The scheme sets a 10% maximum exposure to emerging markets for the €115 Treasury bond portfolio.Up for grabs in the Prudente sub-fund is also an actively managed ‘variable risk budget’ portfolio worth €46m, consisting of currency and equity assets.Within the Mix sub-fund, Fondo Giornalisti is looking for a passive manager of a €70m mixed bond portfolio (government and corporate) and an active one for €52m worth of assets, 90% of which will be invested in global equities, while the remainder will be invested in the currency markets.Davide Cipparrone of Mangusta Risk, which is assisting the scheme in the selection process, said Fondo Giornalisti was looking to review the asset allocation of the two sub-funds to achieve greater diversification for its portfolio.He added: “The goal was to structure a tender that is going to be as attractive as possible for the best asset managers on the market, as well as achieving the right balance of active and passive management of the portfolio”.In other news, corporate credit specialist manager Muzinich has raised €156m from Italian and non-Italian institutional investors to set up a closed-end Italian debt fund that will finance Italian SMEs.The five-year Italian Private Debt Fund will invest in companies with revenues of between €50m and €500m and EBITDA of at least €7.5m.The fund targets a 7% IRR for investors.The fund has generated significant interest from both Italian and non-Italian institutional investors, including Swiss and German ones, according to Muzinich management.A further round of financing is expected later this year.The Italian Private Debt Fund will work with lenders to provide capital for companies that are struggling to access credit through other channels, but will avoid firms in operational recovery or start-ups.It will invest in companies in the industrials, consumer goods, food, luxury, retailing, healthcare, communications, transport and business services sectors.Companies will be given 5-7 year term financing of between €10m and €20m.Muzinich, which currently manages €20.8bn of assets, is looking to set up similar funds in other European markets, including Spain and the UK. Fondo Pensione Complementare dei Giornalisti Italiani, Italy’s second-pillar scheme for journalists, is looking to assign six mandates for €376m worth of assets, close to 80% of its total assets under management.The €473m scheme has launched a search for managers for its ‘Prudente’ and ‘Mix’ sub-funds, both passive and active ones, to invest both directly and through UCITS-compliant vehicles.The mandates will last for three years.Within the Prudente sub-fund, Fondo Giornalisti will appoint managers for three passive portfolios of €115m in Treasury bonds, €57m in corporate bonds and €36m in equities, respectively.
The proposed European Capital Markets Union (CMU) has been hit by revisions to IORP II, according to Clifford Chance, as the legislation undergoes second negotiations in the European Council.The latest revisions to the IORP II Directive showed EU member states clawing back regulatory power from the European Insurance and Occupational Pensions Authority (EIOPA), after wording amendments in the Directive.Significantly, Articles 29 and 30, which provide details on scheme risk evaluation, have been amended, giving power to national regulators after previously being seen as a risk for the implementation of solvency requirements through secondary EIOPA regulation.However, Hans van Meerten, a pensions lawyer at Clifford Chance in the Netherlands, said this was at odds with greater plans for the CMU. Incoming financial services commissioner Jonathan Hill has the remit to create a foundation for a CMU, which he aims to complete by 2019.In statements prior to his approval by the European Parliament, Hill said underdeveloped occupational pensions were a barrier to the creation of the CMU, a key policy of the incoming Commission.Van Meerten said Hill appeared to be a “huge fan” of greater integration and questioned how that would work in conjunction with the latest IORP II Directive.“All the powers are back to the member states,” he said. “This would work badly with the CMU, as pensions are an important part of this union, particularly cross-border pensions, which have also been made more difficult.”The latest draft also sees wording allowing members to veto any move for a scheme to become cross-border.“I don’t see the compatibility of IORP II and the developing the CMU,” Van Meerten added.But Tim Smith, senior associate at UK law firm Eversheds, said the move to national regulator level was a positive step – although he warned this did not mean it would be kept in before the Directive was ratified by the Parliament and finally approved by the Commission.“We are very much in support of the changes in the document,” he said.According to Clifford Chance, the latest IORP II draft removes all mentions of second-level regulation, which Van Meerten said meant IORP II would require every single detail of regulation.“Article 290 on the functioning of the EU has been deleted, which leaves no room for delegated acts,” he said.“Some say this is positive, but I wonder. Even the most detailed of provisions has to be included in the Directive – otherwise, we would get objections that EIOPA was interfering with the IORP II powers.”He added: “Discussions could take years. If you have to negotiate on every single point, we would see the Directive in 2100.”Eversheds’ Smith agreed such a level of detail would be unworkable but said it would require an ideal balance.“I can see how that would cause significant delays, but it is about striking the right balance between nailing down significant areas such as risk-evaluation,” he said.“I would have no problems with other areas being implemented using delegated acts.”Before the proposals were made to shift power back to member states, the measures for risk-evaluation for pensions alluded to the use of solvency requirements to manage risk.It was expected this would come under the form of EIOPA’s flagship holistic balance sheet, on which it is currently consulting.
It is considered an alternative for pension funds keen on consolidation but wanting to avoid placing pension rights with an insurer.Van der Pol also reiterated the Federation’s criticism of the large financial buffers required for pension funds under the new financial assessment framework (FTK), which is currently waiting for approval by the Senate.He questioned whether young workers would ever benefit from these financial reserves.“The pensions system will be seriously put to the test if we charge contributions for an inflation-proof pension over 10 years, while we don’t grant sufficient indexation and keep prioritising the accrual of buffers,” he said.Meanwhile, Frank Elderson, the new supervisory director for pension funds at the Dutch regulator (DNB), assured delegates that the supervision of pension funds would remain a “local matter”.He was responding to questions from Van der Pol, who had referred to bank supervision, which is to move to the ECB in Frankfurt.Elderson said his priorities would be the introduction of the new FTK, consolidation within the pensions sector and making a “balanced assessment” of interests for establishing contributions.He reiterated his predecessor Joanne Kellermann’s plea that pension funds provide more clarity about participants’ individual pensions rights, in order to instil confidence in the system.Also during the congress, Coen Teulings, former head of the Bureau for Economic Policy Analysis (CPB), argued that the pensions sector itself must take the initiative on innovating the system, and subsequently introduce changes “soft-handedly”.In a keynote speech, Teulings, now a professor of economics at Cambridge University, said these plans should be kept away from politics – politics being “the best guarantee of getting them stranded”.Although he described the freedom of choice for workers to select a pension fund as “expensive and complicated”, he said the introduction of the principle would be inevitable. However, to prevent complicated questions and to keep costs down, he suggested the application of “maximum standardisation”.In his opinion, pension funds must tackle the issue of redistribution of assets through the current average contribution, as well as retain the principle of solidarity, in order to increase support for the pensions system.He also echoed Elderson’s call for more clarity on individual pension rights. The Dutch government should set its sights on developing the new defined benefit vehicle APF and provide a legal base for the collective defined contribution (CDC) model, according to Kick van der Pol, chairman of the Pensions Federation. Speaking at the Federation’s annual congress, Van der Pol said CDC plans needed to be enshrined in law before the pensions industry could work out new combinations of DC and collectivity.He also called on the government to allow the APF to accommodate mandatory industry-wide pension funds, and asked for leeway for different configurations of contracts and cooperation within the APF.An APF offers pension funds from various sectors the option to work together closely, while their assets are ring-fenced.
An employer ensuring it has an active member in the scheme to avoid triggering an s75 is often out of their control, with the rules also creating competitive arbitrage.The £2.5bn (€3.5bn) Merchant Navy Officers Pensions Fund (MNOPF) said change was necessary as an employer forced to pay an s75 debt meant it cross-subsidised other employers, often competitors, due to the high-valuation of the debt making it inherently unfair.The MNOPF is a multi-employer scheme for over 350 sponsors working in the shipping industry.The scheme also said there were currently no allowances for affordability of the debt, with payments required immediately after an employer has ceased participation. The current rules also made no allowances for the share of the deficit or contributions already made.“S75 debts are unnecessary,” the scheme said. “The MNOPF has a very strong employer covenant. If an employer becomes unable to contribute to the scheme, its funding deficit share is reapportioned to the other participating employers. “Therefore, even if the employer debt regime did not apply to the MNOPF, it is extremely unlikely that the scheme benefits would not ultimately be paid in full.”The scheme advised the government that the current batch of regulations could be better utilised and with a more flexible approach to calculating and collecting s75 debts, particularly allowing payments to be made in installments, and accounting for previous deficit contributions.However, fellow multi-employer scheme the Pensions Trust (TPT) said its preferred response to an employer ceasing to be part of the scheme remained collecting the s75 debt in full.TPT, which acts as trustee to a multi-employer DB scheme for over 2,500 charities and non-profits, said the proposals and consultation topics from the government offered limited benefits from a trustee perspective.However, it did accept the s75 regulations in current form do present challenges to employers.“Provided that there are sufficient safeguards in place to enable trustees to take action to collect outstanding debts should an employer’s ability to meet its liabilities weaken, we would cautiously accept changes that would allow greater flexibility for employers,” it added.The National Association of Pension Funds (NAPF) said it could not find unanimity among its membership over what should happen when an employer loses its last active member, and whether this should trigger an s75 debt.On balance, the representative group said, its best suggestion was to allow the triggering of a debt, but to calculate this on technical provisions over the cost of a bulk annuity.It suggested keeping the current bulk annuity basis should an employer choose to be discharged from the scheme, but otherwise could pay the debt on a technical provisions basis and remain undischarged.“[It would] be liable for the remaining debt should the scheme’s funding position deteriorate or another cessation event arise.”The group also evaluated allowing more flexibility in making repayments, and not triggering an s75 should an employer lose its last active member before deciding on its suggested.“In our view, any of the solutions would represent improvement on what is now seen with some justification as an unfair situation for the employer that is stopping accruals,” it said. Two of the largest multi-employer schemes have given the UK government contradictory advice on how it should legislate for the future valuation and collection of section 75 (s75) debts.An s75 debt is triggered to cover liabilities in a scheme when any single employer ceases to participate or have any active members.However, under current regulations the debt is calculated on bulk annuity pricing, normally significantly higher than technical provisions and of those used in deficit repair negotiations.The government was lobbied over the perceived unfair nature of these regulations, recently launching a consultation on the matter.
The Food Wise 2025 strategy is a 10-year Irish government plan for the development of the country’s agricultural food industry.O’Callaghan said the new fund provided a model for the ISIF to get involved in other such funds in the dairy industry and across the “agri-food” sector.While Rabobank, the ISIF, Glanbia Co-operative Society and Finance Ireland all plan to invest in the fund, Finance Ireland will also originate the loans and manage all aspects of the fund.The interest rate on the loans will, subject to underwriting criteria, be charged at a variable rate of 3.75% above the monthly Euribor cost of funds, with a Euribor floor of zero.Loans will be for a standard eight-year term but can be extended by up to two years when volatility triggers are activated.Under the terms of the MilkFlex loans, payments are reduced temporarily when the milk price, measured by Glanbia Ingredients Ireland’s (GII) manufacturing milk price, falls below 28 cents per litre, including VAT, for three consecutive months.Also, the terms allow for a moratorium to be granted on loan payments for a period when the price falls below 26 cents for three months in a row or when the outbreak of a notifiable disease cuts milk output materially from the previous year.However, when the milk price rises above 34 cents a litre for three consecutive months, loan repayments increase.Loans are expected to be made available to farmers from May 2016, subject to completion of the legal documentation. The Irish Strategic Investment Fund (ISIF) is joining forces with the Glanbia Co-operative Society, Rabobank and Finance Ireland to set up a €100m fund to invest in flexible loans to Ireland’s milk suppliers.The ISIF, which arose out of the National Pensions Reserve Fund, said the Glanbia MilkFlex Fund was designed to help protect farm incomes from dairy market volatility.The fund will provide loans of €25,000-300,000 to milk suppliers and have built-in “flex triggers” adjusting repayment terms in line with milk prices to give farmers cash flow relief when they need it most, the investors said.Eugene O’Callaghan, ISIF director, said: “The Glanbia MilkFlex Fund utilises our inherent flexibility and delivers an innovative funding solution that supports the ambitious growth agenda of Ireland’s agri-food sector, as set out in the Food Wise 2025 strategy.”
“Child labour is a particular issue for the apparel sector, with children working at all stages of the global apparel supply chain.”The letter argues that child labour must be assessed in the “broader context” of social and human rights.NBIM has long been active on the issue of child labour, in 2009 highlighting the “overall low” level of compliance with children’s rights, and more recently touching on the matter in a more wide-ranging document on its approach to human rights.In other news, a report has called on companies to explore “innovative” means of funding projects with a positive environmental outcome.The report – ‘Levering Ecosystems’ – backed by Credit Suisse and the Climate Bonds Initiative, examines how companies can generate returns while rehabilitating or conserving the environment.“Government policies and programmes that catalyse business interest are also being developed and implemented,” the report says.“Governments and development agencies have an incentive to promote investment in ecosystem conservation projects as a means to lower remediation costs.“In the public sphere, these investments can be funded either directly or through initiatives that leverage private funding. Such investments may be cheaper than future economic damage from inaction.”The report notes that conservation can be supported through the financing of projects that improve farming standards, or improving resource management through the use of tax credit-enhanced debt.“Innovative thinking can lead to the creation of projects with positive environmental outcomes and enhanced productivity,” the report continues.“To the extent environmental footprints move closer to being recognised as assets and liabilities by companies, debt can be used to fund specific investments in ecosystems that lead to net-positive financial outcomes.”Lastly, the London Stock Exchange Group (LSEG) has become the first stock exchange to join the Climate Bonds Partnership Programme.Nikhil Rathi, the group’s chief executive, said it was a “committed supporter” of green financing and the transition to a low-carbon economy, as it was a “major industrial trend”.“Developing London as a leading international hub for green finance is vitally important to the city and a key driver behind the launch of our dedicated green bond segments last year,” Rathi said. Sean Kidney, chief executive of the Climate Bonds Initiative, said LSEG was “uniquely positioned” to provide market-based knowledge to the partnership.“We anticipate working cooperatively on joint projects that build and strengthen the position of green bonds in providing global climate finance solutions,” he said. Norway’s sovereign wealth fund has backed an industry venture to improve working conditions across the clothing manufacturing sector, part of Norges Bank Investment Management’s (NBIM) focus on child labour.NBIM, which manages the NOK7.5trn (€783bn) Government Pension Fund Global, said it hoped its support of the Social and Labor Convergence Project would further the development of new industry standards across clothing and footwear manufacturers and “lead to better market practices and a more sustainable industry”.In a letter to the Sustainable Apparel Coalition, responsible for the project, Petter Johnsen, NBIM’s CIO for equities, and William Ambrose, global head of ownership strategies, said they expected the undertaking to achieve “real, sustainable change” by developing new metrics to assess social and labour performance.“Norges Bank Investment Management regards participation in the project as a way to further enhance our long-term strategy and work on children’s rights issues,” the letter says.
However, he made “no apologies for the fact we have been clear authorities should be ambitious in developing their proposals on infrastructure investment” and went on to set out the suitability thereof for pension funds.“Nevertheless,” he added, “I have been absolutely clear throughout that investment decisions are for administering authorities, and that that will remain the case.“There is no question, nor has there ever been, of the government’s directing funds to invest in a particular way – for example, in infrastructure projects.”He said the new LGPS investment regulations would give local authorities “much more freedom over how they invest LGPS funds”.Addressing concerns about the power of intervention in the regulations, Jones said it was included “as a backstop” for “rare circumstances” and that there were several safeguards to ensure the power was used “appropriately and proportionately”. Israel, Palestine and tobaccoAlthough LGPS will have more investment freedom under the new regime, Jones re-iterated that the government’s policy was that administering authorities “must act in a way consistent with UK foreign and defence policy”.Guidance on the investment regulations makes clear, according to Jones, that administering authorities “should not use pension policies to pursue boycotts, divestments or sanctions, except where formal legal sanctions exist and embargoes or restrictions have been put in place by the UK government”.A Labour MP told the minister he “ran together three things: boycotts, divestments and sanctions” and that, although boycotts were mainly a consumer matter and sanctions a government matter, “the issue relevant to this debate is divestment”.Asked to clarify whether divestment from companies “involved with Israeli settlements in the Palestinian territories” would fall foul of the government’s position on use of pension policies by local authorities, the minister said “I can clarify that any such divestment must be in line with the policy of the UK government”.On the question of tobacco, Jones said it was up to individual pension funds to make investment decisions “provided they comply with the board principles” in the guidance on the investment regulations.“In summary,” he said, “I reassure the House that investment decisions will remain for administering authorities.“The government is challenging local authorities to be independent and ambitious, subject to local democratic control and appropriate safeguards. We have no intention whatever of gambling with money that has been set aside to pay pensions.”The government’s guidance prohibiting the use of LGPS funds for boycotts, divestments or sanctions reflects the same view that the government has taken in the context of public sector procurement, Jones noted.An international law expert previously told IPE there was a risk of misunderstanding over the types of measures the government sought to curb.Responding to an article in IPE about new procurement guidance on boycotts issued to UK councils, Valentina Azarova, an international law academic at the Holy Spirit University of Kaslik in Lebanon, said the guidance “does not supersede or interfere with the measures that have and will continue to be adopted by European businesses to comply with compulsory domestic law, so as to protect their business, but also domestic consumers, procurers and investors”. She added: “It would seem to me that it is crucial to draw a clear distinction between these processes, given also their repeated muddling in the press, and the real consequences of conflation on the ability of companies, pension funds and financial institutions to guarantee their compliance with domestic law.”Compliance with domestic law, according to Azarova, means “avoiding giving legal effect to Israeli unlawful acts underpinning the settlements”. The UK’s local government minister has defended the government’s steering local authority pension funds towards infrastructure investment but said it has not directed them to do so.Marcus Jones, the parliamentary under-secretary of state for communities and local government, made the comments in a debate in the House of Commons yesterday evening, which was brought about as a result of a petition organised by trade union Unison to register concerns about government interference in investment decisions by local government pension schemes (LGPS) as they combine to create larger asset pools.Responding to statements from opposition members of parliament, Jones said “significant misconceptions” had arisen about the government’s policy as a result of briefings from trade unions and other bodies.He said the government was giving local authorities “more and not less control over investments” and that “we have made it clear repeatedly that investment decisions must be taken in the best interests of scheme members and taxpayers”.
The targeted pensions reform law is set to allow the creation of DC plans, but only with the involvement of collective bargaining parties, in the form of trade unions and employers’ organisations, known as the social partners. In Germany, occupational pensions can take several forms, but all come with some form of guarantee. The proposed law bans guarantees in the context of the DC plans it provides for. aba has said the ban on guarantees for the new DC plans – if the law is passed and the DC option is taken up by the social partners – must be maintained, i.e. there should be no dilution of the ban on guarantees under the new model. Nahles said her ministry had worked closely and relatively harmoniously with the finance ministry, led by the CDU’s Wolfgang Schäuble, on the draft pension reform law.There were two main criticisms made about the reform at this late stage of the legislative process, Nahles said.One was a fairly sweeping complaint that the social partner model would not achieve the reform’s objective of boosting occupational pensions coverage among low earners and at small and medium-sized companies.The second concerned the ban on guarantees. Those pushing back against the law were saying they could not imagine this, Nahles said.Nahles argued that the social partner model was a “win-win”, as although the employer would be released from liability for a given pension promise under the new rules, it would still be tied in as the rules required the involvement of the collective bargaining parties in any vehicle set up to provide a DC pension.On the concerns about pensions without guarantees, Nahles said she thought “communication problems” were behind this and that she hoped to be able to resolve this in the coming days before the final reading of the law.She said that capital-funded pension provision without guarantees was “fundamentally new” in Germany but already existed in other countries. She described it as something the country had to face up to.Read more about Germany’s pension reform in IPE’s April magazine Germany’s labour and social affairs minister is seeking to address “communication problems” she suspects are behind resistance to the government’s pension reform plan as it nears the finish line.In a streamlined speech to delegates at the annual conference of Germany’s occupational pensions trade body, aba, Social Democrat (SPD) Andrea Nahles reiterated the need for pension reform, but said that headwinds remained. Particularly strong resistance was coming “from Munich”, she said. She did not spell out what she meant by this reference to the capital of Bavaria, but it is understood to be a reference to the CSU, the Bavarian sister party of the centre-right CDU party, which forms the coalition government with Nahles’ party. The CSU is said to be being lobbied by some insurers seeking a softening of the proposed ban on guarantees under the new defined contribution (DC) plans the law would allow. The draft law to strengthen occupational pension provision (Betriebsrentenstärkungsgesetz, or BRSG) is in its final stages. The Bundestag, the larger house of Germany’s parliament, was originally due to debate the reform package in final readings at the end of April, but this was postponed until next week – although the last reading could take place in June. In July it is scheduled to go to the upper house of parliament, the Bundesrat. The government wants to have the law passed before general elections in September.
He added: “Smart beta is no panacea, but it does have the potential to help with [these] major and emerging challenges.”The report said that the persistent low interest rate environment had it made it tough for many investors to achieve low-risk returns, leading to shorter investment time horizons.More than three-quarters of respondents (78%) said they felt under pressure to deliver portfolios with strong performance in a shorter timeframe, Invesco said.The report – Smart beta strategies: more bricks for portfolio building – examined the drivers of smart beta adoption, the implementation challenges faced by current users, and the expectations for future allocation.Well over half of institutional investors said they would be interested in smart beta in the fixed-income space with credit, corporate bonds and high-yield corporate bonds areas investors would consider investing in.Paul added: “Attention must therefore be paid to further education, further product innovation, and – especially in the fixed income space – building partnerships with fund providers, if [investors’] expectations are not to be disappointed.”In equities, Invesco said there were still plenty of opportunities with more than half of users saying they would consider smart beta exposure for Asia Pacific and emerging market equities.Quality, momentum and multi-factor were the current leading strategies, with usage of these three strategies doubling from 2016 to 2017, particularly amongst retail investors.Invesco said it had also noted increasing sophistication among smart beta users, with investors’ knowledge increasing in direct proportion to the length of their investment in smart beta.There was also a noticeable shift from traditional, asset-based allocation to more risk-based allocation as knowledge increases.Although smart beta was growing, there was entrenched scepticism amongst non-users in Invesco’s survey, over half of whom explained their reluctance as coming from a firm belief in active management.However, some 42% of non-users said that they would consider deploying smart beta in the future, with traditional strategies their most likely route into the strategy. Faced with an increasingly difficult investment environment, a growing number of investors are looking to significantly increase allocations to smart beta strategies, according to a survey conducted by Invesco PowerShares.The exchanged-traded fund provider spoke to 435 institutional and retail investors in six European markets, and found that allocation to smart beta strategies was expected to rise to 23% (from the current 13%) over the next three years.The rise was linked to investors dealing with the challenges posed by low yields, scarce value and shorter investment horizons, the report said.Mike Paul, head of Invesco PowerShares in Europe, the Middle East and Africa, said: “Smart beta has been one of the definitive market trends of the past decade with expectations for further strong growth driven by innovative approaches to challenges faced by investors such as low yields and finding value.”
The costs of administration remained flat in 2016 for Dutch pension funds last year, while combined asset management costs dropped by just 3 basis points to 0.54% on average, according to LCP.The consultancy – which surveyed more than 200 schemes for the sixth consecutive year – said it still hadn’t discovered a positive connection between costs and achieved returns.In 2016, Dutch pension funds reported returns of 10.4% on average, against 1.4% for the previous year.LCP found that administration costs remained at €115 per participant on average, while asset management costs had dropped from 0.48% to 0.46% on average. It added that average transaction costs had decreased by a single basis point to 0.08%.As the pension funds’ combined assets had risen to €1.2trn due to achieved returns, total asset management costs increased by €100m to €6.6bn, said LCP.Jeroen Koopmans, partner at LCP and author of the survey, argued that asset management costs could be reduced further by five or even 10 basis points.“Asset management costs at many schemes are between 30 and 40 basis points and these pension funds haven’t performed less than schemes with higher costs,” he argued, suggesting that pension funds could demand lower costs or opt for less expensive investments.Reducing asset management costs has a much bigger impact than spending less on pensions provision, according to Koopmans.If pension funds succeeded in reducing asset management costs by five basis points, they would save €600m in total annually.Despite average administration costs per participants remaining stable, LCP found significant differences between pension funds.Half of them reported a rise of 15% on average, citing increased VAT costs as well as expenses as a consequence of stricter rules.Other pension funds, including the €403bn civil service scheme ABP and the €189bn healthcare pension fund PFZW, posted a drop in administration costs of 11% on average.Koopmans said the consultancy could not explain the cause of the costs decrease, as pension funds had failed to improve their usually meagre disclosure of cost changes.ABP’s cost of pensions provision fell by €5 to €79 per participant, while PFZW reported a decrease of €1.50 to €67.90.If costs at ABP and PFZW were not taken into account, administration costs per participant of Dutch schemes would have been €141 on average.