ABP, Europe’s largest pension fund, will not divest its holdings in three Israeli banks sold by Dutch pension manager PGGM earlier this year, it has confirmed.In a statement, the €300bn Dutch public sector fund said it had concluded three financial institutions – Bank Hapoalim, Bank Leumi and Bank Mizrahi-Tefahot – “did not act in breach of international laws and regulations”, adding that there were no existing judicial rulings that should result in their exclusion from its investment universe.“Furthermore, ABP has concluded that the stipulations in the UN Global Compact have not been violated and do not give cause to start a formal engagement process (that possibly could lead to exclusion),” the statement continued.The scheme said its investment policy aimed to provide “good and affordable pension for all its participants” and that its resulting environmental, social and governance (ESG) policy therefore was based around two objective reference points of international law and the UN Global Compact. At the end of September last year, ABP’s holdings in Hapoalim were the fund’s second-largest Israeli shareholding, worth €21m.Its stake in Leumi was worth €14m, and Mizrahi-Yefahot €2m.Overall, the fund invested €104m in Israeli equity and bonds.ABP’s decision to stand by its holdings come after PGGM divested from five Israeli banks – the three held by ABP, as well as First International Bank of Israel and Israel Discount Bank.Its sale, following prolonged engagement with the financial institutions and the conclusion that they would be unable to cease activities in Palestinian territories, led to a diplomatic row, with the Dutch ambassador to Israel being summoned to explain the move.Exclusion on grounds of a firm profiting from settlement activities is not unheard of, with the Norwegian Government Pension Fund Global recently re-instating a ban on an Israeli construction company for the same reasons.ABP recently excluded Japan’s TEPCO – involved in the Fukushima Daiichi power plant accident – over concerns it had little regard for public safety.
The way these products are marketed could have an impact on an individual’s economic situation, he said.“Pension funds should be careful how they write to people because, if they give advice, they need to have analysed the individual circumstances,” he said.In this case, a customer who had cancer switched pension product after being pressed for an answer by Sampension, following a marketing letter, the ombudsman’s office said.The new product was recommended even though it did not include the spouse’s pension, which had been a part of the existing pension product, it said.Sampension had marketed its new product – 3 i 1 Livspension (3-in-1 lifelong pension) – by sending out letters to a large number of customers.The letters contained the phrases: “We think you should choose the 3-in-1 Lifelong pension” and “based on an overall assessment, Sampension recommends you choose the new scheme”, the ombudsman said.Øe said: “Sampension, in my opinion, neglected its duty to provide advice. The company gave the customer the impression there was individual counselling, although this was not the case.”He added that this had given the customer a flawed basis for making her decision.Two years after changing to the new product, the customer died.However, Sampension said the case was about whether or not customers had an obligation to read the entire material they were sent about switching product.It said the letter sent to customers contained explicit information about the change of spouse coverage.“It is Sampension’s view that there can be no doubt an active choice must be made,” it said.The pension fund said it had offered to settle the case with an ex-gratia payment.Last June, Sampension was censured by the Danish financial regulator Finanstilsynet over the same case. The Danish consumer ombudsman has issued a writ against Sampension over the way it has been persuading customers to switch to unit-link pensions from traditional with-profit products.The government-appointed independent regulator has singled out an individual case where a Sampension scheme member made a disadvantageous choice to change products following a marketing letter. The move could be seen as a shot across the bows at a pensions sector under pressure to move its customer base away from traditional pensions, which can make heavy demands on reserves.Consumer ombudsman Henrik Øe told IPE: “I want a court judgement on this, as it seems it could be a general problem because there is this movement towards general (unit-link) schemes at the moment.”
The study was conducted in co-operation with the European Centre for Corporate Engagement at Maastricht University.Researchers at Groningen University recently reached a similar conclusion about excluding investments in fossil fuels.The economists Auke Plantinga and Bert Scholtens found that excluding energy companies such as Shell did not come to the detriment of returns.Bos said that no more than 5% of the 3,000 surveyed companies in developed countries were in the most controversial category.According to the study, companies behave “controversially” if they, for example, are involved in conflicts, trigger court cases and demonstrations, commit offences or cause environmental problems.“An increasing frequency of offences usually signals there is something wrong,” Bos said.“At Volkswagen, for example, the number and seriousness of the controversies had already risen before the problems with the cheating software came to light.”Bos added that companies with a positive ESG momentum, such as Visa or clothing company VF Corporation, tended to deliver better returns than already high-scoring firms.“This phenomenon shows investors should not only look at the absolute score but also at the momentum,” he said.“If companies combine this with engagement, they could also affect the direction of change.”NN IP’s study was limited to developed countries, but the head of Equity Specialties said it would be extended to emerging markets.“My intuition tells me many companies have even more potential to raise their ESG scores over there,” Bos said.“We will look into whether this will also lead to better returns.” A study by NN Investment Partners (NN IP) has suggested excluding companies that behave “controversially” does not come at the expense of returns but rather can actually improve investment results.The study – on the correlation between ESG factors and returns – also found that companies improving their ESG scores tended to deliver better returns than those that already enjoy the highest scores.Jeroen Bos, head of the Equity Specialties boutique at NN IP, said: “Pension funds could factor this in to their investment policies.”He added that encouraging companies to improve their ESG scores through engagement also lead to better results after adjusting for risk.
Mark Fawcett, CIO of the UK’s National Employment Savings Trust (NEST), is to chair an advisory board aiming to improve cost transparency across the asset management industry.The new disclosure framework, which will focus on asset management costs not previously fully disclosed following calls from UK local authority funds and RPMI, is being drawn up in cooperation with the Investment Association (IA), the asset management industry body.Fawcett, who will chair the 12-strong independent group, said the initiative had the potential to help the pension and investment industries to “take significant steps towards greater transparency” on all transaction costs.“It’s vital that, as an industry, we’re able to create a consistent disclosure framework if we’re to make progress reaching this goal,” Fawcett added. “I look forward to collaborating with a talented team to shape a comprehensive disclosure code.”Jonathan Lipkin, director of public policy at the IA, said the industry group was taking a further step towards a new disclosure code with the launch of the advisory board.“Now more than ever, it is vital that savers and those who make investment decisions on their behalf have full confidence in the pensions and investment management industries,” he said.“All parts of the delivery chain need to be clear and transparent.”Fawcett will be joined by representatives of the Financial Services Consumer Panel (FSCP) and the Transparency Task Force, two groups that have been campaigning for improved fee transparency from the asset management industry.Additionally, a number of other pension fund representatives, including the chair of the Phoenix Life independent governance committee, David Hare; Jeff Houston, responsible for local authority fund policy at the Local Government Association; and Graham Vidler, director of external affairs at the Pensions and Lifetime Savings Association (PLSA), will join the board.Chris Hitchen, chief executive at RPMI, and Thomas Mercier, the CIO of the Invensys Pension Scheme and a member of the PLSA’s DB council, will also work on the new proposals, as will PTL Trustees’ Richard Butcher.The appointments of Hitchen, Andy Agathangelou of the Transparency Task Force and Tereza Fritz, representing the FSCP, are noteworthy, as all have been leading on work to improve fee transparency for pension funds.Hitchen’s RPMI has worked on improving cost disclosure and seen its asset management fees rise from £70m (€83m) to £300m, by the chief executive’s own admission.The FSCP, meanwhile, has previously called for the UK industry to copy the Dutch model of fee disclosure, in a report written by an academic and co-founder of the Transparency Task Force.
A European insurance company has tendered a US$200m (€188m) Indian equities mandate via IPE Quest.The insurance company is looking to invest in large cap equity or companies of all sizes, according to search QN-2281.It has a preference for a Ucits-compliant pooled vehicle.The investments should be actively managed and the benchmark should be the MSCI India index. Bidding managers should have at least $500m of assets under management for this asset class, and at least $1bn in total firm-wide assets. They should have a track record of at least two years in Indian equities, but a minimum of five years is preferred.The maximum tracking error is 10%, but there should be a divergence of at least 2%.Interested parties should state performance gross of fees to 31 December 2016.The IPE news team is unable to answer any further questions about IPE Quest tender notices to protect the interests of clients conducting the search. To obtain information direct from IPE Quest, please contact Jayna Vishram on +44 (0) 20 7261 4630 or email [email protected]
All parties in the German parliament have agreed that the country’s proposed pension reform is a step in the right direction – with just one dissenter.In the first reading of the draft of the “Betriebsrentenstärkungsgesetz” (BRSG) in the lower chamber of the German parliament (“Bundestag”) the far-left party Die Linke called the proposed pure defined contribution (DC) plans a “poker pension”.Criticism also came from the Greens regarding limiting the new retirement vehicles to companies that have signed collective bargaining agreements.Under the government proposal – which has already been discussed by the upper chamber in Parliament, the “Bundesrat” – pure DC pensions without guarantees would be introduced into Germany for the first time. However, setting up these new pension plans is to be limited to the employer and employee representatives responsible for negotiating collective bargaining agreements. According to the Greens, this limitation means “the people who need occupational pensions the most will not get one”, as smaller companies with lower income earners often are not signed up to a collective bargaining agreement.The Greens demanded the step-by-step introduction of a mandatory occupational pension plan for all companies.The social democratic SPD, which is part of the government coalition with the conservative CDU, also noted it “would prefer” an obligation for employers to offer a pension plan and pay contributions to it.SPD labour minister Andrea Nahles is one of the brains behind the pension reform, which also includes changes to subsidies for smaller companies as well as amendments to tax issues regarding first and second pillar pensions.Coalition partner CDU – which has a two-third majority in parliament together with the SPD – called the pension reform law a “great moment” for Germany.Over the next few months, the Bundestag will hold a second and third reading of the legal draft and might make some amendments.Without major objections or alterations the law should pass in time for it to come into effect on 1 January 2018.In other news, the German association of investment funds, BVI, has issued new statistics showing assets under custody have grown considerably. Assets administrated by the 40 custodians licensed in Germany increased by 9% to €1.9trn.The increase is not as pronounced as in 2014, when business grew by 14% shortly after the EU directive on alternative investment fund managers was implemented in Germany.Under the new regulations set down in Germany’s investment rules many closed-end fund vehicles must now be administered via a custodian.This also shows in the 2016 statistics, as the major share of the growth came from closed-end Spezialfonds – vehicles exclusively for institutional investors. Assets in this segment increased by 30% year-on-year to almost €4bn.The increase was aided by more investors using alternative fund vehicles for assets such as real estate. Assets invested in open real estate Spezialfonds increased by around 15% to €7.35bn.The largest share of business for German custodians still comes from Spezialfonds on securities which amount to €1.37trn (up by 8%) in assets under custody.BNP Paribas Securities Services remains the top custodian by assets, followed by State Street Bank and Bank of New York Mellon. The latter has overtaken JP Morgan in 2016.
The world’s largest pension fund has called on asset managers to improve their corporate governance, according to its chief investment officer.Speaking to delegates at a Responsible Investor conference in London yesterday, Hiromichi Mizuno, CIO of Japan’s ¥145trn (€1.24trn) Government Pension Investment Fund, said because the fund was prohibited from directly owning Japanese companies, the fund’s stewardship activities were focused instead on the role of intermediaries such as asset managers. Rather than asking Japanese corporates to improve their corporate governance, the fund is asking asset managers to improve theirs, he said.“They have to have best-in-class corporate governance before they ask their portfolio companies to improve their corporate governance,” said Mizuno. “I’m not very satisfied so far.” The fund has also asked asset managers to manage its money while “having long-term ESG factors in mind”, he said, as it was the managers’ responsibility to come up with ways to deliver long-term sustainable returns. Asset managers that did not live up to expectations would receive a “smaller cheque” – and some already have, according to Mizuno.“[Asset managers] have to have best-in-class corporate governance… I’m not very satisfied so far.” Hiromichi MizunoThe GPIF was keen to hear new ideas for this, or even about a new business model of asset management, he added.The CIO also spoke of the need to pay attention to index vendors – how they operate and what goes into their indices – as they can sometimes “have much more influence than the CIO of a public pension fund”.Last year the GPIF put out a tender for ESG indices for Japanese equities. Mizuno said that GPIF had been selecting providers and would back its chosen indices with a “meaningful” cheque.Mizuno said he wanted to incentivise Japanese corporates to perform better on environmental, social, and governance issues, and allocate more to corporates and managers that took such issues seriously.GPIF also wanted to bridge a communication or transparency gap between ESG researchers and the companies they evaluate, he said.Mizuno said he was “tired” of hearing those assigning ESG scores to corporates saying companies were not good enough or did not disclose the necessary information, while on the other side corporations said they did not know what information the ESG researchers were looking for.The GPIF was therefore demanding that index vendors and ESG researchers disclose the methodology they use so companies know what information is being sought, said Mizuno.
This was the first time since the system’s inception in 2004 that this group recorded losses.According to BoL, the yields on the government bonds that make up the bulk of their portfolios were either very low or negative.Dalia Juškevičienė, principal specialist in the long-term saving and investment product supervision division at BoL, noted that the recent strong growth of stock markets was one of the reasons for the 25% increase in equity fund membership last year.However, she cautioned that “the equity market is cyclical and the risk of recession should be duly taken into account, especially for those who are close to the retirement age”.As of the end of 2017, second-pillar assets had grown by 17% year on year to €2.9bn, while membership rose by 2.7% year-on-year to 1.29m. Just over half of the membership (51%) was invested in medium-risk funds, 23% in low-equity plans, 19.4% in high-equity and the remainder in conservative vehicles.Last May the BoL, as part of its proposals for an overhaul of the pensions system, called for mandatory life-cycle pre-retirement investment, warning that 70% of fund members were assuming either too little or too much risk for their age, and were not inclined to adjust their risk profile.The current Peasants and Greens’ Union-led coalition government, which took power in late 2016, also has pensions reform on its agenda, with policy changes set to be announced this year and implementation by the end of 2019.In the case of the much smaller third pillar, overall returns averaged 5.19%. Averages were: 8.68%in the case of the five high-equity funds, 3.72% for the four medium-risk funds and 2.15% for the three conservative funds.Membership grew by 12% to 57,780 and assets by 21.4% to €96.6m. Lithuania’s voluntary second-pillar pension funds returned a nominal average 4.51% for 2017, marginally above the 4.37% average in 2016, according to sector regulator Bank of Lithuania (BoL).As in 2016, funds with the highest equity weightings generated the best returns.The four funds with an equity allocation of up to 100% generated an average 9.17%, followed by the six medium-risk funds, with a 50-70% equity share, at 4.94%. The four plans with a maximum of 30% in equity gained an average 2.19%.Meanwhile, four of the six conservative funds generated negative returns, resulting in an average loss of 0.61%.
“This in turn would increase its ability to influence the development of IFRS, which the EU should continue to actively do as part of the due process of the International Accounting Standards Board,” ESMA said. ESMA’s headquarters in ParisThe regulator said it believed that the primary objective of endorsed accounting standards remained to promote transparency and better decision-making in financial markets and, therefore, should be considered as neutral with respect to other public policy objectives.The European watchdog also highlighted the need for deeper harmonisation through EU-level legislative measures on enforcement of financial information and the benefits on investors’ confidence and development of the EU single market.‘Carve-ins could damage comparability’Meanwhile, in a separate response, Dutch croporate governance body Eumedion argued that so-called “carve-ins” would negatively affect the mutual comparability of companies’ annual accounts, as well as the true representations of their financial positions.It added that carve-ins could enable pressure groups to lobby for exceptions and occasional adjustments.The introduction of carve-ins would also distort the EU’s existing ability to either fully approve or reject new IFRS standards, Eumedion argued.The group highlighted that the concept of carve-ins had been investigated and rejected during an independent evaluation in 2013, and again during an evaluation by the EC itself in 2015.Eumedion’s membership comprises 60 large institutional investors with holdings in the Netherlands, representing more than €5trn of assets. Members include the asset managers APG and BlackRock, as well as three pensions industry organisations.The IFRS Foundation, which oversees the standards, has previously voiced concerns about the Commission’s plans. Dutch corporate governance group Eumedion and the European Securities and Markets Authority (ESMA) have voiced opposition to the European Commission’s (EC) plan to allow modifications to the international accounting rules.Responding to the EC’s consultation, which closes at the end of this month, European financial regulator ESMA said it strongly disagreed with allowing the Commission to modify the International Financial Reporting Standards (IFRS).“Any European-specific adjustments to IFRS would defy one of the key objectives of the [International Accounting Standards] Regulation that the reporting standards applied by listed issuers are accepted internationally and are truly global standards,” it said.In ESMA’s view, the EU should show leadership in reaffirming its commitments to IFRS.
Italian prime minister Giuseppe Conte quit his post this week, signalling the end of the controversial coalition government of the Five Star Movement and the Northern League.Italy is the world’s eighth-largest economy by GDP, according to the International Monetary Fund, and the fourth largest in Europe. It has the fourth-largest debt-to-GDP ratio in the world (132.2%, according to TradingEconomics.com), after Japan, Greece and Lebanon. Despite this, however, bond markets barely batted an eyelid. Italian 10-year yields have been on a steady downward trend since the end of May, Bloomberg data shows, broadly tracking German 10-year yields.This was only briefly interrupted during 9-10 August when yields spiked as Conte recalled parliament for a vote of no confidence, as requested by the Northern League’s leader Matteo Salvini. Investors have bought up more than €15bn worth of Italian debt since the start of the year, according to Joern Wasmund, head of fixed income at DWS. He believes Italian government bonds still “seem tempting” for investors, given the increasing amount of fixed income securities trading with negative yields.Norway’s giant sovereign wealth fund this week reported that it held approximately €60bn in negative-yielding bonds. Italian and German 10-year yieldsChart MakerWith the coalition now broken, president Sergio Mattarella has initiated talks with Italy’s main parties in an attempt to construct a new government, but another general election is a distinct possibility.Why are bond traders so relaxed about the collapse of Italy’s government? Source: Presidenza Della RepubblicaGiuseppe Conte leaves talks with Italy’s president in MayAs DWS points out in a commentary published today, political crises are far from unusual in Italy, with some historians counting 65 changes of government since 1946 – an average almost one a year.“However, a closer look at the development of spreads in 2018 shows that political uncertainties can leave strong marks in financial markets,” DWS says, making the lack of movement in yields in recent weeks “all the more remarkable”.While Italian instability may not be of interest to bond markets, the actions of central banks certainly are. DWS argues that there have been “numerous signs” that the European Central Bank could resume buying up government bonds in an effort to calm market volatility.“There has already been a substantial shift during the last 10 years,” the asset manager states. “While foreign investors held almost 50% of Italian government bonds at the end of 2009, this share has now come down to just over 30%. The share held directly by Italian private investors fell, too, from just under 20% to only 5% now.“On the other hand, domestic banks and especially the central bank have increased their holdings. The share of the latter rose from 4% to currently almost 20%, which is the equivalent to an increase of €337bn.“In addition, it is reassuring that Italy, thanks to the austerity of recent years, nowadays is running a substantial current-account surplus.”