Some 40% of UK respondents outsourced responsibility for the choice of instruments used to hedge liabilities, and 26% did so for the amount of hedging undertaken.Each year, respondents are asked to rank the various measures of a successful LDI strategy, from a choice of six.The top concern this year was still the need to control funded status volatility.But increasing in importance, from fifth to third place, was progress made towards termination of the plan.And the need to improve funding levels has risen from fourth to second place.The poll also revealed that more than two-thirds (69%) of participating UK investors either use, or plan to use, an active approach towards asset allocation – such as a ‘glidepath’ strategy – which targets a fully funded status.In other news, life expectancy figures from the Office for National Statistics (ONS) point to a slowing down in the rise in UK state pension age than would have been expected, according to an analysis by Towers Watson.The consultants said the state pension age would reach 68 in 2036 (starting to rise in 2034) and reach 69 in 2049 (starting to rise in 2047).It would then start rising in 2061, reaching 70 in 2063.Towers Watson said the rises come slightly later (around a year for the increases to 68 and 69) than would have been expected using the previous set of ONS life expectancy assumptions.This is because the ONS estimate of life expectancy has fallen, compared with two years ago.The government’s target is that people should expect to spend “up to one-third of their adult lives” receiving state pensions, which means the state pension age is very sensitive to changes in life expectancy assumptions.Matthew Fletcher, senior consultant at Towers Watson, said: “People have become used to thinking life expectancy can only go up, due to improvements in medicine and more healthy behaviour – for example, less smoking.“But if you are already taking the credit for that, you don’t need things to get worse for predicted life expectancy to fall. You just need them to improve less quickly than had been expected.”Meanwhile, the Pension Protection Fund (PPF) has confirmed that the pension protection levy estimate for 2014/15 will be £695m (€828m), as originally proposed.The levy is the last to be set under the first three-year period of the new levy framework implemented in 2012/13.The PPF has also confirmed that the levy scaling factor, which matches the amount collected from individual schemes to the total levy estimate, will stay at 0.73.Furthermore, the PPF has appointed Experian is its new insolvency risk provider from 2015/16, the start of the next three-year period for the levy.Experian replaces current provider Dun & Bradstreet.Lastly, UK MPs are currently debating the pension rights of 3,000 former employees of Visteon UK.In 2009, Visteon UK – a subsidiary of the US-based automotive parts company, which is a spin-off from Ford – went into administration, making its employees redundant.Most workers had transferred from Ford and been promised that their terms and conditions would be protected.Following a sustained campaign by workers, a redundancy settlement was reached, but the ex-employees lost up to 45% of their pension entitlement.Pension Protection Fund compensation will not cover the amount lost, and the workers’ union Unite has been running an active campaign to persuade Ford to pick up the bill.It has now been successful in getting the House of Commons backbench business committee to hold a debate, after 66 MPs from all parties signed a letter of support. Three-quarters of UK investors polled by investment specialists SEI are either already using, or plan to employ, a liability-driven investing (LDI) strategy.The survey was completed by 130 corporate pension executives from the UK, US and Canada, with nearly half from the UK.Of the 75% who showed interest in LDI, 47% are actively using it, up from 33% in 2012.The survey also showed a growing sophistication among UK trustees in their approach to LDI, with the use of more tactical and creative tools for managing liability risks such as synthetic Gilts (19%), options (15%) and alternatives (19%).
Month: September 2020
The sheer amount of new regulation is giving European pension funds less room to manoeuvre, according to Barbara Rupf Bee, head of Global Client Group for the EMEA at Deutsche Asset & Wealth Management (DeAWM).Rupf Bee told IPE that pension fund trustees were now even less inclined to take risks that might lead to lower returns than they were before the financial crisis – “even if you take the low-interest-rate situation into account”.She added: “We went from the prudent-person principle to indecision due to the potential personal impact.”The overall increase in new regulation, she said, marked a “significant change” for the market that increased costs and “harmed” end investors. But she acknowledged that investors were now taking a “more informed” approach to their strategies in general, including passive and alternative investments in particular.As an example, she cited hedge funds, which gained “more transparency through UCITS structures” and offered an “indirect hedge” for many investors.“After the market downturns of recent weeks, we get a lot of clients asking how they can include short positions in their portfolios,” she said.But Rupf Bee stressed that hedge funds and other alternatives were no longer simply added to portfolios as individual asset classes.Instead, investors are now applying “alternative strategies to other investments” such as long/short equity positions or distressed debt.She pointed out that the shift away from fixed income had been relatively slow for institutional investors in Germany, where the bursting of the dotcom bubble is still “more present than with other investors”.German institutions, she said, “seem to prefer to allocate to real estate and private equity rather than increase their equity holdings”.Rupf Bee argued that, overall, investors were “much more aware of their individual portfolio’s risk structure” and looking for “real bespoke solutions” rather than investment approaches.“Asset managers are approached directly to offer these solutions individually for each client,” she said. She described this new client approach as “product agnostic”.According to her, investors are looking for modular solutions into which they can fit risk overlays and asset allocations.For smaller institutional investors, the multi-asset approach has become increasingly attractive, as they have “found it difficult to get asset timing right themselves”.
He acknowledged such buying was against the grain of most institutional investment behaviour at this point in the cycle, but he said Sampension saw the action as protection against rising nominal interest rates in Europe, which had been falling.“We do not really think the current level of interest rates in Europe is justified,” Olejasz Larsen said.“We are very conservative in our allocation towards traditional nominal duration risk and have instead picked up some protection against rising inflation.”Inflation is unlikely to rise in 2016, however, and probably not even in 2017, he said.“This is a more long-term view, which we hope will also be reflected in the prices of these instruments.”Olejasz Larsen said Sampension aimed to achieve a higher return by getting the inflation protection at a time when it was cheap.He said there were now a number of factors that pointed towards rising inflation coming through at some point in the future, though it could not be expected to be seen in official indicators for at least the next two years.In the US, there is a pick-up in consumer demand, while in Northern Europe wage increases are likely to grow, he said, adding that even though there is still slack in the economy and labour markets in parts of Southern Europe, that slack has been reduced.Olejasz Larsen went on to give other reasons why Sampension was acting early with these investment moves.“One of the reasons is we are very aware of our obligation to deliver not only high nominal pensions but also pensions with a satisfactory purchasing power to our members,” he said. “The second thing is we are building up a portfolio especially tailored to protect against the inflation risk that Danish municipalities have because they have salary-linked pensions.“So, in that case, it is not just ambition – they have this obligation, and we are building up the portfolio to hedge that obligation.” Danish labour-market pension fund Sampension has revealed it is building up a portfolio that will seek to benefit from higher inflation in Europe, even though the European Central Bank (ECB) is still engaged in action partly to ward off the perceived risk of deflation.The DKK250bn (€25.8bn) pension fund said it took the view that the current level of interest rates in Europe was unjustified.Henrik Olejasz Larsen, investment director at Sampension, told IPE: “We are building up and slightly adding to a portfolio that will benefit from high inflation in Europe.”He said the pension fund was buying European inflation-linked bonds and inflation swaps, adding that the deals were being done directly rather than through a manager.
France’s Fonds de Réserve pour les Retraites (FRR) has returned 3% over the course of 2015, crediting its equity portfolio for the result during what it deemed a volatile year.Seeing its investment performance down significantly compared with 2014’s 8.75%, FRR reported €36.3bn in assets at the end of last year.The figure was down by €900m due to the annual €2.1bn transfer to the Caisse d’Amortissement de la Dette Sociale (CADES), responsible for France’s social security payments.It credited its return-seeking asset portfolio with a return of 5.4% but saw its gains reduced after its liability-matching asset portfolio returned 0.1%. The reserve fund nevertheless emphasised its strong overall performance, which, since the pension reforms of 2011, has seen it return 5.5% per annum, largely offsetting the required €10.5bn in transfers to CADES.In a statement, the fund noted it had more than 150% of the assets required to meet its current obligations towards CADES.Due to the current high funding level, it has been able to initiate its recent €2bn allocation towards more illiquid assets, it said.The €2bn programme was initiated to combat the returns generated by the “horrible” low-interest-rate environment, executive board member Olivier Rousseau told IPE last year.The programme saw FRR granted permission to invest beyond 2024, when, under the 2011 reform, its remaining assets were meant to be transferred to CADES.The new €2bn strategy has seen the fund invest €200m in the intermediate housing fund (FLI) managed by Société Nationale Immobilière and commit €145m to the NOVI private equity fund – the latest in a suite of three funds set up by Caisse des Dépôts et Consignations to offer loans and equity to small companies in France.
If a government policy change happened, schemes’ coverage would drop by 5 percentage points after five years, the consultancy found, while a policy change combined with technological developments (a “double shock”) could push ratios down by up to 12 percentage points.A technology shock alone (defined as a breakthrough in green energy generation) would lead to a funding ratio decline of 11 percentage points on average. A hit to market confidence caused by uncertainty about government measures would cause a fall of 17 percentage points, Sprenkels & Verschuren estimated.It said falling interest rates and declining equity markets later in its five-year forecast period would negatively affect the coverage ratio.DNB had foreseen a positive result of 0.6 percentage points after a year in the technology “shock” scenario, while the market confidence scenario was estimated to cause a loss of 5.5 percentage points.Sprenkels & Verschuren found that both the policy-related shock and the double shock scenarios would lead to a decline in pension outcomes over a five-year period, as inflation would rise but pension funds would not be able to grant indexation because of low funding.It said that, even though the technology and confidence scenarios showed a funding improvement of 1 percentage point and 6 percentage points, respectively, indexation still would not be granted.“As inflation would be lower under these scenarios, the necessary inflation compensation would also be less,” explained Caroline Bosch, partner at Sprenkels & Verschuren.She said the consultancy had incorporated the scenarios into its asset-liability management model, and the calculations could help pension funds get a better view of climate change risks in their investment portfolios. Dutch pension funds could lose up to 17 percentage points of their funding as a result of the energy transition, according to research by consultancy Sprenkels & Verschuren.The consultancy conducted four stress-test scenarios built on earlier calculations from Dutch regulator De Nederlandsche Bank (DNB).DNB concluded that funding levels could rise in the first year after a policy “shock” – whether through the government suddenly introducing strict carbon reduction measures, or with the addition of a technological breakthrough in sustainable energy – resulting in coverage ratios rising by 10-12 percentage points, primarily due to rising interest rates.Sprenkels & Verschuren confirmed this outcome for the first year, but found that a subsequent fall in interest rates would pull down the funding of the average scheme with a 38% interest rate hedge position.
Yo Takatsuki, AXA IM’s head of ESG research and engagement, said: “Transition bonds would allow the quality of the green bond market to avoid being diluted by issuances where the environmental benefit of projects being financed is less clear.”He added: “We believe green bonds must remain a market which prioritises ambition, quality and integrity. It cannot be undermined by secondary concerns.“The creation of transition bonds will help maintain the level of quality of the green bond market while offering a source of financing for the other activities necessary for the technological and energy change that will perpetuate the advent of a low carbon world and economy.”Insight laments green bond ‘bolt-ons’ AXA IM’s call comes after Insight Investment, one of the UK’s largest fixed income managers, reported that many green bonds or other “impact” investments were not meeting its minimum standards for sustainability.In its 2019 responsible investment report it said 10 green bonds had fallen short of its basic expectations this year, up from one in 2018.There was a “pressing need” for greater alignment between the objectives of impact bonds and issuers’ strategic interests, it said.Too many impact bonds were “simply bolt-on sustainability programmes, quite separate to the ongoing activities of their issuers’ day to day businesses”, said Josh Kendall, senior ESG analyst at Insight Investment.“It prompts the question: how authentic are these bonds? We want to reach a point where there is no distinction between a bond’s impact objectives and its issuer’s core operational activities.” AXA Investment Managers has called for a new type of bond to help carbon-intensive companies move away from fossil fuels, a role it says the green bond market should not be asked to play.The €729.8bn asset manager said “transition bonds”, as it dubbed the proposed type of debt, were necessary for those companies that would struggle to credibly issue green bonds because they operated in greenhouse gas intensive industries or did not currently – and for the foreseeable future may not – have enough green assets to finance.It said that “transition bonds” would be used by companies solely to finance certain projects, such as carbon capture storage, co-generation plants or gas transport infrastructure that can be switched to lower carbon intensity fuels.They would help investors overcome “the major challenge of providing capital not just to companies which are already green, but to those which have ambitions to become so,” the asset manager said. According to AXA IM, the green bond market should not be called upon to facilitate this.
AP6, the Swedish pensions buffer fund that specialises in private equity, has reported a high level of investment activity in the first months of 2019, including adding a number of US partners to its portfolio.With investors competing for deals – and some research suggesting the asset class has become overvalued – the Gothenburg-based investor said it made around 20 private equity transactions so far in 2019, in funds and as direct co-investments. It made direct investments in firms including Norwegian software company Visma and Danish internet firm Sitecore.Margareta Alestig, AP6 chief executive, said: “There is a continued good flow of interesting investment opportunities. A number of new collaborations have been initiated, which means that the diversification of the portfolio continues in terms of geography, segment and industry,”The SEK34.7bn (€3.2bn) fund said it had noticed a continued high level of activity in the capital raising processes it had taken part in, with access to capital so high that some funds had opted to increase their size. AP6 added that the most successful fund companies were having no problem closing their funds, with fierce investor competition to gain access to them.Karl Falk, head of fund investments at AP6, said the fund’s rate of investment had been high with regard to ongoing commitments to partner funds with which it already invested. However, AP6 had also formed a number of relationships with new partners.He said: “We are very positive about the fact that we have also been able to add additional US players in buyout and venture to the portfolio.”The buffer fund also reported having done a large number of co-investments this year.Mats Lindahl, director of direct investments at AP6, said: “The majority of the investments consist of new companies, including in the North American market. A minor share is about additional investments in already existing direct investments.”Research by data firm Preqin earlier this year showed nearly a third of investors (31%) planned to increase their allocations to private equity during 2019, with 12% planning to reduce it.Private equity investor views on key challenges for return generation in 2019Chart Maker
France’s Conseil d’Etat, the country’s highest administrative court, has expressed concerns about several aspects of the government’s pensions reform bill and accompanying documents.It said there were still gaps in the financial forecasts in the impact assessment despite the government having done work to improve them upon previous feedback from the Conseil.It called on the government to improve the study before the pensions reform bill is tabled in parliament, in particular by including more analysis of how the proposed reforms could affect the employment rate among senior citizens and welfare-related spending.The Conseil d’Etat, which advises the government on legislation, was also critical about the tight deadlines the government had given for feedback. It said the three weeks it had been given had prevented it from “carrying out its mission with the serenity and amount of time needed to best ensure the legal security” of its assessment. Source: Dircom / JB EyguesierThe Conseil d’Etat in ParisAccording to the Conseil d’Etat the government had also on several occasions made changes to the reform bills during the short period it had been given to review them.The body also expressed concerns about the number of “ordonnances” provided for by the reform bill, noting that the draft legislation empowered the government to issue 29 of these statutory instruments. An ordinance is a type of decree passed by the government in an area normally reserved for primary legislation enacted by the parliament.The Conseil d’Etat also challenged the way the government has characterised the reform, saying the government’s line that “chaque euro cotisé ouvre les mêmes droits pour tous” – roughly translated as “every euro contributed gives access to the same rights for all” – was an “imperfect reflection of the complexity and the diversity of the rules defined by the bill”.According to the Conseil, the government has made a change to the text to address this.The lower house of parliament is due to debate the draft reform legislation starting 17 February. It was presented to cabinet ministers on Friday.There have been multiple rounds of demonstrations against the reform plan, as well as a transport strike that is reportedly the longest in recent history in France. “This situation is all the more regrettable because the bills are for a pension system reform that is unprecedented since 1945 and intends to transform for decades to come a social system that is one of the major components of the social contract,” it added.
Outside 104 Hawken Drive, St Lucia.Mortland & Co principal Karen Mortland said the market at St Lucia was “excellent”.“People are talking the market down but St Lucia is a very, very solid blue chip suburb,” Ms Mortland said.More from newsDigital inspection tool proves a property boon for REA website3 Apr 2020The Camira homestead where kids roamed free28 May 2019“It always has been.” The house at 104 Hawken Drive, St Lucia, sold for $1.85 million.THE market in St Lucia continues to remain strong despite other whispers of negativity.The sale of 104 Hawken Drive supports that, garnering three written offers before selling for $1.85 million. One of the living areas.Ms Mortland said 36 groups inspected the property at open homes, and it was bought by a family.“They had been looking for a while and were really honing in on St Lucia,” she said.“They love the open-plan and the northeast aspect to the rear, as well as that they had a quiet backyard overlooking the pool. The indoor area flows seamlessly outside through bi-fold doors.“But most of all, they love the area more than anything else.”St Lucia is popular for its closeness to popular schools such as Ironside State School, St Peter’s Lutheran College, and University of Queensland. According to CoreLogic data, the median house sale price St Lucia is $1,147,500.Video Player is loading.Play VideoPlayNext playlist itemMuteCurrent Time 0:00/Duration 1:58Loaded: 0%Stream Type LIVESeek to live, currently playing liveLIVERemaining Time -1:58 Playback Rate1xChaptersChaptersDescriptionsdescriptions off, selectedCaptionscaptions settings, opens captions settings dialogcaptions off, selectedQuality Levels720p720pHD576p576p360p360p216p216pAutoA, selectedAudio Tracken (Main), selectedFullscreenThis is a modal window.Beginning of dialog window. Escape will cancel and close the window.TextColorWhiteBlackRedGreenBlueYellowMagentaCyanTransparencyOpaqueSemi-TransparentBackgroundColorBlackWhiteRedGreenBlueYellowMagentaCyanTransparencyOpaqueSemi-TransparentTransparentWindowColorBlackWhiteRedGreenBlueYellowMagentaCyanTransparencyTransparentSemi-TransparentOpaqueFont Size50%75%100%125%150%175%200%300%400%Text Edge StyleNoneRaisedDepressedUniformDropshadowFont FamilyProportional Sans-SerifMonospace Sans-SerifProportional SerifMonospace SerifCasualScriptSmall CapsReset restore all settings to the default valuesDoneClose Modal DialogEnd of dialog window.This is a modal window. This modal can be closed by pressing the Escape key or activating the close button.Close Modal DialogThis is a modal window. This modal can be closed by pressing the Escape key or activating the close button.PlayMuteCurrent Time 0:00/Duration 0:00Loaded: 0%Stream Type LIVESeek to live, currently playing liveLIVERemaining Time -0:00 Playback Rate1xFullscreenWhy location is everything in real estate01:59
Former Brisbane Lions forward Josh Green is seeking an off market sale for his Morningside home.“The Brisbane (market) has tracked pretty well lately, so I’d thought I’d try sell off market,” he said. “I’m in no rush really — I thought I’d see if I could get a few offers in.” Green said he loved the Queenslander style of the home and the Morningside location, close to cafes, shops and schools. “It was the ideal location for me at the time and the house itself was beautiful with a new kitchen,” he said. More from newsParks and wildlife the new lust-haves post coronavirus13 hours agoNoosa’s best beachfront penthouse is about to hit the market13 hours ago“It was pretty much a complete house. That’s what I liked about it.“I moved in initially when I bought it and I was planning to stay there (but) I moved to Melbourne for footy and the property has been rented out since.” Josh Green during his time with the Brisbane Lions. Pic Peter WallisFORMER Brisbane Lions player Josh Green is seeking an off market sale for his Morningside home. The forward bought the two-storey character property in August 2015 and is looking to sell to buy in Melbourne. The home features three bedrooms and a bathroom upstairs, along with a kitchen and an open-plan living and dining room, which flows out to the deck. Downstairs there are two multipurpose rooms, one with built-in storage, as well as a laundry, second bathroom and patio.Green said his favourite part of the home was the big deck that looked out over the treetops.“You get the sun sets from the deck … and it overlooks the backyard and lawn, where there is plenty of room for kids to run around,” he said. Green had plans to add a pool to the backyard and renovate the main bathroom but a move to Essendon Football Club in 2016 got in the way. “I did a bit of work here and there, nothing major just bits and pieces to make the house a bit better,” he said. “I put in a new fence on the side, took down a big tree at the front, and did some work to the bathroom.”Green said the property would make a great family home or investment. The home is currently for sale off market through Shannon Harvey of Place Bulimba.