The growth rate of total assets of Italian pension funds slowed last year, according to figures released by Italy’s pension fund regulator Covip (Commissione Vigilanza sui Fondi Pensione). Assets of Italian funds grew by 11.6% to €116.4bn during 2013, compared with 15.1% the previous year, Covip said at its annual conference on 28May in Rome.The sector’s total assets (excluding Casse di Previdenza, first-pillar private schemes) topped €116.4bn last year, growting from €104bn in 2012.The figure represents 7.5% of the country’s GDP, considerably lower compared with other European countries, Covip admitted. Covip’s data suggests the slowdown was due to suspended contributions and exits from funds.In 2013, total membership of complementary pension funds grew faster than the year before – Italian schemes added 6.1% in assets during 2013, compared with a growth rate of 5.3% in 2012. However, Italian workers who have stopped contributing money into their pension pot were 1.4m in 2013.The figure corresponds with a staggering 22% of the total 6.3m Italians who are enrolled in second-pillar pension schemes. These workers, dubbed “silent members” by the regulator, have halted their contribution due to the troubled labour market, Covip said.The regulator pointed out that more than 1m of these workers are members of open pension funds or holders of individual pension plans (PIPs).Industry pension funds (fondi negoziali) and pre-reform funds (fondi pre-esistenti) only had 200,000 and 100,000 members, respectively, who had stopped contributing in 2013.The figures seem to suggest industry pension funds and pre-reform funds were better at retaining their members’ contributions flowing in.However, the figures show these funds had more people leaving altogether compared with the other categories – 109,000 members, or 4% of the total, left these schemes in 2013.Comparatively, open pension funds and PIPs lost 2% of members over the same period.The latter category fared better in terms of new entrants as well, with 458,000 new subscriptions compared with 83,000 new members at industry funds and pre-reform funds. In 2013, industry pension funds returned 5.4%, compared with 8.2% in 2012.Open pension funds returned 8.1%, also lower than 2012, when they returned 9.1%.Unit-linked PIPs returned 12.2% while other PIPs returned 3.6% in 2012.Over the same period, the TFR (Trattamento di Fine Rapporto) grew by 1.7%.The TFR is the severance payment Italian workers receive on termination of their employment.It is financed by the worker and the employer and can be directed to a second-pillar pension fund upon the workers’ choice.As such, the TFR growth rate is usually compared with pension funds’ returns to gauge their attractiveness.Covip noted that, since 2000 – when the Italian second-pillar sector took off – second-pillar funds have grown by 48.7% while the TFR, which is linked to inflation, has grown by 46.1%.In terms of asset allocation, the Covip figures confirmed the widespread tendency of Italian pension schemes to invest in traditional asset classes.Of a total of €86.8bn invested independently by Italian pension funds, 61% is invested in fixed income, largely government debt, 16% in equities and 13% in collective investment funds and SICAVs.Only €2.1bn is invested in Italian companies, €1.4bn of which is fixed income and €700m equity.Chairman Rino Tarelli expressed Covip’s concern that too little of the sectors’ assets was invested in the Italian capital markets, and called for the pension industry to get more involved in the local economy.Speaking at Covip’s event, labour minister Giuliano Poletti echoed Tarelli’s invitation to pension funds to invest in Italian companies and projects.However, Poletti’s speech could suggest the second-pillar pension sector will face some tough times.The minister confirmed the government was still to make a decision on whether Covip should be scrapped or not, after Tarelli said he hoped Covip would keep its integrity and independence.Poletti also hinted that tax rules for pension fund holders might change, and said the first and second-pillar systems should be harmonised with the aim of acting not only as providers of pensions but welfare in general.
The Merchant Navy Officers Pension Fund (MNOPF) has insured a further £25m (€31m) of liabilities with Rothesay Life, setting in motion the formal wind-up of the scheme’s £1.3bn Old Section.The fund, with a total of £3.5bn in assets split between two sections, has since 2009 gradually been completing buy-ins with insurers Rothesay and Lucida, which in 2013 was acquired by Legal & General.The final, £25m agreement with Rothesay will see the benefits of the 22,098 members in the Old Section increase by 2.2%, effective from July.As a result of completing the buyout of the section, which closed to new members in 1978, it would be “formally wound up within the next few weeks”, the fund said in a statement. It has been known for several years that the MNOPF has intended to wind up the Old Section, with the scheme contacting members in August 2012 to inform them it planned to “extend [the] programme of insurance to cover the remaining liabilities of the Old Section”.The letter, seen at the time by IPE, added: “In due course, this would allow the trustee to wind up the Old Section of the fund, which by then would contain no further assets, as these would have been used to purchase the insurance policies.”In December 2012, the MNOPF then announced a £680m buy-in with Rothesay that, coupled with two prior deals with Lucida worth £600m, covered all outstanding liabilities of the Old Section.The MNOPF’s chief executive Andrew Waring said the past few years had been very challenging for the scheme.“Improving the Old Section’s funding position from a little over 80% in 2009 to full funding today, and completing these transactions, have been tremendous achievements in these very difficult markets,” he said.The MNOPF’s chairman Peter McEwen added that the final transaction with Rothesay was “good news” for members.“It means certainty and security over pension benefits have now been extended in full to all benefits of the Old Section through the insurance arrangements that are in place,” he said.“Overall, our members will enjoy greater security than most pension fund members, thanks to the regulatory and capital requirements for insurers, which are more rigorous than those of most pension funds.”Despite pension entitlements being held by two separate insurers, the scheme has launched a portal – called myMNOPFpension – to grant members a single point of contact for all enquiries and continue to receive a single pension payment.
However, its activity is meant to “support economic activity and employment” in the country as long as portfolio returns outpace the government’s annual borrowing costs over a five-year period.Eugene O’Callaghan, currently in charge of investment at the NPRF and head of investments-designate at the ISIF, has acknowledged the challenge of balancing the dual objectives.Corrigan further said that once the commencement order was signed by government – officially launching the ISIF – Walsh, who joined the NTMA’s advisory board in 2013, would begin appointing members of the investment board.A spokeswoman for the Department of Finance said the commencement order would not be signed until the new NTMA board was in place, which it expected would be by October.She added that once the NTMA board had been established, it would look at the composition of the investment committee.Ahead of the ISIF’s official launch, the NPRF has been making a number of commitments, including to a suite of funds lending to small and medium-sized enterprises and a joint venture with the China Investment Corporation. As of the end of June, it had committed €1.2bn of its €7bn portfolio to upcoming projects. The Ireland Strategic Investment Fund (ISIF) will take up to four years to re-deploy its €7bn in assets, according to the head of the National Treasury Management Agency (NTMA).John Corrigan, who is to retire as chief executive of the NTMA at the end of December, also said the organisation’s chairman Willie Walsh would soon start recruiting members of the ISIF investment committee.Speaking with IPE at the fringes of the Mandarine Gestion investment conference in Munich, Corrigan said while the legislation underpinning the ISIF was now on the statute books, he was awaiting the commencement order from Finance minister Michael Noonan.According to the NTMA (Amendment) Act 2014, the ISIF – which has previously been referred to as a sovereign development fund and will be funded with assets from the National Pensions Reserve Fund (NPRF) – will not be barred from investing outside of Ireland.
The initiative’s first aim is to design a reporting template that details, for each limited partner investor, how much has been paid in fees, expenses or incentives to managers and their affiliates.New guidelines from the ILPA will mean investors will be given a “clearer picture” from managers of compensation from portfolio companies and affiliated entities.ILPA chief executive Peter Freire said investors had more bespoke reporting requirements at a time when managers were adjusting to new regulation, making compliance more difficult.“It made benchmarking programme costs and net performance more difficult,” he said.“The ILPA’s members recognise the need for a streamlined and uniform approach that will yield the information required to effectively steward the capital entrusted to them by retirees, governments and academic institutions.”The initiative will also address the role of third parties – such as administrators, auditors and consultants – in ensuring compliance governing documents, as well as propose best practices on fee and expense reporting.“Investors believe fees must be appropriate, arm’s length, reasonable and disclosed,” Freire said.“This effort points to a logical and necessary progression for private equity down the path of becoming a more institutionalised asset class.“Transparency around fees and expenses is critically important to our members.”The template, currently in development, will be published for feedback at the end of the month. Global institutional investors have joined forces to force private equity managers to implement standardised reporting on fees and performance.Backed by a number of institutions, investment and reporting professionals and advisers, the Institutional Limited Partners Association (ILPA) launched the ‘Fee Transparency Initiative’ with the view to making private equity reporting uniform.The ILPA first issued guidance to the private equity industry in 2011 outlining what elements limited partners want in financial reporting.Investors including Dutch pension fund managers APG and MN are part of the current initiative, which also includes data-comparison company CEM Benchmarking and several US pension funds.
East Riding’s local authority fund has refused to be drawn on the future of its in-house management team, declining to say whether it would take on any pooled mandates for assets it currently runs internally.The £3.6bn (€4.8bn) fund, which currently manages 77% of assets in-house, said last week that it was looking to pool assets with the Cumbria County Pension Fund and the Surrey County Pension Fund, creating a pool of £9bn.Asked if the pooling could see East Riding’s in-house team manage mandates for other local authority funds within the pool, a spokesman for the administering authority would not be drawn.In a statement to IPE, he said: “The intention of the proposed new entity is that it will have an internal investment management capability that will be further enhanced through the benefits of increased scale over time. “This will enable East Riding Pension Fund to continue to use internal management for a large proportion of its assets, but also offer this option for the funds within the partnership that may wish to take advantage of it.”The statement added that the arrangement would allow it to continue using external managers – in the case of East Riding, Schroder Investment Management – “where individual funds deem it advantageous to do so”.A spokesman for Surrey County Council declined to respond to questions asking whether the collaboration would see the launch of a new entity regulated by the Financial Conduct Authority, or where such an entity would be based.A report presented to Surrey’s pension fund committee in mid-September, prior to the current collaboration being announced, outlined seven options for its local authority fund to respond to chancellor of the Exchequer George Osborne’s call for significant cost cutting.Options included no action being taken, greater collaboration through joint tenders or joint mandates, and a number of differing approaches using collective investment vehicles (CIVs).The options outlined to Surrey’s pensions committee included the possibility of a vehicle run by collaborating in-house management teams, or an established pooling exercise such as the London CIV.“However,” the presentation to Surrey’s committee added, “a compelling option is the creation of a new joint vehicle project, where one of the LGPS partners has substantial in-house capability.”The meeting document also stressed the importance of any such venture’s reaching a sufficiently large asset base of at least £25bn within three years of launch.
Tandtechniek, the €700m pension fund for dental technicians, is not being properly governed, according to both its accountability council and its supervisory board.In the scheme’s annual report for 2015, the accountability council (VO) identified a number of the board’s “shortcomings”, which it said led to problems with decision-making, as well as causing problems in the relationship with provider Syntrus Achmea.At June-end, the pension fund’s coverage ratio stood at 82.5%, despite 9% in rights cuts over recent years.In 2015, Tandtechniek raised its contribution by 5.5 percentage points to 32.5%. In the opinion of the VO, the board was negligent last year and had “performed insufficiently to prevent the current situation”.The VO was also very critical of the board’s performance in 2014, which had resulted in an extensive improvement plan aimed at changes in governance, risk management and outsourcing.The accountability council concluded that risks have only increased rather than been reduced since then.For its part, the scheme’s supervisory board (RvT) said it observed a lack of “co-ordination, direction and […] power” within the board.It noted that risk management was not yet up to scratch and added that it was not satisfied with the way communication with participants and the hire of new trustees was conducted, and how costs were substantiated.Although the RvT conceded that the implementation of the new financial assessment framework (nFTK) as well as the new investment strategy were implemented property, it found that the process was “very slow”.In a response, the board said that it was surprised by the harsh criticism as it thought it had been on the right path to improvement.Henk van der Meer, the scheme’s chairman, said the VO’s negative description of the board’s functioning ignored the improvements that had been achieved and were in progress.He underlined that board advice and support – until recently carried out by provider Syntrus Achmea – had been outsourced to independent players.The chair, however, acknowledged that the high turnover of trustees was bad for continuity.He said the board had started a survey into the performance of Syntrus Achmea Pensions Management, and that it had formally terminated fiduciary and property contracts with Achmea in order to get the contracts “modernised”.The board is currently preparing a plan for consolidation, aiming at either a merger with several smaller schemes or joining a large industry-wide pension fund at the end of 2017.The latter solution would, however, be difficult because of the low funding of Tandtechniek, as it would carry the chance of a large one-off rights cut, Van der Meer pointed out.The pension fund for dental technicians has 3,500 active participants, 5,500 deferred members and 1,852 pensioners affiliated with 640 employers.It reported costs for pensions provision of €330 per participant.
“Our industry has the legitimacy and all the attributes required to meet the long-term savings needs of the citizens of Europe, particularly in the crucial field of pensions.“The implementation of the measures we are proposing today will help to give it a decisive advantage.”The association said the 10 measures in its white paper could increase the take-up of French funds by foreign investors and boost the competitiveness of the country’s asset management industry, as well as create opportunities for long-term investment in the real economy.“The rapid adoption of the entirety of these measures will enable the real challenge of the 21st century to be tackled – pensions for 500m Europeans,” it added.The country’s asset management association wants to see the creation of individual and “exportable” pension saving products, saying this would address the pressure on pay-as-you-go (PAYG) pension systems and tie in with current discussions at the European level about pan-European personal pension products (PEPPs).The AFG is planning to set out details of its vision for personal pension savings in a white paper specifically on retirement saving that it aims to publish by the end of the year.It said France’s PAYG pension system was close to “asphyxiation”.And although France has one of the highest savings rates in Europe, two-thirds of the accumulated assets are in real estate, according to the AFG.It said that, while there had been strong recent growth in certain life insurance products, these were not a pensions solution.The AFG said new voluntary savings products exclusively for the purpose of financing pensions were needed.In France, this could help overcome the incessant debate over a funded versus a PAYG system, and individual pension saving products would also represent a “decisive” first step towards an efficient Capital Markets Union, it said.It added that creating new products in the vein of the PEPP being discussed at the European level would require changes to the regulatory framework, and that it would set out ideas about this and fiscal treatment in its upcoming white paper. The French asset management association has proposed creating a pan-European personal pensions product as one of a host of measures to boost the standing of the country’s industry.The Association française de la gestion financiére (AFG) set out 10 measures in a “roadmap” for the French asset management industry.Unveiled last week, the white paper is the result of work carried out over the past few months on the competitiveness of the industry and Paris as a financial centre, and has some overlap with a report recently produced by a “FROG” working group of the AFG and the market regulator, AMF.Didier Le Menestrel, chairman of the AFG competitiveness commission, said: “Everyone is working towards the same objective – to mobilise savings to foster economic growth.
The returns helped assets grow by 20.6% to €2.9bn, of which €2.4bn came from contributions, and €484m from net investment growth.Funds cut their average weighting to domestic assets from 43% to 30%. Allocations to eastern European assets grew by 3 percentage points to 24%, and by a similar amount in western European assets, to 16%.The funds also increased their exposure to North America, from 5% to 9%.The active funds capitalised on the stock market bull run, increasing their equity exposure from 26% to 32%. Bond allocation rose from 48% to 56%.The shifts came at the expense of term deposits, because of historically low interest rates, and cash holdings.The balanced funds maintained their equity exposure at 17%, raised their bond allocation from 70% to 74%, and likewise lowered their deposit and cash investments, while the conservative funds’ bond allocation rose by 7 percentage points to 84%.Returns from the 17 private, third-pillar funds showed a similar trend, with the average gain reaching 5.76%, compared with a loss of 3.27% the year before.The highest returns were generated by the nine euro- and two dollar-denominated active funds, with average gains of 9.03% and 6.26% respectively.The third-pillar sector remains underdeveloped, with some 275,770 participants, of whom only 55,855 – 6% of the employed workforce – benefit from employer contributions. Latvia’s mandatory second-pillar funds generated a 12-month weighted average return of 3.83% in March, according to the Association of Commercial Banks of Latvia (LKA).A year earlier, all three classes of funds lost money, with the riskier plans suffering the most. In the most recent 12-month period, investments in riskier assets yielded the best results.This March the average return from the eight active, equity-weighted funds strengthened from to 5.17%, compared with a loss of 4.05% a year earlier.The four balanced funds gained 3.28% on average, compared to a loss of 3.17% in the previous year. The eight conservative funds edged up their average return from -0.64% last year to 0.72%.
Germany and other EU countries are vying to attract asset management business from the UK as a result of the country deciding to exit the EU. The French asset management association, AFG, for example, has been active in seeking to promote Paris as a hub.According to IPE’s 2016* Top 400 survey of the world’s largest asset managers, €4.65trn of assets were managed in the UK at the end of 2015, compared with €2.81trn in Germany and €3.86trn in France.There is a concern that asset managers in the UK will lose the ability to establish branches, or market and distribute funds freely throughout the European Union as a result of the country’s pending exit from the bloc.The EU’s passporting regime allows cross-border activities once a firm has received regulatory authorisation in its home member state.Other concerns, as noted in a recent Brexit guide from the CFA Institute, are possible restrictions on the management of assets from the UK for clients based in the EU, and reduced labour mobility.In a February 2017 survey of CFA Institute members regarding Brexit, 70% of respondents in the UK said they believed it had caused the competitiveness of their market to deteriorate.Over half of respondents expected firms with a strong UK presence to reduce that as a result of Brexit.The workshop will be held on 27 June at BaFin’s Frankfurt offices.*IPE’s 2017 Top 400 survey will be appearing in the June edition of IPE magazine Germany’s financial supervisory authority is opening its doors to British asset managers as the UK and EU prepare to negotiate the terms of Brexit.BaFin plans to hold a Brexit workshop next month, aimed mainly at UK asset managers thinking about relocating to Germany.The regulator said it would set out its administration and supervisory practice in relation to the asset management sector, including its licencing procedure for asset management companies, delegation issues, and marketing notifications from third countries.The regulator said: “Brexit will likely have an impact on the regulatory and business environment of asset management companies and investment funds located in the UK, in particular in relation to cross-border business.”
PNO Media, the €5.5bn pension fund for the media and creative sectors in the Netherlands, has increased its strategic allocation to Dutch mortgages and US high yield bonds at the expense of liquid assets, European credit, and emerging market debt.In its annual report for 2016, the pension fund said it had stayed within its strategic risk framework and 50% fixed income allocation, due to its its underfunded position.Outside of the strategic allocation to fixed income, PNO Media reduced both its listed and private equity holdings in favour of property and infrastructure.The pension fund reported a result of 8.5% for the year, including a 0.6% gain from its 25% interest hedge, due to declining interest rates. It also credited falling interest rates for the 12.6% return from its euro-denominated government bond holdings. PNO Media’s fixed income portfolio delivered an overall return of 9.2%.Equity generated 7.9%. PNO Media attributed the underperformance of 1.5 percentage points relative to its benchmark chiefly to its large portfolio of active large-cap investments, which have a long-term focus in Europe and the US.The scheme said that its “high-quality” Dutch mortgage holdings yielded 3.9% – an outperformance of 1.6% – adding that it had increased its strategic allocation from 10% to 12%.The media scheme also said that it had made its non-listed property portfolio more defensive through an increased focus on Dutch residential property as well as retail, by reducing the number of funds and decreasing leverage to less than 25%.It increased the strategic allocation to retail property assets from 28% to 38% of its real estate portfolio, while halving its office holdings to 8% and reducing its stake in corporate property from 10% to 8%.PNO Media’s stake in US dollar-denominated emerging market debt (EMD) returned 17.2%, but the scheme’s currency hedging prevented it from benefitting from the appreciation of the dollar, it said.As local currency EMD underperformed with a return of 11.8%, the pension fund said it had decided to divest its holdings.Private equity yielded 9.7%. The pension fund said it expected that for the long term, the asset class would generate 3% extra returns relative to European and US public equity.It has 3% invested in private equity – managed by SPF Beheer – an allocation that has predominantly been invested in the buyout sector in Europe.The pension fund said it had no plans to extend its infrastructure portfolio, after doubling the allocation to 2%. Its investments in non-listed European funds produced 7.7% last year.Away from the investment portfolio, PNO Media said it would focus on cost reduction through growth. Last year, it was joined by the pension funds of consumer organisation Consumentenbond and book logistics provider Centraal Boekhuis, with 750 employees transferring in total. It also welcomed 30 smaller employers, with 150 workers combined.It said that costs per participant had risen €11 to €216, citing higher expenses for security of data, governance and communication, as well as the introduction of new pension arrangements and the acquisition of new clients.The pension fund drove down asset management costs to 0.63% and transaction costs to 0.11%.Last April, its funding stood at 100.7%. It said that indexation was unlikely to be on the cards and that it might have to cut pension rights if its coverage ratio was still short of 104.1% by 2020.