September 2020

UK Pension Protection Fund shifts from active management to smart beta

first_imgHe added: “Last year, we changed the strategic benchmark for all of the equity managers from the traditional capitalisation-weighted index to a minimum-volatility index.”St. Hill said the main reason for its move away from active management towards smart beta was the lack of value the fund felt it was receiving on some of its active equity mandates.He said market offerings of active management were often just standard systematic investment processes with “bells and whistles” added on.But, with market developments and technology, he said the fund was now able to disaggregate a manager’s performance and pinpoint where the added value was coming from.This allowed the identification of an index-tracking active manager, or genuine performance, St. Hill said.The move from the PPF comes after research from asset manager State Street showed that a majority of global institutions were considering smart-beta investments as an alternative for both passive and active management.State Street’s research also revealed varying usage of indices in smart beta, with low valuation – where stocks are chosen on their discount basis – and low volatility – which picks stocks that have shown low levels of risk over time – being the most common.The decision from the fund to shift the benchmark indices it uses also comes amid debate in the industry over conflicts of interest from index providers.EDHEC Risk Institute, based in Nice, France, produced research showing that the majority of institutional investors were dissatisfied with the level of transparency provided by index providers.It said moves to improve governance among providers had failed to convince investors that conflicts of interest were mitigated in index creation, leading to calls for further regulation.The European Commission, and the European Securities and Markets Authority (ESMA), are currently working on a proposal to build in further governance and transparency requirements from providers, in addition to the requirements set on UCITS funds in 2012.ESMA said additional requirements would be necessary as more complex indices, such as those used in smart-beta investments, were brought onto the market.However, St. Hill said that, when the fund began shifting its indices and benchmarks, it found transparency was not an issue with equity index providers, and data was provided for independent back-checks of performance.“We get more problems on the fixed income side,” he said. “Trying to get the fixed income benchmark providers to disclose data, the bill arrives before you have asked the question.” The UK Pensions Protection Fund (PPF) has thrown its weight behind smart beta after changing the benchmark it uses to monitor equity managers to a minimum volatility method.The nearly £19bn (€23bn) lifeboat scheme has a combination of both passive and active equity mandates.Speaking at EDHEC Risk conference in London, principal portfolio manager John St. Hill told delegates that the fund, as one of the “vanguard” of smart beta, had begun the shift away from active management, including the entire change of its benchmarks.“Our first foray was in 2010,” he said, “when we replaced one of our active equity mandates with a smart-beta mandate, which picked up more or less the same beta as the active manager.”last_img read more

UK unlikely to see ‘large-scale’ changes to pensions law post-Brexit

first_imgSegars added that some areas may need to see UK pensions law “disentangled” from EU directives and regulation.If the UK were to break ties with the EU completely and forego an agreement to join the European Economic Area, it would likely enable it to sidestep the eventual transposition of the revised IORP Directive, of which IPE has seen the final draft, due to be published Monday (27 June).Matthew Swynnerton, a pensions partner at law firm DLA Piper, stressed that a vote to leave the EU would not have an “immediate impact”.He said: “Whilst significant areas of UK pensions legislation originate from the EU – such as scheme-specific funding requirements for defined benefit schemes and non-discrimination – because these provisions have been implemented into national law, they remain intact despite the outcome of the referendum.”Scheme-specific funding requirements were introduced in the Pensions Act 2004, which established he Pensions Regulator (TPR) and the Pension Protection Fund and transposed into UK law the first IORP Directive of 2003.Swynnerton said that, while future reform was possible, he believed “large-scale” reform were unlikely, as much of the legislation was meant to protect members.A second law firm, Pinsent Masons, urged UK trustees to focus on the immediate impact of the referendum in the shape of market changes rather than the longer-term potential for regulatory change.Alastair Meeks, pensions partner at the law firm, said: “As far as legislative and regulatory change is concerned, trustees need only adopt a watching brief until government policy becomes clear.“The government would need time to decide what elements of EU law are worth retaining, and what can be overhauled.”The point was reiterated by a TPR spokesman, who said: “Any future change to UK pensions legislation as a result of the referendum would be a matter for government.”Meeks added: “Trustees shouldn’t mistake the interesting for the urgent.”For her part, Segars pledged that the PLSA would continue to ensure the voice of pension funds was heard in the “uncertain times ahead”.“It is essential that the UK government and policymakers in Brussels now act swiftly and decisively to manage current volatility and announce a clear plan to renegotiate our future relationship with the EU,” she said.Jean-Claude Juncker, president of the European Commission, said in a statement that he expected the UK government to act on the referendum’s result swiftly.“We now expect the UK government to give effect to this decision of the British people as soon as possible, however painful that process may be,” he said.“Any delay would unnecessarily prolong uncertainty.” The UK is unlikely to undertake a large-scale repeal of pensions law emanating from the EU in the wake of the nation’s historic vote to leave the Union, lawyers and the country’s pension association have predicted.Responding to Thursday’s referendum, which saw 52% of the electorate back a departure from the EU, the Pensions and Lifetime Savings Association’s chief executive, Joanne Segars, said the ramifications would become clear in the coming weeks and months.Segars, a former chair of PensionsEurope, said: “Much will depend on the precise nature of our future relationship with the EU, which may mean some aspects of UK pension provision continue to be influenced by the EU.”The Dutch Pensions Federation has lamented the UK’s departure from the union, telling IPE it would “lose an ally on pensions matters”.last_img read more

DB deficits widen amid warning of ‘perilous’ state of UK funding

first_imgUK pension scheme average funding levels slid further into the red last month, when global financial markets reacted strongly to the country’s vote to leave the EU, with an extra £89bn (€105bn) of pensions money being wiped out and another 131 schemes falling into deficit.Figures from the Pension Protection Fund (PPF) showed the aggregate deficit of the 5,945 schemes in the PPF 7800 Index was estimated to have ballooned during June to £383.6bn – its highest level recorded – from a deficit of £294.6bn at the end of May.The PPF’s update – on the latest estimated funding position of the defined benefit (DB) schemes potentially eligible for entry into the lifeboat scheme – revealed that the average funding ratio for schemes worsened to 78% at the end of June from 81.5% at the end of May.This is close to the lowest level ever recorded of 76.5% in May 2012. Total assets at the schemes grew to £1,363.4bn over the month from £1,295.8bn, but liabilities had fallen to £1,747.0bn from £1,590.4bn.The update may underestimate actual deficits since it is based on schemes’ section 179 liabilities – the premium that schemes would have to pay to an insurance company to take on the payment on PPF levels of compensation – which the PPF says may be lower than full scheme benefits.The number of schemes in deficit rose to 4,995 by the end of June from 4,864 at the end of May.Meanwhile, 950 schemes were in surplus at the end of June, down from 1,081 at the close of the previous month.Andy Tunningley, head of UK strategic clients at asset manager BlackRock, said: “UK pension scheme funding has never been in a more perilous state.”The big fall in funding to near the lowest ever level came in the wake of the result of the UK’s referendum and the ensuing perfect storm of heightened volatility and collapsing bond yields, he said. “Our long-held view is that most pension funds are exposed to too much interest-rate risk and should be increasing their liability hedge ratios,” Tunningley said. Tunningley said there were two main reasons why UK pension fund portfolios had to be de-risked in the post-Brexit environment.He said a significant slowdown in UK growth and material likelihood of a recession next year could threaten the financial outlook of pension scheme sponsors.On top of this, the path of future UK interest rates is now likely to be even lower for even longer, he said.“If scheme sponsors are less able to increase future scheme contributions due to financial strain, pension scheme asset risk should be reduced,” he added.Tunningley said BlackRock had halved its UK real growth forecasts to 1% a year for the next five years, and that market pricing placed the next interest rate rise from current levels toward the end of the decade. “Delaying a decision to hedge liability risk is less rewarding, because we do not expect rates to rise in the current uncertain environment, and more risky, as Japan and Europe have shown there could be much further yet to fall,” he said.last_img read more

New Dutch coalition aims for pensions reform in early 2018

first_imgThe four coalition partners making up the Netherlands’ new government have said they aim to conclude an accord for a new pensions contract early in 2018.Their governing agreement – presented yesterday – made clear that the cabinet would also provide clarity about how a transition from average to age-related “degressive” pensions accrual would take shape.The necessary legislation must be approved by parliament by 2020 before the implementation of the new arrangements can start.In the governing accord, the coalition partners – the liberals (VVD), the Christian democrats (CDA), liberal democrats (D66) and small religious-right party CU – said that they would increase the freedom of choice for pension fund participants by introducing the option of a lump sum at retirement. They also promised that the government would contribute to the transition costs – largely as a compensation for the affected participants – to degressive pensions accrual. Costs have been estimated at between €25bn and €100bn.The coalition agreement also indicated that the new cabinet, which is still to be constructed, would keep the principle of mandatory participation. This comes despite three of the coalition partners initially advocating freedom to pick a pensions provider.The four parties also said that they would facilitate the collective transition of existing pension claims into individual pension assets.The new pensions contract is most likely to comprise individual pensions accrual combined with a certain amount of collective risk sharing, and is to be added to the existing range of pension arrangements.Recently, the coalition partners said they wanted to enable the social partners of employers and workers – which have been discussing the issue in the Social and Economic Council (SER) for the past two years – to come up with their own proposals.Commenting on the government’s plans, the Netherlands’ Bureau for Economic Policy Analysis (CPB), said that abolishing average pensions accrual would be bad for purchasing power. It estimated that combined pension contributions would have to rise by €1bn.The coalition agreement also said that deploying pension assets to pay off a mortgage would not be possible for the time being. This option would be looked at after the reform of the pensions system has been completed, the parties said.The governing accord did not mention plans to further limit the tax-facilitated pensions accrual either. Currently, the annual tax-friendly accrual is 1.875% for a salary of up to €103,317.The agreement explicitly stated that the new government rejected additional European pension rules, emphasising that “the pensions system would remain a local competence”.The new coalition government must operate cautiously, as it has the smallest possible majority in parliament.As a consequence, three of the four political leaders won’t take up a ministerial post, but instead will stay on as chair of their respective parliamentary parties.The new cabinet will again be headed by VVD leader Mark Rutte, who has been prime minister for the past two Dutch parliaments.last_img read more

Dutch property investors fear tax backlash from coalition agreement

first_imgDutch property could become less attractive to investors with the country’s new coalition government seemingly taking aim at the tax regime for direct investments, Dutch financial daily FD reports.One sentence in the coalition accord reads: “In connection with the abolishment of the dividend tax, direct real estate investments by investment organisations will no longer be permitted.”Experts quoted by FD warned that direct investors must cease investing, or transform themselves into a corporate-tax-paying company.Until now, property investment organisations have been exempt from paying corporate tax if they paid the full profit to their investors. The same institutions pay 15% dividend tax, although this can be reclaimed by pension funds.However, listed investment organisations such as Vesteda and Amvest, which predominantly invest in Dutch direct property on behalf of pension funds and insurers, are to pay 21% corporate tax as of 2020, the newspaper said.“I was flabbergasted when I read it,” Frank van Blokland, director of sector organisation IVBN, said. “This came totally unexpected and is very ill-considered.”He warned that Dutch pension funds would prefer investing abroad, something that would be at odds with the outgoing Cabinet having urged institutional investors to ramp up their local investments.“The political parties wanted to relieve corporate tax pressure on the one hand, but came up with something that disproportionally hits the sector on the other hand,” said Dirk Jan Lucas of NSI, which invests exclusively in Dutch property. “They can’t have meant this.”“I can’t imagine that the new government wants property to return less,” echoed Hans Janssen Daalen, director of Dufas, the Dutch Funding and Asset Management Association.Richard Beentjes, director of legal matters at Wereldhave, told FD that such a measure would “disadvantage the property investment climate in the Netherlands”.The coalition partners declined to comment to the newspaper.Property sector breaks new recordSeparately, a report has indicated the strength of demand for property in the Netherlands.JLL, a financial services provider for the property sector, said the Dutch real estate market was on its way to a record volume of investments this year.It noted that over the first three quarters, €14.8bn had been invested in direct commercial real estate – a 15% rise compared to the same period last year. The volume for the full year could exceed €20bn, JLL added, as there was still at least €4.5bn of transactions in the pipeline.JLL said the retail market was slightly behind in this trend, but forecasted that retail would also perform strongly this year, because some large portfolios were still in the process of being sold.Dré van Leeuwen, JLL’s head of capital markets, said the demand for Dutch property was “extraordinary” and exceeded real estate on offer.“For most buildings and portfolios we have sold recently, there was €5 available on average for every investable euro,” he added.Van Leeuwen observed that the continuing large demand had led to ever-decreasing initial returns, but added that Dutch real estate “still offered an attractive premium relative to [cities] like London, Paris, Berlin and Frankfurt”.last_img read more

Kempen to go ‘tobacco-free’ by end of 2018

first_imgKempen Capital Management has decided to stop investing in tobacco, it announced today.The €60bn Dutch asset manager will exclude all investments in the tobacco industry from its funds, although the policy does not apply to mandates, bespoke investment portfolios and multi-manager funds.Kempen has said its funds will be “tobacco-free” by the end of this year. Narina Mnatsakanian, director of impact and responsible investment at Kempen, said: “Tobacco has a proven negative impact on society and many international standards support this position. “In the experience of Kempen’s investment staff, active shareholder engagement with the tobacco industry alone is not enough to drive the fundamental change required.”A spokesman told IPE the policy would impact two funds, “the credit fund directly and the fund of hedge funds indirectly”, with excluded stocks equating to roughly 1% of the index.BNP Paribas and Robeco have also excluded tobacco investments this year, extending existing bans on tobacco investment for sustainable funds to their mainstream funds.The €3.4bn pension fund of Dutch technical research institute TNO recently announced it would divest its tobacco holdings because it did not fit with its policy for responsible investment.Other pension funds to have turned their back on tobacco include major Dutch schemes PFZW and ABP, and French funds FRR and Ircantec.In the UK, defined contribution master trust NEST recently announced its first steps into commodity investment, with its £200m (€226m) segregated mandate excluding companies focused on thermal coal, palm oil, uranium and tobacco.last_img read more

Five banks hit with €1bn in fines after ‘banana split’ FX cartel uncovered

first_imgThe European Commission has fined five banks more than €1bn in total for their involvement in two cartels in the spot foreign exchange market.The two settlement decisions are the result of an investigation into Barclays, the Royal Bank of Scotland (RBS), Citigroup, JPMorgan, UBS and MUFG Bank in relation to 11 currencies, including the euro, dollar, sterling and yen.The first decision imposed a total fine of €811.2m on Barclays, RBS, Citigroup and JP Morgan in relation to a case referred to as the “Forex – Three Way Banana Split” cartel.The traders in this cartel were from UBS, Barclays, RBS, Citigroup and JP Morgan, and communicated in three different online chatrooms between December 2007 and January 2013. The second decision by the Commission related to the so-called “Forex – Essex Express” cartel and resulted in a total fine of €257.7m for Barclays, RBS and MUFG Bank.Traders from UBS, Barclays, RBS and Bank of Tokyo-Mitsubishi (now MUFG Bank) communicated through two chatrooms, the Commission said, between December 2009 and July 2012.According to the Commission: “UBS received full immunity for revealing the existence of the cartels, thereby avoiding an aggregate fine of circa €285m.”Commissioner Margrethe Vestager, in charge of competition policy, said the decisions would “send a clear message that the Commission will not tolerate collusive behaviour in any sector of the financial markets”.She added: “The behaviour of these banks undermined the integrity of the sector at the expense of the European economy and consumers.”The Commission’s investigation found that some individual traders in charge of FX trading on behalf of the banks exchanged “sensitive information and trading plans”, which then “enabled them to make informed market decisions on whether to sell or buy the currencies they had in their portfolios and when”.A spokesperson for MUFG Bank said: “The European Commission has found that the high standards that we aspire to in our business were not met on this occasion. We are committed to ensuring integrity and compliance with the regulatory authorities in every jurisdiction in which we operate, and have taken a number of measures to prevent this occurring again.”In a statement, RBS and its subsidiary NatWest Markets (NWM), said: “RBS, together with NWM, have been fined a total of €249.2m relating to conduct which took place in two groups of chatrooms in periods between December 2007 and November 2011. The aggregate fine is fully covered by existing provisions in NWM.”A JP Morgan spokesperson stated: “We are pleased to resolve this historical matter, which relates to the conduct of one former employee. We have since made significant control improvements.”Citigroup and Barclays declined to comment.last_img read more

Australia’s new luxury wishlist item

first_imgNo expense was spared in this stunning home.The four bedroom, four bathroom home sits on a 465 sq, block that is jam-packed with luxury features including a custom master suite that includes the special make-up station. What a view to see the evening out with. Only Australian capital where home values are rising Top 10 suburbs for upgraders The home that $5.6m can’t buy “Arguably the most architectural and well-constructed home in the area, if not Brisbane,” was how it was listed on realestate.com.au, with the home even having a wall feature made entirely of onyx. A tantalising glimpse of the future.A Kone custom elevator was installed for all four level, and the property has multiple living areas with the downstairs rumpus going to the gym and the 2,000 bottle cellar. FOLLOW SOPHIE FOSTER ON FACEBOOK Breathtaking use of wall space.Designed by Dan Sparks, the house was described as “an architectural masterpiece” by agent Henry Hodge of McGrath Estate Agents New Farm, who said it was of a “highly engineered commercial construction”. The dream home is in Brisbane’s most exclusive suburb, Teneriffe.IN a world where wishlists are as long as most arms, this may well be 2018’s must-have item for luxury homes and this Aussie dream home is setting the trend.A makeup station where all your lipsticks, powders, brushes and other items can permanently have a home is surely going to set the building world askew, because if your home doesn’t have one, well, quite frankly, why not? The home at 247 Kent Street, Teneriffe, is spread across four levels. More from newsParks and wildlife the new lust-haves post coronavirus17 hours agoNoosa’s best beachfront penthouse is about to hit the market17 hours ago When your builder has makeup station to pop all your powders, brushes, creams, lipsticks and gadgets at the top of the priority list you know you are loved.The home has intercom, automated surveillance, blinds, C-Bus and a commercial airconditioning system, Miele and Liebherr appliances, Zipp Hydro, and reticulated hot water, with the 13m infinity edge pool solar-heated with a special kids splash zone. This dream inner-city home in the Queensland capital’s most prestige suburb, Teneriffe, has not just ticked that off the wishlist, but it’s also got a 2000-bottle wine cellar, a full gym, a kids splash zone beside the infinity pool and a special elevator to get to all four levels of the house without breaking a sweat.That’s pretty hard to beat for someone at the top of their game, with no expense having been spared to the property off the ground in Queensland’s most exclusive suburb, Teneriffe.last_img read more

Tech-savvy luxury home snapped up in three days

first_imgThe triple kitchen goes on for ages and is loaded with top of the range appliances. Even the bidet is remote-controlled.The property was built by the same builder who put up a neighbouring property, 62 Janda Street, which sold for $3.225m two years ago.More from newsParks and wildlife the new lust-haves post coronavirus14 hours agoNoosa’s best beachfront penthouse is about to hit the market14 hours ago“For this kind of property, it’s so unique, exquisite and well built that of course people appreciate it and will pay the money for it, because it’s hard to find this type of home,” Mr Zhang said.The large 599.7sq m home has meticulous attention to detail including state-of-the-art finishes, an Italian-made lift, Italian porcelain tiles, three metre high ceiling, custom joinery and technological innovations.“There’s a lot of property on the market to choose from but a brand new home like this is still a rarity on the market. People are still looking for a home, no matter what the market does. This type of well-built masterpiece is really rare,” Mr Zhang said. 66 Janda Street, Robertson, has gone under contract for a multimillion-dollar sum by Tom Zhang of Yong Real Estate.A tech-savvy luxury home that’s so new-age it has remote-controlled toilets has sold for a multi-million sum just three days after being listed for auction.The brand new seven bedroom tri-level home was expected to fetch millions at auction, which was to have been in about a month’s time, but it was snapped up within hours of the buyer seeing the property.Yong Real Estate agent Tom Zhang, who had the property listed with colleague Sue Ye, said the buyer put down a 10 per cent cash deposit to take the home off the market.He confirmed the Robertson property went under contract on Friday afternoon “for a multimillion-dollar” sum, but could not disclose the exact price yet.Among the home’s serious tech credentials was remote controlled bidets in the master and guest rooms. Add to that the electronics around driveway and garage entry and lighting, keyless entry, lift access, 33.5kw Daikin VRV4 airconditioning system with individual setting ability, Vacu-Maid, intercom, CCTV, security system, remote controlled motorised blinds, and Cbus to main areas of the home and this is one serious tech savvy home. MORE: Downturn ‘positive’, odds even on rate cut: RBA FOLLOW SOPHIE FOSTER ON TWITTER The soundproof eight seat home theatre. Nicole and Keith’s global property empirecenter_img The house is laid out over three levels.The outdoor entertainment terrace was fully equipped with Gasmate BBQ, a bar fridge, cabinetry and commercial style sink, and the home also has a fully equipped home theatre with eight leather recliners, soundproofing and dedicated iPad control.Despite talk of Asian buyers retreating, Mr Zhang said Australia was still an “extremely hot place for immigrants looking to move” and South East Queensland was “very affordable”. Even the signboard for the sale of the home was electronic: “We used a digital sign for the property, so we could put a video up and it’s connected to the internet so we can synchronise it”.Among the main features of the Janda Street new build was a “spectacular triple kitchen”, with dual dishwashers, induction cooktop and dual ovens, an additional Smeg oven and gas cooktop. One part of the kitchen. Beach penthouse listed for $8.95m No expense was spared on the finishes.last_img read more

Daughter buys West End house for parents at auction

first_img MORE REAL ESTATE STORIES FOLLOW US ON FACEBOOK Maximise your tax refund City buyers drawn to beach tower Sue and Rebecca Ferris after the auction of 20 Hoogley St, West End on the weekend. Picture: Debra BelaA BRISBANE auction has redefined retirement living after an entry level cottage in the inner suburbs was snapped up in three minutes on Saturday by a daughter buying a house for her elderly parents.The auction was over in roughly the time it took for a motorised scooter, bicycle, motorbike and a handful of cars to pass by 20 Hoogley St at West End.“This is pretty unusual, selling a Queenslander to a couple in their 70s,” Ray White South Brisbane agent Luke Croft said.“This is the time where people think about going into apartments, but they wanted somewhere with a bit of action.” The house, affectionately called ‘The Hoog’ by sellers Leanne and Nick, sits on a tiny 240sq m block with townhouses on the back fence line.The auction day crowd of 30 had to gather kerbside for the sale, with five registered bidders, mostly families wanting to capitalise on the inner city school catchment.More from newsParks and wildlife the new lust-haves post coronavirus12 hours agoNoosa’s best beachfront penthouse is about to hit the market12 hours ago The crowd gathers outside 20 Hoogley St, West End before the auction begins.The three-bedroom house with 90sq m of living space was considered so small that the sellers, who had the property tenanted at $580 a week according to CoreLogic property data, had elected to stay at home for the auction.“We live around the corner and we thought (if the auction was inside) there’d be nowhere for us to go,” Leanne said by phone afterwards.Ray White auctioneer Phil Parker suggested an opening bid of $800,000 which was revised to $780,000 with three active bidders, one on the phone.Rebecca Ferris, with her husband, daughter and mum by her side, joined the auction at $830,000 at which point the phone bidder pulled out. The kitchen looks out over the back deck. Picture: Supplied.The underbidder, who lived a couple of streets away and was keen to renovate underneath to add extra rooms for his family, went as high as $855,000, but Ms Ferris countered with $860,000 and after a brief pause to consult the owners, the house was announced to be on the market and it sold to the Ferris party.“Now that it’s done and dusted, what were you thinking of going to?” the underbidder asked after the auction.“Not much above that,” Rebecca Ferris said. “We could have gone higher but not for that property.”All that is left is for Sue and Ross Ferris to put their Victorian terrace home near Melbourne’s Flemington Racecourse on the market.“That’s why we wanted to look at something older too, we are familiar with an older house. We don’t care about a bit of maintenance,” Sue Ferris said.“We didn’t want something with a big backyard or a pool and we didn’t want anything split level inside.“We will put a lift in to go from downstairs to inside the house. We have one where we are now.” The three-bedroom house at 20 Hoogley St, West End. Picture: Supplied.The busy location will be a perfect fit for Rebecca Ferris’s mum and dad who are relocating to Brisbane from Melbourne to be close to family.“We’ve been living in Kensington for 27 years and we wanted to come to a similar community closer to town,” Rebecca’s mum Sue Ferris said after the auction.“We want traffic, we don’t want suburban, there is life here.”last_img read more