The European Commission is likely to postpone the introduction of its legislative proposal for pillars two and three of the revised IORP Directive due to a lack of data regarding the impact they could have on pension funds across Europe, sources have told IPE.Speaking with IPE, sources in Berlin, Brussels and London said the Commission very recently changed its plan to launch a legislative proposal for the revised IORP Directive in the second half of October, as was originally agreed.According to those sources, the Commission will now launch its legislative proposal for pillars two and three – which focus on governance and transparency, respectively – in late November or even December.The delay, they said, is due to the fact the European Commission lacks the data needed to help assess the real impact the new requirements set under the revised IORP Directive could have on European pension funds. Earlier this year, the Commission asked the Brussels-based association PensionsEurope to conduct an analysis on the potential costs arising from pillars two and three.In its final report, released in July, PensionsEurope stressed that it received “very few responses” from IORPs, as many issues appeared during the process.“This process was costly for IORPs, and the uncertainties contained in the questionnaires combined with difficulties for each jurisdiction to interpret EIOPA’s advice requirements render the process very difficult,” the association said.“However, as requested by the European Commission, the following data show some trends on the potential impacts, [but] the content of this paper cannot be extrapolated at country level.”Commenting on the decision made by the Commission to postpone the introduction of its legislative proposal, Matti Leppäla, secretary-general and chief executive at PensionsEurope, said: “The impact assessment we made for the commission doesn’t provide uniform data and, for many countries, no numerical data.“Our German members assessed more than others the costs in euros to different types of IORPs. Thus, it may be that the Commission would like to have similar data on the impact on others as well.”However, it remains unclear at this stage how the Commission is planning to further assess the impact of pillars two and three.The sources contacted by IPE went on to say that the Commission would be unlikely to conduct its own impact analysis internally, and that it would more likely pass on the work, probably to the European Insurance and Occupational Pensions Authority (EIOPA).Contacted by IPE, two spokespeople for EIOPA said the authority has not been asked at this stage to conduct such analysis.One spokesperson added that, if EIOPA were to do further work on pillars two and three of the revised directive, it would make the timetable public and consult with stakeholders.However, this process, in turn, would take more time than expected, meaning the Commission would be unlikely to release its legislative proposal before the end of this year.
Pension funds in developed countries expect to triple their allocations to African private equity over the next two years as they look for strong returns to boost funding levels, according to a survey.An international poll carried out by investment firm RisCura, the African Private Equity and Venture Capital Association (AVCA), and the South African Venture Capital and Private Equity Association (SAVCA) showed pension funds expected their portfolio allocation to African private equity to rise to 3% in two years’ time from an average of 1% now.Rory Ord, head of private equity valuation at RisCura, said: “Pension funds, in particular, are under great pressure to achieve strong return figures to help funding levels, and the results of the survey clearly show there is a strong belief Africa could be the location for these returns.”The survey, which took in data collected from 48 limited partners from different parts of the world with collective assets of more than $150bn (€109bn) in global private equity assets under management, asked about the attractiveness of Africa as an investment destination compared with other emerging markets, he said. Some 70% of respondents rated the continent as more or much more attractive, Ord said.For pension funds, the survey found that the most attractive sectors within Africa over the next three years were energy and power/utilities, he said.Michelle Kathryn Essomé, chief executive of the AVCA, said this was expected, as established funds of private equity funds had the necessary know-how, track record and local networks for pension funds to tap into.Erika van der Merwe, chief executive of the SAVCA, said: “Alongside the openness to first-time fund managers, the survey indicated a clear preference amongst investors for fund managers to be based locally in Africa.”Sixty percent of respondents said African fund managers should be based in their most significant target market, she said.
Alex Gracian, CIO at the £4.8bn (€5.8bn) multi-employer, public sector London Pension Fund Authority (LPFA), has left to pursue other opportunities after just under two years in the role.The fund confirmed Gracian’s departure and thanked him for his work in building the fund’s in-house capabilities during his tenure.It had been expanding its in-house investment team as it looks to allocate more to illiquid assets, under the guidance of Gracian.Susan Martin, chief executive at the pension fund, said: “I’d like wish Alex well for the future and thank him for the work he has done to build our investment team over the last 18 months.” She said the fund would now seek a replacement and look to build on its foundations in in-house asset and liability management.“It is an exciting time to join the LPFA,” she added.“We have a clear investment strategy, which is part of our integrated asset and liability-management approach. “We are proud of our investment performance and our effective liability management.“As part of our investment strategy, we are moving more of our investments into illiquids and seeking investments in housing and infrastructure.”Gracian joined the fund as CIO in 2012, after being hired by then chief executive Mike Taylor.Taylor subsequently retired the following year, suceeded by Martin.Prior to joining the LPFA, he worked as head of equity portfolios at the Gulf International Bank.
Dutch asset manager PGGM is to vote against the re-appointment of Barrick Gold Corporation’s entire board after attempts to engage with the company over governance concerns failed. Maurice Wilbrink, spokesman for the €189bn asset manager, said: “There haven’t been any improvements since PGGM addressed the company’s policy on governance and remuneration during the shareholders’ meeting last year.”He said PGGM had a €10m stake in the Canadian company, the world’s largest gold mining firm.“Weak corporate governance at Barrick is endangering shareholder value over the long term,” Wilbrink added, “and this will come at the expense of the pensions of our client pension funds.” He declined to elaborate, however, on how exactly Barrick’s governance procedures had failed.Separately, the €118bn Ontario Teachers’ Pension Plan (OTPP) argued that Barrick’s board, despite recent appointments, lacked the requisite mining experience. It said it also failed to see a link between the new executive chairman’s pay and the company’s performance.PGGM, meanwhile, objected to the remuneration package given to Barrick chief executive John Thornton, a former Goldman Sachs banker who received a €3.2m pay rise last year, increasing his salary to €12m.The mining company’s other board members are also paid too much, it says.PGGM is involved in a similar dispute with US software firm Oracle, which has refused, it says, to engage with shareholders on remuneration.Earlier this year, PGGM and UK asset manager Railpen alleged that the interests of insider shareholders were more important those of external stakeholders and concluded that direct communication between shareholders and Oracle’s board was almost impossible.Barrick did not respond to IPE’s request for comment.
Almost two-thirds of institutional investors want to quantify the value of responsible investments in private equity but only a small minority have made attempts, research has shown.A survey conducted by consultancy PwC among institutional investors showed while 74% stated they wanted to quantify their private equity manager’s environmental, social and governance (ESG) stances, only 19% had made any attempts to do so.While ESG matters and the concept of responsible investing has taken a strong hold in listed asset classes, movement into the alternative space has picked up pace.The survey showed an industry-wide ESG disclosure framework launched in 2013 was rarely or not at all used by a majority of investors, although 31% said it was regularly used. Other findings saw 83% of investors citing fiduciary duty as a main driver for a responsible investment stance, alongside reputational risk (53%) and corporate values (53%).Over 85% said responsible investment added financial value within private equity, as 71% would decline an investment opportunity based on an ESG assessment.A fifth of investors have withdrawn from an investment or withheld capital based on an ESG assessment decision.Malcolm Preston, PwC’s lead of global sustainability said the survey showed it was clear some discomfort remained between investors and private equity managers on how to achieve responsible investment goals.“Their expectations and approaches are yet to align,” he said.Preston said it would be easy to suggest collaboration between investors and managers would solve the disconnect, and increase mutual understand or avoid onerous data collection exercises, but the disclosure project was designed to do this.“[Investors said] they were generally clear on what they wanted from [managers] but there was little sense the disclosure framework is the final piece of the information jigsaw,” he added.“Developing a process that works for everyone is still very much work in progress,” he continued.“To many, such initiatives may feel idealistic or like an onerous layer of administration, but to an industry where there is a growing belief responsible investment is a driver of value, they are not to be taken lightly.”The survey question 60 global institutional investors, including the UK’s two largest pension funds, Sweden’s AP funds, and PGGM and APG from the Netherlands.PwC director, Phil Case, said the survey highlighted the need for more active integration and interrogation of ESG in private equity,“It could shift the power of institutional funding from being a threat of withdrawal to a force to embed an orderly, sustainable transition to a low-carbon economy, not only setting the timeline for change, but securing vital funding for it too,” he added.Despite the growth in ESG and responsible investment concerns in private equity, research from Mercer and LGT Capital Partners found this was not translating into the hedge fund space.According to the pair, an overwhelming majority of asset owners considered ESG when selecting private equity, property and infrastructure managers – but they fell to being the least important issue for hedge funds.
France’s €36bn pension reserve fund is looking for managers for up to €5bn in cash flow matching mandates for investment mainly in French government bonds (OATs) and Treasury bills.Selected managers will also be required to optimise the overall returns from the €5bn mandate until 2024.This is when the fund, Fonds de Réserve pour les Retraites (FRR), will make the last of 14 scheduled €2.1bn payments to Caisse d’Amortissement de la Dette Sociale (Cades), the agency that refinances the debt incurred to pay pensions in France’s social security system.Olivier Rousseau, member of the executive board at FRR, told IPE that the mandates were FRR’s “new generation” of cash flow matching mandates. They will replace the “first generation” of mandates that expire at the end of this year and early next year.These came about in connection with an overhaul of FRR’s business model following pensions reform in France in 2010. This significantly changed FRR’s liabilities, bringing forward drawdowns and introducing the fixed annual payments of €2.1bn until 2024. The fund’s inflows, mainly from tax, were completely cut.It introduced a liability-driven investment (LDI) strategy as a result of the reform, which included mandates for liability-matching French Treasury bonds.Rousseau said that the new mandates were very similar to the ones awarded in late 2011, except that now FRR wanted the selected managers to make payments a few days in advance of the annual Cades payment date of 25 April.In addition, under the new mandates FRR would allow the managers to sell Treasury bonds when their residual maturity drops to less than one year. At this point the managers would be allowed to invest into bank certificates of deposit or other low risk instruments, said Rousseau.FRR had been doing this itself, but was embedding this in the new manager mandates to make things simpler from an operational point of view.Rousseau said that FRR had also been thinking about the possibility of launching cash-flow matching mandates investing in instruments other than French government bonds, such as investment grade credit. This would be a first for FRR. No decision has been taken on this, however.
However, Espen Kløw, secretary general of the Norwegian Association of Pension Funds (Pensjonskasseforeningen), told IPE: “The capital requirement is both unfortunate and unnecessary, and it is in conflict with the regulation in Europe, IORP II.”He also highlighted the negative effect of the new solvency requirements on investments, saying: “After a fall in the equity market, combined with a reduced level of interest, pension funds have to sell equities – in a period when pensions fund should be buying equities.“In the long term this will lead to lower returns, and thereby lower indexation of pensions and full-paid policies.”At the consultation stage last year, the idea was met with a mixed response from stakeholders in Norway, while PensionsEurope has warned about about potential harm to the Norwegian system from solvency rules.Infrastructure boost Within the new solvency regulations, the finance ministry said capital required to back pension funds’ investments in infrastructure would be lower than for other investments, provided they fulfil certain conditions.Jensen said the infrastructure investment rules would ensure equal treatment with insurance companies and facilitate pension funds’ long-term investment in suitable infrastructure projects.On top of this, she said, the government was putting forward a draft law allowing more flexible access to investments in so-called ‘non-insurance’ businesses, which could also lead to more infrastructure commitments.Klow welcomed the new regulation, which would remove the current restriction that limits pension funds to invest a maximum of 1% of assets in each infrastructure investment. Norway is pushing ahead with a plan to introduce solvency requirements for pension funds along the same line as insurers, despite protests from the country’s pension sector.The finance ministry announced earlier this month a new solvency requirement for pension funds, which it said would capture risk throughout a business. It is based on market values and is similar to the Solvency II requirements for insurance companies.Siv Jensen, the finance minister, said: “The new solvency requirement ensures that the occupational pension is as secure in a pension fund as in an insurance company.”She added that pension funds had many years of experience of the stress test behind the new rules, and were well positioned to meet the requirements from 1 January 2019.
German companies paying pensions directly from their balance sheets will see their liabilities increase following the publication of updated longevity data.Accrued liabilities for employers with ‘Direktzusage’ arrangements will rise by 1%, according to the data released last month by actuarial consultancy Heubeck.This is despite a recent slowdown in the rate of longevity improvements for German men and women from age 60.“Between the census in 1987 and that in 2011, the longevity assumption had increased by around two months each year for men and by 2.5 months for women,” Heubeck said in a press release. This growth has since slowed down over the past four years to less than a month per year for both sexes. Credit: BMF/HendelGermany’s finance ministry will now assess the longevity data and issue a statement“This one-time effect is to be reported as a loss in the profit and loss statement,” Thurnes said. “Under International Financial Reporting Standards, the increase is booked into ‘other comprehensive income’, which is an actuarial loss not touching the P&L.”In addition, different adjustments would have to be made under German accounting standards HGB, international standards, and German tax law.To see the full extent of the effect on their tax books companies would have to wait for the German finance ministry BMF to approve the tables and issue a circular.“I am convinced that the BMF will allow for a transition period until well into next year to make the adjustments,” Thurnes said. Georg Thurnes, Aon“The fact is that it is mainly the income in your active years that increases longevity, since people who earn more money can eat better, can afford more holidays, better medical treatment and health prevention,” Thurnes told IPE.These effects can more easily be measured upon retirement.Thurnes added a note of caution regarding use of the tables: “To apply the reduction to both higher and lower income earners in retirement will only be meaningful when a company’s staff mirrors a representative sample of the population.”Heubeck also added unisex calculations to the tables as a new feature for companies wanting to apply non-gender-specific assumptions.Small but significant changesThe adjustments to be made by companies to their pension liabilities would be less drastic than after the last update 13 years ago, Thurnes said, but were still likely to be significant.“The effect on financial statements, under both local and international [accounting practices], will be an increase of pension liabilities around 2%,” he said.Thurnes calculated that, across all German companies with Direktzusage arrangements, this would amount to an increase in liabilities of roughly €10bn. However, overall German life expectancy had still improved since the last mortality data update in 2005, Heubeck reported. After the last update, companies had to make adjustments to their pension reserves by up to 2%.The company has been calculating longevity tables since 1948, and their calculations have become the standard used by most companies and as basis for tailored longevity assumptions.This year, for the first time, Heubeck included socio-economic factors in its tables. This meant a flat-rate reduction was applied to the average mortality rates to account for statistics showing that richer pensioners live longer.Pensionskassen and Pensionsfonds have already made these adjustments as required by the regulator BaFin.However, this is only part of the statistical truth, according to Georg Thurnes, chief actuary and board member at Aon Hewitt Germany.
Japan’s Mitsubishi UFJ Trust and Banking Corp (MUTB) has bought the global asset management business of Commonwealth Bank of Australia for AUD4.3bn (€2.6bn).Australia’s largest bank today announced the divestment of Colonial First State Global Asset Management (CFSGAM), known as First State Investments outside of Australia.The sale followed the bank’s announcement in June that it intended to demerge its wealth management and mortgage broking businesses.In a statement today, CBA said its board had determined it would be in the best interests of clients, employees and shareholders to explore a potential sale of CFSGAM. An initial public offering to list the business was one of the options previously considered. Commonwealth Bank of Australia had been considering options for demerging First StateMatt Comyn, CBA chief executive officer, said: “MUTB is one of the largest asset managers in Japan, with a long history and deep capabilities. We believe CFSGAM’s clients and employees will benefit from MUTB’s supportive long-term ownership”.MUTB president and CEO, Mikio Ikegaya, said: “We expect CFSGAM will continue to deliver leading investment solutions to its existing global client base. “We also believe CFSGAM’s highly-seasoned investment teams and competitive product line-ups will enable us to deliver new investment opportunities to our clients.”MUTB is a wholly-owned subsidiary of Mitsubishi UFJ Financial Group, one of the world’s largest financial institutions with ¥72.5trn (€565bn) in assets under management.Given the global nature of CFSGAM’s business and the licensed entities that it operates, the transaction is subject to regulatory approvals in jurisdictions in a number of countries, including Australia, Japan, Hong Kong, Singapore, the UK and the US. The transaction is expected to close by the middle of next year.
Credit: Vikramjit KakatiThe city of Guwahati in Assam, IndiaBurman also points out that a liberal state cannot be built in isolation from the larger state apparatus. India, he says, habitually violates the rule of law so cannot be trusted implicitly to uphold liberal values just because the law empowering it is for a seemingly benign purpose.“A state that routinely treats dissenters as traitors, evicts helpless land owners, and uses torture as an investigative tool, cannot reasonably be expected to act liberally in the interest of liberal values, especially if it is given draconian powers with vague objectives,” Burman states.He adds that “it is reasonable to presume that the data protection law will suffer from the same illiberalism that we see in the Indian state”.Finding an appropriate response to criticisms such as these has been the challenge for India’s Supreme Court. Last month, it ruled that Aadhaar is constitutional and does not violate the right to privacy.However, the five-judge bench did strike out one section of the Aadhaar Act, which allowed corporate entities and even individuals to demand an Aadhaar card in exchange for goods or services. No school, office, or company can now force anyone to reveal the unique 12-digit number, nor is it mandatory for opening bank accounts or for mobile connections. It must still be quoted to file income tax returns and to apply for a personal bank account.The challenge for any liberal democracy is to ensure fairness and justice. Finding a balance between privacy and ensuring a just distribution of state resources amongst all sectors of society is difficult. As journalist Tony Joseph recently declared: Credit: Gerd Altmann India’s national ID system was initially aimed at improving access to social security systemsWhen Aadhaar was conceptualised, the objective was for the system to identify beneficiaries of social welfare schemes. Its usage, combined with bank accounts accessed by smart phones in even the most remote villages, promised to revolutionise access to social services and assistance for the poorest segments of society. That objective is both laudable and achievable.A side effect of the success of Aadhaar has been that all purchases can be tracked. That makes evading taxation much more difficult. One fund manager recently pointed out that 2.5m new cars are bought every year in India, but the number of people declaring an annual income of more than INR1m (€13,000) is only 2.4m.The use of Aadhar has extended well beyond identifying beneficiaries of social welfare schemes.The growth has been demand-led as private firms, as well as government agencies, have used Aadhaar as a more accurate route to identifying individuals than other options. Individuals are no longer able to buy a new car or make any transaction over INR50,000 without providing their Aadhar number, meaning it has become easier to determine if appropriate tax has been paid.Privacy concernsEnsuring greater tax compliance is a clear benefit of Aadhar, but the ubiquitous use of personal identity numbers raises dangers for liberal societies.Anirudh Burman, legal consultant and research assistant at India’s National Institute of Public Finance and Policy, argues that it is a grave error to presume that the state will act benignly to uphold liberal values of privacy and autonomy.For example, if land records are to be made publicly accessible for increased efficiency in land markets, what is a reasonable expectation of privacy in such a context? While Indian bureaucracy is notorious for its ability to stifle new initiatives, in this case the government obtained the services of Nandan Nilekani as chairman of UIDAI. Nilekani was a co-founder in 1981 of Infosys Technologies, now a world-class IT company.UIDAI was tasked with guaranteeing that every resident of the country had a unique 12-digit “Aadhaar” number. There is only one number for each citizen, and every person can use it to validate his or her identity. The scheme has grown to become the world’s largest biometric ID programme.The way India managed to do this – and the controversies that surround its current usage – has lessons for other governments in both developed and emerging economies. Strong sentiments, but does he just represent the middle classes and upper elite of Indian society for whom gaining access to social welfare payments is not an issue?The controversies surrounding the use of Aadhaar have not ended, but the fact that there is debate – and change as a result – is a testament to the liberal democratic underpinnings of Indian society. That bodes well for India’s future. How important is privacy? The issue of whether the UK should introduce national identity cards has been a political hot potato for years.John Major’s Conservative administration (1990-97) tried to introduce them in the mid-1990s, only to be shot down by Tony Blair’s Labour party – which promptly introduced a similar proposal for so-called “entitlement cards” when it was in power, in the wake of the 11 September 2001 terrorist attacks in New York.Large segments of the populations of emerging economies may have no official means of identification, making distribution of state services and financial aid both difficult and easily subject to fraud.These issues led India to develop a technological solution – India is fortunate in having a vibrant and world-class IT industry. In 2009, the Manmohan Singh-led government set up the Unique Identification Authority of India (UIDAI) to develop and deliver the technology capable of supporting a national ID card service.