Q: What is the core task of your institute?A: Developing a sustainable pension, as well as pension institutions that are able to deliver this.Q: Why are you quitting now?A: I have been working here 10 years – that’s a nice round number. And taking care of a proper succession is part of good management. I will remain involved as emeritus director in the background. I have a transitional role by co-organising discussions for the institute, and I will also remain editor of our scientific magazine.However, I aim to spend my surplus time with clients of my advice bureau KPA Advisory. And I also want to get engaged in politics. I am already involved in establishing a pensions system for the province of Ontario, and I’d like to devote more time to this.Q: Are you pleased with your successor?A: Rob is a natural successor. From the beginning, he has been involved in ICPM, initially with ABP, where has was director of research at the time, and later with Maastricht University. For Toronto University, it is special that somebody who is not connected to the faculty is to become director. Rob knows the European pensions sector well, and we will make him even more familiar with research results from the US and Australia.Q [to Rob Bauer]: Did your appointment as director of ICPM come as a surprise?A: Not really. Since the founding of the institute in 2004, I have been involved as a board member. In recent years, ICPM has been contemplating what would happen when Keith stepped down. Last year, I was asked whether I was interested to succeed him.Apart from that, in 2004, I was still working for ABP, as head of the research department for strategic investment policy. Nowadays, I am working three days a week at Maastricht University as professor of finance, focusing on institutional investments. And sometimes I do jobs for pension funds.Q: What are, in your opinion, the biggest achievements for the institute and your predecessor?A: Keith Ambachtsheer’s vision on pensions is clearly reflected within the ICPM. It could be best summarised as “integrated thinking” – considering all relevant parts within a pension fund as a single, integrated unit, whether it is about investments, liabilities or governance.I also think that ICPM’s international approach is a big strength. Board members of pension funds tend to focus on local subjects, and consultations with other board members chiefly happen within the local context. But sparring with colleagues from other countries often delivers surprising and interesting insights.Q: What can we expect to see from your directorship at ICPM?A: I don’t think it would be appropriate to go into this now. In the coming months, we will look at what is working well and what might be improved. For this, I will have a dialogue with our research partners. However, pension funds, scientists and bodies such as the OECD have told me they appreciate that they can have consultations within our panels without commercial parties. I can imagine we will extend this service in the coming years. Ten years since the start of the Rotman International Centre for Pension Management (ICPM) of Toronto University, there has been a change of guard. Maarten van Wijk and Sameer van Alfen interview its founder Keith Ambachtsheer, who is standing down as its director, and his successor, Rob Bauer [pictured] of Maastricht University.Q [to Keith Ambachtsheer]: You have founded ICPM. Are you proud of what you have achieved over the past 10 years?A: Certainly, the research institute is unique. We have created close ties between the academic world and the professionals through all sorts of pensions organisations participating in our institute. I spotted this model, with close contact between academics and providers, for the first time in the Netherlands in the 1990s. In my opinion, it was very special that, at the time, Jean Frijns was both director of the civil service scheme ABP and professor at Amsterdam’s Free University.I wanted similar connections in Canada. I think, as an institute, we are unique. In the Netherlands, there is Netspar, but that is predominantly for the Dutch market. We operate internationally, with 38 participants from 12 countries. However, they include many Dutch organisations, such as APG and PGGM, the asset managers of ABP and PFZW, respectively, as well as regulator De Nederlandsche Bank.
The fund will track performance of the FTSE USA Index, which tracks US large to mid-cap listed stocks.TTF usage is expected to grow, rivalling similar set-ups in other European countries, as well as the use of life funds in the UK.Two London council pension funds recently announced their commitment to form a collective investment fund, using a TTF structure, which will offer reduced investment fees and maintain tax efficiency.On the launch of the TTF, BlackRock head of UK retail said simple, tax-efficient solutions were important given the complexity for investors.“The introduction of this new structure by HM Treasury last year is an important step in the next generation of tax-efficient solutions for UK investors,” he said.“We also welcome the arrival of a level playing field, bringing the UK in line with other European fund centres.” Asset manager BlackRock has launched the UK’s first tax transparent fund (TTF) following on from the government’s decision to mimic the pooled fund structure seen elsewhere.TTFs are collective funds that provide pension funds with a vehicle that avoids additional tax penalties by treating contributors as individual investors, directly owning securities.These funds, officially known as authorised contractual funds (ACFs) in the UK, are currently available in Ireland, Luxembourg, the Netherlands and Germany, which has lead the UK tax authority to implement the funds to attract and retain capital on-shore.Since the legislation passed last year, BlackRock has launched the first fund, which will offer a collective environment for investing in US equities.
The International Financial Reporting Standards Interpretations Committee could be on the verge of restricting the ability of defined benefit plan sponsors to recognise a plan surplus on their balance sheets.Summing up the committee’s 15 July discussion of the issue, chairman Wayne Upton said: “Having looked at this issue again, my sense of a majority of those who spoke was that it is not an asset.”He added: “It doesn’t meet the criteria for recognition, which makes measurement irrelevant.”Ten IFRS IC members supported this analysis. The IFRS approach to pensions accounting is set out in International Accounting Standard 19, Employee Benefits (IAS 19).In 2007, the IFRS IC’s predecessor issued IFRIC 14, which interprets the requirements of IAS 19.Paragraph 58 of IAS 19 limits the measurement of a defined benefit asset to the “present value of economic benefits available in the form” of refunds from the plan or reductions in future contributions to the plan.IFRIC 14 deals with the interaction between a minimum funding requirement and the restriction paragraph 58 on the measurement of the defined benefit asset or liability.The 15 July discussion leaves the committee’s staff to consider ahead of a future meeting whether its asset-ceiling guidance, IFRIC 14, as written, is sufficient basis for that conclusion, or whether some further action is required from the committee.That action could take the form of an amendment to IFRIC 14.Alternatively, because IFRIC 14 is an interpretation of IAS 19, the IFRS IC might ask the IASB to amend the standard.The IFRS IC discussed the issue at its May meeting.Committee members tentatively decided to develop either an amendment or an interpretation on this issue and requested further analysis from staff.When a DB plan sponsor applies IAS 19, it must first measure the DBO using the PUC method, on the one hand, and fair value any plan assets on the other.This calculation will produce either a DB asset or liability at the balance sheet date.Where a plan is in surplus, the sponsor will recognise the lower of any surplus and the IAS 19 asset ceiling – that is, the economic benefits available to the entity from the surplus.The IFRS IC developed IFRIC 14 in order to provide guidance on calculating the asset ceiling.More recently, a constituent has asked the committee to consider whether preparers should take account of events that might disrupt the plan unfolding in line with the IAS 19 assumptions when they apply IFRIC 14.And example would be the trustees of a DB scheme whose future actions could reduce the ability of a sponsor to recognise an asset.For example, the trustees of a plan might opt to augment members’ benefits or wind up the plan and purchase annuities.Eric Steedman, IAS 19 expert at Towers Watson in the UK, told IPE: “This will be dependent on the scheme rules.“It is quite hard to generalise here. It is not necessarily just down to legislation.“If the committee follows the trajectory it seems to be on, sponsors will need to re-examine the conclusions they previously made under IFRIC 14 and see if they still stand up. In many cases they will, but in some they might not.”He added: “A lot of people will also be relying on the ability to take contribution reductions, but, as plans close, that becomes less available.“So I can foresee a situation where, as more plans close and funding levels improve, people need to look more closely at these things.”He said the course the IFRS IC was on could mean change for some people but not for everyone.“I would think over time there will be more people caught by these considerations, but, again, it will depend on the plan specifics,” he said. “I don’t have the sense that this is going to be a flood, but it might be significant for those who are affected.”IFRS IC member Tony Debell warned during the meeting that committee members needed to think through the implications of any actions very carefully.He said: “I understand why people feel uncomfortable with the notion that if someone can just take it away, I don’t get it, but the company controls its right to have whatever is there, and that’s the model that IAS 19 is built on.“I’m just concerned we’re going with an answer we feel comfortable with rather than an answer supported by what the literature says.”In particular, Debell warned that IFRIC 14 was concerned not only with recognition of an IAS 19 balance sheet asset but also with the interaction with any minimum funding requirement.He said “one of the consequences of doing this would be not only to take an asset off the books” but also to add “a liability on as well”.“I want to make sure everybody understands that is what you would be doing when there is a minimum funding requirement,” he said. The IFRS IC is scheduled to meet next in September.
In the US, shareholders have a non-binding right to vote on remuneration.Although Ellison has recently announced that he will step down as chief executive, he also indicated that he would become the key trustee for technical matters, as well as chairman of the board. “This won’t improve the extremely bad corporate governance at Oracle and will confirm Ellison’s power,” Jackson said.Oracle’s board has twice ignored a majority of shareholders rejecting its remuneration policy.According to Jackson, Oracle also failed to reply to a previous offer to discuss the resolution.The FD quoted Jackson as saying: “We want to increase the pressure on the company. If this is going nowhere again, we could consider disinvestment from Oracle.”She declined, however, to provide details about PGGM’s stake in the technology firm, pointing out that the asset manager’s initiative was a “matter of principle”.“Oracle is one of the worst performers on corporate governance,” Jackson said.“Whereas banks and other technology companies are open to engagement, Oracle is fully keeping the boat away from the shore.”Last year, PGGM, RPMI and CalSTRS voted against the entire Oracle board in a dispute over pay and board accountability, after the company’s compensation committee ignored their concerns.In a letter at the time, the three players noted that their criticisms also extended to “wider issues of proper board accountability”. PGGM, the €178bn Dutch asset manager, is preparing a shareholder resolution to appoint independent trustees at California-based technology firm Oracle. In Dutch daily Het Financieele Dagblad (FD), Catherine Jackson, PGGM’s adviser, said: “The resolution is a next logical step, as shareholders lack any right at Oracle, where all board members are loyal to CEO Larry Ellison.”PGGM has been critical Ellison’s power and Oracle’s high remuneration levels since 2010, working in tandem with UK railway scheme Railpen.The large US teachers scheme CalSTRS, the automobile industry scheme AUW and the Nathan Cummings Foundation have now also joined PGGM in its bid to effect change at Oracle, Jackson said.
Joseph Mariathasan assesses the merit of so-called activist fundsKarl Marx is not the economist whose views most fund managers would claim to follow. But if you ever visit his grave at the once fashionable Victorian cemetery in Highgate, North London, you will see the epitaph inscribed beneath his bust: “The philosophers have only interpreted the world in various ways; the point, however, is to change it.” Some fund managers have taken this axiom very much to heart and, in their interactions with the companies they follow, seek not just to interpret the information they get but to change the companies themselves.In the US, activist investing has been around for decades, but there is some evidence indicating it is increasing. In 2015, the number of companies receiving public demands by an activist investor grew by 16%, according to Activist Insight. But activist funds have not been getting good press recently. Activist firm ValueAct, for example, was the driving force behind the growth of now struggling pharmaceutical company Valeant. Concerns about the impact of activist firms in encouraging very short-term focus by management in the US has led to two US Senate Democrats introducing a bill in March co-sponsored by Elizabeth Warren, the Massachusetts Democrat, and presidential contender Bernie Sanders of Vermont. The Bill – apparently inspired by the closure of a paper mill in Wisconsin that was the target of activist fund manager Starboard Value in 2011 – aimed to curb the behaviour of activist hedge funds.At another level, shareholder activism has been tied in with the general debate on corporate governance and the necessity for fund managers to exercise active voting. For most fund managers, this has been a chore that adds little to their ability to outperform their peers and arguably detracts from it by the amount of resources it consumes, leading to the development of engagement-overlay providers – specialist providers that do not manage the underlying investment but provide voting and engagement services to asset owners. But perhaps the deepest criticism of activist intervention of this type are the arguments marshalled by commentators such as Arjuna Sittambalam, who believes corporate-governance activism can stifle enterprise and damage investment returns. Sittampalam’s assertion in his 2004 book – Corporate Governance Activism: Desirable Doctrine or Damaging Dogma? – is that fund managers, instead of pressurising for change, should stick to selling the stocks they dislike, while company management should be left to get on with their jobs, something that, in most cases, they are better equipped to do than a fund manager. Moreover, it is the existence of accountable and independent boards that should be taking the role of ensuring management does not cause the company’s decline through mismanagement.The debate over the role and benefits of shareholder activism is likely to run and run and ultimately will depend on the other checks and balances inherent in the local financial environment, which still can differ significantly from one developed economy to the next. In the US, shareholders have less power and rights than in the UK, so an activist shareholder has to take a much more aggressive approach to influence boards and chief executives.What may be clearer is that taking some of the private equity disciplines and applying them to selected listed companies may be able to produce substantial benefits. However, with such a high level of engagement with a small number of small and mid-cap stocks, the capacity constraints for an activist manager are important. At these levels, activist funds may be profitable for their investors, but they are hardly likely to change the world.Joseph Mariathasan is a contributing editor at IPE
Funding at the five largest pension funds in the Netherlands has improved slightly over the third quarter, with returns ranging between 2.7% and 3.1%, largely offsetting the effect of falling interest rates.Four of the schemes, however, are still at risk of having to make rights cuts next year, as their coverage ratios remain just above the critical level, according to third-quarter results.ABP, PFZW, PMT and PME said they should avoid having to cut pension rights next year, based on their present financial positions, but they conceded they were girding themselves for a possible worsening.BpfBOUW, the €55bn pension fund for the Dutch building industry, is in best financial shape of the largest schemes, boasting a funding of 105%. It reported a third-quarter return of 2.8% and a year-to-date return of 14.4%.As at the end of Q3, coverage at ABP stood at 90.7%, just above the critical level of 90%, which would trigger rights cuts next year.The €381bn civil service scheme said it was wary of a number of risks, such as the upcoming presidential elections in the US, the possible termination of the European Central Bank’s quantitative easing programme in March and upcoming national elections in the Netherlands, Germany and France.All asset classes – apart from commodities, which returned -3.7% – made positive contributions to its quarterly return of 2.7%, taking its year-to-date return to 9%.Equity was ABP’s best-performing asset class, with emerging market equities returning 7.8%.Government bonds, emerging market debt and credit returned 0.5%, 2.1% and 1.1%, respectively.The €185bn healthcare scheme PFZW reported a quarterly return of 2.9%, raising its funding to 89.2% – 2.2 percentage points above the pension fund’s minimum level.It said equity, private equity and property returned 4.3%, 1.9% and 0.3%, respectively.Emerging market debt in local currency (1.2%), mortgages (3.7%), government bonds (0.1%) and inflation-linked bonds (0.9%) also contributed positively to the quarterly figures.PFZW added that its cumulative return over 2016 was 12%.The €45bn metal scheme PME saw its funding increase by 0.3 percentage points to 91% on the back of a third-quarter return of 3.1%.It also returned 12% over the past three quarters.PMT, the €68bn pension fund for the metalworking and mechanical engineering sector, posted a cumulative return of 13.5%, following a quarterly return of 2.7%.Its funding increased to 92.1%.The pension fund said it boosted its interest-risk hedge to 40%, as falling interest rates were likely to force the interest cover through the floor of its set strategic bandwidth of 37.5-42.5%.A PMT spokeswoman added: “We also sought to reduce our risk profile further due to uncertainties in the market.”
“Master trusts have grown to represent over 35% of the workplace savings market and account for the savings of over 7m DC scheme members in the UK,” said Jesal Mistry, head of scheme design and provider evaluation at Hymans Robertson.“The fact that only three of the master trusts we surveyed offered tax relief at source is not just surprising but a major concern as it could mean thousands of individuals auto-enrolled are not receiving the tax relief they were promised.”Pension freedoms three years onFigures from FTSE 100-listed broker Hargreaves Lansdown have revealed the extent to which recent retirees have fallen out of love with annuities since pension freedoms were introduced three years ago.In April 2015, more than 90% of retirees opted for an annuity, the company said. That number had fallen to just 12% at the start of this month, with 54% now choosing to cash in their entire pension fund.Nathan Long, senior pension analyst at Hargreaves Lansdown, said that while the relaxation of the rules had allowed investors more flexibility, the stability and security of an annuity could not be ruled out.“New pension rules have put savers firmly in control of their life after work and have proven incredibly popular,” he said. “Now, three years on from the pension freedoms, stable annuity rates and a rising stock market could prompt the first round of pension freedom-seekers to re-examine opting for the security of an annuity with some or all of their pension plan.”The annuities market has shrunk to just six providers, with eight having exited following the launch of pensions freedoms on 6 April 2015. However, Hargreaves Lansdown estimated that the departing companies represented just 15% of the overall market.Teachers’ Pension Scheme to equalise survivor benefitsSame-sex couples within the Teachers’ Pension Scheme will soon be granted the same survivor rights as their heterosexual peers following a ruling in the Supreme Court last year.Regulatory changes will be introduced to standardise the treatment of same- and opposite-sex couples after the court ruled in favour of John Walker in his 12-year battle with Innospec, the global speciality chemicals company.Walker had requested that his company pension pass to his husband in the event of his death, but because he had joined the firm before 5 December 2005, when civil partnerships were introduced in the UK, Innospec declined the request.In an update on the Teachers’ Pension scheme website, members were informed that survivors of civil partnership or same-sex marriages would gain the same benefits if they were employed from 1 April 1972 or 6 April 1978 if the marriage occurred after the last day of pensionable service.However, anomalies remain within the scheme with regard to male widowers of female teachers. On its website, the scheme said a European Court of Justice ruling meant schemes must “provide equal survivor benefits for males who survive their female spouse in relation to service from May 1990. The Teachers’ Pension Scheme provides survivor benefits for males who survive their female spouse in relation to service from 6 April 1988.”DB deficit jumps during MarchThe combined deficit of the UK’s defined benefit (DB) pension schemes jumped by more than 60% over the past month, according to figures from the Pension Protection Fund (PPF).The total shortfall increased from £72.1bn at the end of February to £115.6bn by 31 March, the statutory body’s monthly figures showed.Funding levels also fell over the month, with the ratio dropping to 93.1% at the end of March. Total assets stood at £1.57trn with liabilities recorded at £1.7trn. Just under 3,800 schemes remained in deficit, with 1,792 in surplus, the PPF noted.However, the PPF said the deficit was still lower than the £161.8bn shortfall recorded at the end of March last year. Funding levels, on a year-by-year basis, also improved – up from 90.5% in March 2017. Many of the lowest-paid members of UK defined contribution (DC) master trusts are missing out on 20% pension tax relief, consultancy Hymans Robertson has warned.The firm’s research has revealed that just three of the top 17 master trust providers offered the chance for members caught between the £10,000 (€11,533) annual minimum level for auto-enrolment and the £11,850 income tax threshold to claw back their tax.Tax relief ‘at source’ was offered only by NEST, Legal & General and The People’s Pension, Hymans Robertson said. NOW:Pensions did not offer tax relief at source, but “does make up any shortfall in lost tax relief for members”, it noted.The anomaly first became apparent in April 2015 when the government retained the minimum salary level for auto-enrolment at £10,000, but raised the liability rate for income tax to £11,500.
California Public Employees Retirement System (CalPERS), one of the largest pension funds in the world, is launching a separate entity to invest directly in private equity as it tries to expand its allocation to the asset class to 10%.After over a year of deliberations, the fund yesterday unveiled two “strategic business models” for its private equity programme, which it said would create the new entity, called CalPERS Direct. This was part of a wider review of its overall private equity programme, it said.The pension fund said it anticipated it would need to invest up to $13bn a year in private equity to achieve a 10% allocation of the portfolio. A spokeswoman confirmed that this was across CalPERS’ entire private equity investment programme.The pension fund currently has 7.6% of its overall $354.4bn (€300.8bn) portfolio invested in private equity. Ted Eliopoulos, outgoing CalPERS’ chief investment officer, said: “Our investment team has spent months exploring options in order to design an approach to private equity that takes advantage of our size and brand. “We believe it will drive stronger private equity returns and help achieve economies of scale over time,” he said.CalPERS Direct would comprise two funds, according to the pension fund.One would focus on late-stage investments in technology, life sciences, and healthcare, while the other would concentrate on long-term investments in established companies.The funds will operate alongside CalPERS’ existing private structure, which it said typically invested in co-mingled private equity funds. CalPERS Direct, which is planned to launch in the first half of 2019, would be governed by a separate, independent board advising on allocation as well as longer-term capital market perspectives, the pension fund said.As things stand, CalPERS invests in private equity via direct and co-investments with the fund’s existing general partners, via direct secondary investments, and via funds of funds — for specific mandates.
The Dutch pension fund of IT giant IBM and the company scheme of pensions supervisor De Nederlandsche Bank (DNB), which use TKP Pensioen as a pensions provider, have been given target dates to leave the company, as it has indicated both schemes are too small for a profitable service provision.TKP has set a target date of 1 January 2022 for IBM and 1 January 2023 for DNB to end its services for the schemes.Roeland van Vledder, independent chairm of both schemes, said that, although TKP hadn’t formally announced that it would terminate the contracts, it had made clear that costs had become too high as a consequence of new legislation.He said that both pension funds were taken by surprise, as they didn’t consider themselves too small. The €2.2bn DNB scheme has 5,000 participants, while IBM’s €4.8bn pension fund has 14,000 participants in total.However, the chairman emphasised that the issue of complexity of pensions provision didn’t play a role in TKP’s considerations.In a response, the provider said that it was improving its digital service provision through a programme that, “from a costs perspective, would be most attractive for larger volume schemes”.It added that it didn’t want to put further pressure on its profitability, “as is the case of pensions provision for Pensioenfonds DNB”.A TKP spokesperson declined to provide details on the contract with the IBM scheme. Roeland van Vledder at DNBVan Vledder said he could understand what had driven TKP to consider stopping provision for both schemes. “The internal audit, as prescribed by the European pensions directive IORP II, would make providing this service for many clients difficult and expensive,” he explained.“In our opinion, TKP wants to solve the issue correctly. They told us their plan at a very early stage,” he added.The chair added that the DNB scheme was now considering switching to another provider as an independent pension fund, or joining a consolidation vehicle (APF) in an individual compartment.He said IBM was looking at additional alternatives, and was expected to make a decision no later than the second quarter of next year.There are several providers eager to offer their services to the IBM scheme, Van Vledder said, without disclosing names.TKP did not disclose which other schemes it would stop providing services for, or whether it had set a minimum number of participants.The spokesperson said the company was “in an engagement process with clients, which had contributed to schemes assessing their options”.
Wouter Bos, Invest-NLHe said the fund’s aim was to quadruple the amount of risk-baring capital for the energy transition within five years.In an earlier interview with a local newswire, he said other investors, including pension funds, were welcome to join, “as we will never finance more than 50% of the entire investment”.Bos added that investments with large risks required much more market expertise.A spokesman for Invest-NL told IPE the fund hadn’t yet committed assets to concrete projects.Past experience has shown that it is difficult for the government to direct institutional asset flows.The National Mortgage Institution (NHI) – launched in 2013 – ceased within a couple of years, following objections by the European Commission citing illegal government support.Meanwhile, Dutch pension funds had invested dozens of billions or euros in local mortgage funds in the wake of low returns on government bonds.The Dutch Investment Institution (NLII), established by pension funds and other institutional investors in 2015, also ceased operating because of a lack of investable projects.Bos said Invest-NL differed from previous initiatives by focusing on the long term. PGGM, the €238bn asset manager for healthcare pension fund PFZW, suggested that Invest-NL could create investment opportunities for institutional investors in primary infrastructure, where private capital can contribute to expensive transitions.The investment fund could also play an important role during periods of financial stress by providing liquidity, it said.The vehicle for impact investment – with the Dutch state as single shareholder – is to provide financing to fast-growing innovative companies involved in industrial technologies.It will also focus on energy transition, in particular on electrification, a circular economy, agrifood and buildings.Invest-NL will be run by a 40-strong team led by Wouter Bos, a former Dutch finance minister, who has also been a manager at energy giant Shell, as well as a partner at KPMG. The asset managers for the largest Dutch pension funds are supporting the government’s €1.7bn investment fund Invest-NL, which was launched last week.APG, the €534bn asset manager for civil service scheme ABP, said Invest-NL could help transform projects from drawing board ideas into investable propositions for institutional investors.This could be achieved through carrying financial risks market players are not willing to take.It added that the investment vehicle could also bring public and private stakeholders together.