A verdict in the criminal trial involving former board members at Cref, the French pension scheme for teachers and public employees, is now set for 11 April.After a month of hearings at the Paris Tribunal, the appeal trial finally convened on 20 December.The trial was due to confirm sentences for eight board members, including senator René Teulade, former French minister of Social Affairs, convicted of misappropriation in an 8 June 2011 judgement.The board members have been accused of giving themselves illegal compensation and fringe benefits, such as free housing in prestigious Parisian flats owned by Cref. Yann Le Bras, arguing for the Cref’s liquidator on behalf of defrauded retirement savers, claims that more than €3m was diverted in total.The misappropriation lawsuit is one of three legal actions undertaken to help investors retrieve part of their savings after the Cref retirement fund collapsed and was bailed out by UMR, a mutual firm set up to serve ongoing pensions after drastic measures to restore the scheme’s solvency.Cref was partly based on a pay-as-you-go system, where the contributions of active workers were directly transferred to retirees to pay their pensions.With optional contributions – and a demographic imbalance as the number of pensioners increased faster than contributing members – Cref was unable to match solvency requirements required under the French Mutuality Code.This was the conclusion reached after an investigation was launched in 1998, after the French watchdog called for a general inspection of Umrifen, the mutual managing Cref.In 1997, the Cref fund accounted for about FRF2bn (€305m) of Umrifen’s FRF20bn in overall assets.Umrifen subsequently transferred its liabilities to new mutual firm UMR, with a 25% cut in pension rights for Cref members accepting the deal.As Cref has promised ‘guaranteed’ pensions indexed against public employees’ compensation, more than 6,500 members claimed damages, aided by counsel Nicolas Lecoq Vallon, a lawyer in financial consumer cases, and Stéphane Bonifassi, Francis Terquem and Yann Le Bras.The French Supreme Court of Cassation found Umrifen guilty of mis-selling and granted more than 5,000 victims approximately €5.5m.After paying €1.7m, Umrifen went bankrupt, but the liquidator has now sued UMR to repay the remaining €3.8m.The Administrative Appeal Court found the French state responsible for supervisory failure and ordered the state to refund up to 20% of the victims’ damages.As for the criminal appeal, the court may order Cref leaders to repay the €3m they allegedly diverted.A verdict on the case is expected on 11 April.
The firm has recently engaged with Japan-based Rakuten after reports that its parent company Rakuten Ichiba was “profiting from the killing of endangered species through online sales of a wide range of whale meat and ivory products”, according to Strathclyde’s most recent RI report for the first quarter of the year.It also confirmed it would become a signatory to the Carbon Action initiative by the Carbon Disclosure Project, urging action on greenhouse gas emissions.Applications should be submitted by 10 September.Meanwhile, a Swiss pension fund is looking to commit up to €20m to a global equity fund, using IPE-Quest.According to search QN1442, the fund would like to appoint a global equity manager to oversee its investment, which could be split across a number of funds.The mandate will concentrate on the equities of firms with global brands or “global Titan firms”, according to details provided by Kottmann Advisory.Interested parties can request further details before 20 August.The IPE.com news team is unable to answer any further questions about IPE-Quest tender notices to protect the interests of clients conducting the search. To obtain information direct from IPE-Quest, please contact Jayna Vishram on +44 (0) 20 7261 4630 or email firstname.lastname@example.org. Strathclyde Pension Fund, the largest UK local authority, is looking for a responsible investment (RI) overlay provider.The five-year contract, estimated to be worth £600,000 (€752,000), would begin in January next year, according to a tender notice, with the local government scheme open to renewing the contract once.The fund first appointed Global Engagement Services (GES) as an overlay provider in 2012, and has been a signatory of the UN-backed Principles for Responsible Investment (PRI) since 2008.It has pledged to incorporate environmental, social and governance (ESG) issues into its investment analysis and decision-making processes.
Stock investors are implicitly adding 20% to defined benefit (DB) liabilities when analysing FTSE 100 companies, a study has shown.The report, by Llewellyn Consulting and sponsored by Pension Insurance Corporation (PIC), also found that FTSE 100 companies with the largest DB liabilities were most penalised by market investors.The research said investors picking stocks gave as much attention to the net-asset position of DB schemes as they did to the sponsor’s business operations.It also found that while deficits were of concern, more focus was placed on long-term pension liabilities. Llewellyn Consulting said net deficit positions at FTSE 100 companies averaged 4.7% of market capitalisation, while long-term pension liabilities were 47.5%.However, investors showed no confidence in the value of the liabilities and therefore inflated the figure by 20% to achieve what they believed to be a more accurate picture.John Llewellyn, of the eponymous consultancy, said it was “striking” that markets did not reflect the numbers presented by FTSE 100 companies.David Collinson, head of strategy at PIC, added: “Analysts and finance directors can struggle to put accurate figures on the shareholder value impact of the risks associated with a company’s DB pension scheme.“For the first time in the UK, they can now see an estimate of the weight investors put on the scale of risk,” he said.In other news, BNY Mellon has teamed up with consultancy Redington to provide UK pension funds with a reporting service for their liability-driven investment (LDI) portfolios.The bank and consultancy said the service should allow pension funds to track and monitor risk exposure and funding positions on a quarterly basis, which they said would help trustees understand how to meet liability requirements.It will also model the impact of changing economic circumstances on pension scheme funding levels.The service will be backed by Redington’s iRIS risk reporting tool, which will increase its usability by adding BNY Mellon’s data on derivatives used in LDI transactions.Lastly, the Agility Pension Plan has appointed Barnett Waddingham to monitor its fiduciary management contract with an unnamed provider.Alex Pocock, partner at the consultancy, noted the potential for conflicts of interests within the fiduciary management model and said he looked forward to working with the scheme’s board of trustees.Kim Nash, trustee at the £100m scheme, added that they were impressed by the pragmatic approach suggested by Barnett Waddingham.Appointing an outside consultant to monitor the performance of fiduciary mandates is not uncommon in the UK, with Hymans Robertson appointed to oversee Towers Watson on behalf of the Merchant Navy Officers’ Pension Fund in 2012.
Swiss private bank SYZ is opening an office in Edinburgh for its institutional asset management arm, after having hired Derek Borthwick as business development director for Scotland, the North of England and Northern Ireland in April.Borthwick will be representing SYZ Asset Management in Scotland together with an unnamed analyst and fund manager Claire Manson, who joined the Swiss private bank in September together with Michael Clements.Both joined from Franklin Templeton, and London-based Clements has since overhauled SYZ’s flagship fund OYSTER.The Luxembourg SICAV set up in 1996 currently manages more than €1bn in active European equity strategies. For the equity specialist SYZ, Edinburgh is important, “ranking in fourth place in Europe in equity markets” and being the second largest financial centre in the UK, the private bank noted in a statement.Chief executive Eric Syz said: “Edinburgh is a recognised centre for asset management and constitutes an essential step for any long-lasting development in the UK.”A spokesman for the private bank confirmed to IPE the asset manager wanted to manage and market SYZ’s institutional strategies from Edinburgh, “both via segregated mandates as well as the OYSTER and other investment funds”.In total, the group is currently managing CHF28.7bn (€22.6bn) with a staff of 438 people globally.It has offices in Switzerland in Zurich, Lugano and Locarno, as well as abroad in Milan, Rome, Madrid, Bilbao, Barcelona, London, Luxembourg, Paris, Brussels, Nassau and Hong Kong.SYZ, having been present in the UK market for 13 years, established in March 2014 a partnership with Raymond James Investment Services to include the OYSTER range of funds on its open architecture platform.Earlier this spring, Alfredo Piacentini and Paolo Luban – the two people who founded the bank in 1996 – left the company to focus on “personal projects”.
The latter pool returned 10.1% in the quarter, while the global equities pool produced 11.1%, according to the results released.Meanwhile, the mixed bonds pool returned 1.9% in the period.The 6% return on LD Vælger in the first quarter of this year compares with the 8.7% return reported for the full year 2014.The balanced unit-link investment option LD Vælger (LD Discretionary Investments) holds around 91% of LD’s pension assets.Members of the LD scheme have the option of investing their savings in 10 different investment pools, rather than going with LD Vælger.Both LD Vælger and the externally run pools with blended portfolios containing both equities and bonds have produced returns of between 6% and 9.6% between January and March, LD said.At the end of 2014, LD managed DKK54.6bn (€7.3bn) of assets. Denmark’s Lønmodtagernes Dyrtidsfond (LD) has reported a 6% return on investments in its key LD Vælger portfolio in the first three months of this year, with Danish equities in particular driving returns.LD, which manages a non-contributory pension scheme for Danish people that is based on cost-of-living allowances for workers granted in 1980, said its Danish shares investment pool produced a return of 25.8% in the first quarter.The pension fund said: “Danish equities gave big positive contribution, but, in general, there have been positive results coming from all major investment segments.”The return on Danish shares in the period was more than double those produced by the LD Global Equities and LD Environment and Climate pools.
The financial transaction tax (FTT) proposed by a minority of European Union countries could act as a significant obstacle to the success of the Capital Markets Union (CMU), asset management and pension fund associations have warned.In responses to the European Commission’s green paper on the CMU, the European Fund and Asset Management Association (EFAMA) and the Investment Association, its UK counterpart, warned that the FTT could be counter-productive and act as a potentially significant obstacle to success.Concerns were shared by the UK’s National Association of Pension Funds (NAPF), which argued that it would be hard to contain the impact of the FTT to the 11 European countries that have agreed to introduce it, as the initial proposal from 2012 would have seen the fee levied when UK investors acquired shares in German or French firms.It added that two NAPF members estimated that the FTT would see increased transaction costs of €35m and €5m, respectively, although it did not disclose the size of the pension funds in question. “The NAPF accepts there is a case for tackling some aspects of market behaviour to encourage long-term responsible investment,” the organisation said in its consultation response.“But better stewardship, not a new tax, is the best way forward.”For its part, PensionsEurope had previously warned the Commission that it should avoid any measures – including the FTT – that would “lock capital in the pension funds”.The Investment Association also warned that the impact of the FTT could spill over into capital markets not participating in the levy.It said the tax would introduce “distortions in the capital markets across the EU” – counter to the purpose of a more unified CMU.EFAMA echoed the concerns, noting that the distortions would see capital flow predominantly towards countries not participating in the tax.“FTT would increase the costs for investors, as it will render EU investment funds more expensive,” it said.“It would also jeopardise long-term savings, growth and investment, as it would channel investments to products not subject to FTT.”While negotiations between the 11 participating member states have been slow to see progress, and the introduction of the FTT, the Association of the Luxembourg Fund Industry previously warned of the “nightmare” scenario that would occur if the joint proposal failed and saw 11 individual taxes launched.
EU bank capital rules should be amended to address the unintended negative consequences they have for pension schemes using derivatives, the European occupational pensions association has told the European Commission.Responding to a Commission consultation on the implementation of Net Stable Funding Ratio (NSFR) rules, PensionsEurope said these, alongside leverage-ratio requirements for banks, would have a detrimental impact on pension funds and their service providers.The requirements are part of new EU bank capital rules introduced in response to the financial crisis, designed to shore up banks’ capitalisation.However, PensionsEurope and others in the European pensions industry believe certain aspects of the new requirements – set out in the Capital Requirements Directive (CRD) IV – will have unintended consequences for pension schemes by incentivising banks to accept cash only as collateral for non-cleared over-the-counter (OTC) derivative trades, whereas previously they would also accept high-quality government bonds. The NSFR and leverage-ratio rules are causing a movement toward cash-only collateral agreements with banks in the derivatives market, according to PensionsEurope.This, in turn, generates “a need for (much) higher cash buffers for pension funds and other end users”, it said, increasing their liquidity risks.It can also cause pension funds to rely more extensively on the repo market, it said.PensionsEurope said the impact of the rules “directly contradicts” the objective of the European Market Infrastructure Regulation (EMIR) and “would introduce disproportionate cost and risk to EU pensioners”.It is calling on EU policymakers to consider amending the NSFR and leverage-ratio rules to accept high-quality government bonds, “with appropriate haircuts”, as variation margin (VM) – payment made on a daily or intra-day basis for profits or losses.Pension funds should also be exempt from posting collateral in non-cleared transactions “until non-cash solutions for posting collateral are developed”, said PensionsEurope.The industry group’s comments echo those of several of Europe’s largest pension managers in a submission to a more wide-ranging consultation from the Commission earlier this year.
Severe hurricanes in the US last year not only left local inhabitants struggling with the aftermath, but the effects also rippled through to European investment portfolios.The €197.2bn Dutch health care pension provider PFZW reported 13.3% losses from its portfolio of insurance-linked portfolios.In Switzerland, the CHF17.8bn (€14.9bn) pension fund for the Swiss railways (PKSBB) noted in its annual report that it had suffered “significant losses from its insurance linked investments for the first time last year amounting to over 9% because of expensive natural disasters”.Last year, southern states of the US and much of the Caribbean were hit by two storms now estimated by the US National Hurricane Center as among the costliest on record. Last year’s Hurricane Harvey was the joint costliest storm in US history“A number of pension funds that started by investing in the catastrophe bond space, that have built sufficient in-house expertise around the asset class, are now looking to diversify their allocations into the potentially higher returning, although less liquid, private ILS market,” Ramseier said.Funds had not necessarily abandoned ‘cat bonds’ altogether but were looking to allocate to both segments of the market, he added.For investors able to allocate to less liquid strategies, private ILS investments tend to yield more than cat bonds. The private segment also offered more investment capacity, Ramseier said.“Cat bonds are currently difficult to make an allocation to because a number of funds are closed due to high levels of investor demand,” he added. “For this to happen in the private ILS segment, demand would have to increase at least tenfold in our view.”German investors were also expressing interest in the asset class, Ramseier said, with “a number of institutional investors” considering an initial allocation to cat bonds.The Eurekahedge ILS Advisers index – which tracks the performance of 34 dedicated ILS hedge funds – has gained 5.25% a year since December 2005. It lost 8.6% in September 2017, its worst monthly performance since inception.#*#*Show Fullscreen*#*# Hurricane Irma, which hit the Caribbean and Florida in early September, caused an estimated $50bn (€40.6bn) of damage, while Hurricane Harvey’s impact was estimated at $125bn – the joint most expensive ever seen. As with most Swiss Pensionskassen investing in insurance-linked securities (ILS) – typically bonds issued by insurers and reinsurers to offload risk – the PKSBB’s exposure to the asset class was only 2% of its portfolio.However, as most Swiss pension providers have ILS investments, the US hurricanes and their impacts on pension funds caught the attention of national media.The pension fund for the city of Winterthur (PKSW) was reported to have lost 8% on its ILS portfolio last year.INTEXTLINKTEXT S-bahn to Zurich” src=”/Pictures/web/b/r/i/cq5dam.web.1280.128_660.jpeg” />SBB’s pension fund lost 9% on its insurance investments in 2017Marius Platek, head of investments at the CHF1.8bn PKSW, explained to local papers that since its first foray into ILS the asset class had still contributed an annualised 3.9% return – including last year’s losses.The PKSW has one of the highest exposures to ILS in the Swiss market at 8% of its total portfolio.“Swiss institutional investors are interested in the asset class because of the lack of correlation ILS investments tend to have to financial markets,” Urs Ramseier, CEO and CIO at Swiss-based insurance investment specialist Twelve Capital, explained to IPE.Swiss Pensionskassen are usually restricted to investing a maximum 15% of their portfolios in alternatives, but the Swiss supervisory body Finma often grants extensions to this cap when pension funds like the PKSW want to invest more in ILS.“In our experience, most pension funds in Switzerland have looked at the asset class and, of those that have made an allocation to the ILS market, these tend to account for between 2% and 3% of overall assets under management,” said Ramseier.The CHF17bn pension fund for the city of Zurich divested its 8% commodities portfolio last year and has started to put some of the funds into ILS investments.Ramseier said there was a trend among investors looking for further diversification within the ILS asset class itself. Source: Eurekahedge
Germany’s AAA sovereign credit rating could come under threat in the years ahead, according to credit rating agency Scope.In its most recent report on the country’s financial stability, Scope named “future pension liabilities” as the top source for credit weakness in the future, ahead of “low domestic investment” and “adverse demographics”.“The combination of a lack of investment and an ageing population points to an emerging imbalance between younger and older generations, which will have a lasting impact on the economy,” Scope said.It added that “rising unfunded pension liabilities” and an increase in age-related spending could “dampen government revenue generation on the back of weaker economic growth”. “To help mitigate this, further adjustments to the social security and pension systems are needed,” Scope urged. “If no action is taken, the debt ratio, including future liabilities from health and pension expenditure will bring Germany back into the realm of highly indebted countries in the euro area.”However, the analysts cautioned that the government would likely be met with resistance from the electorate if it sought to reform the pension system.Last month, Scope criticised the German government’s plan to guarantee current pension payout levels and replacement rates from the first pillar. Ein Staatsfonds für Deutschland?Meanwhile, German economist Volker Brühl, managing director of the Centre for Financial Studies in Frankfurt, proposed the creation of a sovereign wealth fund to ensure sustainability of the state pension system.The current government plan for financing the first-pillar guarantee only dealt with budgetary needs up to 2025, he said.“It is as yet unclear what a sustainable pension concept for the time after 2025 could look like,” Brühl said.The economist added that the government had estimated the annual top-ups needed for the state pension system would reach “well above €100bn by 2031”, compared with €67.8bn in 2018.“This has to change,” Brühl said. “Therefore, the current debates on the future financial security of the pension system should assess whether the existing ‘pay-as-you-go’ system should be extended by a funded component.”He proposed the creation of a “Rentenfonds Deutschland” – effectively a sovereign wealth fund for pensions, to be financed from tax money and, if necessary, “a moderate debt level”.“If the assets in such a state fund are invested in a… long-term portfolio with a high equity share, it will yield attractive returns that can help to absorb some of the pension liabilities,” Brühl said.According to his calculations, such a fund could reach €1trn by 2050 “without damaging the solidity of the public finances”.There have been calls for the creation of a sovereign wealth fund in the recent past, but these were mainly aimed at creating a funding basis for infrastructure investments.
A review of the restructuring of the British Steel Pension Scheme (BSPS) has recommended the UK regulators update rules and guidance regarding member communications.In a report published today, Caroline Rookes – former director of private pensions at the Department for Work and Pensions (DWP) – called for trustee boards to be able to set up a panel of approved financial advisers to help members understand their options during scheme restructuring events.Rookes was tasked last year with investigating the lead up to and fallout from the BSPS changes, which were completed last year.In 2017, BSPS’ sponsoring employer Tata Steel and TPR agreed to a regulatory apportionment arrangement (RAA), allowing the scheme to be legally separated from the employer and transferred to the Pension Protection Fund (PPF). Poor communication during negotiations between the employer and the scheme led to concern among members of BSPSIn the report, Rookes encouraged TPR to take the lead on improving member communications guidance.However, Rookes said in her report that a lack of communication prior to the RAA announcement had led to “suspicion, concern and uncertainty” among members.Additionally, once the BSPS trustees began their ‘Time to Choose’ communications exercise, the short timeframe for responding to the options resulted in a huge increase in calls and information requests to the pension fund’s management office.Despite calling in temporary staff, Rookes said the office “entered a downward spiral” with a growing backlog of transfer requests and other correspondence.“The volume and complexity of the work of the office was unprecedented,” Rookes reported.Further reading on British SteelGround-breaking restructuring gives way to advice controversy UK politicians heard how BSPS was inundated with transfer requests and unscrupulous advisers attempted to persuade members to exit the schemeRecommendationsTPR should consider placing a “more explicit” duty on trustees to ensure communications are effective, Rookes said.“All restructurings will be slightly different and therefore require bespoke communications,” she stated. “It should be possible to look at some standard wording for areas such as the risks on cash transfers that can be tried and tested before use.“In addition a good communications guide for trustees would be a helpful starting point, highlighting the need to develop a communications strategy.”She also urged trustees to consider digital communication strategies in addition to physical paperwork to engage more people. The BSPS trustees ruled out setting up support pages on Facebook as they believed that “many members would not be users of such channels”.Regulatory and public bodies “should check their websites for consistency of messaging, cross referrals and ease of use,” Rookes added.The full report can be accessed here.Regulatory responseIn statements today, the UK’s regulators stood by their actions during the BSPS restructuring process, but accepted that there were “important lessons to be learnt”.Lesley Titcomb, chief executive of TPR: Alan Johnston, chair of BSPS, gives evidence to Work and Pensions Select Committee in 2018“It is a source of great satisfaction to the trustee that, together with Tata Steel and the various regulatory bodies, we were able to give members a choice. Over 80,000 members decided that the new BSPS represented the best outcome for them based on their personal circumstances.“Time to Choose was probably the largest pension consultation exercise of its type ever carried out in the UK. The results of the member survey conducted for the review are consistent with feedback received directly by the scheme and show that members were generally satisfied with the information provided and with the decisions they made.“Undoubtedly, if it had been possible to take more time with Time to Choose, the member experience could have been improved. But the restructuring had to be completed to a very tight timetable. The trustee has made a number of suggestions for changes in the legal and regulatory framework that would give more time to other schemes in similar circumstances.” A new scheme, BSPS2, was set up with the aim of offering the majority of members better benefits than the PPF. Members were then asked to choose between the two options, with 97,000 of 122,000 pension scheme members opted for the new fund.During the restructuring, many scheme members were targeted by unregulated “introducers” attempting to persuade them to transfer out of their guaranteed defined benefit plans into riskier – and often more expensive – pension products.The Financial Conduct Authority (FCA) has subsequently barred a number of financial advice firms from providing advice on pension transfers.Rookes called for the FCA to review its directory of approved advisers “to ensure they are fit for purpose”.Members should be directed to the UK’s new government-backed financial guidance body – currently known as the SFGB – for guidance and help understanding their options, she said.The Pensions Regulator (TPR) “should explore if there is a way to allow trustees or the trade unions to identify a panel of financial advice firms that members can select from”, Rookes added.Communication breakdown Lesley Titcomb, TPR“We welcome the report, which acknowledges the good outcome secured for members through an innovative restructure of the pension scheme which we approved. The arrangement led to a £550m cash contribution to the British Steel Pension Scheme and brought certainty for around 125,000 scheme members. It was a strong outcome because the vast majority of members made an active choice with most opting into the new scheme.“We are grateful to Caroline Rookes for identifying a number of useful themes in her review which will help ensure pension savers are less likely to make transfer choices which are not in their best interests. We will now work together with trustees and the government so that we can all address the review’s recommendations.” Megan Butler, executive director of supervision at the FCA:“The report is an honest, impartial account of what was a difficult and sensitive situation.“The FCA stands by the action it took in those challenging times but, as with every case where we have had to intervene, there are always important lessons to be learnt. The FCA remains firmly committed to working with TPR and the SFGB – and other organisations – to ensure we are all working together to continue to protect pension savers and take on board the lessons from British Steel.” The trustees’ perspectiveAllan Johnston, who chaired the BSPS trustee board and is now chair of the BSPS2 trustees, said in a statement:“The objective of the trustee when negotiating the terms for the restructuring and implementing Time to Choose was to secure the best possible outcome for BSPS members.