The proportion of the fund managed by external mangers rose to 46% last year from 41% in 2012.About one-third of the return came from its investments in equities.Approximately CNY109bn, or 10% of the fund’s assets, originated from a mandate from the Guangdong provincial government.The report said about CNY49bn was invested in short-term debt.The NSSF provided no further details on its asset allocation.The assets of the funds are sourced mainly from the central government’s budget, state-owned enterprise share sales and the state lottery.The NSSF is a strategic reserve fund set up by the Chinese government in 2000 to help cope with the country’s ageing population. China’s National Social Security Fund (NSSF), which manages the country’s biggest pension fund, recorded a 6.2% return on investment in 2013, with an increased proportion of the fund being managed by external managers, according to its annual report released earlier this week.The $200bn (€146bn) fund earned CNY68.6bn (€8.1bn) from its investments in 2013.The rate of return was lower than the 7% recorded in 2012 but higher than the 2.6% inflation rate during the period, according to the report.The fund’s average return since its inception is about 8.13%.
Ruston Smith, chairman at the NAPF, said while there was no denying that the reforms were an “exciting and compelling” proposition for savers, the industry was beside itself as the deadline approached.“April is not far away,” he told delegates at this year’s NAPF Annual Conference in Liverpool.“The problem is, we do not know enough about the detail. This lack of detail and lack of clarity is severely limiting our opportunity to get things right for members – and it is increasing the risk of failure.”He said, with 4.2m savers eligible to take advantage of the reforms come April, products and legislation were still unprepared.The UK’s DC market has long supported the insurance annuity business, but concerns have grown over the value for money offered by insurers.Savers are now expected to look for more income-drawdown products, or to withdraw their DC savings entirely as cash.“These people will expect these products to work and expect us to help them make the right choice,” Smith said.“The government has set high expectations for the industry to respond positively and innovatively. But it is closing down the time we have to make this a real success.“I say to the government, help us to give freedom and choice and not fear and confusion. Give us the clarity we need to make this a success.”Speaking later at the conference, Labour MP Gregg McClymont, the opposition’s spokesman on pensions, said while his party understood it was “politically difficult” to speak out against the reforms, the party did in principle support greater freedom.However, his personal misgivings over the reforms were that it did not fix the main criticism placed on insurers or the UK annuity market.“There are good political reasons for [the reforms],” he said. “It is possible to work with [the government] on the reforms, while defending pensions as a concept.”McClymont said that, while the annuities market did need reform, the criticisms were based on DC savers never seeking out the right arrangement.He said he failed to understand how giving DC savers more choice was going to solve the situation. Industry figures and opposition politicians have condemned the lack of clarity from the UK government over fast-approaching reforms to the defined contribution (DC) at-retirement model.Reforms are set to go into effect in April 2015, just over a year after they were announced as part of chancellor George Osborne’s 2014 Budget.The ‘Freedom and Choice’ proposals, which removed the need for compulsory annuitisation, were welcomed by the National Association of Pension Funds (NAPF) and unchallenged by the opposition party.However, pressure for more detail is now mounting.
Two of Denmark’s labour-market pension funds for professionals – engineers’ fund DIP and lawyers and economists’ fund JØP – are merging their administrative operations to cut costs.The pension funds said they would put all of their administration together into one joint organisation covering their 76,000 members, from 15 June this year.DIP has more than DKK35bn (€4.7bn) in assets under management, while JØP has more than DKK65bn.Anders Eldrup, chairman of JØP’s trustee board, said: “The amalgamation will give our members an even better pension scheme.” He said that, together, the two pension funds would be the best joint provider in the growing market for academic sector pension funds.“This is a proactive cooperation, which will contribute to the consolidation in the market and give the best offering to members in terms of investments, products and services,” he said.Members of DIP and JØP will continue to belong to the two independent pension funds and keep their savings and investments within those funds, the two parties said.The funds will also continue to have their own trustee boards, assets and customer identities.Two years ago, DIP and JØP merged their investment operations, saying the move was a natural consequence of their close cooperation with each other over many years.The single investment department has since been led by the heads of both pension funds.In 2006, the two pension funds moved into the same building and, some time after that, started to use a single system for all their members.In other news, Norwegian public service pension fund KLP reported a 100% rise in contributions last year after municipalities continued to transfer their pensions to the scheme.Contributions – excluding reserves that had been transferred into the scheme – climbed to NOK62.5bn (€7.2bn) in 2014 from NOK30.9bn the year before.Sverre Thornes, group chief executive, said: “It has been difficult to accept such a large inflow as we had in 2014, and so it’s gratifying the feedback from our customers is good.”In all, the transfers will mean an increase in premium reserves of NOK30bn and 156,000 additional pension scheme members, KLP said.KLP’s business is continuing to swell as a result of moves by Storebrand and DnB Livsforsikring to withdraw from the Norwegian public occupational pensions market.This has left KLP as the only provider in the sector, although Norwegian public bodies do have the option of setting up their own pension funds for their staff.KLP said that, in 2014, a total of 58 local authorities and 203 public businesses had transferred their pensions to it.So far this year, a further 15 municipalities transferred in, which means KLP now has 418 of Norway’s 446 municipalities and counties as public sector earnings-related pension customers.The pension fund posted a book return of 4.3% for 2014, down from 6.4% in 2013, and a value-adjusted return of 6.9%, up from 6.7%.Shares, traded bonds and property were the main contributors to the returns.Equities produced a 13% return in the year, while traded bonds generated a return of 8.4% and property returned 6.9%.Group assets under management rose to NOK491bn by the end of December 2014, from NOK399bn.
BVV, the €25.1bn Pensionskasse for Germany’s financial industry, has shifted a “considerable volume” of new money into investment funds rather than direct holdings, according to its annual report.Board member and CFO Rainer Jakubowski said the shift reflected a “change in strategy compared with mostly direct investments in the past”.Last year, the Pensionskasse invested substantially in real estate and infrastructure funds, both equity and debt.Similarly, new investments in the bond segment were not made into preferred direct holdings but funds within its absolute return bond strategy. Jakubowski said that, for a German Pensionskasse using domestic accounting standards, directly held bond investments were the preferred means of achieving steady coupon returns, as they were mostly hedged against write-offs.For 2014, the BVV granted its members a net interest rate on accrued assets of 3.8%, close to the rate granted the year previous (3.7%).The return from investments was approximately 4%, but Jakubowski warned that the figure was “volatile and not predictable, whereas the BVV has to fulfil its liabilities continuously and not only on average”.The CFO also claimed the unprecedented low interest rate environment created by the ECB would be a “major worry for much-needed occupational and private pension provision”.His said this worry, combined with new regulatory requirements, would translate into more financial institutions transferring pension assets and liabilities to the BVV – last year, such transfers amounted to around €40m.Jakubowski again stressed how the increase in regulatory requirements would burden Pensionskassen.He said he had “given up hope” that EIOPA’s upcoming stress tests would preclude the introduction of holistic balance sheet approaches in the IORP Directive – “quite on the contrary”.The BVV will, however, take part in the stress tests, Jakubowski confirmed. Click here to read more about Jakubowski’s views on the negative impact of regulation
PensionsEurope, AP2, FVPK, Towers Watson, TISAPensionsEurope – Jerry Moriarty, chief executive of the Irish Association of Pension Funds, has been elected vice-chair of the European industry group. Moriarty has been a member of the association’s board since 2012 and replaces Benne van Popta, who stepped at the end of last year.AP2 – Kristina Mårtensson has been appointed to the Swedish buffer fund’s board of directors. Mårtensson is currently head of social policy at Kommunal, the Swedish Municipal Workers’ Union.FVPK – Andreas Zakostelsky has been re-elected chairman of Austria’s pension fund association. Zakostelsky was until recently chief executive of Valida Vorsorge Management, but departed in February to focus his attention on his political career following his 2013 election to the Austrian parliament. Towers Watson – Gill Barr and Mervyn Walker have joined the trustee board of the consultancy’s defined contribution master trust. Barr has held a number of marketing positions at retailer John Lewis, MasterCard, Kingfisger and, most recently, at the Co-operative Group, while Walker is currently the independent trustee chair for Amec Foster Wheeler’s UK pension schemes and a non-executive director for the UK Revenue & Customs office. Walker spent most of his career in human resources, and in his capacity as head of British Airways HR department also chaired the airline’s pension fund boards.TISA – Adrian Boulding, the outgoing pensions strategy director at Legal and General, is to join the Tax Incentivised savings Association as policy strategy director. Boulding is leaving L&G after 18 years, and in his time working within the pensions industry has also reviewed the UK’s auto-enrolment policy for the Department for Work and Pensions.
ABP has increased its investments in North America by three percentage points to 38% after changing its benchmark for government bonds.The change involved a move from 100% euro-denominated bonds to a 50-50 split of euro-denominated and worldwide government paper.In its annual report for 2016, the €387bn civil service scheme said the allocation adjustment – at the expense of investments in Europe – was meant to improve both liquidity and diversification.The pension fund reduced its overall holdings in Europe by five percentage points to 22%, while raising its allocation to Asia Pacific assets by one percentage point to 12%. Last year, it brought its investment mix in line with its investment plan for 2016-2018, comprising 60% securities and 40% fixed income, combined with a 25% hedge of the interest rate risk on its liabilities.Other asset allocation changes saw the pension fund raise its allocation to developed market equities by 1 percentage point to 25%, at the expense of its stake in government bonds.ABP increased its portfolio of emerging market debt by 1 percentage point to 3%, citing “attractive long-term perspectives” as well as the fund’s minimum allocation of 3% to each asset class.Also to increase portfolio diversification, ABP said it had started investing in worldwide inflation-linked bonds, combined with a full currency hedge.The civil service scheme further indicated that it was keen to increase its local investments – currently 15% – in particular in projects for energy transition and those aimed at improving the sustainability of residential property and schools.Last year, it raised its commitment for financing startups from €200m to €500m, and committed €180m to the acquisition of 1,700 units of rental property in the mid-market segment.The pension fund also said risk management needed to be improved and that fiduciary services would be provided by an independent branch of its asset manager APG. Both adjustments must lead to increased oversight of investment decisions, the pension fund said.ABP, which generated a 9.5% result over the course of 2016, said it had reduced its asset management costs to 61 basis points last year.Despite private equity and hedge funds – which made up 10% of the portfolio – incurring 36bps of costs, the scheme’s board reiterated that the expenses were justified, citing the asset classes’ contribution to diversification and their returns of 14.8% and 7.9% respectively.It pointed out that its active investment policy had delivered €2.1bn of additional returns in 2016.To further drive down costs, APG has extended its private equity team and made more direct investments.ABP added that its asset manager had made almost 80% of last year’s commitments to private equity without a third-party manager, which would deliver “drastic costs reductions for the long term”.Administration costs dropped to €79 per participant, thanks to a rise in the number of participants as well as a reorganisation at APG.The civil service scheme also said it would work with employers and unions to simplify its pension offering. ABP said that its pension arrangements were becoming too complicated and almost impossible to explain to participants following many adjustments, largely as a result of new legislation.
The Department of Finance sold a quarter of the AIB stake last month, raising approximately €3bn in the process.In its separate discretionary portfolio, the ISIF invested €522m in new projects across Ireland during the year, bringing its total capital deployed domestically to €2.6bn. The ISIF has a long-term aim to transition its entire €8.1bn portfolio to domestic investments.Combined with co-investment partners, the ISIF said it had helped raise €7.5bn for Irish companies and projects since its inception in 2014.In its annual report, the ISIF said: “While the macroeconomic environment in Ireland has improved significantly in recent years and the availability of private capital has increased greatly, there are still material gaps in the market provision of finance to sectors and companies and there remains a wide variety of investment opportunities where ISIF capital, in conjunction with private sector partners, can fill gaps and make a real difference to economic activity.”The fund said it had a pipeline of 60 potential new investments at the start of 2017: in January it contributed to a fundraising for sales platform InsideSales, and in February it invested in an Irish forestry fund alongside the European Investment Bank. Ireland’s sovereign wealth fund incurred a €1.1bn loss in 2016 on its holdings in two bailed-out banks, according to its annual report.The Ireland Strategic Investment Fund (ISIF) posted a 2.9% investment return for 2016 from its discretionary portfolio, but the value of its stakes in Allied Irish Banks (AIB) and Bank of Ireland declined significantly during the year.The ISIF owned 99.9% of AIB’s equity at the end of 2016, a legacy from the bank’s €20.8bn bailout from the Irish government in 2010. The ISIF also owned 13.9% of Bank of Ireland.The stakes are held in a separate “directed portfolio”, along with loans and provisions set aside for the Strategic Banking Corporation of Ireland, and managed on behalf of the Irish Department of Finance. The portfolio was valued at €12.9bn at the end of the year, compared to €14bn 12 months earlier.
Asset managers have just three months left to apply for a Dublin authorisation should the UK crash out of the EU without an agreement over its future relationship with the bloc, Irish investment experts have warned.In the event of a so-called ‘hard Brexit’ , July is the cut-off point for a process that could take between six and nine months, according to Mark White, head of the investment management group at McCann Fitzgerald, a leading Irish law firm.“People are starting to count backwards [from the Brexit date of March 2019],” he said. “I think you will see a number of applications going in over the summer from UK asset managers and other financial services businesses that need to continue to access the EU market post-Brexit and are not prepared to operate on the basis of ‘let’s hope it’s all right on the night’.”Last month, the UK and the EU agreed to a conditional transition period until 31 December 2020 as a possible route to a more orderly withdrawal from the union. This would extend the date for the completion of any business restructuring that might be required in order to continue to access the EU, post-Brexit. Central Bank of IrelandCredit: William Murphy According to six-monthly statistics issued by the Central Bank of Ireland, the number of investment companies seeking authorisation in Dublin has remained flat over the past two years to the end of 2017. Just one firm per six-monthly period gained authorisation in the first and second halves of 2016 and the first half of 2017. No new firms were authorised in the second half of 2017.However, the rate was likely to increase exponentially as asset managers sought to alleviate the possible impact of the UK crashing out of the EU, said Paul Traynor, partner in financial services advisory at EY Ireland.Investment managers were “making ‘no regret decisions’ that they would take one way or another regardless of Brexit”, Traynor said. “Now they are looking at taking decisions that they may regret – for example, having to sink some cost into something that they might regret regardless of whether we see a hard or soft Brexit.”The number of investment firm authorisations is likely to jump to double-digits over the next six to nine months, Traynor added.Firms are getting to the point “where they can delay their plans no longer”, he said.A spokesperson for Ireland’s central bank said they did not comment on authorisations or applications. However, in a speech given in January to the European Financial Forum, Philip Lane, the bank’s governor, said he expected the current levels of authorisation to increase further.Dublin was very much open for business, he said. “We have put in place authorisation processes that are transparent, predictable and consistent. Firms that are engaging with us will find us open, engaged and pragmatic.”Some UK-based managers have expanded existing subsidiaries in Dublin or Luxembourg to ensure European clients are not affected by the UK exiting the EU.Aberdeen Standard Investments and Royal London have set out plans to boost their Irish offices, while M&G and Jupiter have done the same in Luxembourg. However, the deal will only remain in place once contentious issues – such as the border between the Republic of Ireland and Northern Ireland – are agreed.INTEXTLINKTEXT” src=”/Pictures/web/e/i/y/THE_CENTRAL_BANK_OF_IRELAN_660.jpg” />
In his opinion, the European Central Bank (ECB) was the main cause of the low interest rate level “as it has been keeping rates at 0% for 10 years, and is planning for a further decrease”. “We could keep on reforming as much as we want, but low rates would fully erode the value of pensions”Pieter OmtzigtAt its most recent meeting on 6 June, the ECB said it would maintain its current record-low interest rates at 0-0.25%, and expected them to remain unchanged “at least through the first half of 2020” or “as long as necessary” to keep inflation at roughly 2%. However, Koolmees defended the ECB, noting that interest rates had been steadily falling for 30 years.He said he would address the effects of long-term low interest rates on pensions in his “road map” for reform, which is to be published this autumn.Meanwhile, at a conference hosted by Dutch pensions publication Pensioen Pro last week, economist Matthijs Bouman said lower expectations for inflation and growth, as well as saving levels exceeding investing, were the main causes of low interest rates.“We want to save, we want to increase security and we want to accrue financial buffers,” Bouman said. “As returns on investment are low, so is the risk-free return on capital.”Also at the conference, Paul Frentrop, senator for the new right-wing party Forum for Democracy, argued that the capital-funded pensions system was no longer sustainable and suggested that the Dutch second pillar system should be transferred to the state. The viability of the Dutch capital-funded pensions system is in danger if interest rates remain at their current low levels, according to the country’s social affairs minister Wouter Koolmees.During a debate in parliament last week about the recent pensions agreement, the minister said that “we all have a problem in a capital-funded system, if interest rates remain zero for a very long time”.He made the remark while answering questions from Pieter Omtzigt, who had suggested that no capital-funded system could survive such a situation. The MP noted that the issue touched the core of the pension system and arming against the effect of low interest rates wasn’t possible.“We could keep on reforming as much as we want, but low rates would fully erode the value of pensions,” Omtzigt argued.
The transaction was “well-timed to capture strong pricing opportunities”, Aon added.Dominic Grimley, risk settlement adviser at Aon, said: “This transaction followed a period of careful market monitoring, where we waited for the right opportunities to emerge. All parties involved have considerable market experience and this encouraged a swift conclusion once pricing was accessible.”Smiths Group’s pension funds had £3.8bn in combined assets at the end of 2018, according to the company’s annual report. FTSE 100-listed engineering company Smiths Group has struck a £176m bulk annuity deal with insurer Canada Life.The transaction covered more than 2,000 pensioners and dependents, according to a statement from the company.Smiths Group said roughly £800m of the Smiths Industries Pension Scheme’s liabilities had now been insured, and £1.6bn across two schemes.The latest deal forms part of a long-term de-risking plan for the company. Consultancy group Aon, adviser to the pension schemes, said the series of buy-in deals formed “one of the market’s longest-established programmes of phased de-risking”.