Ethos calls on institutional investors to focus on remuneration

first_imgThe Swiss proxy voting foundation Ethos has called on Pensionskassen to focus on remuneration and said it will require performance-linked compensation.In a recent referendum, the majority of Swiss people voted in favour of the so-called Minder Initiative to curb “excessive” remuneration at Swiss companies last year.A law based on the outcome of the vote also contains an obligation for pension funds to take part in votes at annual general meetings of Swiss listed companies in which they are invested. As a consequence of this new law, Ethos has called on pension funds to focus on compensation and governance issues at companies and will also do so in its own voting guidelines. “Under no circumstances will the Foundation be able to accept, prospectively, remuneration amounts without knowing in detail the mechanisms linking compensation to performance,” it said in a statement.As a benchmark, Ethos states that, “in the event of outstanding performance, the variable remuneration should not exceed three times the fixed salary in order to avoid excessive risk-taking by the management”.Further, the foundation suggests “separate votes for the fixed and variable compensation paid to executive management”.Additionally, bonus payments should only be voted on after the performance is achieved.As for the remuneration committees in a company, Ethos “requests that most of the candidates be independent and do not hold executive positions at other companies”.In general, Ethos stressed that it would “pay very close attention” to corporate governance rules such as the maximum number of mandates held by executives on various supervisory boards.In its most recent annual survey on executive remuneration in the 100 largest companies listed in Switzerland for the financial year 2012, Ethos found remuneration “remained very high”, averaging almost CHF2m (€1.6m) for a member of executive management.It added that transparency regarding remuneration allocation mechanisms was “still inadequate in many companies” and that “the structure of remuneration systems often still falls short of best practice”.last_img read more

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Swedish buffer fund subsidiary snaps up Germany office property

first_imgCityhold, owned by Sweden’s national pension funds AP1 and AP2, is buying a Hamburg office property as it continues to invest in core European cities.The investor, which has so far invested in London and Munich, has a portfolio worth around €800m.AP1 and AP2 initially earmarked €500m of equity for Cityhold, which is targeting core offices for long-term investment.In Germany, the company is focusing its efforts on Germany’s top five cities. The Hamburg Atlantic Haus property, a high-rise office building sold by UBS, will take Cityhold’s German portfolio to €200m.Cityhold head of Germany Berith Kübler said: “As Europe’s largest national economy and, above all, as a stable real estate market, Germany plays a key role for Cityhold’s property investment strategy.”Kübler added that Cityhold was planning to invest further in Germany.The firm made its first investment in the country in February this year, buying a multi-let, 15,000sqm Munich office property from IVG Institutional Funds.Set up in 2011, Cityhold diversifies AP1 and AP2’s combined real estate allocations. Cityhold invested half its current allocation of €1.2bn in three London properties in 2012.In January, Per Sjoberg, chief executive of Cityhold Property, said offices in transparent and liquid markets were favoured, with the firm focusing on modern buildings in locations with good transportation links.last_img read more

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KLP backs Rwanda with solar investment

first_imgNorway’s largest pension fund manager KLP has funded the construction of a solar farm in Rwanda, its first investment in the east African state.The project, located to the east of the nation’s capital Kigali, is the first utility-scale, grid-connected commercial solar park in east Africa, costing $23.7m (€20.3m)KLP part-funded the project through KLP Norfund Investments (KNI), a vehicle jointly owned by Norfund, the Norwegian government’s investment fund for developing countries. KNI was set up in 2013, in KLP’s case to increase its impact investments.KNI is a majority owner of the park through its partnership with Scatec Solar, an integrated independent solar power producer which will oversee its operation. KNI owns 24% of the equity, Norfund 12.8% and Scatec Solar 43.2%, while the developers Gigawatt Global own 20%. Further funding has come via debt and grants from international development agencies.Eli Bleie Munkelien, vice president, corporate responsibility and corporate governance, KLP, said: “We see energy as key to development, and renewable energy equally essential for a sustainable development.“Our co-investment with Norfund is commercially based, but with the aim on giving returns on a social and environmental level, as well as the financial dimension.”By end-2014 KLP had invested NOK200m (€21.9m) in four renewable energy projects, the largest being the Lake Turkana wind project in Kenya, as well as solar parks in South Africa and Honduras.Another NOK300m had also been allocated – NOK150m through NorFinance in bank and finance projects, so far in Kenya, Uganda and Mozambique, while the remaining NOK150m is awaiting allocation in new investment opportunities through KNI.Last December, a further NOK500m was committed to investments in renewable energy, though it has not yet been allocated. KLP is currently looking into the different possibilities with regard to the preferred type of impact, partnerships and models.KLP has also invested NOK97m in the Norwegian Microfinance Initiative which funds microfinance institutions in developing countries through equity, loans and guarantees intended to provide an attractive financial return as well as development results.All these investments are defined by KLP as impact investments.Munkelien said: “We use three tools to ensure KLP’s responsible investments: exclusion; active ownership, or dialogue; and investment for sustainable development.“The last of these is what most people consider to be impact investing, though we have a broader definition.”She added: “Given KLP’s investment model, which emphasises index tracking management, KLP seeks partners to put this mandate into operation.”There is no target allocation for impact investment. But sustainable developments in developing economies form an important part of the renewable energy asset class.However, Munkelien said: “There is a target return for impact investments, which vary from project to project. However, they are measured in environmental and social impact as well as financial returns. It is however too early to report on financial returns as they are long-term investments.”KLP’s investment portfolio is worth NOK368bn, with KLP Group’s total assets standing at NOK470bn.For more on impact investing, see IPE’s recent coveragelast_img read more

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Study: ‘Shortlists’ influence pension funds’ asset manager expectations

first_imgHowever, they added: “Asset managers frequently short-listed [sic] by investment consultants are perceived as more likely to outperform other asset managers.”The paper builds on 2013 research by Jones and Martinez that found no evidence of recommendations by consultants adding value to pension funds, with the current paper examining the motivation of asset owners for nevertheless accepting the recommendation.The paper found that pension funds were “ignoring the wealth of evidence” that showed there was no direct link between an asset managers’ past performance and its ability to generate future returns.Despite this, it also found that past performance was a “much more important driver of flows” than any future return expectations.The authors argued that the most likely explanation for such behaviour was that the fiduciaries involved in any decision-making were opting to use the “most observable and verifiable” data available to them, even if the fiduciaries believe they know better.“Trustees may attach unwarranted weight to this tangible piece of information (or non-information) simply because it is observable by the people they are appointed by or answerable to,” they said.Furthermore, decisions to appoint future managers were also based on service factors – such as a company’s use of informal meetings or hiring a relationship manager perceived as capable.“This is perhaps because service factors are read by institutional investors as being informative about general business practices of the asset manager, which might also be reflected in expected future performance,” the paper said.,WebsitesWe are not responsible for the content of external sitesLink to paper ‘Institutional Investor Expectations, Manager Performance, and Fund Flows’ Pension funds have higher return expectations of asset managers frequently shortlisted by consultancies, research by Saïd Business School has found.The research, conducted jointly by the University of Connecticut and the University of Oxford-based business school, found that past performance and soft investment factors also influenced asset owners’ decisions to award new mandates, despite scant evidence of their ability to predict future performance.The study, examining 13 years of US equity performance data, found that past performance was only indicative of future returns over “very short” periods.“Consultants’ recommendations, once aggregated at the manager level, also seem largely unrelated to performance,” authors Howard Jones and Jose Vincente Martinez found.last_img read more

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PNO lowers risk profile in favour of high-yield bonds, property

first_imgThe €5bn pension fund PNO Media has lowered its risk profile by reducing its strategic allocation to equity by 3 percentage points.The scheme has also reduced exposure to infrastructure, microfinance, local-currency-denominated emerging market debt, as well as European credit.In its 2015 annual report, it said it reinvested the assets by introducing a 5% allocation to US high-yield bonds and raising its property allocation from 9% to 11%.The media scheme said it maintained its interest hedge at 25% of its liabilities. The pension fund reported a net result of 3.5% after losses on its interest hedge (-0.3%) and currency cover (-2.6%).It said its 37% equity allocation returned 10.3%, outperforming its benchmark by 2.1 percentage points, due chiefly to its core portfolio of large international companies in Europe and the US.It noted that European small caps, with a return of 22.8%, performed much better than large caps over the period.The pension fund attributed the 0.8% return on its 48% fixed income allocation to the performance of mortgages (3.7%) and dollar-denominated emerging market debt (14.8%).It lost 5.5% and 3.7% on emerging market debt (local currency) and microfinance, respectively, and also posted negative results on government bonds (-1.2%) and European credit (-1%).PNO Media’s investments in non-listed property funds generated 11.1%.It said its investments in US real estate not only performed better than its European holdings but also benefited from the dollar’s appreciation against the euro.Private equity, returning 22.8%, was PNO Media’s the best returning asset class.The pension fund said it co-operated with railways scheme SPF on private equity, following a strategy of active value creation.Infrastructure holdings, which focused on Europe through non-listed multi-sector funds, delivered 16.2%.PNO Media saw its funding drop to 90.4% at March-end and said rights cuts would be necessary if its financial position failed to improve before year-end.It added that the indexation in arrears had increased to 14.6% and that making up for previous rights cuts was likely to be impossible.last_img read more

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UK ‘could ignore’ European share-ownership rules

first_img“Whether this directive will find its way into UK law could all be down to timing,” Everett said.“Right now, it is more than possible it will not become EU law until after the government fires the Article 50 starting-gun for Brexit. If this proves to be the case, then it would seem this will be one of the first EU directives the UK can ignore.”The Financial Reporting Council (FRC), which had significant input into the UK’s response to the directive’s consultation process, said in a recent report it was “unclear how the UK may be affected by ongoing regulatory changes”.However, when referring specifically to the Shareholder Rights Directive, the FRC praised European lawmakers for retaining a ‘comply or explain’ approach used widely in the UK.“The government and FRC will consider how we may incorporate elements of the directive as necessary when it has been approved in plenary early in 2017,” the FRC added.A spokesperson for the FRC said: “It is the government’s decision [whether] to implement [the directive], and we will assist in whatever way we are needed to.”As the UK prepares to start negotiations to leave the EU, speculation is mounting as to the economic and regulatory impact on the country’s financial services sector.Earlier this month, the Financial Inclusion Centre, a think-tank, warned that asset managers might try to resist new rules from the UK’s regulator by citing Brexit-related uncertainty.But Francois Barker, partner and head of pensions at Eversheds, said it would be politically difficult to scrap many EU financial rules, even those not yet enshrined in UK law.“If we do want to be in the club at all, we will have to have some form of [regulatory] equivalence,” Barker said, although he admitted the government may “soft-pedal” on some areas, delaying input or implementation until the UK is out of the EU. The EU’s Shareholder Rights Directive could become the first pension-related European legislation to be scrapped due to Brexit, a consultant has claimed.Under the rules, which are awaiting final approval from the European Parliament, pension funds and other institutional investors must report regularly on their engagement with the companies in which they invest.They must also report regularly on fund manager remuneration, incentives and portfolio turnover costs.David Everett, partner at LCP, said the “potentially onerous” rules may not be enforced in the UK, with the British government poised to start official EU exit negotiations in March.last_img read more

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New Dutch pension system could take up to 10 years: Pensions Federation

first_imgResponding to the collapse of the negotiations for a new coalition government, Riemen said the SER should go ahead with fleshing out a new pensions contract, as an alternative for the current predominantly defined benefit plans, which are becoming unaffordable.Over the weekend, four-way talks between the Liberals, the Christian Democrats, the D66 party, and the Greens were called off without an agreement to form a coalition.One of the alternatives the SER is considering comprises individual pensions accrual, while the other is a “target contract” for accrual in real terms, with a degree of risk sharing in both contracts.The expectation in the sector is that the SER will deliver a proposal for a combination of both options.“I reckon that also the outgoing cabinet will take the coming SER advice seriously and will carry on developing legal proposals, subsequently to be approved by the new parliament,” said Riemen. “This would be perfectly democratic.”However, the Pensions Federation director has also voiced concerns about a new system. Recently, during the transatlantic conference of the European Association of Paritarian Institutions (AEIP) in Montreal, he said there was a risk that people would not understand the new system.“We have €1.2trn of investments and we first have to transfer the liabilities to personal accounts and then to annuities,” Riemen said. “The second big danger is that politicians and social partners do not take any decision and nothing happens. In the end we will see a deterioration of our defined benefit system if this goes on, and I don’t know what the outcome will be.”Commenting on the collapse of the coalition negotiations, Toine van der Stee, chief executive of pensions provider Blue Sky Group, said he didn’t expect anything from the negotiations for a new pensions system.“I assume that the politicians [will] wait for the view of the social partners of employers and workers, who seem to have reached a reasonable concensus about the direction,” he said.Van der Stee added that he expected the sector itself would change the pensions system if politics didn’t speed things up.As examples, he cited the increasing introduction of collective defined contribution schemes as well as arrangements regarding contribution increases and risk sharing.Peter Borgdorff, director of the €187bn healthcare scheme PFZW, was taciturn about the collapse of the coalition negotiations, suggesting that new talks for a government coalition could be completed within three weeks.“The most important is that the SER comes up with solid proposals,” he added.For IPE’s in-depth look at what the different political parties want for the pensions sector, click here. The introduction of a new pensions contract in the Netherlands is going to be a long term process which could last up to 10 years, the Pensions Federation has claimed.Speaking to IPE, Gerard Riemen, the sector organisation’s director, said that it would almost be impossible to start the transition process at the pension fund level in 2020 as scheduled.He noted that the Social and Economic Council (SER) still hadn’t produced a final proposal, which must be translated into legislation and approved by the Dutch parliament.“Because the necessary changes will exceed the available ICT capacity, pension funds can’t work simultaneously on the transition to a new contract,” he said.last_img read more

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Iberian roundup: Portuguese funds boosted by government bond gains

first_imgRising equity markets and a 14% return from domestic government bonds helped Portugal’s pension funds to an average 3.5% gain in 2017, according to Willis Towers Watson.The return compares with a 1.8% gain for 2016.José Marques, senior investment consultant at the consultancy, said yields on Portuguese government bonds had fallen considerably with the pick-up in market confidence about the country’s economic recovery. Portugal’s government bond gains were well ahead of other euro-zone sovereigns.However, he said the main reason for the improving pension fund results was that over the past year equities had posted strong gains, outperforming other assets. “In geographical terms, the best returns – though carrying higher risk – came from emerging markets, with the European and Japanese indices also performing strongly,” Marques added.Performance figures were submitted by around 50 so-called ‘closed’ funds, which are generally pension plans for a single employer or group of companies and make up the bulk of occupational plans in Portugal.Portuguese pension funds traditionally have very high allocations to euro-denominated government and corporate bonds. During 2017, these bonds – with the exception of Portuguese government debt – made returns close to zero.Marques said: “Portuguese pension funds are typically invested more in shorter-term securities such as short-term euro-zone bonds, which performed slightly better than longer-term bonds.”Meanwhile, over the three months to end-December 2017, schemes generated a median return of 1.1%, slightly up from 1% for the third quarter.“Both bonds and equities recorded positive performances over the quarter,” Marques said. “Euro-zone government bonds returned slightly under 1%. Global equities also made positive returns, although returns were negative from euro-zone equities.”Annualised returns for the three years to 31 December remained at 3.3% – the same as at end-September – but fell to 4.8% for the five years to the end 2017, from 5.1% for the five-year period to end-September.At end-December, Portuguese pension fund portfolios were still heavily dominated by debt, which made up 55.9% of portfolios (including direct and indirect holdings), according to data from regulator ASF and from the Association of Investment Funds, Pension Funds and Asset Management.Equities made up 22.2% and real estate 12% of portfolios at that date. Although most pension funds still invest predominately in government and corporate bonds, followed by equities and property, Marques said Willis Towers Watson had seen increased interest in alternative assets.Grupo Catalana Occidente creates pension fund managerGrupo Catalana Occidente (GCO), one of Spain’s biggest insurance groups, has launched a new company – GCO Gestora de Pensiones – to unify the pension management services previously carried out by three separate companies within the groupThe move aims to simplify the group’s structure, offering more efficiency and enhanced customer service.The three companies – Seguros Catalana Occidente, Seguros Bilbao and Plus Ultra Seguros – previously managed two occupational pension funds and 12 personal pension offerings between them.From 1 January 2018, GCO Gestora de Pensiones took over the management of pension funds run by Seguros Catalana Occidente, with the remaining funds to be transferred shortly.GCO as a whole manages pension assets of over €400m.last_img read more

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Italy’s social security chair warns on pension impact of border closure

first_img“Immigrants provide a very important contribution to the financing of our social protection system and their function is destined to grow in the next decades,” added Boeri, “while the generations of indigenous workers that enter the labour market will become smaller.”Matteo Salvini, deputy prime minister and interior minister, who has taken strong measures to stop the inflow of migrants into Italy, hit out on Twitter, saying: “The chairman of INPS continues to be political, ignoring the will to work of so many Italians.”In a video on Facebook, Salvini said: “Much will have to be changed in these organisations”, referring to INPS and other public bodies.Agency models €38bn financing gapBoeri pointed to data from the INPS annual report that showed that a reduced inflow of foreign, non-European Union workers in the country would have a negative impact on its social protection system.As part of the annual report, the organisation modelled the evolution of welfare expenditure until 2040 if the inflow of foreign non-EU workers would be stopped completely.The report showed that, in the three years before Italy’s economic crisis, 150,000 foreign non-EU workers would join the system each year. At the same time, 5% of the stock of foreign workers, which amounted to around 100,000 people, would leave the labour force.Assuming that, each year until 2040, the stock of foreign workers contributing to the system falls by 80,000 on average, the report claims that INPS would lose €73bn in contributions from immigrant workers each year. At the same time the organisation would gain €35bn in welfare expenditure directed at foreign workers.The net balance would be a gap of €38bn in INPS coffers each year. The chairman of Istituto Nazionale della Previdenza Sociale (INPS), Italy’s social security agency, has said the country needs a steady inflow of immigrants to redress the imbalance between contributions and payouts within Italy’s pay-as-you-go first-pillar pension system.     Tito Boeri’s comments have drawn scorn from the country’s government, which has explicitly targeted a significant reduction of inflows and has closed ports to NGO vessels that rescue immigrants crossing the Mediterranean from the shores of Africa. His comments were made in Italy’s lower house of parliament at the presentation of INPS’ annual report last week. Boeri said: “By closing our borders, we risk destroying our social protection system.”“A ruling class that lives up to its name must have the courage to tell Italians the truth: we need immigrants to keep our social protection system on its feet.” Tito Boeri, chair of Italian social security agency INPS“The inflows of migrant workers compensate the falling birth rates in our country, which is the gravest threat to the sustainability of our pension system”, commented Boeri. The system, he added, is geared to sustain a rise in longevity, but would be put at great risk by further reductions in the numbers of contributors, given the current demographic scenarios.Former labour and welfare minister Elsa Fornero, who designed a major reform of Italy’s pension system in 2011, told IPE: “We need immigrants, because our ratio of young workers in the labour force is shrinking.”She added: “My position has always been that we cannot think that immigrants alone can solve our problems in terms of pensions, by paying contributions and then perhaps going back to their countries of origin with a pension that is lower than the sum of contributions they paid in. “The focus must be on pension reform. But at the same time, we cannot do without a labour market that functions, which means low unemployment, but also a steady flow of immigrants.”See the July/August issue of IPE Magazine for more on pensions in Italylast_img read more

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Metalworkers’ scheme considers at-retirement advice

first_imgPMT reported that more than 26% immediately made arrangements for a change after having been in touch with an adviser.It said this was unusual, as most participants nearing retirement just signed the letter in which the pension fund had already pre-checked the standard options.Of the participants who opted for changes, 90% picked a drawdown construction, with people explaining that they wanted “to enjoy now”, or that their younger partner was not yet receiving the state pension (AOW).Of the remaining 10%, half opted to exchange the option of a partner’s pension in favour of an additional pension. The the other half preferred a later retirement date, PMT said.The pension fund indicated that it wanted to get in touch with 750 more older members, before deciding to extend the approach to the 3,000 to 4,000 workers who are to receive at least €7,000 in pension benefits.Changes made less sense with lower benefits, PMT said. PMT’s board said it would assess whether costs of a personal approach would justify the positive effects of better informed retiring participants. The best moment for a personal consultation is two years before retirement, as this would also allow members  also leave with the option to retire earlier. The €72bn Dutch metalworkers’ scheme PMT is considering actively informing soon-to-be-retired members about their benefit options.A recent pilot among 500 participants who were facing retirement in six months’ time had shown that more than a quarter did not pick the default pension after they had been briefed by one of PMT’s pension consultants.They had been asked – by phone, email or through a personal consultation – by one of PMT’s 16 personal pension advisers what they knew about the choices relating how they received their pension.A quarter of the participants indicated that they weren’t aware of the option of a drawdown pension.last_img read more

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