The Norwegian oil fund’s Council of Ethics should be integrated into Norges Bank Investment Management (NBIM), allowing the asset manager to exclude companies in violation of its investment policy, according to a wide-ranging report on the Government Pension Fund Global (GPFG)’s responsible investment policy.The report, commissioned by the previous government earlier this year, was overseen by London Business School academic Elroy Dimson.It also recommended that NBIM be required to draw up a precise RI policy and engagement framework, detailing which steps would be taken prior to exclusion.Alongside Dimson, former PRI director Rob Lake, Hermes Fund Managers senior adviser Hege Sjo, Laura Starks of the University of Texas and Idar Kreutzer, chief executive of Finance Norway, drafted the report. Explaining the rationale behind drawing up explicit guidelines on exclusion, the strategy council’s report said: “The decisions to divest or exclude companies affect the investable universe, and criteria for these decisions should be explicitly stated in the mandate to Norges Bank.”The mandate should also include requirements about reporting on the application of the responsible investment principles, as well as an impact assessment of the ownership strategies.”It added that Norges Bank itself should commission further research to “elevate understanding of the impact of responsible investment on portfolio performance”.The report said it accepted that some of the recommendations, if approved, would see NBIM take decisions that might adversely impact portfolio performance, and noted that the cost of research required to monitor companies would also have to be accounted for and weighed against the financial return.“In order to make sure Norges Bank has the right incentives to follow the owner’s instructions effectively, the owner should make adjustments in how the asset manager is measured with respect to this work,” it said.As part of the changes, it said NBIM should be able to amend the indices employed by the fund, but also called for internal controls to ensure all decisions are in line with the then-established RI guidelines.“Increased transparency about how Norges Bank works with investment principles and subsequent ownership strategies will in itself provide accountability to the owner and to the public,” the report added.Siv Jensen, Norway’s minister of finance, said the report would contribute to the debate surrounding the future of the fund, but appeared to fall short of endorsing its findings.“I note that it is the strategy council’s view that gathering all the tools/instruments in one place and considering exclusions as an integral part of these ownership strategies will make the fund more influential and improve the overall efficiency of our responsible investment efforts,” he said.He said the ministry would now launch a “thorough and open process” to follow up on the report’s recommendations.,WebsitesWe are not responsible for the content of external sitesLink to final report by strategy council
The €18bn pension fund of banc-assurer ING has seen its investments generate a 0.2% loss over the third quarter, largely due to negative returns on its fixed income portfolio.However, due to a rise of the euro, the scheme’s full currency hedge delivered a 0.2% return, leading to a flat quarterly result, the fund said.An increase in long-term interest rates of up to 0.2% caused a 1.2% loss on the pension fund’s 67% fixed income holdings, which include interest swaps.As the purpose of this portfolio is largely to hedge interest risks on liabilities, it has a long duration, which increased the pension fund’s susceptibility to interest-rate fluctuations. The 24.2% equity portfolio returned 2.5% during the third quarter, mainly thanks to the performance of European and developed-market equities, ING said, adding that the performance of low-volatility equity was negative.The Stichting Pensioenfonds ING attributed the 0.6% return on its 5.6% property portfolio in particular to its listed real estate holdings.It further made clear that, mainly due to a weakening US dollar, its 2.7% alternatives investments, consisting of private equity and hedge funds, lost 0.3%.The ING scheme said its coverage ratio, based on market value, increased to 122.8% as of the end of September, whereas the official funding – based on the three-month average plus the ultimate forward rate – rose to 126.8%.The pension fund has 72,910 participants.Following the European Commission’s decision that its sponsor must be divided up into a bank and an insurance company, as a consequence of government support during the financial crisis, the pension fund is also facing a split-up into two schemes.
The new IORP framework includes a series of measures the commission says are aimed at improving governance and transparency of the pension funds in Europe, promoting cross-border activity and helping long-term investment.Danish pensionskasser are covered by the Solvency II regime along with pensions providers incorporated as life insurance companies, as a result of a decision by the national regulator to create equal competitive conditions for the two types of business within Denmark.“We are glad about the increased information requirement that is included in the submitted IORP directive but disappointed that the capital requirements are not included,” Skjødt said.This omission will lead to individual customers having a different level of security depending on whether they are customers of a pension fund or a life insurance company in Europe, he said.“The mantra should be – same risk, same requirement – which the IORP Directive submitted does not create because of the lack of harmonisation of the Solvency II capital requirements,” he said. The new IORP Directive from the European Commission should include the same capital requirements as those in the Solvency II regulation that applies to Danish pension funds, the country’s pensions industry association has said. Responding to last week’s publication of the revised European prudential framework for pension funds, the Danish pensions and insurance association F&P pointed out that IORP would not apply to Danish funds regardless of whether they were pensionskasser (pension savings institutions) or life insurance companies.Peter Skjødt, executive director, told IPE: “However, it is important that [IORP II] give rise to equal rules for pensionskasser and life insurance companies in the rest of Europe, so that there is a level playing field.”The benchmark for this is Solvency II, he said.
The petition sought to take advantage of momentum after 17 European Union member states in July urged caution in dealing with businesses profiting from or funding settlements in the West Bank. It added: “In the wake of the terrible violence unfolding in Israel-Palestine, we, citizens from around the world, are deeply concerned about your companies’ continued investment in companies and projects that finance illegal settlements and the oppressive occupation of the Palestinian people.”Meanwhile hundreds of critical comments have been placed on ABP’s Facebook account.Earlier this year, the €152bn Dutch healthcare scheme PFZW, decided to withdraw its investments from the three banks, a decision that was criticised at the time over the manner in which the divestment decision was reached. Cees de Veer, ABP’s vice chairman indicated that he took the responses seriously. “At the end of August, our board will discuss the case,” he said, adding that the meeting with Avaaz was scheduled for September-end.For now, ABP is to stick with its investments in Israel. “Until now, we have been unable to establish whether the three banks are involved in violation of humans rights. They merely facilitate payments in the occupied territories,” De Veer commented.He said that he was not sure whether the banks also issue mortgages to finance building activities in the disputed settlements. “These facts need to be established during our board meeting and talks with Avaaz,” he pointed out.“However, we noted that the signatories of the petition do not necessarily represent the opinion of the average ABP participant.”He said that he received 6,000 emails during the past weeks about ABP’s investments in Israel, most of them from abroad.,WebsitesWe are not responsible for the content of external sitesLink to Avaaz petition The €325bn civil service scheme ABP has accepted an invitation from international activists network Avaaz to discuss its current €68m exposure to three Israeli banks.Last month, Avaaz urged ABP as well as five other companies – including Barclays and G4S – to divest from Bank Hapoalim, Bank Leumi and Bank Mizrahi Tafahot, as they are allegedly involved in financing disputed settlements in what is deemed occupied Palestinian territory.The move comes despite the fund saying in February that it did not view the activities of the three banks as in breach of international law. In the opinion of Ricken Patel, Avaaz’s director, ABP needed to act quickly to protect its reputation, following 1.6m people worldwide signing the petition requesting divestment.
Swank called for increased transparency – “at least for the next 20 years” – about the steps the government intends to take to achieve its climate goals during the course of this century.According to the DNB director – who is also a professor of economic policy at Rotterdam’s Erasmus University – pension funds are more susceptible to large changes on the energy market than insurers, “as they have relatively large holdings in equity and commodities”.He said that no less than 12% of pension assets had been invested in carbon-sensitive sectors, and that pension funds’ combined investments in “green and sustainable” were less than 0.5% of total pension assets.Swank said the regulator had looked into the energy issue because of its responsibility for economic development.He said the supervisor had consulted sector experts, the business community, NGOs and some large pension funds, adding that the DNB had also looked at investments in fossil fuels, polluting industries and sustainable energy.According to Swank, pension funds show an increasing willingness to embrace the energy transition – and not solely due to risk management.“They also want to know who the good players are to invest in,” he said.Swank, however, also said he was aware the green market was still small.“The pensions industry needs the scale for large investments,” he said.Loek Sibbing, chief executive of the Dutch Investment Institute (NLII), recently highlighted the potential for pension funds to invest in the energy transition.In an open letter, he called on all political parties to help create more attractive investment projects for pension funds.Sibbing cited consultancy McKinsey, which recently estimated that the energy transition would require €200bn of investment in the Netherlands over the next 20 years.He said pension funds were willing to invest “dozens of billions” in the energy transition.Meanwhile, the regulator has said it is developing a climate stress test to clarify how climate risk affects the financial sector.It said the effects of climate change would be discussed in the new, DNB-chaired Platform for Sustainable Finance.The participants in the debate – including the Dutch Pensions Federation, the Association of Insurers (VvV), the Dutch Society of Banks (NVB), the Dutch Asset and Fund Management Association (Dufas), the Sustainable Finance Lab and the ministries of finance and infrastructure and environment – are to share expertise and co-ordinate initiatives. A director at Dutch regulator DNB has suggested pension funds should contribute more to the “energy transition” towards a carbon-neutral society following the country’s ratification of the Paris Climate Agreement.In an interview appearing in pensions administrator AZL’s internal magazine, Job Swank, director for monetary affairs and economic stability at DNB, said Dutch pension funds should demand that the companies in which they invest use the funds for “green innovation”.He said pension funds, due to their long investment horizons and expertise in dealing with large assets, would be well-suited for the measures that must to be taken.“The pensions sector could be the engine of the green economy,” he said.
ATP and Danica Pension have backed for a call from the Danish government and opposition parties to boost transparency in pension fund investments.In November, the Danish government together with the Danish Peoples’ Party (Dansk Folkeparti) and the Social Liberal Party (Radikale Venstre) agreed a package of measures based on a proposal from the Entrepreneur Panel (Iværksætterpanelet).Under the plan, which includes funding of DKK14.7bn (€2bn) over the next seven years and the launch of a new type of equity savings account for individuals, the politicians say they will attempt to form an agreement with pension providers and ATP.This agreement will involve increased transparency for their investments, including an annual declaration of their equity holdings, divided up into Danish and foreign shares, as well as by size and sector. “This will increase transparency in pension companies’ equity investments and make it possible to a greater degree for individual pension customers to choose companies, whose investment profile suits their preferences,” the government plan said.At the same time, according to the agreement, this would increase incentives for pension companies to invest assets in Danish growth companies, if requested.ATP, PensionDanmark and Danica already make details of their equity portfolios available to view on their websites.ATP believed it was important to take on responsibility as a large investor, said Ole Buhl, head of environmental, social and governance at the provider.“Along those lines, we are working on a voting record database where everyone will be able to look up ATP votings on different occasions,” Buhl said, adding that the pension fund expected the database to be up and running by next spring.PFA Pension, Denmark’s second-largest commercial pension fund, also agreed with the initiative.“We are fully in support of transparency in our equity investments, and we already disclose our equity holdings twice a year,” said Henrik Nøhr Poulsen, CIO for equities and alternatives.Noting that the policymakers’ aim was in part to give pension clients more options when selecting a provider, Jesper Langmack, CIO for equities and alternatives at Danica Pension, said his company already offered customers the opportunity to invest their savings themselves, through its product Danica Select.“This enables our clients to customise their portfolio any way they choose, subject only to some conditions concerning diversification of risk and liquidity,” he said. “All in all we are supportive of the initiative, as we already offer this to our clients.”Through its investment in Dansk Vækstkapital, PensionDanmark had invested in many Danish startups and small companies, a spokesman for the DKK224bn labour market pension fund said.
Roelie van Wijk, chief executive of TKP InvestmentsIt pools the pension funds’ assets in tax-transparent funds for joint accounts.Van Wijk said TKPI has been serving a French pension fund as well as a French insurer through UCITS funds since 2009.However, it had recently widened its scope to cross-border services because TKPI’s finishing setting up a low-cost defined contribution vehicle (PPI) and a general pension fund (APF) had freed up human resources, she explained.According to the CEO, the new contract in Spain had been concluded through an Aegon local office with an investor seeking a defined contribution product for its members.She declined to provide details about the Spanish client, but said the client had found TKPI through a leading consultant, and added that both the consultant and Aegon “had observed increasing interest for fiduciary services in the Spanish market”.Van Wijk said that insurer Aegon would manage the pensions administration and member communication. TKPI, for its part, would provide advice and develop the life-cycle investments and also shape the underlying fund solutions, she noted.This would include manager selection as well as the application of TKPI’s environmental, social and governance (ESG) policy.TKPI’s service would also be suitable for multinational companies CEO Van Wijk “Aegon is to direct the contributions to us, and we subsequently invest the premiums in the funds that have been chosen.”The CEO further made clear that TKPI intended to use Aegon’s office network because Aegon had a strong brand abroad.“Where possible, we will deploy our own people,” she said, citing Rik Verhoeven – TKPI’s new head of international business, who recently joined TKPI from Delta Lloyd Asset Management – as an example.“From Frankfurt, he is promoting our multi-manager approach and twelve UCITS funds for German institutional investors.”Van Wijk said that TKPI’s focus abroad will also be on France and Spain, as the company already had clients over there.It would welcome institutional investor interest from other countries, too, though. She pointed out that TKPI’s service would also be suited for multinational companies intending to merge their European pension arrangements into a single scheme.In her opinion Dutch pension funds would benefit from TKPI’s activities abroad through benefits of scale as well as a growing expertise about the European pensions market, including life-cycle investments.Recently, Aegon announced that it would bring Aegon Asset Management and TKPI under a single board.However, Van Wijk stressed that TKPI’s expansion plans were not linked to this and that the company’s fiduciary services would remain independent. Part of TKPI’s proposition is its multi-manager approach of selecting three external managers with different investment styles for each of its 45 investment funds. The Dutch asset manager TKP Investments is to expand its fiduciary services to other European countries.Roelie van Wijk, TKPI’s chief executive, said the firm had recently concluded a contract with a Spanish institutional investor, and added that German and French investors had also shown an interest in its fiduciary proposition.Aegon subsidiary TKPI has grown through serving Dutch pension funds.Following the decision of the pension fund of coffee producer Douwe Egberts to join the general pension fund Stap – set up by TKPI and Aegon – the Groningen-based asset manager is set to manage €30bn of assets in total from 27 Dutch pension fund clients at the start of 2018.
Heinke Conrads, Willis Towers WatsonDiscount rate equalisation in sight?At the same time, there were welcome signs of “movement” in the discussion about the treatment of pension liabilities for tax purposes, Conrads noted.In Germany the discount rate for calculating pension liabilities under the HGB standard is different to the one used for tax accounting purposes.The latter is specified in law, and has been fixed at 6% for years. The HGB discount rate, meanwhile, has been steadily falling, and was at 3.68% at the end of last year.German companies are unhappy about having to use the 6% discount rate for tax accounting, arguing it is out of touch with the reality of rates in the capital market.The disparity means that companies had to apply the HGB’s 3.68% discount rate to determine their pension liabilities, which in turn determine how much cash and assets they must hold in reserve. For tax purposes they have to report liabilities based on the 6% rate.“That means that companies are paying tax on income that does not even exist according to the HGB standard,” Conrads told IPE.The disparity between the two rates has been a regular topic of discussion for years in Germany, but Conrads said last year there seemed to be an intensified exchange between industry trade bodies and politicians. This extended to include the method for assessing pension liabilities for tax statements, which is seen as not being fit for purpose as corporates increasingly move to defined contribution-oriented pension promises.A key development in this longstanding discussion was the referral to the German constitutional court in November last year of a complaint about the discount rate for tax accounting purposes.The complaint was originally made by a company that had pension provisions of some €11m on its balance sheet under the HGB standard, but could only account for around €7.5m for tax purposes. The company took its complaint to the tax court in Cologne, which ruled that the 6% rate for calculating pension provisions was unconstitutional and requested a decision from the federal constitutional court on the matter.“That it has gone to the constitutional court is a strong signal,” said Conrads.She added that the high tax accounting rate ran counter to the aim of Germany’s latest pension reform, which, as per the name of the implementing law – Betriebsrentenstärkungsgesetz – is to boost occupational pensions coverage in the country. German corporate pension schemes’ funding improved in 2017 by nearly two percentage points, according to model calculations by Willis Towers Watson.Schemes of companies listed on Germany’s DAX stock exchange ended 2017 with aggregate funding of 64.9%. At the end of 2016 the schemes were 63% funded.The average discount rate crept up from 1.8% at the end of 2016 to 1.85% at the end of 2017, which cut total liabilities by €5.3bn to €392.2bn. Pension assets increased from €250.3bn to €254.4bn during the year. Overall, the funding position among schemes of mid-cap companies was similar, according to the consultancy.Thomas Jasper, head of retirement for western Europe at Willis Towers Watson, said the development was “gratifyingly stable”. Heinke Conrads, the consultancy’s newly appointed head of occupational pensions consulting for Germany, said companies needed to run different interest rate scenarios to be able to take the appropriate preparatory measures for their pension plans.It was currently difficult to assess whether and when the discount rate for calculating pension liabilities under international accounting standards would rise again, but it was clear that the rate required by the local HGB accounting standard would develop unfavourably, she said.
This would allow the schemes to be best informed when they come to choose a training provider, Af2i said.The association was surveying providers and aiming to assign the first labels by the summer to allow the pension schemes to implement training from early autumn. Af2i would monitor the training and adjust the curriculum depending on the schemes’ experience, it said. Olivier Rousseau, FRRThe Af2i committee in charge of this has only recently been formed. It is led by Étienne Stofer, director of CRPN, the scheme for civil aviation staff, with Olivier Rousseau, member of the board of directors of the €36bn pension reserve fund FRR, as vice-president. Rousseau is to focus on academic research.The committee is responsible for developing Af2i’s policy on training and academic research, one of the association’s priorities for the coming years.Jean-François Boulier, president of Af2i, said: “Our objective is to contribute to a better understanding of financial investment issues, which is a crucial ingredient for financial institutions’ performance, in particular for their beneficiaries.” The French institutional investor association Af2i will be vetting training courses and providers to help certain of the country’s pension schemes meet new legal requirements concerning trustees’ financial knowledge.The French government recently passed legislation affecting the country’s mandatory pension schemes for private practice professions such as dentistry, the self-employed, and some categories of employees. Among other requirements, the legislation requires scheme trustees to have financial training.Around 500 individuals are estimated to be affected.To help the schemes meet these requirements, a new committee established by Af2i, the French institutional investor association, will convene a group of experts to analyse training providers and award assurance labels to those programmes and providers that meet its criteria.
“There is an absolute responsibility upon trustees to consider how to best serve members’ interests. Whether a partnership between our two funds could be better for both QSuper and Sunsuper members is an appropriate enquiry,” they said.“Whether or not that consideration proceeds beyond preliminary discussions is dependent on many factors. In the meantime, both Sunsuper and QSuper members may be assured they will be kept informed of any material decisions.”Sunsuper itself has grown rapidly in recent years, taking over a number of smaller super funds. Its most recent mergers, with Kenetic Super and AustSafe Super, have occurred in the past 12 months.Australia’s A$2.8trn superannuation industry is undergoing a wave of mergers and acquisitions as consolidation continues.Australia’s smaller super funds are under pressure to find a merger partner to achieve economies of scale and deliver better and more efficient services to thousands of Australian retirement savers.The pressure on directors of super fund trustees has stepped up following a report from the Productivity Commission, a federal government agency, into the industry.First State Super, the largest NSW-based profit-for-member fund, is currently in talks with VicSuper, from Victoria, to merge the savings of more than 1 million contributors into a A$120bn fund.First State and VicSuper have agreed on the composition of the board of the enlarged scheme, with First State Super’s current independent chair, Neil Cochrane, to be appointed chair.Details of integrating the two funds continue to be worked out, but it is expected that a merger could be formalised by the end of this year.Australia’s hospitality and sports industry fund, the A$43bn Hostplus, and the smaller Club Super this month officially consummated their merger.Other recent mergers include Equip Super and Catholic Super, which combined their operations in May, making it Australia’s thenth largest profit-for-member fund with A$26bn in assets.Tasplan, which covers workers in Tasmania, and MTAA (Motor Trades Association of Australia) Super have entered into a binding memorandum of understanding to merge. If successfully completed, the national fund will manage more than A$22bn in investment savings for more than 320,000 members. Two of Australia’s largest profit-for-member super funds – QSuper and Sunsuper – have begun discussions on a possible merger to create what would be Australia’s largest superannuation fund of around A$182bn (€113bn).Currently, that crown belongs to AustralianSuper, which manages A$172bn.The two Brisbane-based superannuation funds both cater primarily to Queensland employees. At July 31, QSuper had A$113bn and Sunsuper A$69bn in funds under management.In a joint statement, the chairmen of the two funds, QSuper’s Karl Morris and Sunsuper’s Andrew Fraser, said both funds were in talks on a non-binding basis about a possible partnership.