Robeco, the €189bn Dutch asset manager, has confirmed it is considering opening an office in London.A spokeswoman for the company said Robeco had looked into establishing a possible “foothold” in London as part of a growth strategy for Europe and the US in the coming years.She added that a London office would be likely to house a sales team for the pure play asset manager, and stressed that Robeco’s head office would remain in Rotterdam.“Next year, we will move to a new building currently under construction in Rotterdam,” she said. At present, Robeco has offices in 14 countries worldwide, including France, Spain, Switzerland and Germany.The company has 1,500 staff, of which approximately 300 are employed overseas. The spokeswoman denied rumours that a London office was meant to circumvent the tighter limits on bonuses in the Netherlands.She added that Robeco aimed to make a final decision on its expansion plans some time next month.Japanese financial services firm Orix acquired Robeco from Rabobank early last year for €2bn.Roderick Munsters, a former CIO at the €300bn civil service pension ABP, has led Robeco for the past four years. He has previously indicated that he wanted to increase the company’s assets under management to €250bn by 2014.
He said the average contribution structure – where younger members subsidise older members – was no longer tenable.Until recently, PFZW was one of the larger Dutch pension funds to defend the average contribution approach, saying it was a pillar of solidarity in the system.Borgdorff did, however, criticise individual defined contribution as a system that ignored the issues of longevity and inflation.“If you ignore the advantages of a collective arrangements – and the risk-sharing and solidarity – you will have no answer for longevity or the erosion of pensions by inflation,” he said.Given just one area to change within the Dutch pension system, Borgdorff said he would move to create an equal contribution system.“We have to change the way we build our pensions,” he said. “The average contribution for pensions works so the younger pay more than they get, and the older get more than they pay.“This is not a problem when you have the same amount of years before and after 45, but this is not always the case.“We have to solve this problem. One way is doing something about the risk-sharing in pensions, and I would want to stick to equal contributions for everybody, as it important for the labour market.“This is not because the current system is bad but mostly because people [want to know] whether what they get is what they were promised. We need to promise what we can stick to, as members do not believe us any more.”Borgdorff also reiterated his scheme’s commitment to becoming fully sustainable by 2020.PFZW recently announced that investments for its 2.6m members would see a reduction in carbon footprint by 50% within six years.According to the Association of Investors for Sustainable Development (VBDO), the €156bn healthcare scheme performed best regarding sustainability last year. Peter Borgdorff has called for a shift away from the Netherlands’ famed risk-sharing “solidarity” in favour of equal contributions from young and old members in order to make the system more sustainable.The managing director at PFZW, the €152bn scheme for healthcare and welfare workers, said changing the way pensions were accumulated in the Netherlands would be his top policy, were he put in charge of the industry.Speaking at the World Pensions Summit in The Hague, Borgdorff emphasised the importance of resolving the issue of intergenerational “unfairness” and criticised the pensions industry for focusing on the “wrong angle” respecting the system’s sustainability. “The debate in the Netherlands should be about the future of the pensions system,” he told delegates. “But, unfortunately, the debate tends to be about everything that went wrong, and what is wrong with the system and what is wrong about how we do things.”
“The biggest functional challenge inherent in this model is data integration – an efficient process requires all three parties to be working off of a single, accurate, normalised data set,” the paper says.“Creating an industry standard for data integration is an ambitious goal.”The paper goes on to explain that, until the standard is in place, a double pipeline will be needed.“But the forces driving the hedge fund industry today – investor needs, an increasingly competitive marketplace, more complex financial markets and regulator scrutiny – are creating very real needs for integrated data solutions,” it says.Northern Trust argued that it was most important for companies to be able to submit to, and investors to draw from, a single data set, reducing the risk that hedge funds’ investment approaches will be made public.The calls for greater transparency and comparability were in line with the firm’s hedge fund survey, which found 55% of respondents were in favour of greater disclosure, even if managers themselves believed that the level of disclosure in place was sufficient. The hedge fund industry must increase transparency through an “ambitious” system of industry-wide data standards, Northern Trust has urged.Arguing that more can be done to close the gap between the expected level of transparency demanded by investors and the approach taken by most of the industry, the white paper by Northern Trust argues that a new approach to data collection is needed to achieve such a goal – one that involves a significant increase in data administration.It proposes that the hedge fund industry outsource its middle and back-office provision, with a second administrator appointed to conduct quality control rather than an internal shadow accounting record being required.Once the two administrators are in place, their output can be compared for quality purposes.
“After comparing the asset allocation and internal procedures relating to financial policies, Atlante 2 has been judged to be out of line with the pension fund’s prudent basis, and not within the investment parameters that apply to it,” Inarcassa said.But the fund did say its board had reiterated its commitment to invest in the country’s real economy, provided the risks and returns were in line with the growth expectations of an asset base that had to guarantee the future welfare of architects and freelance engineers.Gianni Mancuso, president at Enpav, said that, despite the ADEPP’s support of the bank rescue initiative, its own board had unanimously decided against granting the request to invest in Atlante 2, asserting that it was not obliged to contribute to the debt restructuring of Monte dei Paschi di Siena, one of Italy’s biggest lenders.He said the fund needed to respect its mission, which was to ensure adequate pension benefits to members, current and future.“To do this, our investments have always been oriented towards more cautious and prudent choices,” he said.However, Mancuso said Enpav would not hold back from offering its support for initiatives to revive the Italian economy.But it will do this in other ways, he said, such as financing the renovation of school buildings, which would meet the needs of the population, contribute to overall economic recovery and possibly have a positive effect on its members’ profession, which has been severely hit by the economic crisis.For its part, EPPI said technical evaluation of the investment in Atlante 2 had shown the risk/reward ratio fell outside the key parameters adopted by the fund in its asset management.Early last week, the ADEPP, the umbrella association for casse di previdenza, agreed to support Atlante 2, which is to be created as a fund to invest in Italian banks’ bad loans, buying the debt at below-book value.The initial contribution from the 19 members of ADEPP members was to be €500m.But in an interview two days ago in the newspaper Il Sole 24 Ore, which was reproduced on the ADEPP’s website, the association’s president Alberto Oliveti cast doubt on the pension funds’ ability to invest in the fund, given the unfavourable pricing being discussed after the ADEPP made the pledge on behalf of its members.He said the technical details of the investment had changed since the original proposal by the government.“They were talking about purchases priced at 24% for 38% of nominal value, and today they are talking about 32%,” he said.“We cannot give money in grants. We need a legitimate return expectation.” Three of Italy’s casse di previdenza have announced they will not invest their money in Atlante 2, the country’s fund to rescue troubled banks, even though their industry association ADEPP had initially pledged the pension funds would in principle invest in the fund.The three casse di previdenza – first-pillar funds for white-collar workers – are vets’ pension fund Enpav, the engineers and architects’ fund Inarcassa and industrial experts’ fund EPPI.The pension funds said individually that investment in Atlante 2 failed to meet their requirements.Inarcassa said its board of directors had unanimously decided in a meeting on 29 July against participating in Atlante 2.
The Investment Association (IA) has “welcomed” an interim report on the Financial Conduct Authority’s (FCA) long-awaited study of the UK asset management industry but said it will have to wait and see whether the FCA’s proposals will ultimately benefit consumers. Chris Cummings, chief executive at the IA, welcomed “the spirit” behind the FCA’s market study and took pains to highlight his association’s ongoing efforts to improve confidence in the asset management industry.“The FCA’s analysis and recommendations come at a time when the industry is already taking significant steps to improve investor confidence,” he said.“Among new measures the IA has put forward is a detailed plan for a new model of charge and cost disclosure, which is acknowledged in the interim report and has been welcomed by all parties.” He said the IA would now take a close look at the FCA’s proposals in other areas – including the independent oversight of investment funds – to make certain the authority’s final recommendations “mean customers will be ultimately better served”.On proposals to introduce an “independence element” on fund-oversight committees, Cummings pointed out that UK savers and investors already benefited from “a significant body” of regulation that “embeds consumer protection in fund-governance mechanisms”.He said the IA would work closely with the FCA to make sure its proposed models for enhancing oversight passed the “crucial test” of actually improving customer outcomes.On the FCA’s recommendation to introduce an “all-in fee” for funds, Cummings said both organisations had been “long united” in their support for the Ongoing Charges Figure, rather than Annual Management Charge, while on proposals to improve transparency, he praised the regulator for acknowledging the work the industry had already done on costs and charges in recent years.“Overall,” Cummings said, “we welcome measures to improve customers’ outcomes, and we will consider the range of transparency measures proposed and how effective they might be at delivering on that goal.”In August, the IA published a controversial report in which it hit back against claims of high hidden fees charged by fund managers, equating their existence with that of the mythical Loch Ness monster.The IA said that, while it took allegations of hidden fees seriously, those claiming the use of such fees had yet to prove their existence conclusively.BrightonRock’s Con Keating described the IA’s report as being “offensively bad”, while the Transparency Task Force, in a rebuttal, described a lack of fee disclosure as a “festering sore”.Even NEST CIO Mark Fawcett, chair of the IA’s independent advisory board on cost disclosure, declined to endorse the report, noting that the board had not been consulted on its contents prior to publication.In September, the IA moved to “press the reset button”, with association chair Helena Morrissey conceding that the report had “inadvertently but understandably upset people”.
As part of IPE’s 20th anniversary celebrations, publisher Piers Diacre and founding editor Fennell Betson this morning rang the bell to open the London Stock Exchange.Speaking afterwards, Diacre said: “It is a privilege for IPE and for Fennell and I to be ringing the opening bell at the London Stock Exchange. IPE is celebrating its 20th birthday today, and throughout that time we have been at the cutting edge of providing information for pension funds – and it is pension funds that are the key capital owners responsible for huge volumes of business transacted by the exchange.“Tomorrow, the prime minister triggers Article 50, and that may well – for better or worse – bring about significant changes to the role of this exchange and the place London holds in global finance. But I do hope that, in 10 and 20 years’ time, our successors at IPE will be in a position to say that IPE still does a great job in reporting the news, views, opinions, and trends of the pension industry in Europe and across the globe.”Look out for the special 20th anniversary edition of the magazine, landing on your desks in the coming days. See the LSE’s welcome announcement for IPE here.
Cridland’s report recommended an additional increase to 68 to be phased in between 2037 and 2039.The triple lock – which guarantees that payments increase by the higher of inflation, average earnings increases, or 2.5% – should be abandoned in order to reduce the impact on future government finances, Cridland argued.According to the review’s estimates, the UK would spend the equivalent of 6.7% of its GDP on the state pension in the 2066-67 financial year if it adopts the review’s age increase. Abandoning the triple lock and just linking pension increases to earnings data would reduce this figure to an estimated 5.9% of GDP.Cridland acknowledged that future increases in the state retirement age would be “harder to bear for the least advantaged, and for others like carers, who are less able to work for longer”. He proposed re-introducing a form of means testing a year before retirement, once the pension age hits 68, “for a defined group of people who are unable to work through ill health or because of caring responsibilities”.“Working together, we have a duty to those who come after us to try and make the future both fair and sustainable,” Cridland said.A separate report from the Government Actuary’s Department (GAD), also published today, outlined two scenarios for the state pension age, one of which could see it raised to 70 by 2054. This was in part due to an expected doubling in the ratio of pensioners to people of working age by 2064.The Cridland review’s other recommendations included the introduction of a “Mid-Life MOT” (a reference to the UK’s annual testing regime for road vehicles). The proposal was aimed at helping workers to review their retirement prospects and provisions.The review also recommended that all employers introduce a “basic care policy” for retirees, and that the government introduce more support and flexibility for carers.Graham Vidler, director of external affairs at the Pensions and Lifetime Savings Association, welcomed the review’s main recommendations but expressed concern that it would increase the state retirement age too quickly.“This proposal will hit people in their late 30s and early 40s – the very group who are too young to have benefitted from final salary pensions and too old to benefit in full from automatic enrolment,” Vidler said. “The government needs to fully consider the consequences of this early rise for those who cannot stay in work until their late 60s.”Gregg McClymont, head of retirement savings at Aberdeen Asset Management and a former shadow pensions minister, said increasing the state pension age “raises huge issues of fairness”.“For those who spend their working lives doing hard manual work, 50 years on the job will often be impossible,” he said. “It would be much better to set the entitlement to a state pension on the number of years a person has paid their National Insurance contributions, rather than on age. This would mean that those going to work straight from school will reach their retirement age earlier.”The government is set to consider the findings and recommendations of the Cridland review and the GAD’s report.Announcing both reports, the Department for Work and Pensions said: “No new changes to state pension age will come into effect before 2028 and the government is committed to maintaining a state pension that is fair for all generations and helps to provide for the cost of living in retirement. Part of this commitment to fairness includes providing 10 years’ notice of any changes to the state pension age.” The UK should increase its state pension age to 68 and scrap the so-called ‘triple lock’ that decides increases in payments, according to a report published today.The widely anticipated review of the taxpayer-funded state pension recommended that the age at which people can claim benefits should be increased further than the government has planned so far, wrote John Cridland, author of the review and former director general of the Confederation of British Industry, a business organisation.He said: “A sustainable state pension means a later retirement age together with a longer working life, so that on average going forward, people living longer spend the same proportion of time in work and retirement.”Under current plans, the state pension age will increase to 66 for both men and women by October 2020. It will rise again to 67 between 2026 and 2028.
It arguably also rules out investment consultants, whose typical skill set has a theoretical bent, and whose market insights tend to be derivative, gleaned from investment managers.Some fund managers may possess the skills, but lack the objectivity or the incentive structures to recommend best of breed third party managers. The problem that arises is that the mismatches between involvement and responsibilities on the one hand, and skills, experience and resources on the other, end up damaging the wealth of the fund’s beneficiaries.A key issue for long-term asset allocation decision-making is another mis-match, that between agents and principals. All of the principal players in the asset allocation decision-making pathway – investment managers, investment consultants and trustees – are agents acting for principals, who are the ultimate beneficiaries. As a result, they are all exposed to forms of career risk that result in a mis-alignment of interests with beneficiaries, the most dramatic instance being horizon mismatch. Whilst a pension scheme may have a time horizon of 30 years or longer, no agents have horizons even half as long. This gives rise to shorter-term risks of large relative underperformance, which all institutions have to grapple with.Internal fund managers have, in theory at least, the huge advantages of stability and security, essential to give confidence to take decisions that may be radically different from a peer group.The best example of this was probably George Ross Gooby, the Imperial Tobacco pension fund manager during the 1950s. He took a large bet in moving into UK equities in a massive switch from the more traditional bonds and thereby introduced the cult of the equity into institutional investments. He did this without reference to other schemes and without performance comparisons against arbitrary benchmarks. In today’s world, such a stance would be difficult to maintain even for an in-house scheme and impossible for a third party manager.Is there a case for resurrecting in-house managed pension schemes? There is certainly a case for structures that enable fund managers to have a much closer alignment of interests with the beneficiaries and sponsors, and in-house managers would have this advantage. But this also relies on maintaining a long term trust between sponsor and internal managers. Indeed, in the case of Imperial Tobacco, the in-house managers took a strong value stance during the boom of the technology, media and telecommunications industries, which led to significant underperformance.The trustees reacted by closing down the investment team in 1999 and outsourcing. Thus despite achieving returns that in absolute terms were probably attractive with hindsight, the lack of trust with their own in-house team led to events that left arguably everyone no better off.External fund managers managing only part of a portfolio are not in a position to take on asset allocation decisions. Investment advisers are reluctant to take responsibility for investment decisions they could be sued for, rather than giving advice that need not be acted on, even if in practice, many trustees would prefer following that advice blindly.Adopting an approach of in-house schemes concentrating on a core expertise and outsourcing specialist funds externally would appear to be a good pragmatic approach. The pension schemes could consider a hierarchy of activities. The most important would be to focus on utilising a risk budgeting approach to asset allocation. Developing in-house expertise in particular market segments may be appropriate. The current issues over the value of investment consultants raised by the UK’s Financial Conduct Authority may shed a spotlight on one area where they do play a role, albeit not always without controversy.Manager selection seems to be a major use of a pension fund trustee’s time, but perhaps not enough is spent on a more important issue, asset allocation. The problem that still exists in the current institutional arrangements for fund management is that institutional pension schemes find it difficult and perhaps almost impossible to obtain objective asset allocation advice that is not geared to selling a specific range of products from a fund manager.Few fund managers have the expertise to move away from individual product silos to give asset allocation advice, and fewer still have found a way to make money from giving independent advice. The business model that works is to sell in-house multiple strategy funds in the guise of asset allocation, but this can hardly be regarded as objective and necessarily in the best interests of a pension scheme. Investment consultants, in contrast, may be independent, but they lack the market knowledge to undertake market-driven asset allocation decisions.To undertake asset allocation objectively requires a very high level of skills and experience. Typically this rules out investment boards, whose function is policy, governance and oversight.
The 2017 year-end also marks the first year that some large businesses in the EU will have to disclose non-financial and diversity information under the amended accounting directive.Meanwhile, ESMA has also released a study examining the quality of disclosure in 2016 and 2017 interim statements relating to the effects of new accounting standards.The study found that “only a limited proportion of issuers provided both qualitative and quantitative disclosure on the expected impact of the new standards and that the quality of disclosure varied across the European Economic Area”.Audit quality in the UK still behind targetStephen Hadrill, chief executive of the UK’s Financial Reporting Council (FRC), has revealed 20% of audits in the UK were unsatisfactory last year.In a speech on audit quality delivered on 25 October, Mr Hadrill said: “The average for those we regard as satisfactory has risen to 81%. Two of the six major firms exceeded 90% last year, but one remains, I’m afraid to say, at 65 per cent.”The FRC has a target for 90% of audits of FTSE 350 companies to be judged satisfactory by 2019.Elsewhere in his speech, the FRC chief said the regulator, in common with other regulators around the world, regretted the fact that “they did not do more to challenge group think”.He added: “As a result, not until well into 2008 could the FRC have seen potential inadequacies in the audits. And by then the picture in the audit file was frankly out of date and irrelevant.”Hadrill said the cost of shoring up the banking system during the financial crisis had hit £1trn (€1.1trn).IASB conceptual framework latestThe International Accounting Standards Board’s (IASB) draft final version of its updated ‘conceptual framework’ has now completed a fatal flaw review ahead of its release, staff told the board’s 25 October meeting.During the meeting, the board agreed to address concerns that the proposed words “no practical ability to avoid as a going concern” in the board’s draft definition of a liability could potentially capture future costs.The board accepted the staff analysis that the issue was a drafting problem rather than an indication of any flaw in the board’s decision-making process.According to the latest IASB workplan, the board is set to publish its updated conceptual framework – which sets out how it develops new accounting standards – in the first quarter of next year.FRS 101 amendmentsThe FRC has issued a consultation document in which it proposes making no changes to Financial Reporting Standard (FRS) 101, Reduced Disclosure Framework.FRS 101 lets qualifying subsidiaries and parent companies use the recognition and measurement bases of international FRSs in their financial statements, but with fewer disclosures. Pensions accounting has dropped down the list of 2017 enforcement priorities for the European Securities and Markets Authority (ESMA).Instead, the EU markets watchdog said it planned to focus on disclosures about the impact of new standards on financial instruments (known as IFRS 9), revenue (IFRS 16) and leases (IFRS 17), as well as business combinations and cashflows.Among ESMA’s other priorities for the 2017 year end were measurement and disclosure of non-performing loans by credit institutions, the fair presentation of financial performance and the effects of Brexit.Last year, IAS 19 – the accounting standard for pension funds – was high on the list of ESMA’s priorities, with the regulator warning companies that they should not recycle defined benefit remeasurements through the “other comprehensive income” section of their accounts.
Austrian multi-employer Pensionskassen returned 6.34% on average for 2017, with a wide margin between the best and the worst, according to Mercer.Overall, the multi-employer Pensionskassen well outperformed the few remaining company pension funds in the system, which only delivered 4.07%. This brought the overall average in the second pillar to 6.13%, as previously reported. Mercer Austria’s annual detailed analysis of pension fund results was based on individual providers and different risk categories offered as part of the life cycle model.“The important thing last year was an active asset allocation as well as a constant surveillance of and reaction to the capital markets,” noted Michaela Plank, occupational pension expert at Mercer Austria. She added: “Focusing on emerging markets and alternative investments also helped boost performance.”VBV came first in the categories with the lowest equity share (under 16% allocated to equity) as well as the highest (over 40%), returning 4.61% and 8.79% respectively.APK topped the two medium-risk categories with its conservative fund gaining 6.94% and balanced fund up 7.1%.Valida produced the best return in the “active” category, for funds with an equity share between 32% and 40%.Mercer’s Plank also mentioned a “significant difference” between the best and worst returns in each category. She cited a 462 basis points difference between the best and worst performers in the “active” category.Valida was also the best performer among the eight providers of Vorsorgekassen – mandatory provident funds managing severance pay money.It returned 3% compared to the market average of 2.15%.Vorsorgekassen are restricted in their risk-taking as they have to guarantee the capital for payout at almost all times.Pensionskassen ‘should be more flexible’In its press release Mercer also called on the government to amend the legal framework governing Pensionskassen to render it more flexible.The consultancy would like to see fewer restrictions on asset allocations, such as the current 30% cap on foreign exchange exposure.Additionally, it proposed making money from pension funds available in certain circumstances, for example when needed for medical care.Thirdly, Mercer noted the Rechnungszins – the rate used to calculate contributions and pension payouts – should only be set when an individual gets closer to retirement, not at the start of employment.“During the saving phase it only leads to expectations on future pension payouts but is not relevant until retirement,” Mercer explained.Regardless of whether or not these proposals are taken up by the government, the Austrian Pensionskassengesetz rulebook will have to be amended this year to implement the IORP II directive.