“The trade bodies are generally a force for good, funnily enough,” he added, while conceding that not all individual companies were “great”. “The trade bodies, on the whole, realise the [risk of] reputational damage to their industry.”Asked how he proposed to achieve such transparency when other countries, such as the US, had battled for a decade without achieving great results, he said: “I don’t dismiss the difficulty of defining what is included in costs and charges, getting transparency and drawing a line somewhere – I think that will be an ongoing battle.”Webb also spoke more broadly of the reforms he had overseen since being named minister in 2010, more recently focused on changes to ensure the adequacy of auto-enrolment default funds.“The first thing I had to do was reinvent the state pension system, and funnily enough, make it look pretty much like everyone else’s,” he said, noting that that involved a shift to a flat-rate payment.“Not revolutionary for you, I suspect, but revolutionary for us,” he added.Webb also credited the Netherlands for helping devise some of his reform ideas, noting that he had seen the term ‘defined ambition’ in the country and decided to use it for his proposals to reintroduce greater risk-sharing.“Now that the UK talk about defined ambition, people think I’ve come up with some very clever phrase – so don’t let on,” he said.He also acknowledged there would not be great appetite for recently unveiled proposals for a flexible defined benefit (DB) system that could see employers begin to offer DB pensions lacking, for example, indexation.“That’s going to be a minority sport, that’s going to be the best firms, the biggest firms who want to do more,” Webb said.He further noted that the current contribution levels under auto-enrolment were not high enough, but said it was more important to get workers saving at all before worrying about the adequacy of savings rates. Getting the UK pensions industry to cooperate on fee transparency will be an “ongoing battle” and not concluded overnight, the pensions minister Steve Webb has admitted.Speaking at the WorldPensionSummit in Amsterdam, the Liberal Democrat MP told delegates the Department for Work & Pensions had already identified a number of fees it would like to ban – a reference to last month’s consultation on the feasibility of imposing a charge cap.But he added that, beyond attempts to ban certain costs, transparency would be the goal.“Our financial services industry is beginning to work on transparency and consistency of disclosure,” he said.
Institutional investors are set to ramp up their exposure to real assets over the next three years, according to a new study by Aquila Capital.Among real asset categories, property is seen as they type of asset offering the best opportunities, the alternative asset manager found.In the research, which polled 54 institutional investors based in the UK and Europe at the beginning of February, 21% of respondents said they expected the rise in exposure to real assets would be “significant”.On the other hand, 7% said they expected to see institutions reducing their exposure during the three-year period in question. Nearly half (44%) of institutional investors in Europe said they had more than 10% exposure to real assets, according to the study.Some 41% of respondents said they were positive on the investment outlook for real assets, while 10% were negative.Property came out as the real asset type offering the greatest investment opportunities over the next five years, with 33% of respondents taking this view.Next in the ranking came infrastructure, with 18%, followed by commodities, farmland and renewable energy – all with 15%.The key drivers behind investors’ appetite for real assets were long-term positive cashflows, protection against inflation and portfolio diversification, the research found.Other factors were the ongoing need for the attractive risk/return profile offered by the investments and growing familiarity with the asset class due to existing allocations.
Alternative investment fund managers appear unprepared for next week’s final deadline for compliance with the EU’s Alternative Investment Fund Managers Directive (AIFMD), in a survey conducted towards the end of June, with 47% of firms still not having filed.The one-year transitional period following implementation of the AIFMD, in which some alternative investment fund managers were given time to get authorisations in place, ends on 22 July.The survey by fund structuring firm Alceda and research firm Kepler Parters polled 56 alternative asset managers between 23 May and 30 June.At that point, 47% of respondents said they has still not filed under the directive, and only 32% said they were ready for the AIFMD. Some 19% said they were planning to submit an application before 22 July, and 13% were still unsure about their intentions, according to the survey.Georg Reutter, partner at Kepler Partners, said: “It’s clear the general understanding of the implications of AIFMD on the alternative fund management industry is low, with 41% of respondents to our survey stating that they have a limited understanding.”In particular, the survey showed that alternative asset managers with headquarters outside Europe could be “sleepwalking into the unknown”, despite the potential impact on their business, he said.The directive brings alternative investment funds – mainly hedge funds and private equity firms, but also some real estate funds – under EU regulatory supervision.It was drawn up to correct a perceived lack of financial regulation for hedge funds and private equity funds, seen by some as having exacerbated the global financial crisis.Authorisation under the AIFMD means fund managers will be subject to a range of new requirements in areas such as due diligence, risk and liquidity monitoring, reporting, disclosure and marketing.
She also said the fund would look into investing in renewable energy.Colley said: “The commitment to cut pension investment in fossil fuels long term … is a measured and carefully considered decision based not only on ethical practice and the council’s continued drive to reduce exposure to fossil fuel but also on reducing the financial risk of investing in traditional energy sources, which will ultimately become obsolete.“The council will explore new opportunities to invest in the development of sustainable energy infrastructure alongside other local authorities, through the London CIV (collective investment vehicle).”Colley said the council was a long-term investor, aiming to deliver “a truly sustainable pension fund.”The announcement was made as part of the fund’s new responsible investment principles.A local campaign group – Fossil Free Southwark – collected around 1,000 signatures on a petition that was presented to the council’s Cabinet.Tim Gee, a local resident and campaigner, said on behalf of the group: “We warmly welcome these new investments principles that have been endorsed by the Cabinet and hope the Pensions Advisory Panel will put these principles into practice at the earliest opportunity.”Arabella Advisors, a firm that gives advice on philanthropic matters, said this month that the value of assets behind institutions and individuals that had committed to some kind of divestment from fossil fuel companies had doubled in the last 15 months to $5trn (€4.7trn).Pension funds and insurance companies now represent the largest sectors committed to divestment, the firm said, adding that this reflected the increased financial and fiduciary risks of holding fossil fuels in a world committed to staying below 2° Celsius. The London Borough of Southwark Pension Fund has become the second fund in the UK’s Local Government Pension Scheme (LGPS) to commit to selling off its investments in fossil fuels, following an announcement yesterday.With £1.2bn (€1.4bn) in assets, the pension fund is the largest in the UK to divest from fossil fuel related investments.In September, the £735m Waltham Forest Pension Fund said it was committing to divesting from fossil fuels.The chair of the Southwark pension fund, councillor Fiona Colley, Cabinet member for finance, modernisation and performance, announced the pension fund’s commitment to divesting over time any current investments in fossil fuels, because of growing financial risks.
“At the same time we saw the American central bank raising interest rates for the first time in a long period, and warning of further rate rises to come in 2017,” he said.MP Pension, which has assets of around DKK89bn (€12bn) and 118,000 members, is undergoing changes following the collapse of its joint administration and investment arrangement with the Architects’ Pension Fund (AP) and the Pension Fund for Agricultural Academics and Veterinary Surgeons (PJD).The three pension funds were run by Unipension for several years, but AP and PJD decided to move their schemes to labour-market pensions provider Sampension, with MP Pension continuing alone.Meanwhile, Pædagogernes Pension (PBU), the Danish pension fund for education practitioners, reported an 9.6% return for 2016, which it claimed was the best pensions return among all schemes where returns were based directly on underlying investment performance.In 2015, the pension fund made a 3.7% return before pensions return tax. In absolute terms, PBU’s 2016 return was DKK8.4bn.Sune Schackenfeldt, PBU’s chief executive, said: “We have delivered returns though good old-fashioned means — simply by pulling on the right levers at the right time.”Schackenfeldt said PBU had to be able to deliver on both the “hard” and the “soft” bottom-lines — the latter being about ethics and a responsible investment policy. “Education practitioners do not earn very much money, and therefore they do not put away much in savings,” he said. “Because of this, it is really important that we as a pension provider perform on the hard parameters such as returns and costs.”Schackenfeldt took up the top role at PBU last August, having been hired away from Denmark’s biggest commercial pension provider PFA Pension, where he was a director. MP Pension, the Danish labour-market pension fund for academics, reported an upswing in investment returns in 2016 compared to the year before, with investments generating a profit of 8.6% — almost twice the 4.4% return posted for 2015.Niels Erik Petersen, CIO of MP Pension, said: “Overall, we are very pleased with the result for 2016, which contained many major events both economically and politically.”The pension fund reported that high-yield and emerging markets bonds had contributed to the total investment result with returns of around 15%.Petersen said financial markets had been marked by a high level of nervousness in 2016, particularly in the run-up to the EU membership referendum in the UK and the US presidential election.
The majority of new pension design ideas use elements from the development of defined contribution (DC) plans, but defined benefit (DB) plan features still have a role to play in “future proof” pension design, according to PensionsEurope. The argument was the premise of one of two reports that the European pensions trade association launched last week.“PensionsEurope is a thought leader in Europe and we have designed these two reports to stimulate discussion and debate around defined benefit and defined contribution pensions,” said Janwillem Bouma, chair of PensionsEurope.“Good outcomes need to be at the heart the industry and we are confident that the thinking outlined in these publications will help the industry to develop going forward.” The DB-focused report – “Towards a New Design for Workplace Pensions” – discussed the use of DB pension design to strengthen workplace solutions in Europe in the midst of a shift towards DC schemes.“Looking into the strengths and weaknesses of, threats to, and opportunities for DB pension provision, one could conclude that future-proof workplace pensions should not entirely move away from a pure DB system to a pure DC system,” said PensionsEurope. “Rather it makes sense to maintain the strong elements of DB and to combine them with strong elements in the DC world to find a balance between the two extremes.”Introducing the report, Bouma described it as a manual for a new design for DB workplace pensions, aimed at member states and stakeholders “reflecting on or introducing or reforming already existing workplace pension systems”.The other PensionsEurope report – “Principles for Securing Good Outcomes for Members of Defined Contribution Plans Throughout Europe” – covered elements such as plan design, communications, administration, investments, costs and charges, and decumulation.“In light of the increasing reliance on workplace DC pension plans throughout Europe, it is essential that individuals have confidence that workplace pension plans operate in their interests, are robust, well-run and offer value for money,” said PensionsEurope.The reports can be found here.
The Dutch Pensions Federation is to investigate the possible consequences of new tax rules for direct property investments in the Netherlands.The trade body said that it was worried about a sentence in the coalition agreement stating that “direct investments in property will no longer be allowed as a consequence of the abolishment of dividend tax”.This seems to imply that future direct investments will be subject to the Netherlands’ 21% rate of corporate tax. Dividend tax is 15%, and can be reclaimed by pension funds.“We have been surprised by the announced measure, in particular given the cabinet’s wish of increased local investments by pension funds,” a spokesman for the federation said. “If the measure has a negative impact on pension funds’ returns or the investment climate in the Netherlands, we will take action.”The €456bn asset manager APG – which has provided feedback to the Pensions Federation – explained that its direct investments in real estate were in part placed in “fiscal investment institutions”, known as FBIs, which are exempt from corporate tax.This was to prevent pensioners from being taxed twice, as they also pay tax on the benefits they receive.Michiel de Wit, fiscal expert at APG, argued that the proposed measure in the coalition agreement would mean that Dutch investors were paying for tax revenues no longer paid by foreign investors as a result of the abolishment of the dividend tax.De Wit couldn’t say whether such a tax change would encourage APG – asset manager for the €396bn civil service scheme ABP – increase its property investments abroad.“Although we do run a number of FBIs ourselves, we have much less say in investment choices of listed vehicles, such as Wereldhave and Vastned.”He highlighted that Wereldhave and Vastned – investment companies specialising in European shopping centres and retail properties – lost 2.5% and 3.5% in value, respectively, since the coalition accord was presented on 10 October.APG’s worldwide property stake is €40bn, of which €2.4bn (6%) has been locally invested.
Some of the pension schemes involved in the LCIV had expressed “significant distrust” in other stakeholders and were looking at joining other pools instead, according to the Willis Towers Watson report.Despite the LCIV having launched 12 funds and attracted more than £6bn since it received regulatory approval in 2016, the vehicle has suffered major setbacks in recent months with the departures of CEO Hugh Grover and CIO Julian Pendock .“To move forward effectively, LCIV and all stakeholders need to look for an opportunity to reset their relationship to facilitate better working relationships and engagement”Willis Towers WatsonTim Mitchell, Adam Gillett and Oliver Faizallah, investment consultants at Willis Towers Watson and co-authors of the report, said the LCIV was “under-resourced and underfunded”, with “gaps across all aspects of operation”.They warned that “it is not at all apparent that it will be able to deliver on the original intention of its 32 local authority shareholders to bring their collective [assets] under a common pooling vehicle”. Former chancellor George Osborne pushed for LGPS pooling in 2015The work foreshadowed the UK government’s policy drive that year to encourage LGPS to collaborate more, creating pools of £25bn-£30bn. In the process they were expected to reduce costs, increase efficiencies and improve the LGPS’ capacity to invest in infrastructure.The LCIV provides the investment infrastructure and selects third-party managers to run the assets, negotiating hard on costs. It now offers 12 funds, including UK and global equity products and multi-asset funds. It has also agreed a special pricing deal with passive providers for its member funds.This work so far stands to save participating LGPS funds roughly £6m a year, according to the LCIV.The staff are overseen by two groups of representatives from the 32 founding pension funds: the Pensions Sectoral Joint Committee, made up of councillors from each of the 32 funds, and the Investment Advisory Committee, comprising 24 pension and finance officers from member funds.The LCIV is preparing to launch fixed income products, according to council documents, and staff are researching infrastructure opportunities and low-carbon funds. An ambitious project to pool pension assets for London’s 32 public sector funds will fail to achieve its objectives without a major overhaul of its governance structure, according to a damning report from consultancy Willis Towers Watson.The firm was brought in to conduct a review of the London CIV (LCIV), the authorised asset manager set up by London’s pension funds to pool their £34.5bn (€39bn) in assets and drive down costs.The subsequent report, circulated to London’s Local Government Pension Schemes (LGPS) last month, alleged that some briefings on the LCIV’s development had been based on political affiliations, despite the cross-party, non-political nature of the vehicle. Each LGPS fund is overseen by a board of local councillors.The LCIV late last year was forced to issue a statement denying that it had advised against investing in UK infrastructure in case of a change of government in the country. Hugh Grover (centre) reflects on his time at the London CIVThe report reflects comments made by former CEO Grover at IPE’s annual conference in November. Speaking a few weeks after his departure, he said the vehicle was suffering from a lack of clarity around its purpose and vision.In particular, Grover highlighted the government’s desire to make pooling of assets mandatory – initially the LCIV was designed as an optional pooling vehicle.A poll of London pension fund staff and committee members – conducted as part of Willis Towers Watson’s review – showed that stakeholders did not agree that the London CIV or its oversight bodies had clear mandates or objectives.The verdict“Three years after its incorporation, LCIV finds itself in an invidious position. It is attempting to deliver on a complex and challenging task, under-resourced and underfunded, while juggling the competing interests of multiple stakeholders, not all of whom are fully engaged and who seem to be growing increasingly disgruntled.“Compounding pressure on it has been the recent departures of a number of key staff. In the absence of some circuit-breaking change it is not at all apparent that it will be able to deliver on the original intention of its 32 local authority shareholders to bring their collective [assets] under a common pooling vehicle…“The challenge facing LCIV and the 32 shareholders is very significant in delivering on its pooling objectives. The stakeholder mapping is complex, as is the operational context and regulatory environment, let alone the pension and investment challenge itself. Against this background, LCIV needs to be sufficiently resourced or it is surely set up to fail.”- from Willis Towers Watson’s independent governance review of the LCIV, presented to local authorities in DecemberMajor changes requiredWillis Towers Watson urged the LCIV and its two oversight committees to overhaul their terms of reference and provide better clarity of purpose as “an absolute priority”.The consultancy said it had received mixed messages from different stakeholders regarding how they thought the LCIV would operate. Some believed it was set up as a fund manager, some as a procurement vehicle, and others as a fiduciary manager with responsibility for strategy as well as manager selection.While there was a collective will for the project to succeed, Willis Towers Watson reported, stakeholders had so far underestimated the compromises involved in ensuring that success.The LCIV should also instigate an independent review of costs and resources, the consultancy said.Currently, the LCIV is overseen by two committees (see box below). “We are actively taking on board the findings of our governance review and are developing recommendations”Mark Hyde Harrison, London CIV“A decision should be taken to balance representation and effective committee functioning,” Mitchell, Gillett and Faizallah wrote. “Either everyone is involved, which leads to inefficient committees, or a select few are involved, which leads to a loss of representation.”The report authors recommended fewer meetings of full committees, with more duties delegated to smaller sub-committees and working groups. These should be supported by a “well-resourced” secretariat function.Finally, the report emphasised the importance of cultivating trust between the various parties involved in the LCIV’s operations, including through better use of a “client portal” on the LCIV’s website.“To move forward effectively, LCIV and all stakeholders need to look for an opportunity to reset their relationship to facilitate better working relationships and engagement,” the authors wrote.In a statement, Mark Hyde Harrison, interim CEO of London CIV, said: “London CIV has achieved a great deal since it was established two and a half years ago and we continue to work hard alongside London boroughs to build on our success and respond to the challenges we are facing.“We are actively taking on board the findings of our governance review and are developing recommendations with our colleagues in the boroughs that we will put to London borough leaders in March.“London was a pioneer in establishing pooled arrangements and it makes sense to take stock now on how best to deliver the original vision for the CIV in the light of the wider changes that are happening in local authority pension fund management.”What is the London CIV?The London CIV has its roots in attempts to consolidate all of the UK capital’s public sector pension schemes into one entity. Hugh Grover led the drive to pool the assets of 33 (now 32) London borough pension schemes and was made CEO of the London CIV when it was incorporated in 2015.
The Department for Work and Pensions (DWP) “slightly regrets” some of the wording in the announcement about its consultation on changes to the investment regulations for occupational pension schemes, a civil servant has said.On Monday the government issued a press release announcing the launch of the consultation, which seeks to “clarify and strengthen” trustees’ investment duties. Headlined ‘Billions invested by pension schemes to be used for social good under new regulations’, the press release said that members would for the first time be given powers to hold their pension schemes to account over how social and environmental factors impact their investments.It quotes Esther McVey, secretary of state for work and pensions, as saying: “These new regulations will empower savers all over Britain, ensuring that their voices are heard when their savings are invested.” Speaking at a conference of the Association of Member Nominated Trustees in London this week, David Farrar, senior policy manager at the DWP, said the point the department had wanted to make was that the proposed regulation would “formalise the position of members to have their voices heard, in the sense that it would give them clarity about when and where trustees would take account of their views”.It “slightly regretted” some of the wording, he said, “because clearly it has set hares running a little bit where people think that we’re suggesting they have to take account of people’s views”.In reality, the DWP was trying “something a bit more modest”, added Farrar. Some lawyers had told IPE the statements in the press release were misleading. What the government saidThe government’s proposal is intended to make clear that the financially material risks trustees must take into account when making investment decisions include those stemming from environmental, social and corporate governance (ESG) factors. This is separate from trustees’ ability to take account of members’ views on non-financial matters. The government has also proposed requiring trustees to make a statement explaining “the extent to which” they have taken into account scheme members’ views on such issues. This leaves open the possibility of trustees stating they don’t take members’ views into account at all – and the consultation document makes clear they are not obliged to do so. The document states: “Trustees have primacy in investment decisions and, while they should not necessarily rule out the ability to take account of members’ views, they are never obliged to, and the prime focus is to deliver a return to members.” One lawyer said the wording in the press release about empowering members looked like “sloppy political rhetoric”, but added: “Perhaps they are cleverer than that – and are trying to pressure trustees to do this by the back door”.In its coverage of the DWP’s consultation, UK newspaper The Guardian portrayed the government’s proposals as heralding significant change for pension funds and the fight against climate change. They were “designed to give pension fund trustees more confidence to divest from environmentally damaging fossil fuels and put their cash in green alternatives if it meets their members’ wishes”, the paper wrote. According to the Law Commission, trustees can make investment decisions based on members’ views if they have good reason to think the scheme members hold the concern and the decision would not be significantly financially damaging. The consultation is open until 16 July.
According to the FCA, Goldman Sachs “failed to take reasonable care to organise and control its affairs responsibly and effectively in respect of its transaction reporting”. It did not provide accurate reports for roughly 213.6m transactions, and reported 6.6m transactions to the FCA that were not reportable.“These failings related to aspects of [Goldman Sachs’] change management processes, its maintenance of the counterparty reference data used in its reporting and how it tested whether all the transactions it reported to the FCA were accurate and complete,” the regulator said.Mark Steward, the FCA’s executive director of enforcement and market oversight, added: “The failings in this case demonstrate a failure over an extended period to manage and test controls that are vitally important to the integrity of our markets.“These were serious and prolonged failures. We expect all firms will take this opportunity to ensure they can fully detail their activity and are regularly checking their systems so any problems are detected and remedied promptly, unlike in this case.”In its statement regarding UBS earlier this month, the FCA said the Swiss investment bank failed to provide accurate data relating to approximately 86.7m reportable transactions, and mistakenly reported 49.1m transactions to the FCA that were not reportable. The UK’s financial services regulator has fined Goldman Sachs £34.3m (€40m) for transaction reporting failures that lasted almost a decade.In a statement published today, the Financial Conduct Authority (FCA) said Goldman Sachs had failed to “provide accurate and timely reporting” for more than 220m transactions between November 2007 and March 2017.The fine follows a £27.6m penalty imposed on UBS on 19 March, relating to more than 135m transaction reports over a similar timeframe. In total, the FCA has fined 14 companies for similar offences, charging them more than £94m collectively.The breaches related to reporting requirements brought in under the first Markets in Financial Instruments Directive (MiFID), which came into force in late 2007.