Denmark’s PKA has joined Laerernes Pension and AP Pension in backing Sparinvest Property Fund III (SPF III), which has raised a further €90m in a second closing, bringing the total raised to €243m.There are now six investors in the fund – the first closing was last June.SPF III, a fund of funds, will continue the global value-added investing strategy of the previous fund, SPF II, according to Bo Jensen, managing partner at Sparinvest Property Investors.It will invest primarily in the Americas and Asia (40% of the portfolio each), with 20% in Europe, through carefully selected “hard to find” small and medium-sized managers with hands-on operating experience. “We find good local partners to work with, as we can’t be experts all over the world,” said Jensen.SPF III will invest only in unlisted real estate, focusing mainly on the equity quadrant.The fund will commit to 14 managers and has already invested with four: two in the US, one in the UK and one in China.It hopes to select a Japan and a further US manager by year-end.The fund will maintain a prudent leverage ratio of approximately 50% loan-to-value.Its return target is 11-13% net IRR.Jensen said SPF II, which had its final close in June 2011, had seen a “fantastic” performance, with an IRR of 13%.The new fund will build and reposition commercial real estate, including retail and office properties (making up 25% and 20% of its portfolio, respectively).Residential (25% of the portfolio) will include the development of apartment blocks in India, China and South America.Jensen said this would focus on housing for middle class and lower-income families.“We normally don’t do luxury apartments, as it is too risky, with too much competition,” he said.Around 15% of the fund will be in debt instruments.PKA has now committed €60m to the fund, having committed €50m to SPF II.Nikolaj Stampe, head of property at PKA, told IPE: “We chose the fund because we wish to invest abroad but don’t have the resources to investigate markets, especially far-flung regions like the US.“We wanted a fund of funds to spread risk. And as Sparinvest is a Danish company, it is easy to work with them, especially in terms of taxation and auditing.”Stampe said PKA could also increase its exposure to specific markets by making separate co-investments to funds SPF III commits to, with Sparinvest handling the day-to-day business.PKA’s five constituent pension funds each has an allocation of 8-10% to real estate out of the total DKK200bn (€27bn) portfolio.However, Stampe said the aim was to raise this to 10% for all five funds over the next three years, with 20% of real estate allocated to international property.Meanwhile, there will be two further closings for SPF III, in Q1 and June next year, with a final target of €400m.
Inflation-linked bonds, with a return of 23.2%, was the best-performing investment category.Holdings in equity (36%), fixed income (43%) and property (8%) delivered 14.2%, 19.4% and 18.4%, while the scheme’s hedge funds portfolio (9%) returned 2.9%.SPMS added that it lost 3.5% on its currency hedge, with 70% of the exposure against the US dollar covered and a 100% hedge of the British pound and the Japanese yen.The pension fund ended 2014 with a funding ratio of 126%.SPW, meanwhile, reported a quarterly return of 5.9%, leading to an annual performance of 23%.It said developed-market equities, credit and government bonds returned 18.9%, 14.8% and 13.4% last year.Its investments in hedge funds, private equity and infrastructure delivered 16.5%, 24.4% and 22.4%, respectively, while real estate produced a 20.4% return.SPW incurred a 27.2% loss on its investments in commodities, mainly due to the sharp drop in oil prices.The pension fund said its interest hedge contributed 14.6 percentage points to its annual result, and that it lost 4.8% on its currency hedge.In other news, the €8bn pension fund of steelworks Hoogovens and the €2.2bn Dutch scheme of ExxonMobil (Protector) are to replace their final-salary pension plans with average-salary schemes to cut costs.However, the Hoogovens scheme pointed out that its final-salary arrangements had been conditional, and that the accrual had already fallen 10% short of the 100% target in recent years.Both pension funds confirmed they would grant their participants inflation compensation, with Hoogovens raising pension rights for pensioners by 0.33% and for active participants and deferred members by 0.94%.It said its decision was based on the indexation rules under the new financial assessment framework (FTK) and its funding ratio of 113.1% at October-end.Protector, whose funding was 129% at the end of December, granted its active participants a full and unconditional indexation of 0.88%, based on the consumer index. SPMS, the €9.3bn occupational pension fund for medical consultants in the Netherlands, and SPW, the €10.5bn scheme for housing corporations, have reported annual returns of 25.3% and 23%, respectively. Both schemes benefited from extensive hedges of the interest risk on their liabilities.SPMS said 13.1 percentage points of its annual return came as a result of its 70% interest hedge via interest swaps.It said all of its asset classes delivered positive results.
To preserve capital, fixed income dominates its investment portfolio, with a 62% allocation as at end-2014, while 29% was in equities.Within the fixed income allocation, Spanish government bonds made up 8.9% of the total portfolio, with 4.6% in bonds issued by the Basque government, and 3.2% by the Italian government.Stable returns are achieved by investing in international markets. At end-2014, 81% of the portfolio was invested in the EU, with 3% in the US.Volatility in investment returns during 2014 was 4.9%.However, there was also an emphasis on investing in the local economy. Investments in the Basque Country and Navarra form 14% of the total portfolio.This includes 2.8% invested in Orza, an asset manager set up to invest in Basque businesses, in which Geroa has a 50% stake.The 9.39% return for 2014 compares with 14.07% for the previous year.While attributing most of the return to the “very positive” growth in profitability of fixed income assets, the fund’s annual report said: “The evolution of equity has also been positive, though very unequal between countries and sector.”Turning to the investment outlook for the rest of 2015, the report said the success of the European Central Bank’s quantitative easing programme would be key in relation to the definitive end of the crisis in the euro-zone.But it warned that social and political risks were also important, with a number of elections this year and a rise in support for euro-sceptic parties.As for the domestic economy, in 2014, the Spanish government announced a demand stimulus programme to offset falling exports.The report said: “The Spanish situation, according to the financial markets, is clearly positive, as internal demand compensates for less dynamism in the external sector.“During 2015, Spain could be the euro-zone country that grows the most. However, it has important imbalances in labour creation and public debt.” Geroa Pentsioak EPSV, the multi-sector pension fund for workers in Gipuzkoa, a province in Spain’s Basque Country, has announced a return of 9.39% for calendar 2014 on its €1.53bn-worth investment portfolio.This takes the average annual return since the fund’s inception in 1996 to 6.59%.Geroa Pentsioak is a unique concept in Spain, providing supplementary pension cover for medium and low-paid workers, rather than for those with higher incomes.Its investment policy is to generate a return 2-3 percentage points above Spanish inflation.
He was clearly less publicity hungry than some of his former PIMCO colleagues, preferring for many years to communicate with the investing public via regular letters, whose pithy and engaging style would become a trademark. In a glimpse into his personality, those letters, dating back to the 1970s, were collated as a coffee-table book, but Gross told me he had stopped it from being distributed too widely. In any case, it is safe to assume the book is probably no longer on display at PIMCO offices.When he moved from the Midwest to California with his parents in the 1950s, little would a young Bill Gross have realised that his fortune would be made there – and in grand style. Following years spent as a professional gambler, the yet-to-be Bond King made his name as a bond analyst at Pacific Mutual, and it is a fair bet his first pay cheque was a tiny fraction of the $200m (€177.5m) settlement Gross is now seeking from his employer (and will donate to charity should he be successful).As the firm grew, so did the bonuses, latterly with pool of $1.3bn, of which Gross was guaranteed 20%. Of course, rumours of PIMCO’s Croesus-style pay have been rife for many years, which has no doubt succeeded in attracting many a talented fund manager to the shores of Newport Beach.As Gross and others explained over the years to outsiders, locating a bond fund management company in Southern California, far away from the fray of Wall Street, was a deliberate strategy. It was meant to allow fund managers to take a dispassionate view of markets and combine early morning starts with a beach lifestyle in the late afternoon when the New York dealing rooms had closed.Aside from the back-stabbing allegations and eye-wateringly high remuneration that PIMCO executives enjoy, a few things stand out. One is that Jochen Faber, as the former chief executive and architect of Allianz Global Investors, seemingly intervened in Gross’s dispute with his colleagues alongside Allianz. Despite Faber’s attempt to place PIMCO under the Allianz Global Investors umbrella as the group’s bond specialist, PIMCO did not stay for long within that constellation and now sits as an autonomous, direct subsidiary of the Allianz Group.I recall a real sense of elation in Munich in 2000 when Allianz acquired 70% of PIMCO for $3.3bn. Finally the sleepy, German-focused, third-party fund management business had the wind in its sails and was on course for global reach. The insurer also had access to world-class bond management capabilities, and PIMCO built up local capabilities in Germany to serve its parent.When it next meets, the main board of Allianz might be forgiven for wondering what it has got itself entangled with. After all, investment management is meant to a straightforward business-diversification strategy for financial services companies. Yet the industry has rarely seen such high drama. And in this climate of transparency and relative frugality, those institutional clients that have not yet pulled their assets from PIMCO might wonder whether now is not high time.Liam Kennedy is editor and editorial director of IPE IPE editor Liam Kennedy looks back to a simpler time for beleaguered asset managerWhen I interviewed Bill Gross and Mohamed El-Erian at PIMCO’s headquarters in Newport Beach in late April 2009, the world was still in deep trauma. The Lehman collapse was only just over six months past and the equity market was only just turning (although this was not perceptible at the time).El-Erian had just spoken at the Milken Global Conference, and I was to moderate a panel of leading US institutional investors, including the late Joe Dear of CalPERS and CalSTRS CIO Christopher Ailman, the next day. Dear had just started at CalPERS the previous month and joked that he could only make things get better, but investors were licking their wounds.The views of Gross and El-Erian were much in demand. PIMCO had warned about the housing market already in March 2007 and was talking about a “stable disequilibrium” when Greenspan was talking up the “Goldilocks” economy. Gross was notably keen in our interview to emphasise PIMCO’s collegiate style of decision making and communication, something he was clearly comfortable with.
The regulator concluded that a quick transition would be likely to force carbon-intensive sectors to make large and costly adjustments.It said it based its conclusions on data provided by three large asset managers that together manage more than 60% of Dutch pension assets.Commenting on the findings, finance minister Jeroen Dijsselbloem emphasised the importance of a gradual carbon-neutral transition to avoid harming pension funds.In its report, the regulator said it saw no “acute” risk of a “bubble bursting”; the pressure on pension funds to reject fossil fuels, however, remains.Several initiatives, including one launched by ABP Fossil Free, are calling on pension funds to divest from energy companies, citing financial risk.The European Systemic Risk Board (ESRB) recently recommended that future stress tests of the pension sector should include measurements of climate-related risk.Pension funds could also face upper limits on exposure to high-risk carbon assets, the board said, if regulation is amended in the wake of any stress-test results.Elsewhere, the Swedish regulator said pension providers should consider stress testing their portfolios for the risks posed by climate change and stranded assets. The Dutch financial regulator (DNB) has warned that if the Netherlands were to shift towards a carbon-neutral economy too quickly local pension funds would suffer.Dutch pension funds, it estimates, have invested nearly 5.5% of overall assets in coal, oil and gas companies.An additional 7% of total assets has been invested in carbon-intensive sectors, such as energy production, basic industries, transport and agriculture.By comparison, banks and insurers have invested 1.2% and 2% of total assets, respectively, in fossil fuel companies, according to DNB.
Veritas Asset Management – Ian Barnes, former head of UBS Asset Management for Ireland and the UK, has been appointed to the newly created position of chief executive of £12bn (€14bn) Veritas Asset Management. He will join in early 2017, becoming part of the managing partners board that already comprises Charles Richardson, Andy Headley, Ezra Sun and Richard Grant. Barnes had been head of asset management at UBS for UK and Ireland since 2012. Before that, he was at Russell Investments, where his initial role as senior investment consultant evolved into a focus on fiduciary management. Veritas Asset Management became a distinct limited liability partnership as part of a corporate reorganisation in 2012.Willis Towers Watson (WTW) – Alfred Gohdes, chief actuary for pensions consulting for the consultancy’s German business, will be retiring from WTW at the end of February 2017. A well-known figure in the industry, Gohdes has been at WTW and its predecessors for about 35 years. Actuarial Association of Europe (AAE) – Kristoffer Bork has been elected chairman of the AAE for the year to September 2017. A Danish national, Bork was president of the Danish actuarial association, Den Danske Aktuarforening, from 2010 to 2016. Bork succeeds Philip Shier, who became the actuarial manager of the Society of Actuaries in Ireland after retiring from Aon Hewitt. Thomas Béhar was elected AAE vice-chair for the coming year. From France, Béhar is group chief actuary at insurer CNP Assurances. BlackRock – Alexandra Haggard joined as head of consultant relations for the EMEA. She is the former chief executive at Stamford and before that was a managing director at Russell Investments. She will manage BlackRock’s 30-strong EMEA consultant relations team. Haggard is also chair of the CFA UK Steering Committee 2017 Ethical Leadership Programme and a Steering Committee member of the CFA Diversity Project.Greater Manchester Pension Fund – Sandra Stewart has taken over from Peter Morris as executive director of pensions following the latter’s retirement. Stewart has been solicitor to the £17bn (€21bn) local authority fund for more than 15 years, and added the role of director of pensions to her role as executive director in charge of governance and resources. Morris retired after 40 years in local government in the UK. The changes were effective in May. Alternative Investment Management Association (AIMA) – Simon Lorne is taking over as chairman of the trade body, replacing former SEC commissioner Kathleen Casey. Lorne is vice-chairman and chief legal officer at Millennium Management. Lorne is a member of the new council, AIMA’s global board of directors, which also counts four new members: Robyn Grew, chief administrative officer and general counsel at Man Group; Han Ming Ho, partner at Sidley Austin; Ryan Taylor, partner and global head of compliance at Brevan Howard Asset Management; and Michael Weinberg, senior managing director and chief investment strategist at Protégé Partners.UK Pension Protection Fund (PPF) – The UK lifeboat fund’s operational due diligence manager, Kevin Eastwood, has been granted chartered status by the US Investment Management Due Diligence Association (IMDDA). He is said to be the first person outside the US to have done so. The IMDDA is the US professional body for individuals and companies that are tasked with due diligence in the investment management industry. Société Générale Securities Services – Massimiliano Notarianni has been appointed global head of sub-custody network management. Mathilde Guérin, whom he replaced, has become deputy head of product engineering. Notarianni was previously head of provider monitoring and change. Both are based in Paris. Russell Investments, Principal Global Investors, Liongate Capital Management, Cardano, Mercer, Veritas Asset Management, UBS Asset Management, Willis Towers Watson, Actuarial Association of Europe, BlackRock, Stamford, Greater Manchester Pension Fund, AIMA, Pension Protection Fund, Société Générale Securities ServicesRussell Investments – Pascal Duval, chief executive for the EMEA region, has resigned from the asset manager after two decades of service. A successor has not yet been appointed. Duval’s move comes after Russell Investments was sold to private equity firm TA Associates last year. Duval said: “Now that we have come through a period of ownership uncertainty and the firm is entering into a new and exciting phase of its evolution, the time is right for me to start a new personal chapter.” Principal Global Investors – Tim Stumpff has been appointed chief executive, replacing Nick Lyster, who has been appointed to the newly created role of global head of wealth advisory services. Stumpff joined Principal Financial Group in 200, and has most recently served as president of Liongate Capital Management. Lyster, who served as chief executive from 2006 to 2016, will be responsible for delivering Principal’s investment capabilities to global wealth management firms, with a focus on the Dublin-domiciled UCITS range of funds.Cardano – Pim van Diepen will join Cardano as director of business development as of 1 November 2016. He joins from Mercer, where he worked for 12 years, including as head of the ALM Netherlands team and was business leader of Mercer Retirement in the Netherlands. Van Diepen is a member of the Dutch Actuarial Association, participating in the risk management networking group.
Specialist fiduciary management provider SEI has called for investment consultants to be required to sell or ring-fence their fiduciary management services to combat conflicts of interest. Keating, while impressed by the FCA’s work overall, said the report fell just shy of getting to the heart of how the business model of the asset management industry needed to change.“They did miss one big opportunity,” he said. “They almost got there but not quite.”He said the FCA had found that some fund managers underperform considerably but do not appear to get terminated, and that, for him, “the real [issue] is that the relative game will get more and more pressured by passive players”.Describing the asset management industry as “a relative game about divisions of a fixed-sum pie”, Keating said this explained why it was “virtually impossible to maintain a leading position”.He said investment managers needed to be more pro-active than they have been.“They have to start looking at working with their investee companies,” he said, adding that pension investors with in-house managers, such as the Canada Pension Plan Investment Board and Australian Super, were the “furthest advanced” along the lines of that business model.“That idea is where the future of the fund management industry has to lie,” he said.Greater disclosure of costs and fees in the fund management industry will only exacerbate the trend towards passive, he said, “so the smarter fund managers will move away from that business model of trying to outcompete their neighbour and go elsewhere”.Keating has elsewhere referred to the model he proposes as a co-operative, collaborative model of direct involvement, where fund managers, as per the descriptor, “co-operate and collaborate with their investee companies to improve the long-term performance of those companies – and with that, their own value and investment performance”.The approach Keating described is said to have echoes of one adopted by some large European pension investors in recent years, to the extent that it has parallels with a shift to more concentrated equity portfolios based on higher-conviction active investing.The UK’s Universities Superannuation Scheme is moving in this direction, for example.Where the FCA “didn’t do anywhere near enough”, Keating said, was on “systematic efforts” to misrepresent fund management performance.“They have been quite remarkable at defending their turf, and truth doesn’t necessarily have to enter their defences,” he said.Keating strongly criticised a report by the Investment Association earlier this summer in which the industry body hit back at claims of high hidden fees charged by fund managers. The FCA has proposed an “all-in fee” for investment funds in addition to other requirements on asset managers to demonstrate value for money to investors.Keating said he thought the all-in fee was a good idea.“What we really do have to see is transparency,” he said. The UK Financial Conduct Authority (FCA) delivered an impressive study on the asset management market, asking “serious questions” about investment consultants and fiduciary management, according to Con Keating, head of research at BrightonRock, an insurance company for pension schemes.Keating said the FCA delivered “a very good piece of work”, including with respect to how “they went after investment consultants” and touched on the “very important point” that the quality of their advice has never been able to be measured.He said the FCA’s report “asks some really serious questions” about investment consultants’ move into fund management via fiduciary management and that there was “a very very strong case” to be made that these should be separated.“Either you’re an investment consultant or a fund manager, but you cannot be both,” he said. “I really do think there should be a clear division between fund management and consultancy services.”
Defined benefit (DB) pension funds in the Netherlands can achieve 20% better outcomes at retirement than individual defined contribution (DC) plans, according to a study by the Dutch Bureau for Economic Policy Analysis (CPB).The CPB reached its conclusion after considering the combined effect of extra returns and the hedging of interest risk on liabilities at DB schemes.At the request of pensions think-tank Netspar, the CPB compared the Social and Economic Council’s (SER) two preferred options for a new pensions contract – collective DB without guarantees and individual pensions accrual with shared investment risk, as well as individual DC contracts without risk-sharing.Marcel Lever, programme leader at the CBP, said 7 percentage points of the extra return produced by DB plans were due to shared investment risk between current and future generations, which enables DB schemes to take on more investment risk. He attributed the remaining 13 percentage points to a 25% interest hedge through swaps, on top of the interest cover through bond holdings.“At individual contracts, it is uncommon to hedge interest risk this way,” Lever said.He explained that, with interest swaps, pension funds always receive the long-term rate and pay the short variable rate.“Because the long rate is almost always higher, this construction delivers an additional return of 1.5% on average in the long run,” he said. “In most of our scenarios, a hedge of between 60% and 100% is beneficial.”Lever said it was still unclear whether an interest hedge would also apply to a pensions contract based on individual accrual with risk-sharing.“The question is whether all participants with individual contracts could provide sufficient collateral such as AAA bonds,” he said.In other news, a Dutch court has ruled that the decision of Verloskundigen, the €300m occupational pension fund for midwives, to apply a rights cut of 0.4% next year was not at odds with European legislation.In the case, brought by a pensioner who had referred to the European Charter for violation of ownership rights, the court concluded that the code did not apply, as there are no European rules for local pension systems.In the opinion of the court, a violation of the European Convention for Human Rights was not relevant either because the rights cut is covered by local law and is not disproportionate.Commenting on the ruling, Marlies Bartels, the scheme’s chair, took pains to emphasise that the pension fund had taken a balanced decision, taking the effects for all 3,730 participants into account.Last month, the funding ratio at Verloskundigen stood at 83%.
“Exceptions must be minimal,” she added.Clay acknowledged that long-term, illiquid assets should not (and in some cases could not) be sold, but urged LGPS funds to “bring them under management of the pool as soon as possible”.She added that some schemes had highlighted legal issues with merging or transferring assets from some vehicles, such as life funds, into authorised contractual schemes – the fund structure used by the London CIV and being considered by other pools.However, Clay emphasised that this was not a sufficient barrier to transferring the management of assets or funds to the pools.Any assets not transferred to a pool “need to be kept under review and continually justified”, she said.A number of individual LGPS funds have made investments into private equity projects or funds, or assets focused on their local communities.For example, in February the £2bn (€2.2bn) Royal County of Berkshire Pension Fund bought a 20% stake in boutique manager Gresham House to help it establish a UK-focused investment fund.The pension scheme has provisionally agreed to join LPP but has yet to invest significantly in any pooled funds launched by the partnership so far. In a draft version of Berkshire’s annual report for 2016-17, the fund said it would be “uneconomic” to pool asset classes such as the Gresham House investments due to transfer costs and “the inequality created by sharing future returns”.Berkshire said it would consider future investment opportunities as they became available, focusing initially on liquid asset classes such as equities. UK public sector funds must justify any assets they hold outside of new pools once the vehicles are up and running, according to the government department overseeing the Local Government Pension Scheme (LGPS).Teresa Clay, head of local government pensions at the UK’s Department for Communities and Local Government (DCLG), said individual schemes should look to move any assets – regardless of liquidity – into the pools “as soon as possible”.LGPS funds must begin transitioning assets to the new pools from April next year. Eight pools have been formed but so far only two are accepting assets: the Local Pensions Partnership (LPP) and the London CIV.Speaking at the annual Local Government Pension Investment Forum in London, Clay said all new investments made by LGPS funds should be made through an asset pool “unless there is a clear case that can be made” for investing through a different route.
Walker and Dunatov are both members of the 300 Club think-tank. Dunatov is currently the chair of the group, which consists of leading pensions and investment professionals from Europe and North America. The UK’s Coal Pension Trustees has hired the global chief investment officer of Unilever’s pension funds as its new CIO, IPE understands.Mark Walker is to take over from Stefan Dunatov, who resigned from Coal in the summer to take up a role at British Columbia Investment Management Company in Canada.Walker has been global CIO for Unilever’s pension funds since joining from Mercer in 2010.At Coal, Walker will take responsibility for more than €23bn in assets, according to IPE’s Top 1000 Pension Funds survey. These are the assets of two pension funds: the British Coal Staff Superannuation Scheme and the Mineworkers’ Pension Scheme. Mark WalkerDunatov spoke to IPE at the start of this year about Coal Pension Trustees’ investment strategy. Read the full interview here.Unilever’s UK scheme is one of the group’s biggest pension arrangements. Jayne Atkinson joined earlier this year as UK pension CIO. She was previously on the investment team at Nestlé, which has shut down much of its internal operations.