EIOPA approach to default recovery ‘too severe’, says AEIP
Its consultation also questioned whether the strength of multi-employer scheme sponsors could ever be adequately measured, and said the matter should be addressed in more detail and further studied.“The fact that many industry wide schemes have often thousands of independent sponsors is not treated in a sufficient manner,” it said.“AEIP still questions whether a proper methodology for industry-wide IORPs can actually work, given the difficulties in assessing the strength of an industry rather than a single company.”The AEIP also sided with PensionsEurope in urging the regulator to consider the macroeconomic impact of its HBS proposals, saying the threat of the new balance sheet approach could be discouraging employers from launching new IORPs.“Indeed, the possibility that the sponsor-support element of the HBS has to be mirrored in the balance sheet of the sponsor would provide a strong disincentive for employers to provide occupational pensions and might push them to shift from DB to DC,” it said.“In this respect, we also would like to raise awareness of the need to further investigate the macroeconomic impact of the HBS.”PensionsEurope noted in its response that, while the European Commission had aborted studies by the European Central Bank and the Joint Research Centre assessing the impact of the HBS, the “necessity to assess the macroeconomic consequences” remained. The European Insurance and Occupational Pensions Authority’s (EIOPA) assumption that pension funds are unable to recover payments from sponsors following a default is too severe, according a group representing the interests of European social partners.According to the European Association of Paritarian Institutions of Social Protection (AEIP), the regulator’s placement of IORPs at the back of creditor queues upon insolvency could “pose issues for the comparability of the holistic balance sheet (HBS) results across Europe”, as individual member states regulate recoveries differently.In its consultation response to EIOPA’s discussion paper on sponsor support, the association also warned that the default probabilities the regulator would employ – based around credit ratings – would often be influenced by liquidity problems.“This does not always mean there is insolvency,” it added. “Using these probabilities of defaults in combination with no allowance for recoveries is too severe.”
But while investors may be increasingly interested in farmland, according to the survey, it currently represents only 1.3% of their portfolios. However, several large institutions now invest in farms, including sovereign wealth funds such as Temasek and the China Investment Corporation.Aquila’s study shows that, historically, the three most popular investment vehicles to access farmland have been specialist investment funds with 53%, ahead of closed-end funds with 40% and club deals/co-investments with 20%. Of those that have invested in farmland over the past 10 years, however, 57% said they were disappointed with the performance of closed-end funds, 42% with specialist investment funds, 29% with club deals and 14% with direct ownership of farms.This has forced a rethink in the investment models used by investors. Aquila Capital’s response has been to offer co-investment structures that give farmers a share in the operation to align investor and manager interests, rewarding farmers for high performance while giving them access to capital. Detlef Schoen, group head of farm investments at Aquila Capital, said: “The study highlights that one of the issues with funds in the agricultural sector is the lack of track records and realised returns.”Hornibrook agrees with this – citing lack of track record and education as the two main reasons why interest in the asset class continues to outweigh any actual commitments made.He said: “It is not an easily investable asset class for investors. It is not like infrastructure, where mega projects allow investors to allocate large amounts of capital. Because it is such a fragmented sector, we are typically aggregating a number of small assets into investable parcels.“The number of managers that have funds acceptable to institutions is also limited. However, if they wait for the track record and a large universe of institutional quality managers, the question is whether the return profile will be the same.”Hornibrook recommends investors diversify geographically and climatically to reduce weather risk and matching an investor’s appetite to risk relative to geography.He believes investors can avoid negative headlines related to land-grabbing and similar issues by investing in well-established agricultural markets.Aquila surveyed 71 European and UK institutional investors in October. Farmland is an increasingly popular asset class – but one that comes with its own type of challenges.Tim Hornibrook, executive director at Macquarie Agricultural Funds Management, Macquarie Infrastructure and Real Assets, told IPE: “Historically, agriculture has been portrayed by the media quite negatively, whether it has been about price volatility, extreme weather events or the average family farmer struggling to make ends meet. That has in some ways tainted people’s perception of the sector.“But the macro-environment for agriculture is a very attractive one, and those risks, while they can never be removed, can be managed. While the price is going to vary year to year due to predominantly environmental factors, it is the long-term demand that is attracting people to the sector. The asset class also has a relatively low correlation to financial assets and an attractive return profile as a standalone asset, with the majority of the balance sheet actually appreciating.”Hornibrook’s comments come in the wake of the research study by Aquila Capital, which revealed that 23% of institutional investors are looking to increase their exposure to farmland over the next year, while a further 74% will maintain farmland investment at current levels. 
Denmark’s Danica Pension is investing DKK1bn (€107m) in medium-sized businesses in Denmark, through direct investments, via a new fund.The fund, called GRO Fund, is being set up as an independent unit under Gro Capital, which will be managed by Lars Dybkjær, managing partner of private equity fund DKA Capital, the Danske Bank pensions subsidiary announced.Jacob Aarup-Andersen, Danica’s CFO, said: “Direct investment is a good match for our pension customers. “It offers attractive returns with an additional illiquidity premium and often long investment horizons.” Further, Danish growth companies are attractive to invest in, and the small and medium-sized enterprise (SME) sector has great potential, Aarup-Andersen said.The fund would look for strong, innovative businesses to invest in.It will focus on minority investments in medium-sized companies, meeting the increasing need for capital in the sector, where a company’s owners do not want to give up control of their business.Danica said the investment was “a natural progression of Danica Pension’s enhanced focus on direct investment in mainly Danish and Nordic enterprises, in which we are planning a double-digit billion DKK investment over the coming years”.The fund’s focus also complements Danske Bank’s lending activities, it said. In the summer, Danica Pension announced a new investment strategy entailing the replacement of some its bond investments with direct investments in companies.Dybkjær said Danish enterprises were not short of loan capital, but they did need subordinated capital and equity for expansion. “It is this need the fund will address,” he said.The fund will typically invest between DKK50m and DKK200m in companies that have already demonstrated a viable business plan.“In other words, we are not looking to invest in start-ups,” Dybkjær said.“Enterprises with annual revenue of DKK150m are more are the segment we are interested in.”
OECD Centre on Green Finance and Investment – PensionDanmark chief executive Torben Möger Pedersen has joined the advisory board of the OECD’s new Centre on Green Finance and Investment. The centre aims to support the transition to a “green, low-emissions and climate-resilient” global economy by producing policy-orientated research and analysis on green investment and finance.Jupiter – Alejandro Arevalo has been appointed to build the company’s emerging market debt strategy. He will join as a fund manager later this year from Pioneer Investments, where he has worked for four years as an emerging market corporate debt portfolio manager. Before then, he worked on emerging market debt strategies at Standard Bank Asset Management, Gibraltar Bank and the International Bank of Miami.International Accounting Standards Board (IASB) – Sue Lloyd has been appointed vice-chair at the IASB. She has been employed by the IFRS Foundation since 2009. She was director of capital markets and senior director of technical activities before being appointed as a board member in 2014. She has experience in investment banking from the UK and Australia and is a former member of the Australian Accounting Standards Board.RJ O’Brien & Associates – The Chicago-based futures brokerage and clearing firm has appointed Daniel Staniford as executive director, responsible for institutional business development in New York and London. Prior to joining RJO, Staniford spent 13 years at Citigroup Global Markets, serving most recently as managing director of rates sales.Pemberton – The independent asset management group backed by Legal & General has appointed Ben Gulliver as portfolio manager. Before joining Pemberton, Gulliver spent four years at ANZ Bank as global head of credit training.Xerox HR Services – Adam Michaels has been appointed as principal and senior investment consultant. He joins from LCP’s investment department, where he had been a partner since 2010, responsible for a portfolio of UK pension scheme clients and leading LCP’s research in real assets. Fondo Cometa, Candriam Investors Group, PIMCO, Bayside Capital, OECD Centre on Green Finance and Investment, PensionDanmark, Jupiter, Pioneer Investments, International Accounting Standards Board, RJ O’Brien & Associates, Citigroup Global Markets, Pemberton, ANZ Bank, Xerox HR Services, LCPFondo Cometa – Maurizio Benetti has been appointed president of Italy’s largest private pension fund, Fondo Cometa, the national complementary scheme for metal industry workers, by the fund’s board of directors. He succeeds outgoing president Annamaria Trovò. Bennetti has had long experience in the field of collective bargaining, corporate welfare and pensions, the fund said. Over the years, he has been head of studies at Italian metalworkers’ federation Fim-Cisl National, and was also a member of the Cometa pension fund’s executive board, as well as its deputy president from 2005 to 2008.Candriam Investors Group – Elias Farhat has been appointed chief strategy officer. He started his career at Bain & Company in Paris and remained at Bain for 12 years. In 2002, he founded his own advisory firm, Velocity Advisors, to assist investors on their acquisitions. He was also a partner at Capital E Advisors, an asset manager with investments in thematic private equity, and has held various board and advisory positions in several companies.PIMCO – Alice Cavalier has been appointed senior vice-president on the alternatives team, focusing on the analysis of stressed and distressed investments in Europe. Based in London, she joins from Bayside Capital, the distressed debt and special situations affiliate of private equity firm HIG Capital. Before then, she worked as an analyst in the leverage and acquisition finance department at Morgan Stanley.
Pension funds can achieve better results by rebalancing their investment portfolios less often and at less predictable times, studies by asset managers Kempen Capital Management and PGGM have suggested.Ivo Kuiper, head of asset allocation at Kempen, who is to obtain a doctorate from Tilburg University next month, found that switching rebalancing from once a month to once a quarter would lead to an improvement to investment returns of up to 3% over 20 years.He explained that in his calculations he hadn’t applied returns as benchmark, but as the theoretical notion of “loss of use”, which also included risk impact.“Frequently rebalancing is plainly disadvantageous, as relatively low costs accrue significantly in the long term,” he concluded. “If a pension fund rebalances on a monthly basis, its entire portfolio would have been sold eight times with the ensuing transaction costs during a 20-year period.” In another study, Melinda Rook, portfolio manager at PGGM, assessed the adverse impact of the predictability of when pension funds rebalanced their portfolios, which is usually at month-end.This enables other market players to anticipate portfolio changes. Securities to be purchased were slightly more expensive at the end of the month, Rook found, while divested assets were priced lower.Rook said this could be avoided by simply refraining from rebalancing on the last trading day of the month.She found that a pension fund with a portfolio comprising equity and fixed income in a 50/50 ratio would have achieved a 3% better return over the past 20 years if it had rebalanced four days before month-end. Kuiper noted that rebalancing was carried out at many different levels and that the frequency could differ per level.“The ratio between return-seeking and matching portfolios, for example, differs from rebalancing hedging positions on interest and currency risk,” he said. “Moreover, the frequency also depends on the used bandwidth for the scale of allocations.”Kempen’s head of asset allocation said he had observed that several pension funds had already switched to quarterly rebalancing. However, he argued that rebalancing only once a year would be more beneficial in may cases.In his opinion, the temporary imbalance within the portfolio would be more than cancelled out by lower transaction costs.
Rani Piputri, head of AI investing, NN Investment Partners“The potential synergy of man and machine has never been more powerful. I believe that embracing this reality will lead us to a competitive advantage and enable us serve our clients better.”NN IP already has 16 investors, data scientists and researchers running €11bn in its automated intelligence team. This unit runs factor investing strategies across various asset classes and is exploring other techniques for applying artificial intelligence systems to equity funds, the company said.Separately, NN IP has also named Maarten Geerdink as head of European equities and lead portfolio manager for its systemically-driven European equity strategies. Geerdink will lead the European equity team, comprising eight portfolio managers and nine fundamental analysts and data scientists, and managing €4.5bn in different strategies.Geerdink joined NN IP from Belgian asset manager Econopolis, where he was partner and chief investment officer. He has almost 20 years of experience in asset management and has worked as a senior portfolio manager at Petercam, now known as DeGroofPetercam. He has also been portfolio manager for quantitative equity strategies at Brevan Howard Asset Management and Shell Asset Management Company.NN IP runs €196.9bn, according to IPE’s Top 400 Asset Managers report, including €39bn for European institutional investors. Piputri added: “We have entered a new era of abundance and democratisation of data, computing speed and analytical techniques. This provides a rich environment for new and enhanced investment strategies, where the scope to systematise and automate processes is substantial. Dutch asset manager NN Investment Partners (NN IP) has hired a head of automated intelligence investing as it looks to build up its quantitative and data driven investment business.Rani Piputri has joined from London-based quant hedge fund Aspect Capital to take on the role. At NN IP she will oversee the implementation of “data driven strategies” based on factor investing and artificial intelligence processes, the company said in a statement.Before joining Aspect Capital, Piputri worked for Dutch systematic investing specialist Saemor Capital as a senior portfolio manager.Valentijn van Nieuwenhuijzen, NN IP’s chief investment officer, said the appointment “emphasises the focus we as an asset manager put on integrating data analysis and machine learning into our investment process, to reap benefits of untapped sources of return”.
“Trustees are expected to meet regulations, understand their duties and discharge them with reference to the various frameworks – that’s going to require a lot of written policies,” she said. Ireland’s pension trustees face an “onerous” compliance burden to prepare for IORP II’s implementation in January, according to consultants and regulators.The Pensions Authority, Ireland’s regulator, published guidance for trustees earlier this week detailing the new requirements that the EU rules will bring in. The Irish government has yet to publish its plan for integrating IORP II into local law.The new rules include “fit and proper” tests for trustees, written policies on key areas of risk management and outsourced services, and minimum standards for communication with members.However, Ireland’s comparatively small pensions sector could find it difficult to meet IORP II’s “quite onerous standards” in the three months left before the law comes into force, said Roma Burke, partner and actuary at LCP in Ireland. Roma Burke, LCP“It reminds me of GDPR, where there was a rush to get things done.“This is a significant enhancement of the regime that sets people up on a higher level and needs a one-off significant effort.”Ireland’s relatively small population – at 4.8m it is the 20th biggest out of the 28 EU member states – meant schemes tended to be smaller and less well resourced, Burke added.“This will probably go above and beyond what most trustees are used to, and we’d expect significant costs for trustees to comply,” she said.Colum Walsh, deputy head of compliance at the Pensions Authority, added: “Larger schemes are doing it all already, but it is the smaller schemes where trustees have a lot more challenges. A lot of it is very, very new.”“The game has shifted, from needing a broad understanding of governance, to requirements enforced through legislation”Colum Walsh, Pensions AuthorityThe Pensions Authority’s existing guidelines for defined contribution (DC) funds are mostly voluntary and do not carry punishments for non-compliance. Current trustee standards set “quite a low bar”, Burke added, ruling out only people who have been declared bankrupt, convicted of fraud, or barred from being company directors.“Now we’re moving to an environment where there are fit and proper requirements,” she said. “Trustees will have to look at themselves and their colleagues and make sure they are fit and proper and manage that on an ongoing basis.”Smaller schemesWalsh told IPE that the smallest schemes could be exempt from the rules – but this would depend on how the government implements IORP II.Article 5 of IORP II allows for member states to exempt schemes with 100 members or fewer from the most onerous of requirements. Ireland chose this option when implementing the first IORP directive in 2003.“The industry has the same expectation this time round but we can’t say for certain,” Walsh said.The regulator recently launched a consultation on the future regulation of DC schemes with a view to encouraging consolidation – and Walsh said the increasing regulatory burden was one reason for this move.He added: “A number of [schemes] are doing well but they haven’t engaged on this level before. For schemes that haven’t looked under their own bonnets at how to mitigate risk, that’s going to be a shift.”The regulator
Leinster House, home of Ireland’s parliamentWalsh also highlighted the challenges facing the Pensions Authority as it prepared to enforce the new rules.“We’ve probably been more reactive in the past, which is reflective of our legislation,” he said. “The enhanced expectations on trustees and evolving regulations lead to higher expectations.”Ireland’s pensions regulation was “principles based” prior to IORP II, Walsh added. While the details of the changes depended to some extent on how the government fitted IORP II into legislation, he emphasised that “the game has shifted, from [needing] a broad understanding of governance, to requirements enforced through legislation”.The Irish government has stated that it would implement IORP II as part of its ambitious overhaul of the pension system.
Preparers of company accounts and reports lack ‘standardised metrics and targets’, according to the TCFD“Respondents that identify as users, on the other hand, ask for more clarity on the financial impact of climate-related issues on companies, which would help to make the disclosures more decision-useful.“Overall, more companies beyond the ones that have traditionally been engaged on climate-related issues need to start their disclosure journey.”The TCFD tends to distinguish between “preparers” and “users” rather than companies and investors; banks and insurance writers can also be users of company reports, for example.Progress ‘must accelerate’Michael Bloomberg, chair of the TCFD, said the growth in the number of companies adhering to its guidelines was encouraging, but progress needed to be accelerated “to keep people out of harm’s way and build a more resilient global economy”.“Today’s disclosures remain far from the scale the markets need to channel investment to sustainable and resilient solutions, opportunities, and business models,” he wrote in a letter to the chair of the FSB.“I believe in the power of transparency to spur action on climate change through market forces.”Publication of the TCFD’s second “status report” comes as the European Commission is expected to release guidelines this month for climate-related reporting by companies falling under the scope of the Non-Financial Reporting Directive.The Network for Greening the Financial System, a group including influential central banks and financial supervisors, recently said action from policymakers or supervisory authorities was needed to accelerate disclosure of climate-related information, with the TCFD recommendations “an obvious avenue of convergence” for a global standardised framework.The Task Force will deliver another status report to the FSB in September 2020. Stacy Coleman, a member of the TCFD secretariat and lead author of 2019 report, said the group had not had time to “nail down” what its focus would be, but that there was broad agreement it needed to help companies with regard to scenario analysis.Two major corporate reporting standard setters recently produced a guide to help bridge the TCFD “implementation gap”. However, the TCFD said that, despite an encouraging commitment to implement the recommendations, “actual disclosures still face challenges”.“Most notably the preparers surveyed find disclosing scenario analysis assumptions difficult and lack standardised metrics and targets,” it said. Strong support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) has not yet translated into a satisfactory state-of-play as regards actual disclosures, according to a stocktaking exercise by the industry-led group.Using artificial intelligence (AI) technology, the Task Force – an industry-led body set up by the Financial Stability Board (FSB) in 2015 – reviewed financial filings and various other reports prepared by more than 1,000 large companies in multiple sectors and regions over a three-year period.It also surveyed companies about their efforts to implement the TCFD recommendations, and polled users about the usefulness for decision-making of the information companies did make available.The AI-based review found that more companies were disclosing information aligned with at least one of the Task Force’s recommendations, and that the average number of recommended disclosures being made available per company had also increased.
Thomas Cook’s £1.4bn (€1.6bn) UK defined benefit (DB) pension scheme has entered the assessment period for the country’s pension lifeboat fund after the travel company collapsed this morning.Thomas Cook entered compulsory liquidation this morning after talks over the weekend with banks and stakeholders fell through. Consultancy firm AlixPartners was expected to be appointed to oversee the bankruptcy process, according to a statement on the travel company’s website.A spokesperson for the Pension Protection Fund (PPF), which takes on the DB schemes of bankrupt UK companies, said the Thomas Cook scheme’s four sections were all believed to be “marginally overfunded” on the main basis used by the lifeboat fund.In addition, a spokesperson for the Thomas Cook Pension Plan trustee board said the scheme had an estimated £100m surplus, with the trustees “hopeful” that a solution outside of the PPF could be found (see full statement below). This could mean the schemes are able to secure full benefits through an insurance deal. The PPF will assess the scheme’s data and investments over the next 18-24 months, as well as engaging with the administrators of Thomas Cook to secure more money through recoveries, before a decision is made on the final destination of the scheme.Should the pension fund not be able to secure an insurance deal, it would enter the PPF, limiting some benefit payments for people who have not yet retired to 90% of what was initially promised. Annual increases are also limited by the PPF.According to Thomas Cook’s most recent annual report, its UK scheme had assets of £1,406m and liabilities of £1,122m as of 30 September 2018. In an interim results statement from 31 March 2019, this surplus had fallen slightly.Thomas Cook Pension Plan trustees – statement A Thomas Cook aeroplane takes off from Manchester Airport“Over recent weeks the trustees of the Thomas Cook Pension Plan have been engaged in discussions with the management and other stakeholders of Thomas Cook Group to try to support the recapitalisation of the company. Sadly, events beyond the control of the trustees have led to the company going into liquidation.“The trustees remain focused on protecting the accrued benefits of the members of the Thomas Cook Pension Plan and are in continual dialogue with a number of parties including the Pension Protection Fund and the Pensions Regulator to agree next steps.“It is estimated that the aggregate assets of the various UK DB schemes are approximately £100m more than are currently expected to be required to secure PPF benefits within the PPF (Section 179 basis). The trustees therefore are hopeful that the PPF lifeboat will, once the assessment period has ended, not be called on and benefits in excess of PPF levels will be provided from outside the PPF.“The trustees will continue to be in regular contact with the members of the scheme to keep them appraised of the situation and to provide further information as it becomes available.”Thomas Cook also sponsors a pension plan in Germany, which had liabilities of roughly £365m as of 30 September 2018. Most of this amount is linked to Thomas Cook subsidiary Condor, which is in talks with the German government regarding a loan to keep operating, according to Reuters.The company also has smaller plans in the Netherlands, Sweden, Switzerland, Belgium and France, according to its annual report.Rosalind Connor, partner at ARC Pensions Law, said the trustees of the Thomas Cook UK schemes had been seeking to extend contributions from the employer despite the funding surplus.“This is because there is a growing tendency for schemes (encouraged by the Pensions Regulator) to have a long term funding target,” she said, “ie, even if the scheme is in surplus now, to look to the future where the scheme can be bought out or at least not be dependent on the strength of the employer. In the light of events this morning, that would seem to have been wise.“The pension scheme would be a creditor and now the companies have filed for administration, all the powers of the trustees to negotiate with the administrator are in the hands of the PPF – even though, if the scheme is well funded, it may not go into the PPF in the end anyway.”The PPF was 118.6% funded as of 31 March 2019, with assets of £32bn.This article was updated on 23 September 2019 to add the trustee board’s statement.
VETERAN MP Jann Stuckey has sold her Currumbin Waters home.VETERAN MP Jann Stuckey has sold her Currumbin Waters home after it was passed in at auction last month. The sprawling acreage property was the first home Mrs Stuckey and her husband Richard bought in Queensland after moving from Adelaide in 1987. More from news02:37International architect Desmond Brooks selling luxury beach villa16 hours ago02:37Gold Coast property: Sovereign Islands mega mansion hits market with $16m price tag2 days agoThe Stuckey family residence has sold. Plenty of space here.No word on what the 5785sq m “coastal rural oasis” fetched, but it’s sure to be a lot more than the $223,000 she paid for it in the 80s.The Stuckeys settled on a $3.1 million four-bedroom beachfront home in Bilinga in March.
Agents Nils Turner and Renee Pannekoek of Coast Creek & Country Realty — Currumbin Waters had listed the home as a “lifestyle opportunity”.The property has six bedrooms split into two houses, four in the main home and two in a separate two bedroom residence.There is also a full size tennis court, inground pool, cathedral ceilings, floor to ceiling glass, cedar French doors and windows, and the home backs onto a pony club.