Bayerische Versorgungskammer (BVK) has launched a global REITs fund, hiring two managers to invest €300m.Principal Global Investors will manage up to €150m in a dedicated REIT portfolio for BVK.Germany’s largest occupational pension fund – with €59bn in assets – made the move as part of a diversification strategy as it widens its exposure to real estate.Norman Fackelmann, head of real estate investment management at the self-employed professionals scheme, told IPE sister publication IP Real Estate that “first investments have already been made”. Principal works across equities, fixed income and real estate sectors and manages $311bn (€225bn) in assets mainly for retirement plans and institutional clients.In August last year, BVK awarded a €500m global real estate mandate to LaSalle Investment Management in a bid to diversify its exposure to the asset class.BVK is also working on an infrastructure debt vehicle with two banks.The scheme set up a Luxembourg-based fund for infrastructure debt, co-financing loans for a gas pipeline through Germany and a Dutch prison, worth €20m-70m each.
Assets in Finland’s earnings-related pension schemes rose €3.3bn in the first quarter to €165.5bn, helped by listed and unlisted equities performance, according to pensions alliance TELA. The seven largest earnings-related pension providers saw increases in their operating income of between 1.1% and 2%, according to data from the organisation, whose members include pension funds, foundations and insurance companies. Maria Rissanen, analyst at TELA, said pension schemes achieved their highest returns in the three-month period from listed and unlisted equity investments. “Indirect investments in real estate, hedge funds, listed equities and corporate bonds also yielded well,” she said, adding that income now came from a wide variety of sources. Seen overall, asset allocation of Finnish pension providers was 45.7% weighted to equities and equity-like instruments at the end of March, 43.9% to fixed income investment and 10.4% to real estate, TELA said. The data showed the trend towards investment outside the euro-zone was continuing, with a 0.6 percentage point shift to these investments and away from domestic investments during the first quarter.At the end of March, investments outside the euro-zone made up 45.3% of all investments, up from 44.7% at the end of December, while domestic investments fell to 29.9% from 30.6%.Those inside the zone, excluding Finland, remained steady at 24.8%, TELA said. The shift towards ex-euro-zone investments has continued more or less steadily since at least 2005, when pension funds had just 28% of assets held outside the zone, according to the data.In other news, Nordea Life & Pensions and Danish labour-market pensions provider PenSam said they are co-investing DKK2.7bn (€362m) in a 120,000m2 Copenhagen residential project. The two pension fund investors said they were jointly financing a project to build a new quarter in the Sydhavn area of the Danish capital.Nordea Life & Pensions, which bought the land for the project several years ago, has now sold a 25% stake in the Frederiks Brygge project to PenSam.Anders Schelde, investment director at Nordea Life & Pensions, said: “PenSam is a strong partner, that, apart from capital, will contribute expertise and experience to the the project.“With this partial sale, Nordea Life & Pensions is getting better long-term diversification of its real estate investments.”Benny Buchardt Andersen, PenSam’s investment director, said: “We expect the project to give a solid return to our customers because, among other things, together we are handling the whole value chain in the construction.”The plan is to build 1,350 apartments, typically with three rooms and 85m2 in size.The entire construction will have 120,000m2 of space, Andersen said. The first stage of the project was completed last year with 69 homes for young people and a daycare centre.A further 194 homes and two supermarket buildings are expected to be finished by mid-2016.The Danish government and the Copenhagen City Council have begun talks on establishing a metro line to Sydhavn, which is expected to be completed by 2023, the investors said.
Dutch pension manager APG is to launch a pension fund aimed at self-employed workers after reaching an agreement with four bodies representing the groups’ interests.The announcement comes only weeks after Ton Berendsen, former member of the executive board at the €309bn civil service scheme ABP, said the Dutch pension system needed to reform to address the growing number of self-employed workers in the country, an area of reform also recently acknowledged by Jetta Klijnsma, state secretary for Social Affairs.The scheme, announced after the €359bn manager signed a letter of intent, will be launched by early next year and allow the workers – known colloquially as zzp’ers – to set their own premium rates and retirement age.A spokesman for APG said the scheme would be “third pillar with collective elements”. In a joint statement, FNV Zelfstandigen, PZO-ZZP, Zelfstandigen Bouw and Stichting ZZP Nederland noted that the fund would allow workers to access investments “at significantly lower cost than comparable individual products” – a likely reference to the individual insurance contracts the workers would otherwise be required to sign as part of their retirement provision.They added they were confident APG would be able to put the new scheme in place by the beginning of next year.While details of the scheme were not disclosed, the statement stressed that assets would be owned by the individual – key in the Dutch system recently accused of intergenerational unfairness, with younger workers potentially shoring up the pensions of retirees.It is likely that APG will have its wholly owned subsidiary, Inadmin, carry out the administration of the DC scheme.The establishment of a dedicated savings vehicle for zzp’ers comes after years of debate, as there is a limit to how long a worker can remain a member of an industry-wide scheme once he is no longer active within the industry.Fieke van der Lecq, professor of pension markets at the Erasmus School of Economics, has previously called for the launch of a non-mandatory pension fund for zzp’ers.
Dutch civil service scheme ABP said it had almost doubled the proportion of “highly sustainable” investments over the last year, to 8.5% of its €373bn investment portfolio last year. Half of these investments consisted of real estate that met the highest sustainability criteria of the Global Real Estate Sustainability Benchmark (GRESB), a portfolio that has tripled in scale in 2014, Corien Wortmann-Kool, ABP’s new chair, said during the presentation of the pension fund’s annual report on environmental, social and governance (ESG) investing.She said that ABP wanted to further raise its sustainability target for investments in companies, but said that it would provide details after the summer.Wortmann added that the scheme would also present measurable targets for a further increase of the sustainability of its investment portfolio. The €179bn healthcare scheme PFZW has previously said that it wanted to quadruple its investments to 12% in companies with an important role in improving healthcare, solving water shortage as well as reducing CO2 emissions.Commenting on pressure groups that wanted ABP to divest from fossil fuels such as coal, oil and gas, Wortmann said that the board took the objections seriously, but that many other participants had an entirely different take on the issue.“In their opinion, we must deliver proper returns in the first place,” she said.The chair indicated that ABP would not give in to the demands of these action groups, and that it saw that the role for fossil energy remaining important during the coming decades, despite the ongoing transition to renewable sources.According to Wortmann, following an investigation into the risks of investments in fossil energy, ABP had already reduced its stake in coal in favour of gas and oil. However, she declined to be specific about which companies the pension fund had divested from.This week, the €812bn Norwegian Government Pension Fund Global announced that it would divest from all companies which had a stake of more than 30% in the coal sector.ABP made clear that it wanted to act as a responsible stakeholder, and that it had engaged with more than 200 companies about environmental and social matters, remuneration as well as governance.Once the engagement process got underway, firms in Europe and the US were granted two years to improve performance, while Asian companies were given three years.If they fail to act, ABP could decide to sell its stake.
Wilbrink added that PGGM had a dedicated team to monitor the situation and keep its clients updated on a daily basis.APG, the €424bn asset manager for the large civil service pension fund ABP, also has a “very limited” exposure to Greece, according to Harmen Geers, its spokesman.He said it recently divested its remaining position in Greek banks and noted that market volatility had been lower than expected. “We don’t expect that the current turmoil will affect economic growth or the long-term perspective of our investment portfolio,” he said. Earlier, APG made clear that it had already factored in the scenario that Greece would leave the euro.At the time, Geers said it also had a system in place to deal with a new currency. Back then, he argued that any remaining investments in Greece would not be rendered worthless following a Grexit, but that their value would depend on the exchange rate between the euro and a new currency.The €43bn metal scheme PME said it had already divested its entire holdings of Greek government bonds several years ago, and that its remaining investments in Greece were so limited that its funding would not suffer if the country left the euro-zone.APG spokeswoman Gerda Smits said: “We expect that the turmoil on the financial markets will be temporary.”She added that PME was trying to find out how to get hold of its pensioners living in Greece to make sure they kept on receiving their benefits. PMT, the €65bn scheme for the metalworking and mechanical engineering sector, said it divested all its direct investments in Greece, including government bonds.Its preparations for a Grexit included the effects of increasing interest spreads, according to Annemieke Biesheuvel, spokeswoman for the fund.Meanwhile, the developments in Greece have already led to a decrease in Dutch pension funds’ funding today, as a consequence of falling interest rates.By mid-morning, the 30-year swap rate fell by 12 basis points to 1.68% compared with Friday, according to Dennis van Ek, actuary at consultant Mercer.He added that this translated into a decrease of almost 2.5 percentage points of the average pension fund’s coverage ratio to no more than 110%.Van Ek noted that investors were scaling back risks by replacing the equity and government bonds of peripheral countries for the AAA government paper of Germany and the Netherlands in particular.He said that, while the interest level of these “safe” government bonds had fallen, the interest on 10-year Spanish and Italian bonds has increased by 20 basis points since Friday.He added that interest on Greek government paper with the same duration had climbed by 3.5 percentage points to 13.5% by mid-morning. The larger pension funds in the Netherlands expect little direct impact from any eventual Greek departure from the euro-zone, as their exposure to the beleaguered country is very limited or even non-existent.In a blog posted on Friday, Peter Borgdorff, director at the €178bn healthcare scheme PFZW, said the remaining stake of his pension fund was no more than 0.03%, and that a Grexit would not have a direct impact on its funding. Maurice Wilbrink, spokesman for PGGM, the asset manager for PFZW, declined to provide details on the scheme’s indirect exposure, such as through the government bonds of Italy or Spain. But he did say: “The markets are waiting for the outcome of the Greek referendum, and we observe that the volatility in equity markets, interest rates and the euro itself has not increased.”
“I applied for this role,” he said, “because I believe what Lancashire and London are doing with this partnership is exactly what should happen across local government – and, indeed, the wider pension sector – to help secure better benefits for members.”O’Higgins has previously worked at PwC and PA Consulting, and is currently chairman of the NHS Federation and of the remuneration committee at Network Rail.Jennifer Mein, Lancashire County Council leader, said it was moving ahead with the pooling vehicle as the industry awaited a government announcement on the future shape of local government pension schemes (LGPS).“Michael’s vision and experience are welcome assets, which should give others confidence in the seriousness of our joint endeavour, as we work towards launching the new company in April 2016,” she said.Merrick Cockell, newly appointed chairman of the LPFA, praised O’Higgins’s past roles across the public and private sector, as well as in academia.“To have a person of Michael’s calibre chairing the partnership is a real testament to what we are trying to achieve,” he said. Chancellor of the Exchequer George Osborne recently spoke of the need for consolidation among LGPS and has said he would like to see the creation of half a dozen asset pools, or “British wealth funds”.As part of their efforts to pool assets, all other London local authority funds outside the LPFA have backed the launch of a London collective investment vehicle, while LGPS from the South West are coming together to create a £19bn asset pool. The £10.5bn (€14.8bn) pooling vehicle set up by the London Pensions Fund Authority (LPFA) and Lancashire has hired former pensions regulator chairman Michael O’Higgins as its inaugural chair.The London and Lancashire Pensions Partnership (LLPP), agreed by the local authority funds in July, also said David Borrow, the deputy leader of Lancashire County Council, and Skip McMullan, currently a board member for the LPFA, would join the venture’s board.O’Higgins, who left the Pensions Regulator in 2014 after three years as its chairman, will now recruit a further three non-executive directors to join the board.He said he was delighted to be involved in the “ambitious” pooling exercise, which he predicted would see a significant change to the public sector pensions system.
Elo was formed in January 2014 through the merger of Pension Fennia and LocalTapiola.According to the interim report, the equities allocation dropped to 30.7% at the end of September from 35.3% at the same point a year before.Elo said it also made a big reduction in the proportion of corporate bonds in its portfolio in the spring.“Since the end of July, corporate bond margins have been growing in the energy and mining sectors, and also in other sectors,” Hiidenpalo said.“The supply of new corporate bonds has decreased considerably as uncertainty grows.”Exposure to hedge funds increased to 13.3% at the end of September from 10.3% 12 months before.Private equity exposure, too, has grown, rising to 5% from 3.8%.Hiidenpalo told IPE: “We are quite happy with our hedge fund allocation, at the moment around 15%.”She said the shift to hedge funds had been an independent decision and not directly related to the reduction in equity or credit market exposure.Seh said Elo was following its dedicated long-term investment strategy on hedge funds.“It is true a market correction has happened, and this may provide some new investment opportunities in equity and credit markets going forward,” she added. Equities overall returned 4.7% between January and September, down from 7.3% over the same period last year, while fixed income made a loss of 0.2% compared with a 3.4% return.Real estate returned 5.8%, up from 4%.Within equities, unlisted equities generated a return of 12.1%, up from 9.7%, while the return on private equity rose to 18.7% from 15.4%.Hedge funds returned 2.2%, down from 5.3% a year earlier.The solvency ratio declined slightly to 23.9% of technical provisions at the end of September from 26.4% at the same point a year before.Elo’s total assets climbed to €20.1bn at the end of September from €19.4bn at the end of September 2014. Finland’s Elo reported a 2.4% return on investments over the first nine months of this year, down from 4.9% in the same period in 2014, and increased its allocation to hedge funds and private equity.In its interim report for January to September, the mutual pensions provider said falls in commodity prices and economic uncertainty in China were reflected in the equity markets, whose decline steepened in August.Hanna Hiidenpalo, Elo’s director and CIO, said: “European equity markets have yielded better returns from the beginning of the year than US markets but declined from the spring highs more than the US.”She said Elo had reduced its equity risk somewhat compared with the beginning of the year.
The Bundesrat noted that the yield on Swiss seven-year bonds stood at -0.38% when the commission made its recommendation in August.In a statement, Hanspeter Konrad, president at ASIP, told IPE he supported the proposed reduction.“The decision is necessary in light of the low-interest-rate environment, accentuated through the negative rate of interest set by the Swiss National Bank.The industry has repeatedly criticised the central bank’s monetary policy, as well as its now-reversed decision to shield both the country’s largest pension fund, Publica, and its own occupational scheme from the impact of negative deposit rates.But Konrad struck an upbeat note about the return prospects for the country’s second pillar.“Due to the current low-price environment, this [1.25% rate] nevertheless results in a welcome real return,” he said. The rate has fallen, if not steadily, over the last decade, standing at 2.5% in 2006 and falling to 1.5% by 2012.It was then increased to 1.75% in 2014.According to the Credit Suisse Pensionskassenindex, the average fund would have seen a loss of 0.14% over the first half of the year. The Swiss government’s decision to cut the minimum interest rate for pension funds has been welcomed by local pension association ASIP.The Bundesrat said 2016’s rate would be set at 1.25%, a reduction of 50 basis points over the level agreed for 2015.The cut is in line with a recommendation supported by a significant majority of the statutory occupational pensions commission (BVG-Kommission).The Mindestzins, which dictates the level of compensation active members must be granted each year, is reviewed annually in line with prevailing Swiss government debt yields and return expectations from other assets.
The purpose of its new variable allocation is to achieve its target of inflation-proofing pensions, it said.However, Roel Wijmenga, the scheme’s chair, conceded that indexation would be unlikely over the next 3-5 years, as funding stood at just under 110% as of the end of March.The scheme can grant partial inflation compensation only once it has achieved a coverage ratio of at least 116%. The Philips Pensioenfonds reported a total annual return of 0.2%, compared with 19.6% for the previous year.High-yield credit, returning 9.3%, was the best-performing asset class, while global credit returned 5.9%.The scheme incurred a 0.7% loss on its 36% allocation to euro-denominated government bonds.In contrast, global government paper returned 4.9%, benefiting from the euro’s depreciation against the dollar and other currencies.Emerging markets debt returned 0.6%.The Philips scheme cited a new valuation method for a 0.1% loss on its 3% mortgages portfolio.Real estate, accounting for 11% of assets, returned 5.1%, according to the pension fund, which is still in the process of constructing a portfolio of indirect non-listed real estate, following its decision to divest all its direct property holdings.It said it was temporarily investing in a combination of listed real estate and cash to get closer to its target profile.The Philips Pensioenfonds attributed the 8.3% return on its 29% equity holdings to the monetary easing in the euro-zone and Japan.It reported costs of €171 per participant for pensions provision and said the €20 increase was due to the switchover from provider Aon Hewitt to PGGM at the start of 2016.It said it spent no more than 10 basis points on asset management due to its relatively large allocation to fixed income, its predominantly passive investment style and its “minimal” allocation to hedge funds and private equity. The Philips Pensioenfonds has amended its strategic asset allocation, aimed at adjusting the ratio between its matching portfolio and return portfolio as its risk/return profiles change.According to the €18bn fund’s 2015 annual report, the new allocation sets bands of 50-65% for fixed income investments and 35-50% for securities.The pension fund, however, has not yet put its new margins to use, maintaining matching and return portfolios at 60% and 40% of assets, respectively.In 2013, the Philips scheme decided to raise its risk profile for better return opportunities by scaling back its matching portfolio.
UK pension fund liabilities could fall by up to 2% due to revised mortality figures, according to Willis Towers Watson.New data from the Continuous Mortality Investigation (CMI), which monitors UK longevity trends, showed standardised mortality rates improved by 2.6% a year on average between 2000 and 2011, but since then “have been close to zero”.Stephen Caine, senior consultant at Willis Towers Watson, said: “For some schemes about to embark on new funding negotiations, adopting [new CMI data] could cut life expectancy for a male retiring now by around six months compared with the assumptions made when they last went through this process three years ago. This could represent a reduction in liabilities of up to 2%.”However, Aon Hewitt has warned that the same data could mean some pension schemes finding themselves at the wrong end of poor pricing in the longevity hedging market. Tim Gordon, head of longevity at Aon Hewitt, said: “It is increasingly difficult to argue that the fall off in national mortality improvements since 2011 is simply a blip. However, the underlying picture for pension schemes is complex and, accordingly, a more tempered view is appropriate.”Gordon added that the longevity swap market was “in a state of flux”.“With changing or incomplete data, there remains a risk that schemes considering hedging their longevity risk may end up with poor pricing, or make a decision based on out-of-date information,” he said.In its 2016 update, the CMI said: “Mortality improvements in the general population since 2011 have been unusually low compared to the earlier part of this century.”Figures to the end of December 2016 showed life expectancies at age 65 were 1.3% lower for males and 2% lower for females when compared to 2015 data, the CMI said.Premier Foods reduces pension billPremier Foods, the listed food manufacturer, has reduced its pension spending by £32m for the next three financial years owing to an improvement in its pension schemes’ funding levels.For the three financial years from 2017 to 2020, Premier Foods will pay £107m into its pension schemes, versus £133m under its previous arrangement. In addition, its administration costs are expected to fall by £2m a year due to a contribution from one of the group’s pension schemes.Between 2020 and 2023 the company will pay £114m into its schemes, compared with £101m under the previous arrangement.The owner of popular UK brands including OXO and Mr Kipling revised its deficit reduction payments following a 2016 actuarial valuation. Chief financial officer Alastair Murray said this would allow the company to “focus on maximising the company’s free cash flow generation and debt reduction”.Performance monitor for LGPSKAS Bank is to provide investment performance reporting and monitoring services to the UK’s local government pension schemes (LGPS).The company was appointed through the LGPS’ central framework for tenders, administered by Norfolk County Council.Pat Sharman, managing director for the UK branch of KAS BANK, said: “By providing independent performance measurement, we provide our clients with information that helps them with the governance of their scheme, engage in conversations with their service providers based on unbiased information and, where needed, execute decisions in the interest of all the members of the scheme.”NHS employers to pay pension admin costsEmployers in the National Health Service (NHS) Pension Scheme are to pay an additional 0.08% of pensionable pay towards administration costs, the government has ruled.From 1 April, employer contributions to the unfunded scheme will rise from 14.3% to 14.38%, the UK’s Department of Health announced last week.The NHS Pension Scheme has more than three million members, including 850,000 pensioners.