returnsNordström  said that “fund managers who care about their long-term savers believe that there is an excessive risk that the return will be adversely affected if the fund first handles a strong inflow of PPM money, and then a corresponding outflow when the procurement period ends.”“The risk is obvious that it will be index funds and index-linked funds that can handle these transaction flows and that the procurement procedure only creates room for a certain type of fund,” he explained.“Procurement is a blunt instrument that works poorly in a system where the savers want to be able to choose funds themselves,” he said, adding that it provided neither stronger consumer protection, nor better quality or lower prices.“We advocate a system where all funds that meet high quality requirements can join, and that the Swedish Pensions Agency does more to help savers in their choice,” Nordström said.He also bemoaned the fact that no evaluation had yet been carried out into whether the system’s problems had been solved by the comprehensive regulations introduced this year – a point also made by Swedbank Robur, which participates in the current premium pension funds marketplace.Liza Jonson, CEO of Swedbank Robur, said her firm cared about consumers having sustainable and affordable alternatives for their savings.“However, we have been around long enough to know that major changes need to be evaluated carefully and over time,” she said.The “powerful 29-point programme” which had already been implemented in stage one of the reform – had contributed to increased consumer protection, she said.“A natural next step now is to do a proper evaluation of these effects before continuing the work,” said Jonson. The head of the lobby group for Swedish investment funds has hit out at the newly-published reform proposal for the country’s premium pension system, saying it puts too much power in the hands of a single state agency and does not strengthen consumer protection.Fredrik Nordström, chief executive officer of the Swedish Investment Fund Association (Fondbolagens förening), said: “Procurement of PPM (premium pension system) funds does not solve problems, but creates new ones.”In a statement by the association, whose members include AMF Fonder, Skandia Fonder, Franklin Templeton Investment and Aviva Investors, Nordström levelled a range of criticisms against a proposal presented on Monday by special investigator Mikael Westberg.The plans cover stage two of the ongoing reform to the defined contribution (DC) part of the Swedish state pension, the premium pension system, and are set to drastically reduce the choice of funds available to savers.last_img read more