EIOPA using ‘sledgehammer to crack nut’ with stress tests

first_imgAlex Waite, a partner at LCP, said: “The situation being considered in the stressed scenario is deliberately extreme. It will show UK pension schemes to be exposed to considerable risk – we expect the calculations will show risk amounting to multiple times current deficits shown in company accounts.”However, he added that the precise multiples to be expected could not be specified at this stage because the publicly available data used by LCP for the calculations was too general.Waite said: “To get a more detailed result, we would have to use more granular information from individual pension funds and take into account their individual circumstances.“For example, some schemes might have hedged their risk, or settled it by buying a policy from an insurer. That might help lower the overall level of risk in the UK pensions sector.”He added: “It’s important these stress tests show a reasonable number for the level of pensions risk because that information will be used for decision-making in future.“In particular, if risk levels are overstated, this might result in unwelcome and unnecessary regulatory responses from EIOPA.“A similar position exists for accounting for pensions standards issued by the International Accounting Board, which require disclosure that bear little relation to the reality, but decisions still get made on the back of those figures.”But Waite said: “We think the stress test is a sledgehammer to crack a nut. But while it is complex, for some companies and pension schemes it will provide some useful results to help understand the risks involved.”EIOPA is hoping that at least half of pension schemes, by asset value, in each EU country will participate in the stress test exercise, which is being co-ordinated by local pensions regulators in each country.The deadline for responses is 10 August.Waite said: “Trustee boards might want to discuss these calculations with company sponsors because, the more trustee boards who carry them out, the greater the influence they will have on EU policy.” The new stress test launched last week by the European Insurance and Occupational Pensions Authority (EIOPA) will result in pension risks in the UK of “multiple times the current deficits”, according to consultancy LCP.The stress tests seek to gauge the resilience of market participants to challenging market scenarios and to rising life expectancy.The stressed scenario is based on a large fall in assets, with stock markets falling 45%, and life expectancy increasing by around two years at the same time.Using its own data collected from company reports and accounts compliant with IAS 19, LCP has carried out an approximate impact study to work out projected deficits for a number of UK pension funds for the scenarios drawn up by EIOPA.last_img read more

Danish pension funds join global infrastructure-financing partnership

first_img“So we can fully endorse the basic idea behind the SDIP to find the right models for such financing for sustainable infrastructure in developing countries and emerging markets.”PKA said it needed to have effective financing models to get a good balance between risk and return when it came to developing countries.Besides the Danish pension funds, founding members of the partnership include the Danish Investment Fund for Developing Countries (IFU), Citi, Deutsche Bank, East Capital, Standard Chartered, Storebrand, Sumitomo Mitsui Banking Corporation, the Bill & Melinda Gates Foundation, Development Bank of South Africa, International Finance Corporation and the Senegal Sovereign Wealth Fund (FONSIS). The governments of Canada, Denmark, the Netherlands, Norway, Sweden, the US and the UK are also among the founders.The World Economic Forum said it and the Organisation for Economic Co-operation and Development (OECD) were providing the partnership with institutional support.The SDIP aims to create investment opportunities in water, sanitation, transport, green energy, agriculture, health, telecommunications and climate adaptation in developing countries, the World Economic Forum said.Even though expected returns on investment and long-term cash flows offered in emerging markets are higher than in the industrialised world, infrastructure investments in developing countries are held back by political and financial risks, it said. The forum said the partnership would mobilise such investment by “improving and enhancing risk-mitigation tools to reduce political, regulatory, credit, currency and liquidity threats”.Richard Samans, head of the Centre for the Global Agenda, and member of the World Economic Forum’s managing board, said: “Expanding public/private cooperation in the form of blended finance is one of the most important ways the international community can support developing countries as they seek to generate the very large amount of domestic and foreign investment required to meet their sustainable development goals by 2030.”Nellemann Pedersen said PKA had seen that public/private partnership models for infrastructure financing worked well in more traditional financial markets when it came to large investments. “Such models are beneficial for all parties involved, and it is right to expand them to developing countries, which in many areas are in need of long-term capital,” he said. Two of Denmark’s large labour-market pension funds – PKA and PensionDanmark – are among the governments, banks and other organisations to launch an international project aimed at “mobilising” $100bn (€92bn) in private financing over the next five years for infrastructure in developing countries. The project, named the Sustainable Development Investment Partnership (SDIP), was announced as part of the United Nations-sponsored Financing for Development conference now taking place in Addis Ababa.The parties involved are not pledging to provide the investment but rather to work to make the conditions more attractive for the private sector to get involved, by reducing political, currency, regulatory and other risks.Michael Nellemann Pedersen, head of investment at PKA, said: “At COP15 in Copenhagen (the 2009 UN Climate Change Conference), it was decided that industrialised countries should mobilise $100bn a year for climate-related investments in developing countries.last_img read more

ERAFP’s Desfossés: ECB policy a ‘trainwreck in slow motion’

first_img“Upside down” regulation and the European Central Bank’s (ECB) interest rates are a threat to the survival of European pension funds, according to Philippe Desfossés, chief executive of ERAFP, France’s €25bn public pension fund for civil servants. Commenting on the French government’s plans to allow insurers to move their occupational pension business out from under Solvency II to a new regulatory framework, Desfossés said pension funds had to “deal with issues far more challenging” than Solvency II. Muc more pressing, according to Desfossés, is the low-return environment making it more and more difficult for pension funds to cover their liabilities.“From a fiduciary perspective, I cannot buy government bonds now because I’m buying something that is paying less than what I have promised on the liability side of my balance sheet,” he said. If the ECB keeps interest rates at the current level, “you will see the nuts and bolts of all pension funds and life insurers blasted away”.“How can life insurers and pension funds survive in an environment where money is being paid to the debtor?” Desfossés asked. “For me, it’s a trainwreck in slow motion.”But the central bank is caught between a rock and a hard place because, if it normalises rates, “the problem won’t be so much with pension funds but with debtors, especially governments”.The “huge problem” facing pension funds is that they have pledged to make payments based on a fixed interest rate but are unable to invest in assets that generate returns matching their commitments.“So, in France, to talk about Solvency II alternatives […] that’s not the issue,” he said, calling instead for a redesign of the “whole architecture”.“You have to put in place real pension funds, and by that I mean some sort of collective defined contribution scheme and not some sort of 401k à la française.”More fundamentally, current regulations are encouraging pension funds to waste their long-term resources by investing in shorter-duration assets, he said. “If ERAFP invests in French bonds today, not only does it not get returns but that investment means destroying the wealth of the pension fund by reducing our coverage ratio,” he said.He criticised that, while banks were financing long-term projects with short-term money, pension funds with liabilities of up to 30 years were encouraged to invest in short-term bonds. “It’s totally upside down,” said Desfossés. “We are wasting precious long-term capital. Pension funds don’t issue money, banks do – and that’s why they are much more dangerous.”He suggested that, to help pension funds restore their funding ratios, they be allowed to increase their exposure to volatile or illiquid assets. Regulatory constraints limiting such investments would have to be relaxed, he said.“In parallel,” Desfossés added, “pension funds, when they have cash issues, should be able to get direct credit from the ECB as long as they can prove they have set a credible recovery plan.”last_img read more

Rebounding stock markets help Austrian pension funds turn corner

first_imgIn the pension fund association FVPK’s latest quarterly Pensionskassen newsletter, chairman Andreas Zakostelsky highlights that bond markets also contributed to performance.“Corporate bonds showed positive development, and emerging market bonds even yielded double-digit returns,” he said. Bonds still make up the lion’s share of Austrian pension fund portfolios, at just over 60% on average.As at the end of June, their portfolio share increased to more than 68% as equity allocations came down.The three and five-year averages for portfolio volatility stood at 4.62% for Austrian schemes, increasing to 4.7% over the last 10 years.The improving year-to-date figures should help Austrian Pensionskassen push combined assets under management above the €20bn mark later this year – a sum exceeded for the first time at the end of 2015.In 2015, Austrian schemes returned just under 2.4% on average. Earlier this year, the FVPK presented proposals on how to boost the country’s second-pillar pension system, such as by including incentives in collective bargaining agreements and possibly creating a new long-term savings vehicle. Rebounding stock markets this summer helped Austria’s Pensionskassen to improve on their performance for the first half of the year, with Q3 returns raising the year-to-date performance to 3.3% on average.Market volatility in the wake of the UK’s vote to leave the European Union had dampened returns over the first six months of 2016, with Austrian pension funds returning 0.22% on average.In the intervening months, however, average equity allocations of 30% have helped bolster year-to-date returns.In recent years, over most quarters, average equity allocations have tended towards the 30% mark, but, in June 2016, they stood at 25% on average, according to official asset allocation statistics collected by the OeKB.last_img read more

Volatility top concern for global institutional investors in 2017 – survey

first_imgThe survey was split in two parts, with the majority of respondents (340) polled before the US presidential election and 160 after.“In many cases, the results have had a significant effect on their outlook,” according to Natixis GAM.It said that, before the election, two-thirds of respondents expressed confidence in their organisation’s ability to handle the risks associated with investment performance; after the election, this fell to 53% among those surveyed.The asset manager highlighted that volatility was investors’ top concern for 2017.Half of respondents cited market volatility as the top risk concern, while 43% chose geopolitical risk and 38% picked interest rates.Nearly two-thirds of respondents (65%) pointed to geopolitical events as the top source of volatility for 2017, 38% cited the US elections, and 37% the potential for changing interest rate policies.The asset manager said the results showed that institutional investors preferred active management over passive – almost three-quarters say current market conditions are more favourable to active management – and that, over the longer-term, institutions project they will use passive investments less than they previously believed.In a report on the survey, the asset manager noted that institutions anticipated adding 1% to current passive allocations over the next three years (a separate statement refers to 1 percentage point), and says that this compares with a 7% increase projected for the same time frame in an October 2015 survey.In terms of asset allocation, half of those polled plan to increase their use of alternative strategies next year, with 67% using them for diversification and 31% for risk mitigation.The asset manager said investors would increase their allocations to alternative investments in 2017 from 18% to 22% and equity allocations from 34% to 36%, and “dial back” on fixed income, from 35% to 32%.Real estate allocations look set to fall from 7.4% to 6.2%, and cash from 5.1% to 4.5%, according to the survey report.Half of respondents cited increasing alternative allocations as the approach to increase diversification.Diversifying by sector and geography (38%) and integrating absolute return strategies (36%) were the next most frequently cited approaches.“Three-quarters of institutions believe investors may be taking on too much risk in the pursuit of yield,” said Natixis GAM.“Based on their own allocation decisions, some may think they are guilty of the same behaviour.” A survey of 500 institutional investors across the world shows they have “clear preferences” for active management and alternatives, according to Natixis Global Asset Management.The survey sample included 500 institutional “decision makers” representing corporate pension plans, public pension plans, sovereign wealth funds, insurance companies, foundations and endowments.Respondents were spread across Asia (62), Europe (208), Latin America (34), the Middle East (35), the UK (69) and North America (92).The asset manager said the survey asked “pointed questions” about institutions’ opinions on risk, predictions on asset allocation, and views on market performance.last_img read more

Joseph Mariathasan: Dealing with India’s food price volatility

first_imgThere are several approaches to address this problem that could be created or aided by public policy, including:The creation of futures markets, bringing visible tradeable future prices and helping production decisions by ensuring future prices are fixed;Warehousing where possible, enabling sales to be shifted across time to create a better equilibrium between supply and demand, helping to stabilise prices; andInternational trade, enabling surpluses to be exported and – when required – imports to address shortages, stabilising local prices.Finally, India’s size makes it a continental economy with different production shocks across the country. Unfortunately, India’s domestic market in agricultural produce is currently restricted by a set of archaic laws that keep food markets uncompetitive and localised. Moreover, state and sub-state taxes effectively act as technical barriers to the free movement of agricultural food products. As India continues to dismantle rigid controls on its economy, the private sector is booming. A new generation of entrepreneurs is arising that can challenge the traditional dominance of the old conglomerates that grew in size during the period of the “license raj”, the bureaucratic system that ran from 1947 to the early 1990s.One sector that still suffers tremendously from rigidity and vested interests, which act to the detriment of society as a whole, is Indian agriculture. While the agricultural sector of India’s economy accounts for less than 20% of its economic output, it is still India’s largest employer. As such, it is a core component of the economy.A major problem that afflicts the agriculture sector, however, is the high volatility of food prices. When prices are high, consumers protest, and when they are low, farmers suffer badly and ask for loan waivers. Proposed solutions to this volatility could be transformational for farmers and consumers – and, ultimately, investors.There are structural reasons why food price volatility occurs within any local region. A typical example is a year in which sugar cane output is high, causing a price crash. As a result, producers pull back from allocations of land and agricultural inputs, which in turn leads to a decline in output, leading to a further surge in prices, and so the cycle repeats, giving rise to an endless cycle of boom and bust in food prices. A recent paper by four academics at the National Institute of Public Finance and Policy in New Delhi suggested that one solution would be to introduce a national market for food.(One of the authors, Ajay Shah, was a key author of a 2000 report on social security, which led to the creation of India’s National Pension Scheme. Given the pedigree of the authors, it is worth taking their suggestions seriously.)The authors point out that, in Indian agriculture, large changes in prices are required to obtain the required changes in quantities produced of any food commodity. This points to rigidities in the economy through which small price signals are ineffectual.Their core question is: how does India move to a more flexible and responsive agricultural market that is able to respond to changes in demand with modifications in output without requiring extreme price fluctuations?They argue that there are two specific problems which prevent the creation of a national market for agricultural food products. Firstly, legal restrictions placed by states are so high that it is not commercially feasible to enable a national tradeable marketplace. Such restrictions benefit cartels of buyers within a state, encourage corruption and result in slow movement of grains from surplus to deficit regions, giving rise to price variation across regions.Secondly, there are other state laws (primarily on taxes) that require so many technical compliance requirements that physically moving goods across markets is extremely difficult.India should move towards dismantling restrictions preventing a national market in food produce. The authors suggest creating a statutory body to identify technical barriers to agricultural trade within India and require them to be dismantled.Secondly, the national government could use its powers under India’s constitution to remove monopolies and punitive provisions under existing laws, and replace them with a modern regulatory framework conducive to the growth and operation of a national market in agricultural food commodities.For investors, if the paper’s recommendations are implemented, it would create a whole new set of opportunities in a major sector of India’s economy.last_img read more

Pension fund group ‘brings mining community voice’ to investors

first_imgA LAPFF spokeswoman explained that, at meetings organised in the context of the mining and tailings safety initiative, a LAPFF representative would read out statements from individuals in communities affected by companies’ operations, and that a number of investors had said they found these helpful.“They have made suggestions for us or asked if they could learn more, and some used the stakeholder voice as input to their company engagement meetings,” she told IPE. A public sector pension fund association has hosted an event to allow investors to hear from representatives of communities affected by mining company BHP’s operations in South America as it tries out a new approach to engagement.According to the Local Authority Pension Fund Forum (LAPFF), the idea for the event – which was held yesterday – stemmed from the positive feedback it had received as stakeholder liaison to the investor initiative on mining and tailings safety that was called into being following the collapse of the Brumadinho dam in Brazil earlier this year.Councillor Rob Chapman, chair of the pension committee for the London borough of Hackney and LAPFF vice chair, said: “I have been attending the investor tailing dam initiative meetings and have seen what a crucial impact the community input has had on this initiative.“More and more investors have been approaching LAPFF for information and with ideas on how to integrate community voice into the investment process. This seminar seemed like a good way to facilitate this exchange.” Source: London Mining Network“We thought it would make sense to try to link the stakeholders and investors directly.”Hopes for more to comeAbout a dozen investors – from asset managers and local authority pension funds – attended yesterday’s meeting, with trade union representatives among those also in attendance. They heard from visitors representing communities in Brazil, Chile and Colombia.In a statement, LAPFF said the goal was “to better understand BHP’s environmental and social impacts […] in order to improve outcomes for community members and investors”.“LAPFF hopes that this will be the first of more events connecting community members with investors to foster better human rights protections as a means of creating more sustainable shareholder returns,” it said.Yesterday’s seminar was organised in collaboration with London Mining Network, an organisation that for many years has funded the travel of community representatives to London before the annual general meetings of major companies. BHP’s London AGM was last week.The LAPFF spokeswoman said the industry scope for events such as yesterday’s could expand beyond mining over time, as the association had been approached by communities “affected by housebuilder/developer issues”.LAPFF is a voluntary association of 82 UK public sector pension funds and six asset pools, with combined assets of approximately £250bn (€285bn).last_img read more

UK roundup: FTSE350 pension deficit shrinks as bond yields rise

first_img“But again it was a volatile month, with the deficit ranging from £58bn to £24bn in the period,” she added. “Schemes that had structures in place to actively monitor their risk position would have had opportunities to bank some of these gains.”The consultancy flagged the impact of Brexit uncertainty, with Charles Cowling, actuary at Mercer, stating that political turmoil in the UK was set to continue to cause nervousness and volatility in markets.Mercer estimates the aggregate combined funded ratio of plans operated by FTSE350 companies on a monthly basis, including UK domestic funded and unfunded plans and all non-domestic plans.Figures from PwC put the deficit of all private sector DB pension funds in the UK at £220bn, down by £70bn from the previous month. The consultancy’s Skyval figures index is based on a ‘Gilts-plus’ methodology it says is widely used by scheme actuaries. Government ‘actively considering’ cost transparency legislation consultationThe government has said it wants to promote further uptake of cost transparency templates by all trustees and all investment managers, and is “actively considering” consulting on legislation to encourage their use.Responding to a report from the Work and Pensions select committee, the government said the effect of the secondary legislation would be to provide for the calculation of charges and transaction costs by defined contribution (DC) schemes to be made using templates developed by the Cost Transparency Initiative (CTI).It said it would also consult on whether such measures should be extended to DB pension scheme trustees, and if so, how this might be achieved.“With our consultation proposals, we do not intend to penalise trustees who are unable to obtain the information in this format, but we expect asset managers to provide all the information that trustees need to make fully informed decisions,” it said.The pensions minister has previously warned the UK could legislate to enforce new cost transparency codes if the voluntary approach did not yield satisfactory results.The Work and Pensions Committee, which published the government’s and the Financial Conduct Authority’s responses to its report over the weekend, said the government had accepted some of its recommendations, but bemoaned it failing to commit to publish by the end of the year a timetable for the rollout of a non-commercial pensions dashboard, including state pension information.Frank Field, chair of the committee, said the government was “missing a trick”.In its response, the government reiterated its view that the pensions industry was best-placed to develop and deliver dashboards – online portals intended to provide individuals with an overview of all their pension savings – and described steps being taken to achieve this.It said a phased approach both to the functions available on dashboards and the level of information provided was important.According to the government the majority of pension schemes will be ready to go live with their data within a three to four-year window, which will be informed by the industry group driving work on the delivery of the dashboard-enabling technology.The responses to the work and pensions select committees’ report can be found here.  Private members’ bill introduced to cap PPF compensation paymentsA bill was introduced in the House of Lords last week that aims to remove the cap on compensation payments made by the Pension Protection Fund and require pension scheme trustees and The Pensions Regulator to give their approval for companies’ distribution of dividends.The private members’ bill was brought before the upper chamber of parliament by Lord Balfe, and seeks to amend the Pensions Act 2004 and the Companies Act 2006. It was introduced on Thursday, the day the first debate of the Pension Schemes Bill was originally due to take place before parliament voted in favour of an early general election.David Robbins, director at Willis Towers Watson, told IPE that the bill had “virtually zero” chances of becoming law.“It’s not being introduced either by the current government or explicitly backed by the Labour front bench or any other party that might be in government in a few weeks’ time,” he said.Robbins also noted that Balfe had been a member of and left both the Labour and Conservative parties so “might not be best placed” to get other parliamentarians onside. The UK’s 350 largest listed companies recorded an accounting deficit for their defined benefit (DB) schemes of £41bn (€47bn) at the end of October, down from £50bn a month before, according to estimates from Mercer.The values of liabilities and assets both fell, with a net positive impact overall on the schemes’ funded position.Liability values decreased by £23bn, from £906bn to £883bn, while asset values stood at £842bn at the end of the month, down £14bn from the end of September.Maria Johannessen, partner and corporate consulting leader in Mercer’s wealth business, said liability and asset values fell as corporate bond yields returned to the levels last seen in early August, while inflation expectations also declined.last_img read more

​Danish FSA calls on pension funds to explain alts valuations

first_img“The pension companies have had price losses on a number of financial assets this year, and so we are now launching an investigation to get an overview of how the firms have secured a continuous valuation at fair value of their alternative investments,” he said.Back in March at the beginning of the Danish lockdown, the FSA made pension funds step up financial reporting in order to monitor developments in the sector, asking for information about solvency coverage on a weekly basis, including financial stress tests carried out by the firms.At the end of March, Danica Pension received a number of official orders from the watchdog to improve the continuous valuations of parts of its alternatives portfolio, among other areas.Many Danish pension funds have been lifting their allocations to alternatives in recent years in a bid to diversify their asset mixes as well as secure long-term secure income streams as long bond yields shrank.To read the digital edition of IPE’s latest magazine click here. The Danish FSA (Finanstilsynet) said it is launching an investigation into the pension sector’s ongoing valuation of alternative investments, with the funds having suffered investment losses in other asset classes so far this year because of the effects of the COVID-19 pandemic.The financial watchdog called on the country’s pension funds to explain their valuation methods regarding real estate, private equity, infrastructure and illiquid credit investments, in a new probe it it said it was initiating due to recent large fluctuations in markets.Carsten Brogaard, deputy director at the FSA, said: “It is important for the individual pension saver that the firms have processes and methods that ensure that the companies have fair ongoing valuations.”Continuous reporting was a prerequisite for proper risk management within investment, he said, and would help avoid the risk of redistribution of assets between customers, for example when they entered and left the pension schemes, or when there was trading between customers within a company.last_img read more

Huge interest in Sunland Group’s $210 million Mermaid Beach tower

first_imgSunland Group’s 272 Hedges Avenue.BUYERS with an appetite for luxury high-rise living on the Gold Coast’s Millionaire’s Row have spent $100 million on apartments in seven days.Property giant Sunland, developers of Palazzo Versace and the landmark Q1 tower, officially launched their $210 million 44-storey tower on Hedges Ave in Mermaid Beach on Thursday night.Buyers have spent $100 million on apartments in seven days.The tower, which includes 96 apartments priced from $1.835 million, is across the road from beachfront Pratten Park and is the developer’s first Gold Coast high-rise in more than a decade.More than 50 residences have sold with construction set to kick off in September.“272 Hedges Avenue will be our legacy,” Sunland founder Soheil Abedian said.“It is the culmination of decades of refined design thinking and craftsmanship and there is nothing like it in all of Australia.More from news02:37International architect Desmond Brooks selling luxury beach villa16 hours ago02:37Gold Coast property: Sovereign Islands mega mansion hits market with $16m price tag2 days agoLuxury at every turn.“It is fitting that, as we celebrate our 35-year anniversary and a history of creating vibrant communities, we also celebrate the unveiling of the finest residential form we have ever conceived.”There is a selection of two-bedroom and three-bedroom apartments, sub-penthouses, and penthouses.Resident facilities include a dedicated concierge service, residents’ lounge, boardroom, function room, pool, spa, gym, sauna and steam room, and treatment rooms.Sunland Group’s 272 Hedges Avenue.Each apartment features balconies, floor-to-ceiling windows, travertine floors and bespoke bathroom designs.Sunland Group paid $13.4 million for the 1821sq m site last year.last_img read more