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  • 2020
  • September

Stiglitz, Sinn butt heads on effectiveness of Eurobonds

first_img“You have to have a banking union with not only common supervision but common depositary insurance, a stronger fiscal union, that will include something like a Eurobond,” he said. “You could come up with another name if this one is tarred.”  The economist pointed out that Europe’s debt-to-GDP ratio was currently lower than that of the US and argued that, if Europe “borrowed together”, interest would come down, providing a measure of relief for euro-zone countries struggling with high interest.But Sinn was sceptical about introducing a joint deposit vehicle without more political and administrative unity.“We need to have the United States of Europe, which would be an insurance contract that needs to be signed – then we can have euro-bonds, etcetera,” he said.“We cannot just behave, through the backdoor, as if we had the United States of Europe because that would cause a lot more trouble.”Stiglitz, on the other hand, argued that adequate monitoring would help mitigate risk.“The future is far more important than the last 10 years,” he said.“If you can get a system that works from here on, then you can figure out the legacy problem.” US Nobel laureate Joseph Stiglitz and German economist Hans-Werner Sinn agree that the euro is unlikely to survive if nothing changes within the European Union, but when it comes to Eurobonds, they do not see eye to eye.Speaking at this year’s risk management conference organised by Union Investment in Mainz, they both highlighted structural problems within the euro-zone rather than the failures of peripheral member states.Sinn, president at economics research institute ifo, reiterated his belief that countries should be allowed to exit from the single currency and thereby devalue their currencies and debt.For Stiglitz, the euro in and of itself had been “a mistake”, but, “now that you have it”, there needs to be structural reform in order to move from austerity to growth.last_img read more

German industry fears IORP II will be ‘stab in heart’ for company schemes

first_imgThe German pensions industry has again voiced fears regarding the impact that IORP II, the revised directive on occupational pension schemes, will have on their business.Speaking at the Handelsblatt conference on occupational pensions, Georg Thurnes, a board member at Aon Hewitt Germany, asked Klaus Wiedner, head of the pensions and insurance department at the European Commission’s Internal Market and Services Directorate General, about one of the regulations appearing in a recently leaked draft of the new IORP directive.The regulation in question would prevent companies from running parts of the administration of their pension plans themselves.“This would be a major blow to company pension schemes, as, currently, the employer is often taking on administration and with it the costs of running the pension plan,” Thurnes said. Bernhard Wiesner, senior vice-president of pensions and related benefits at Bosch Group, agreed the regulation would “deal a blow to the heart of company pension plans”.Wiedner replied that there might actually be a conflict of interest if the risk management of a pension plan was run by the company’s treasury department, as employers want to keep contributions to the scheme low.“That is why we had the discussion whether or not this should be allowed,” he said.“Over the past few days, there have been a lot of debates regarding this, to assess whether it should be allowed in certain cases – but you will have to wait and see what Thursday brings [referring to the date scheduled for the release of the final version of the revised IORP II Directive].”Yet German industry representatives remain highly sceptical, with Wiesner even fearing “massive disadvantages” for German IORPs due to the new directive.Similarly, Gabriele Lösenkrug-Möller from the German Social Ministry promised that the government – “together with our European partners” – would do “everything possible” to prevent the directive from weakening occupational pensions.Another German fear is the perceived lack of understanding in Brussels regarding the socio-political status of German occupational pensions, as opposed to pure financial service providers.However, Wiedner stressed that, even if occupational pensions were rooted in a country’s social framework, they would require “a minimum of governance regulation”.He said EIOPA had “learned from the quantitative impact study” that, in some member states, “occupational pensions have governance problems”, without naming the member states.“Some member states withdrew their results to prevent them from being published because they were so bad,” he added.Therefore, EIOPA “will conduct further studies to better highlight problems”.Wiedner also noted that, while it had been a political decision to leave out capital requirements from IORP II for the time being, “EIOPA always was of the opinion that solvency regulations for occupational pensions is necessary”.last_img read more

London funds commit to forming collective investment vehicle

first_imgThe pension funds said the rationale behind the CIV was due to the business case showing potential savings of over £20m in costs for only £5bn of assets under management.This is based on analysis of existing investments held by London local authority funds and also takes into account that, initially, the majority of investment mandates are likely to be passive mandates.“Over time, it is expected that actively managed mandates and investments into alternatives such as property and infrastructure assets may be added to the range of investments offered by the ACS,” the funds said.The formation of the fund was first touted in 2013, when Wandsworth director of finance, Chris Buss, promoted the idea to the pension board for the council to take an active approach in creating a CIV.Buss is also expected to become the interim director of the ACS, as he continues his push to make Wandsworth the host of the CIV.He had previously suggestes the fund should absorn the £50,000 set up costs required, in order to play host.The creation of the London CIV comes as local government pension schemes (LGPS) await a report from the government on the future structure of the funds.This report is expected to narrow down, and consult on, one of three options, including the mergeing into a single or multiple large funds, or creation of collective investment vehicles, in order to increase efficiency.Waltham Forest said it did not expect the government report to significantly impact the plans for the creation of the CIV.“Informal indications are that, while undoubtedly our position will need to be considered in the light of whatever is published, it seems unlikely that the benefit of CIVs will be fundamentally challenged,” it said. At least two London council pension funds have confirmed their commitment to the formation of a collective investment vehicle (CIV), in order to reduce investment fees and increase performance.In recent meetings, both the London Borough of Waltham Forest and Wandsworth Borough Council pension funds agreed to finance the creation of the collective vehicle.The pension funds will oversee the creation, and become shareholders in, a private limited company, which is to be an authorised contractual scheme (ACS), otherwise known as a tax transparent fund.Waltham Forest fund will also contribute £25,000 (€30,000) for initial expenditure, with both funds committing £1 as initial capital in the ACS.last_img read more

​MNOPF launches captive insurer to cover £1.5bn in longevity risk

first_img“This innovative transaction significantly reduces the overall risk in the fund and is a positive step on our journey to achieve full funding,” he said.Andrew Waring, the fund’s chief executive, said the trustee had decided to work with Towers Watson, which also acts as delegated CIO, using its recently launched Longevity Direct structure.“This, combined with attractive reinsurer pricing, allowed us to hedge longevity risk without any material impact on our broader journey plan,” he said.The consultancy’s Longevity Direct model grants pension funds the opportunity to set up individual insurance ‘cells’ within its Guernsey-based insurance company, a method it argued would reduce the cost of longevity transactions by cutting the fees paid to intermediary insurers before accessing the re-insurance market.Shelly Beard, senior consultant at Towers Watson, said the company had been working with the MNOPF over the course of 2014 to arrange the deal.“With BT, Aviva and now the MNOPF deal, it just shows there are easier ways to access the longevity re-insurance market,” she told IPE.Beard added that the transaction was a fairly straightforward one, with the terms of the contract only taking a few months to negotiate.“It’s a lot simpler than other longevity swaps we’ve seen to date,” she said. Norton Rose Fulbright advised the MNOPF trustee during its contract negotiation.It is not the first time a UK pension fund has launched a standalone, captive insurance company to handle its longevity risk.The BT Pension Scheme insured £16bn – roughly one-quarter of its longevity risk – with a wholly owned insurer, which passed the risk on to the Prudential Insurance Company of America.UK-based insurer Aviva transferred around £5bn of longevity risk to three re-insurers earlier in 2014, at the time the single largest transaction. The Merchant Navy Officers Pension Fund (MNOPF) has passed £1.5bn (€1.9bn) worth of longevity risk to a re-insurer, a transaction agreed following the launch of its own insurance company.The industry-wide fund, which last year completed the buyout of its £1.3bn Old Section, worked with consultancy Towers Watson to establish a Guernsey-based company to insure the longevity risk of 16,000 pensioner members.Following the agreement between the fund and MNOPF IC Limited, a deal was then brokered for the risk to be re-insured by Pacific Life Re.MNOPF chairman Rory Murphy said the announcement was good news for its beneficiaries and the multi-employer fund’s sponsors. last_img read more

Cornwall Pension Fund chooses Man for hedge fund strategy

first_imgThe £1.5bn (€1.6bn) Cornwall Pension Fund has appointed Man FRM, a hedge fund, to manage a £120m allocation following an investment review.The local authority scheme is set to increase its allocation to hedge funds dramatically after it decided to place more focus on alternative asset classes.Prior to announcing the mandate, the fund had a 1.4% allocation to a fund of funds strategy operated by Permal, but it will now allocate directly to Man.As part of the scheme’s continued investment strategy overhaul, selecting a hedge fund manager was first priority alongside searching for additional opportunities in illiquid assets such as infrastructure, where it also allocated 1.4%. Following on from the strategy review, the fund decided to increase its hedge fund allocation to 8% and appointed UK advisory firm JLT Employee Benefits to run a full open-market procurement exercise.Investment manager at Cornwall Pension Fund, Matthew Trebilcock, said accessing the asset class via Man provided more transparency for the fund.“This feature is not always available through the traditional fund of funds offering and was a major consideration for us,” he said. Cornwall will invest in Man’s solution designed for Local Government Pension Schemes (LGPS), providing additional transparency and legal control of assets, with a sliding fee structure depending on collective assets.“In addition, the sliding management fee structure provides a real collaboration opportunity for all LGPS funds in the hedge fund asset class,” Trebilcock added.Man Group president Luke Ellis said: “We fully acknowledge the current pressure the LGPS funds are under to achieve cost reductions, and we have embraced this by treating the LGPS as a single investor with regards to pricing but as quite different investors with regards to the eventual solution provided.”last_img read more

Thursday people roundup

first_imgForster-Chase – Babloo Ramamurthy, chairman at B&CE and former head of the EMEA region at Towers Watson, has been appointed one of the inaugural board members at executive search firm Forster-Chase, along with Rodney Baker-Bates, chairman of international insurance broker Willis. Forster-Chase was founded by Leo Meggitt and Christopher Grove.Sacker & Partners – The UK law firm for pension scheme trustees and employers has promoted Sebastian Reger to partner. Reger joined Sackers in January 2014 to boost the firm’s finance and investment group. He advises his clients on all aspects of their investment and hedging activities. Universities Superannuation Scheme, BlackRock, Franklin Templeton Investments, Aberdeen Asset Management, Sacker & Partners, Forster-Chase, B&CEUniversities Superannuation Scheme (USS) – Sir Martin Harris has stepped down as chair of the trustee board after nine years in the role. He officially stepped down at the end of March, with the scheme set to announce his successor in the coming days. Harris joined the UK’s largest scheme as a director in April 1991, when he served as vice-chancellor of the University of Essex. He became deputy-chair of the £41.6bn (€57bn) pension fund in 2004, taking over as chairman two years later.BlackRock – The asset manager has appointed an Independent Governance Committee to oversee contract-based workplace pension schemes for UK clients. The new committee consists of chairman Allan Whalley, an independent trustee, Colin Richardson of Pitmans Trustees and Claire Altman of Capital Cranfield Trustees. The committee also includes senior BlackRock figures Paul Bucksey, head of the UK DC business, and Mark Allen, chief executive at BlackRock Life. Franklin Templeton Investments – Mats Eltoft has been appointed sales director for the Nordic region, responsible for developing the institutional business in Sweden. He joins from Aberdeen Asset Management, where he was a senior business development manager covering the Swedish institutional market. Before then, he spent two years at Bank Sarasin in Germany, where he was a vice-president covering the Nordics.last_img read more

Covenant quality of high-yield bonds dips to weakest level in July

first_img“Investors are trading away their protections in search of yield,” he said.‘Lite’ or ’covenant lite’ lending describes deals that do not contain the usual protective covenants for the benefit of the lender.Moody’s measures bond covenant quality on a scale from 1.0 for the strongest investor protection down to 5.0 for the weakest.High-yield lite bonds automatically receive the weakest possible score of 5.0, it says, because these bonds lack debt incurrence — meaning their issuance does not stop the issuer being able to take on extra debt at the same seniority — and, or, restricted payments covenants, the lack of which means the borrower is not limited in its ability pay dividends, distributions etc.The agency said in the report that its average monthly covenant quality score had deteriorated to 4.60 in July, which was a new monthly record low, even though it cautioned that there had only been a low level of issuance in July with just 16 bonds scored.Scores also weakened for bonds with full covenant packages, according to the report.The covenant quality of these full-package bonds included in the CQI sank to a record low of 4.14 in July, it said.This fall had been driven by a worsening of the leveraging and liens subordination risk categories, Moody’s said.On top of this, the covenants of Ba- and B-rated bonds continued to offer only the weakest investor protection, it said, with the average score in July for those bonds at 4.96 and 4.45.The keen search by investors for yield in a period of extremely low and even sub-zero yields on government bonds has led to record growth in European leveraged loan and high-yield bond markets. The covenant quality of high-yield bonds issued in North America fell to its weakest level last month, with investors apparently increasingly willing to forgo security for the sake of fatter yields, according to a report by Moody’s Investors Service.In July, the credit ratings agency said its Covenant Quality Index (CQI) — or level of investment protection — weakened to 4.37 from 4.25 in June.The index is a three-month rolling average score weighted by each month’s issuance volume.Evan Friedman, Moody’s vice president and senior credit officer, said: “This trend of weak covenant protections continues to reflect a large percentage high-yield lite transactions.last_img read more

​Swedish buffer fund AP3 appoints CIO

first_imgAP3 has promoted its head of asset managing to CIO, weeks after it confirmed that current CIO Kerim Kaskal would be leaving the SEK304bn (€32.9bn) buffer fund.Mårten Lindeborg’s promotion to CIO, which took effect from the beginning of the month, will also see him act as deputy to managing director Kerstin Hessius.Lindeborg joined AP3 in 2009 as head of strategic asset allocation and was promoted to head of asset management in late 2014.Prior to joining the buffer fund, Lindeborg was head of tactical asset allocation at DNB Nor, a company where he also served as portfolio manager upon joining in 2001. He began his career at Skandia Liv and spent 11 years within the group, working at its banking and asset management divisions, latterly as a strategist for four years prior to joining DNB.Commenting on his appointment, Hessius said: “Mårten has made a major contribution to developing the fund’s asset management strategy and has built a strong team with a stringent risk-management framework.“He has also consolidated the fund’s strategy in sustainability issues in the context of the total portfolio.”Kaskal is leaving in October after 2 years at AP3 to launch his own fund management business.last_img read more

UK roundup: Pension Protection Fund, Towers Watson

first_imgOver the year, the deficit has nearly doubled from the £151.6bn seen in August 2014, while funding levels have fallen by more than 6 percentage points.The PPF said total assets fell 2% over the month of August to £1.24trn, while liabilities remained relatively stagnant at £1.52trn.The UK’s lifeboat fund said, due to the weighting of schemes towards equities and volatility, the 6% fall in the FTSE All-Share Index was behind the drop in assets, while liabilities – driven by Gilt yields – remained flat after a 1-basis-point fall in 15-year bonds.In other news, the £120m Shop Direct Group Limited Pension Plan has appointed Towers Watson as fiduciary manager.The consultancy will now take over the investment portfolio and manage assets and liabilities as the scheme targets full-funding.CIO John Ashworth said the trustees had taken into account the expertise, time and level of resource needed to manage the scheme and concluded that delegating investment strategy to Towers Watson was a more “flexible and effective” method.“We now have governance structures in place we are confident will deliver investment performance goals and risk management in the best interests of all our members,” he added.Research published this week by fellow consultancy and fiduciary management provider Aon Hewitt found that the number of schemes larger than £1bn using fiduciary managers had doubled over the last year.The consultancy’s survey found that just over half of funds with more than £1bn in assets were using either full or partially delegated fiduciary mandates. The combined deficits of 6,057 private sector defined benefit (DB) schemes have increased to their highest point since March, according to figures by the Pension Protection Fund (PPF).The monthly PPF7800 Index showed the overall deficit, calculated on schemes’ ability to provide PPF-level benefits, was £280.4bn at the end of August.This is a rise of 10.3% from the end of July, when deficits stood at £254.2bn, and the highest point since the end of March, when it was £292.6bn.As a result, average funding levels dropped to 81.6%, with 4,998 schemes operating a deficit.last_img read more

Danish pension fund PFA acquires Bankpension

first_imgDenmark’s biggest commercial pension provider PFA is taking over labour-market pension fund Bankpension, as consolidation in the country’s pensions sector tightens.Financial sector fund Bankpension and PFA said they agreed a framework for a merger, with PFA as the surviving company.The common aim of the merger is to achieve positive synergies for the benefit of customers in both businesses, the organisations said.Niels Erik Jakobsen, chair of Bankpension’s supervisory board, said: “The supervisory and management boards of Bankpension believe a merger with PFA holds greater long-term benefits for Bankpension members than if Bankpension continues as an independent institution.” The merger will see Bankpension’s DKK21bn (€2.8bn) in assets under management added to PFA’s DKK552bn.Bankpension, founded in 1912, has DKK800m in annual contributions, 50 member companies and 17,000 individual members.PFA and Bankpension have held in-depth talks over the last few months on how the two could continue as a common pension company under the direction of PFA.Discussions had been based on, among other things, a due-diligence process that had shown the strength of the two companies, they said.Allan Polack, PFA’s group chief executive, who came to PFA earlier this year, said: “We look forward to uniting the strengths between the two pension companies, which are both built on strong relationships and their connection with members and customers.”Although PFA is a commercial enterprise, it is customer-owned.The two parties said they would aim to carry out the merger in 2016.Bankpension was recently criticised by the financial regulator Finanstilsynet on several counts following a regular inspection, being told in particular that it had to be more explicit about its investment stance and sharpen its focus on a fairer treatment of policyholders.Pension funds and providers in Denmark have been joining forces in various ways over the last few years, as pressure from increasing regulation coupled with low interest rates, as well as the competitive need to keep costs down, have made it harder for smaller funds to survive.The big commercial providers, Danica Pension and PFA Pension, have been particularly active in seeking to take over independent labour-market pension funds.In September 2014, Bankpension’s longstanding chief executive Niels-Ole Ravn left suddenly, with Jakobsen commenting that the pension fund’s future would contain challenges of “a different character.”Last year, however, three labour-market pension funds – doctors’ fund Lægernes Pension, engineers’ fund DIP and lawyers and economists’ pension fund JØP – publicly rejected suggestions they should merge with a large provider. They said pensions were too important to become the object of a competition providers’ expansion ambitions and argued that it would be a very bad business move for their customers if they allowed themselves to be taken over.last_img read more