Wouter Pelser, CIO at the €90bn asset manager MN, shares Lindeijer’s enthusiasm for responsible investing.“We don’t have a single indication our ESG policy has led to negative returns,” he said.He indicated that MN, together with the €1bn pension fund for the fashion, interior, carpet and textile industry (MITT), had begun engaging with 15 international clothing chains to “counter the negative aspects” of the textile industry.After two years of dialogue, he said, most companies have agreed to introduce certification and independent monitoring of their suppliers under the international ESG standard SA8000 to ensure a decent labour environment.He added that Adidas and H&M had taken positive steps on this front, but he argued that some luxury brands were still lacking in transparency.Edith Siermann, head of fixed income at Robeco, also believes responsible investment “contributes to long-term returns”.She said Robeco’s engagement with energy companies had focused on the introduction of best practices for deep-sea drilling – for example, through safety, transparency on failures and compliance with regulation.“We already see progress on regulation and transparency on policy,” Siermann said, adding that BP was now “leading the pack” as a result of the oil spill in the Gulf of Mexico.Erik Jan van Bergen, head of asset management at SNS AM, said engagement with 16 individual mining companies had led to a concrete agreement with Chilean firm Antofagasta over transparency as a starting point for further dialogue.He said SNS had decided to disinvest from US mining firm Rio Tinto after engagement over its allegedly polluting activities in Papua New Guinea had failed.SNS AM’s engagement process focuses on mining, forestry and the energy sector, “as we expect we can achieve the largest ESG effects in these areas”, Van Bergen said. Responsible investment does not come at the expense of returns, and it could even lead to better results, according to the CIOs of six large Dutch asset managers, with combined assets of €450bn.Eloy Lindeijer, CIO at the €153bn PGGM, said: “We assume ESG investments will generate higher returns over the long term.”As an example, he said energy-saving improvements at PGGM’s real estate investments had reduced vacancies and improved returns.What’s more, PGGM’s recent intervention at German property firm GSW Immobilien – which culminated in the resignation of GSW’s new chief executive and its chairman of the supervisory board – triggered an increase of the company’s market value by 10% within a month, Lindeijer told IPE.
Aden said that the draft proposal and the recent debate around the inclusion of the occupational sector in the packaged retail investment products (PRIPS) regulation that would have made it mandatory to publish Key Information Documents (KIDs) showed the Commission wished to treat bAVs no different from individual life insurance contracts or other financial products.He emphasised that the involvement of sponsors and employees in investment decisions underlined this difference.“They are not in competition [with insurers] and are already strictly regulated on a national level by the BaFin,” he added.Aden was also critical of the “vague” proposals for risk evaluation measures for pension funds, which would require all schemes to conduct regular reviews of investment strategy and other factors when there was a material change in funding.“There is a real danger that Solvency II could be introduced through the back door,” he said, echoing concerns previously raised by numerous people in the industry.The chairman said that if what was proposed in the IORP Directive resulted in decisions on risk evaluation being left with national regulators, then a “practical and sensible solution” could still be found for all involved.VFPK also joined the Dutch and Finnish industry in criticising proposals for a universal pension statement as leading to an increase in bureaucracy that would scare off both employees and employers. A German pension association has criticised the restrictive “corset” of regulation proposed by the European Commission’s revised IORP Directive, noting that the vague risk evaluation measures could still lead to the introduction of rules akin to Solvency II.VFPK, the association representing the interests of company schemes, said that the proposed changes did nothing to increase the attractiveness of occupational provision (bAV) in Germany and would result in increased costs with little discernable benefit.Helmut Aden, chairman of the association, acknowledged that the Commission was attempting to increase the stability of pension systems across Europe. “What is now being proposed in the Directive is, in many areas, more expensive, provides little additional benefit and is trying to impose a standardised European corset on areas that are regulated differently in each member state.”According to the association, the proposed Directive further underlines Commission’s lack of understanding of bAVs.
Ireland’s National Pension Reserve Fund (NPRF) has seen its overall value fall over the course of the second quarter after the share price for one of its two major bank holdings declined.The sovereign fund, which will soon see its assets transferred to the Ireland Strategic Investment Fund (ISIF), said overall portfolio performance for the three months to 30 June was -0.6%, despite the discretionary portfolio returning 2%.However, it incurred losses from the directed portfolio, comprising holdings in Allied Irish Banks (AIB) and Bank of Ireland, after AIB’s ordinary shares fell to €0.01252 by the end of the quarter.The 1.9% investment loss saw the directed portfolio valued just €13.1bn at the end of June, down from €13.3bn at the end of March and stable with its value at the end of 2013. The portfolio update also showed the NPRF Commission had increased the fund’s exposure to euro-zone corporate bonds, seemingly diverting some of its €2.7bn in cash holdings at the end of March to the corporate bond portfolio.While cash holdings fell by €302m over the course of the month, the corporate portfolio increased to account for more than 18% of the €7bn discretionary portfolio, up from 12.6% three months prior. There had otherwise been little material change to the fund’s holdings – the most significant outside of the boost to corporate debt a reduction in equity put options from €50m to just €18m.The Irish Parliament is currently debating legislation that would allow for the transfer of the €20.1bn NPRF’s assets to the proposed ISIF, billed as a sovereign development fund meant to boost growth and employment in the country.
This increase is largely in line with previous statements by the DNB stating that the adjusted UFR was likely to reduce funding ratios by 3 percentage points.Separately, Klijnsma rejected a request to specify the results for ABP, the largest pension fund in the Netherlands.She said there was “no place for conclusions regarding a single fund” and that the study would be a general one, in which the Dutch Pensions Federation would participate.She added that the month of October had been chosen for the study’s release because Dutch pension funds tend to set out the level of their pension premiums over this period. The Dutch Parliament expects to release – in October at the latest – the results of a study on the short and long-term effects of new financial rules on local pension funds.The study will also address the effects of the recently adjusted ultimate forward rate (UFR), according to Jetta Klijnsma, state secretary at the Ministry of Social Affairs.The new supervisory framework for Dutch pension funds, or financieel toetsingskader, was introduced at the start of this year, while changes in the UFR were introduced by supervisor De Nederlandsche Bank in July.In response to parliamentary questions last week, Klijnsma said pension fund liabilities were expected to rise by 2.8 percentage points next year as a result of the adjusted UFR.
The UK should consider allowing a single regulator to take the lead on defined contribution (DC) regulation but not pursue a merger of the Financial Conduct Authority (FCA) with The Pensions Regulator (TPR).The Pensions Policy Institute (PPI) said it was unclear whether there would be benefits to the launch of a single regulator, rather than having trust-based schemes overseen by TPR and contract-based arrangements supervised by the FCA. However, it questioned why TPR had, in contrast to the FCA, no duty to protect the overall integrity of the pensions market and said that, in absence of a single regulator, one of the two bodies should be asked to lead on matters of pension regulation.Melissa Echalier, senior policy researcher at the PPI, noted that comparing the two regulatory regimes was difficult, as they were for types of provision that had developed over many years. “However, the implementation of automatic enrolment in which trust and contract-based pensions have been used for similar groups brings into contrast the two regulatory regimes, and it is clear they both have strengths that could helpfully be used by the other regulator,” she added.The PPI said the FCA’s focus on preventing adverse events was “valuable” when there were new and emerging priorities within the market, pointing to the growing importance of master trusts.The FCA’s current approach to authorisation and monitoring of companies is stricter than the rules applied to master trusts, regulated by TPR, the PPR noted, with interviewees contributing to the report warning that the lack of supervision risks leading to poorer outcomes for savers if a master trust is forced to wind up.The concerns around entry requirements for master trusts have not gone unnoticed by TPR.Its chief executive Lesley Titcomb recently hinted that the Master Trust Assurance Framework – so far only completed by four schemes – could be made mandatory for all providers.The acceptance by those interviewed by the PPI that merging regulators would not be “straightforward” echoes concerns by the government, with former pensions minister Steve Webb saying a single regulator was not one of his concerns.New pensions minister Ros Altmann has stood by remarks from both her predecessor Webb and Treasury ministers that the government was not considering further change.,WebsitesWe are not responsible for the content of external sitesLink to PPI report comparing regulatory regimes for DC
PGGM spokesman Maurice Wilbrink said the asset manager had invested more than €5bn in such deals to date, and that annual net returns, through illiquidity premiums, had been 10% on average.He added that the Santander deal was the third of its kind, and that, out of a total of 30 transactions so far, five had been done in 2014 and eight in 2015. “As part of the deal, the asset manager is to take the first loss,” he said.“But, because the synthetic portfolio remains on the bank’s balance sheet, the bank has a large stake in managing the credit risk, which adds to the security of the investment.”Wilbrink declined to specify the amount agreed for the first loss, or the duration of the contract.He said, however, that several prior transactions had been extended.Mascha Canio, PGGM’s head of credit and insurance-linked investments, said the Santander deal showed how a Dutch pension fund could co-operate with banks to stimulate SME business investments in the European economy.She added that, in light of the European Commission’s legislative proposal on securitisations, where it calls for preferential regulatory treatment of simple, transparent and standardised (STS) securitisations as part of the introduction of the Capital Markets Union, “this transaction supports the relevance of synthetic securitisations next to true sale securitisations”.Pablo Roig, CFO at Santander Spain, said the deal would help the bank manage its exposure in the SME sector and “recycle the freed-up assets in new lending to this strategically important client base in Spain”. PGGM, the €182bn asset manager, has entered into a risk-sharing deal with Spain’s Banco Santander related to a €2.3bn portfolio of small-business loans.PGGM said the deal, made on behalf of the €161bn healthcare pension fund PFZW, provided access to a credit-risk portfolio, further diversifying the scheme’s asset mix.It said the deal – involving a portfolio of more than 6,000 loans to Santander’s clients in Spain – would generate a “stable and robust” return.Since 2006, the asset manager has made similar risk-sharing deals with a number of banks on several continents, including Rabobank, Citibank and Credit Suisse.
None of the trade associations are taking an overarching position on the matter, or at least have not yet reached a conclusion, according to their representatives, but they are instead focused on helping their members understand the implications of a potential ‘Brexit’.Król, for example, said the AIMA would be neutral because of wide-ranging views among its members.Sears emphasised that the majority of the UK fund management industry’s business was in service provision rather than the manufacture and distribution of products, such as UCITS funds.He said continued service provision in the EU in the event of an exit would require showing “equivalence” of rules.To the extent that regulation controls access to a given market, being subject to that regulation without the same means of influencing it would be “less than optimal”, he said.Sears was perhaps most direct in his assessment of the Capital Markets Union (CMU) project being steered by financial services commissioner Jonathan Hill, saying the shift from a focus on de-risking to growth and productivity was encouraging and that a CMU with these priorities would be “a major opportunity for our industry”.He said it would reflect the embracing of greater market finance, and the contribution of the asset management industry to economic growth as asset allocators.Representing the hedge fund industry association AIMA, Król was also positive about the CMU, saying strong capital markets had a positive effect on growth, and promoted transparency and discipline among companies using the capital markets.The CMU, he said, has the “potential to deliver huge benefits to the UK and the EU”.He stressed the popularity of UCITS funds among institutional investors, and warned against the risk of financial services regulation becoming less open and thereby making it more expensive to run UCITS funds.On the topic of the post-crisis regulation introduced by the EU, Sears said the benefits of the regulation continued to outweigh the burdens, citing the ability to “passport”.And “to the extent they are burdens”, these are also being looked at by the cumulative impact review of EU legislation the Commission has launched, added Sears.He also appeared to caution against seeing regulatory compliance demands as only stemming from the EU, noting that the UK has in some matters gone further than the EU and that it “has ensured that it has intervened where necessary”.Król said London held “a unique magic” for the hedge fund industry but that it was difficult to pin down how much of this was linked to having access to the EU market or to the UK domestic regulatory framework.UK prime minister David Cameron has promised an in/out referendum on the UK’s membership of the EU by the end of 2017 and is reportedly targeting a vote in June subject to a deal on new terms of membership for the UK being agreed at a European Council meeting next month.Sears became interim head of the IA in October, replacing Daniel Godfrey, who stepped down after reports that large IA members were planning to leave the association. Exiting the European Union (EU) would bring “massive disruption” to the UK asset management industry, Guy Sears, interim chief executive at The Investment Association, told a Treasury committee hearing on the economic and financial costs and benefits of UK membership of the EU today.Sears was joined on the witness panel by John Barrass, deputy chief executive at the Wealth Management Association, and Jiří Król, deputy chief executive at The Alternative Investment Management Association (AIMA).The panellists were asked for their views on a range of aspects, such as the accountability and transparency of EU rule-making, the cost of compliance and the appropriateness of the EU’s post-financial crisis regulation.Sears, after apologising for an initial “equivocal” response to questioning about whether it would be better to be in or outside the EU, said there would be “massive” disruption to the UK investment management industry if the UK were to leave the union.
The deadline for comments is 5 February. Sven Giegold, the Green Party’s spokesman on economic affairs in the European Parliament, has issued a public call for comments on a draft Economic and Monetary Affairs Committee (ECON) report into International Financial Reporting Standards.Giegold said: “The initiative report of the European Parliament is a welcome occasion to hint to major problems and to make proposals for corrections.”The ECON committee released a draft of its report dealing with the so-called IAS Regulation on 12 January (see related story).Among its proposals is a call for the European Commission to examine whether the European Securities and Markets Authority has sufficient powers to fulfil its remit.
The third is the period from 2008, with the collapse of Lehman Brothers and the subsequent sovereign debt crisis.Where we are now is “strangely familiar”, according to Wilmot. The prevailing low bond yields in the major developed countries, for example, should not be a surprise given that the history of the other crises has shown that nominal bond yields keep falling throughout the subsequent recovery period.For the next 7-10 years or perhaps longer, therefore, investors can expect zero real returns from developed market bonds and 4-6% from equities as “good working assumptions”, according to Wilmot.A typical mixed portfolio of bonds and stocks will deliver 1-3% per annum, in comparison with the nearly 10% p.a. on offer over the past seven years, he said.“That is a pretty challenging prospect for baby boomers and fund managers,” he told event attendees. It makes very important the question of whether excess return can be achieved through active management, he added.The “persistence of fragility” following major financial crises also raises the question of whether the Fed is making a policy mistake akin to that made by the central bank in 1937. In 1937, the Fed raised interest rates to stem an outflow of gold, precipitating what can also be seen as the second of back-to-back recessions at the time rather than one Great Depression, according to Wilmot.“If we’re making a 1937-style mistake, it could be a big one,” he said, but he warned against expecting a “literal re-rerun”.The persistent fragility of the economic and financial system, as well as investor and business confidence, are reasons to doubt whether December’s rate hike by the Fed is the beginning of a standard hiking cycle, he added.Others are also sceptical about assuming more tightening from the Fed as a given.Peter Hensman, global strategist at Newton Investment Management, said: “The US is as likely to restart stimulus as it is to raise rates through the year.“I suggest the Fed should look at recent comments made by former Bank of England governor Mervyn King about what history now views as the Swedish central bank’s (Riksbank) error in raising rates in 2010-11 and then having to sharply reverse direction after inflation remained below its target.”The Fed could make the same mistake, if it has not already, added Hensman, citing the instability of Chinese equity markets and the increasingly permanent “so-called ‘transitory’ declines in energy prices”.,WebsitesWe are not responsible for the content of external sitesLink to Credit Suisse Global Investment Returns Yearbook 2016 The history of the “great crises of capitalism” suggests there is an “all too real” risk of the US Federal Reserve making a policy mistake like that of 1937, and that investors should expect low returns from bonds and equities for a decade or more, according to Jonathan Wilmot, head of macroeconomic research at Credit Suisse Asset Management.Wilmot was speaking at an event in London to present the 2016 edition of the Credit Suisse Global Investment Returns Yearbook, to which he contributed a chapter on ‘When bonds aren’t bonds anymore’.Wilmot outlined the market environment investors and the fund management industry could expect to face in the coming years on the basis of the previous “great crises of capitalism”.These were in the 1890s, featuring a Latin American debt crisis, global panic and recession, and the 1930s Great Depression, according to Wilmot.
And now the question – what will happen in the medium and long term? What EU leaders don’t want, Incerti reports, is long, dragged-out negotiations. Article 50 of the 2009 Lisbon Treaty, they say, should be enacted straight away.Incerti, at the Centre for European Policy Studies (CEPS), also notes, wryly, that the referendum impact on the descending value of the pound had, already, during the first morning, resulted in the UK’s losing its status as the world’s fifth-largest economy. That honour now goes to France.Clearly prompted by rage, one reaction to the Leave vote comes from Elmar Brok, a member of the European Parliament. Significantly, he is also president of the Union of European Federalists. The German centre-rightist recommended that EU president Jean-Claude Junker immediately remove Lord Jonathan Hill as the British commissioner for financial services. Brok was by no means alone. In fact Hill, a devoted European, announced the next day that he would stand down. Valdis Dombrovskis, the Latvian commissioner, will take his place.But not so fast, cautions another commentator. I would not agree with Brok on Hill’s position, Zsolt Darvas tells IPE. Remember, whatever happens, the UK will remain a member of the EU for at least another two years. Perhaps, it could be “much longer”, suggests Darvas, a visiting fellow at another think tank, Bruegel.Interestingly, Darvas, a Hungarian, goes a stride further. He would not exclude the possibility of a second referendum in the UK. This could follow a fury-driven general election later this year. He might agree that forecasts of economic calamities, such as tragic job losses, coming true, could force such a move. Roughly on the same track, another bystander notes the young age-bracket of the Remain voters – young, virile and furious. Yet another observer, a mid-level official in the European Commission, wonders how the UK could ever square off the fact that 48% of the British voters, many with long lives ahead, did vote for Remain.Furthermore, Darvas offers that the Leave side, being strongly powered by opposition to immigration, could mean that the UK has to stick to its guns on this issue. This would rule out any Norway/Switzerland style outcome. Leaving what other options? And if London were to lose passporting rights, matters would be further “complicated”. A forecast of large funds having to leave the City could not be that far away.Back to the European Parliament, another MEP, with a less strident line than Brok’s, comes from Green Party member Sven Giegold. This MEP refers to Brexit as “a historic setback for the European Union but not its end”.However, Giegold goes on to note that, if the UK thinks it can have open access to the single market without taking on its common rules, it would be mistaken. There could be no free movement of capital for the City without free movement for citizens, he warns. Forces leading to a tumultuous political scene emerging in the UK do seem to be piling up. Will the pandemonium lead to another election soon? If Labour campaigned to stay in the EU by refusing to trigger Article 50, the effect would be the same as a second referendum. Out of the question? Perhaps not entirely. Jeremy Woolfe considers some of the many scenarios facing the UK and the EU post-BrexitThe fundamental reaction to the referendum result in Brussels appears to be one of shock. It was more or less completely unexpected. Discussion on the subject, at the previous day’s PensionsEurope annual gathering in Brussels, had been universally optimistic the Remain side would prevail.This view was supported by the 52%-48% Remain vs Leave polls, as well as by the performance of financial markets. A mood of optimism, nervous though it might be, prevailed. It lasted until up to around an hour after midnight British time.Then, at the no doubt one of many late-night Brussels gatherings, came the Newcastle result. Then, nail-biting and worry promptly set it. And finally, as told to IPE by think tank researcher Marco Incerti, the morning after dawned with a general feeling of sickening confusion.