Debate over systemic risk of asset management intensifies

first_imgThe debate over whether the asset management industry poses systemic risk is heating up after US lawmakers dismissed a report from the Office for Financial Research (OFR).In September 2013, the research body released a report, Asset Management and Financial Stability, which highlighted four potential vulnerabilities to the US financial system.The OFR was created in the wake of the financial crises and serves part of the US Treasury, responsible for providing research for the Financial Stability Oversight Council (FSOC).Its report warned that managers ”herding” into asset classes, in search of yield, could push up prices and magnify volatility. It said investment vehicles with unrestricted redemption rights also posed a threat, as did managers selling other assets to cover redemptions, leading to stress contagion in those assets.It also highlighted what it considered to be excessive leverage in the industry.However, according to a letter seen by the Reuters news agency and sent to Jack Lew, secretary to the US Treasury, a bi-partisan group of five Senators has rejected the study.The letter said the study mischaracterised the industry and could damage the credibility of the OFR and FSOC.It also requested the FSOC not to base any policy or regulation on the contents of the study, which they said relied on faulty information in places.Concerns over the asset management industry and what security measures – such as financial buffers – would mean have also been debated in Europe.Earlier this month, the Financial Stability Board (FSB), the international body set up after the 2009 G20 summit to monitor global financial systems, said it would consult with the industry regarding systemic risk.Its consultation focused of identifying which organisations were sufficiently large, complex and systemically connected to cause disruption to the wider system.The FSB said it would not currently designate any specific entities in the category.But it added that, once its methodology of identifying them was complete, it would develop policy measures.Tom Brown, partner in KPMG’s investment management practice, said the FSB’s proposal was still a long way from policy.However, he pointed out that the FSB and the US Treasury’s papers currently differed on what the target of said policies might be.The FSB’s rationale is more towards looking at systemic risk at fund level, with the OFR’s paper more inclined towards asset managers.Brown said: “Focusing on the funds seems sensible, as there is a principal/agent relationship between the fund and the manager, so the real economic exposure is at the fund level.“It’s intellectually flawed focusing on the manager. If there is systemic risk, it lies with the fund.”He said potential outcomes could be limitations on counterparty risk, leverage and concentration, but he argued that this was still unclear and would depend on fund size.Sheila Nicoll, financial services senior adviser at Ernst & Young, said the debate concerning systemic risk in asset management would continue.“If they do decide fund management activity can have a systemic impact, the remedies will not be the same as those for banking – capital is not necessarily the answer,” she said.last_img read more

Budget shift forces EIOPA to cut back work on risk frameworks, solvency

first_imgChanges to the 2015 work programme for the European Insurance and Occupational Pensions Authority (EIOPA) has seen cuts to work on risk-evaluation frameworks for pensions and solvency requirements.The European Commission and the Council both supported budget cuts and staff freezes at all the European Supervisory Authorities, of which EIOPA is one.After a 7.6% reduction in budget, the authority has made amendments to its work plan for 2015.Areas completely scrapped by EIOPA include providing technical advice on the IORP II Directive and in particular the areas around risk-evaluation frameworks for pension scheme board remuneration. The Directive is currently sitting with the European Parliament after MEPs named former Irish junior minister Brian Hayes as rapporteur, who will now lead negotiations between the Parliament, Commission and Council.Other areas reassessed by EIOPA include advice to the Commission on solvency requirements for pension schemes – not currently included in the IORP Directive but being worked on by the authority in the form of its holistic balance sheet.It will also scale back work on the transferability of pension rights and forcing information disclosure, in a raft of reductions affecting its consumer protection programme.EIOPA said changes to the work programme did not just mean cuts and some policies saw either a reduction in allocated resource or were relegated in priority.Overall, across its insurance and occupational pensions responsibilities, the authority said 31 products were reduced in scope, 12 downgraded in priority and 27 cut entirely.A spokesman said: “The limitations faced from human resource and budget perspectives have led to difficult choices, where even high-priority products had to be postponed or even cut.“Products that are severely hit are to be found in, for instance, the areas of financial stability and consumer protection.”EIOPA said it would continue working on its overall impact assessment for the IORP Directive despite cuts to its advice.It said it still planned to run stress tests for pension schemes in 2015, with it remaining a high priority and accounting for 2.8 full-time equivalent employees (FTE).It said the development of the holistic balance sheet would also remain a high priority, accounting for 0.6 FTE.EIOPA’s funding has become a contentious issue in recent times, with the European Commission and Parliament set to remove taxpayer funding entirely and introduce an industry levy.It is currently funded through Commission grants and contributions from national regulators.Last month, Parliament’s Economic and Monetary Affairs Committee (ECON) said the new funding regime should be agreed by 2017.Jonathan Hill, commissioner for Financial Stability and Financial Services, told IPE in an interview in March that, despite the funding shifts, there would not be an overhaul of the way EIOPA functioned.He said a Commission review showed EIOPA worked well and that no overhaul was foreseen.However, he added: “It should be possible to achieve [private funding] in a simple way, although it is a bit too early to speculate on any concrete proposal at this stage.”In November, EIOPA, alongside its fellow ESAs, said budget and staff freezes would hamper policy implementation and did not reflect the additional workload being added simultaneously.last_img read more

Increasing scale allows Unilever scheme to slash asset management costs

first_imgThe pension fund attributed the cuts chiefly to an increase in assets, which stood at €4.5bn at the start of 2014.Progress’s board said the scheme’s increased scale had enabled it to invest more efficiently and negotiate better terms with asset managers.The pension fund reported a return of almost 16% for 2014, outperforming its benchmark by 1.3 percentage points.The scheme largely credited its 42% equity allocation – returning 15.4% and outperforming the standard portfolio by 0.8 percentage points – for the performance.Fixed income investments and property returned 11.7% and 18.9%, respectively, while private equity returned 28.2%.However, the pension fund lost 34.8% on its commodities portfolio, an underperformance of 0.7 percentage points.According to its annual report, Progress applied a dynamic, anti-cyclical investment policy aiming to generate returns during times of low funding, and take profits and protect assets in times of high funding. It attributed 7.6% of its 2014 return to a combined interest/inflation hedge through swaps.Kragten said the scheme’s dynamic hedge increased after real funding improved.As of the end of 2014, Progress had covered 53% of its interest risk and 52% of its inflation risk.Since last year, the scheme has applied an 80% hedge of the five main currencies, including the Australian dollar, and fully covered the currency risks on its holdings of commodities and government bonds.However, following the appreciation of the US dollar and the Swiss franc relative to the euro, it failed to benefit fully from its currency hedge, the scheme said. The official ‘policy funding’ – the average coverage over the 12 months previous – stood at 139% as at the end of the first quarter, equating to a real funding of 103%.In other news, the €5.3bn industry-wide scheme PNO Media reported a first-quarter return of 8.4% but warned that an increase in liabilities over the period, following the strong decline in interest rates, had offset the result.As a consequence, the scheme’s actual funding fell to 94.2%, while its policy funding stood at 102.2% at March-end.The media scheme reported quarterly returns on equity, property and private equity of 16%, 3.6% and 6.7%, respectively.US dollar-denominated emerging market debt generated 14.5%, while government bonds and Dutch residential mortgages delivered 12.4% and 1.5%, respectively.PNO Media lost 2.7% on its currency hedge. Progress, the €5.7bn Dutch pension fund of food and cosmetics giant Unilever, has cut administration costs per participant by €23 to €128, according to its 2014 annual report.Rob Kragten, the pension fund’s director, said the reduction had become possible after Progress created “approximately €500,000 in savings”.The pension fund also managed to cut total asset-management costs, including transactions, by 11 basis points to 0.48% of assets under management.Transaction costs fell by 50% to 0.06%.last_img read more

Swiss pension funds see first-quarter gains wiped out by June

first_imgSwiss pension funds have seen returns from the first quarter wiped out after suffering losses led by foreign equity holdings.The second quarter of 2015 saw losses across foreign and domestic bonds, as well as in fixed income and real estate, according to the latest Credit Suisse Pensionskassen Index.The company said its index declined by 1.63% over the course of the three months to June, resulting in a -0.14% return for the first half of the year.“The index essentially moved sideways in April and May,” Credit Suisse said in a statement, citing a 0.12% return in April but a loss of 0.13% the following month. “The fall of 1.62% in June was the major factor in the negative performance for the quarter.”Credit Suisse said all asset classes, with exception of liquidity, saw negative returns over the course of the second quarter.Foreign equity portfolios saw returns of -0.56%, while domestic equity performed slightly better but still recorded a loss of 0.32%.Domestic bonds also led to a loss of 0.3%, and real estate returned -0.23%.In a report accompanying the index, Credit Suisse noted that alternative investments nearly saw flat returns at -0.06% and therefore had a “less marked” impact.“As in the preceding quarter, the positive contribution made by liquidity (0.18%) was due mainly to gains from current hedging programmes,” it added.However, the report noted that liquidity reached an all-time low at the end of the second quarter, driven largely by the Swiss National Bank’s decision to introduce negative deposit rates at the beginning of the year.As a result, liquidity only comprised 5.9% of aggregate assets, down from more than 8% two years’ prior, while alternative investments continued to rise to account for 5.5%.The 21.3% allocated to real estate, up from 19.4%, was larger than the standalone allocations to foreign or domestic shares, which accounted for 17.4% and 13.1%, respectively.Bonds denominated in Swiss francs also rose slightly over the last quarter to account for 25.9% of assets, while foreign currency bonds claimed the lowest share of assets in at least two years, at 7.6%.last_img read more

UK tax changes risk pension ‘implosion’, warns NAPF

first_imgThe UK government’s plan for changes to tax relief risk a pensions “implosion” that could undermine the foundations of the country’s tax system.Ruston Smith, outgoing chairman of the National Association of Pension Funds (NAPF), argued his organisation’s role was to act as a “social conscience and savers’ champion” and cautioned the government against implementing radical changes to the tax system.Opening the NAPF’s annual conference in Manchester, Smith, also group pensions director at supermarket chain Tesco, said change should not be confused with improvement.He argued that it was the NAPF’s role to challenge government. “If we stood and watched as changes were made to the industry, we’d end up with higher DB deficits, regulation that doesn’t work and reforms that can’t be implemented,” he said.“If we stand and watch, short-term fixes will damage long-term gains.”Smith reserved his harshest criticism for changes to pension taxation put out to consultation by the UK Treasury in July, coming in the wake of an overhaul that saw savers allowed to draw down their pensions pots from 55.“The government says it wants to strengthen the incentive to save, but it’s ulterior motive is to increase short-term tax revenue,” he said.“If the government gets its way on reforms to pensions tax relief, we could see the recent wave of change – the pensions revolution – becoming a pensions implosion.“[It’s] tax change that could literally dig up and smash the foundations set to create a society of lifetime savers, putting pressure back on our ageing society.”The consultation launched over the summer proposed a shift from the Exempt-Exempt-Taxed model to a Taxed-Exempt-Exempt approach.Stewart Hosie, pensions partner at KPMG, previously argued that the government would be better placed to determine whether the current tax system provided value for money, and delivered on its own policy goals.last_img read more

State Street buys GE Asset Management for $485m

first_imgState Street is to acquire GE Asset Management (GEAM) in a $485m (€645m) cash deal set to boost State Street Global Advisors (SSgA) assets under management by $100bn.Announcing the deal, State Street said the move would boost SSgA’s alternatives capabilities, noting GEAM’s experience in direct private equity and property.Jay Hooley, chief executive at State Street, said GEAM was a “very high-quality organisation” closely aligned with his company’s goals.“It is also reflective of our desire to allocate capital to higher growth and return businesses,” Hooley added. Ron O’Hanley, Hooley’s counterpart at the $2.4trn SSgA, highlighted several areas where GEAM’s experience would aid his company in new areas.“GEAM will bring new alternatives capabilities in direct private equity and real estate to SSGA while enhancing our existing active fundamental equity, active fixed income and hedge fund teams,” he said.O’Hanley added that GEAM’s outsourced CIO activities would “significantly strengthen” SSgA’s hand in what it regarded a rapidly growing area.SSgA said it expected to retain 90% of GEAM’s client assets, which it said were largely managed on behalf of US defined benefit funds.It added that the transaction was expected to complete by the third quarter of the year.last_img read more

BT plans indexation cut to reduce £9bn deficit

first_imgUK telecoms giant BT plans to cut indexation for thousands of its pension scheme members as it seeks to address a funding shortfall of £8.8bn (€10bn).The company has agreed in principle with the trustees of the £50.8bn BT Pension Scheme (BTPS) to switch its inflation measure from the retail prices index (RPI) to the consumer prices index (CPI).However, BT has referred the case to the High Court to get clarification that it is able to make the change within the scheme’s rules.In the UK, CPI is generally lower than RPI, meaning inflation-linked benefit increases would be lower. Earlier this month, Dairy Crest said it had made a similar change to indexation rules for its £1.1bn scheme. Indexation changes have been proposed as one of a number of measures to ease the pressure on underfunded UK schemes, but some pension funds’ rules do not allow such a change.A spokesperson for the BT Group confirmed: “As part of the pensions review, we’re reviewing the use of RPI as the index for calculating increases to pensions in payment for Section C members in the BT Pension Scheme, and liaising with the BTPS trustees about this.“The scope of this review includes the future increases received on benefits already built up in the BTPS, including by Section C members who have left BT and those who are currently receiving a BTPS pension.“Having agreed the approach with the trustees, we are seeking clarity, through a court application, on whether it’s possible to change the index.”Section C has approximately 80,000 members. It was set up in 1984 when BT was privatised, and provides final salary-linked benefits for members who joined before 1 April 2009. Since that date the scheme switched to a career average basis. It was closed to new members on 31 March 2001.Section C members are entitled to an inflation-linked uplift every year subject to a 5% cap, according to workers’ union Prospect. Sections A and B of BTPS already use CPI as their inflation measure.According to BT’s annual report for the 12 months to 31 March 2017, the pension scheme had a shortfall of £8.8bn. However, a scheme funding update issued by the trustees earlier this year put the deficit at nearly £14bn as of 30 June 2016.In May this year BT announced it was investigating a potential contingent asset deal with scheme trustees as another option for reducing the deficit. BT has already set out a funding plan involving contributions of more than £2.8bn between 2018 and 2021, and a further £4.9bn by 2030.last_img read more

Edwin Velzel appointed new PGGM chief executive

first_imgWim de Weijer, acting chairman of the PGGM supervisory board, said that with Velzel “PGGM is gaining a highly experienced and ideal CEO, who has a clear vision of the major challenges facing the pension fund service provider”. Edwin Velzel is to become the new chief executive officer of Dutch pension fund manager PGGM, replacing Else Bos upon her departure next month, the Dutch pension fund manager announced today.Velzel was chairman of the PGGM supervisory board from 17 May to 13 September 2017, during which period he was asked by the other members of the board to put himself forward for the position of CEO. Following a “meticulous” recruitment procedure that involved an external agency and discussions with several other candidates, he emerged as the preferred candidate of every member of the supervisory board. Bos will leave PGGM on 1 November to become executive director and chair for prudential supervision at De Nederlandsche Bank in July 2018. Edwin Velzel, PGGM’s incoming CEOVelzel’s background is in strategic advice in healthcare management and the insurance industry. He has previously been CEO of insurer Univé and Univé VGZ IZA Trias (UVIT). He has been involved with complex issues in relation to technology and innovation in a variety of functions.He said: “PGGM is about outstanding pension management and is making preparations in anticipation of a fast-changing market. That calls for close collaboration with our customers and social partners, cost-efficiency, and ensuring that we are ready for the arrival of a new pension system in the areas of asset management, pensions management, policy advice, and IT systems.“This should all go hand-in-hand with the social involvement that forms an integral part of the PGGM identity.”PGGM runs €206bn in assets for Dutch pension funds including PFZW and the doctors’ scheme SPH.last_img read more

EIOPA sets out thinking about IORP II pension benefit statements

first_imgTo fulfil the aim of a pension benefit statement, it added, the approach to its design needed to shift from “a rather legalistic and compliance to a behavioural approach”.EIOPA also identified the following principles for the design and content of a pension benefit statement:The design should be effective, attractive, easy-to-read and the information should be layered to help the member find key information at a glance and navigate easily through the content to find answers to his/her questionsPension projections should be presented in real terms and in relation to the current income of the member so they can better understand their purchasing power after retirement;The statement should enable the member to understand the impact of costs on their pension entitlements and to compare pension scheme cost levels;It should integrate and complement the communication tools already in place within individual EU countries, such as online pension dashboards or calculators; andInformation contained in a pension benefit statement “should be comparable to other [such statements] at national level, to allow for financial planning”.The regulator said it had “duly considered different possible options as well as the potential costs and benefits for relevant stakeholders, including IORPs, members and national competent authorities”.“EIOPA will continue to promote consistent practices at national level, including the development of examples of standardised designs of the pension benefit statement,” it added.EIOPA’s report can be read here. The European Insurance and Occupational Pensions Authority (EIOPA) has delivered the first output of its work to facilitate the national implementation of the revised EU pension fund directive.The supervisory authority published a report that set out principles and guidance for the new annual pension benefit statement requirement under IORP II.The regulator said the report was aimed at policymakers and national authorities, but also intended as a source of “inspiration” for pension funds or insurers responsible for issuing pension benefit statements.“In an environment in which more risk is placed on the member, the importance of receiving adequate information on the second pillar retirement income is growing,” said EIOPA.last_img read more

Swiss banking group REYL sets up impact investing affiliate

first_imgSource: G. Maillot/point-of-views.chKatia Coudray, CEO of Asteria Asset ManagementThree individuals make up the investment team: Guido Bollinger, head of investments and equity strategies, Natacha Guerdat, head of research, and Fabio Sofia, head of bond and private debt strategies.Bollinger was previously chief investment architect and head of quantitative strategies at SYZ Asset Management, and is an adjunct professor of finance at the University of Neuchâtel in Switzerland.Guerdat was in sustainable portfolio management roles for nearly 10 years before helping found Conser, a company offering a tool to screen portfolios for sustainability risk and environmental and social impact. She is a founding member of Swiss Sustainable Finance and Sustainable Finance Geneva (SFG).Sofia, according to REYL, “devoted his career to developing and promoting impact strategies”. He began at the Swiss federal department for foreign affairs and then helped create and worked at Symbiotics, a microfinance company. He is president of SFG.Institutional investors are increasingly interested in their investments having a positive environmental and/or social impact in addition to achieving a risk-adjusted return.Earlier this year listed UK asset manager Schroders announced it was to acquire a majority stake in impact investor BlueOrchard. Swiss private banking group REYL has launched an independent impact investing affiliate, named Asteria Investment Managers.It said Asteria planned to carry out “one or more acquisitions” to enhance its offering.According to REYL, the new entity’s main objective was to offer institutional investors a wide range of products and strategies “in order to provide much needed vectors through which capital can contribute meaningfully to a transition towards a more sustainable and equal society”.Asteria would use the UN Sustainable Development Goals (SDGs) as a framework to guide the allocation of capital to companies, it said. Katia Coudray, who the REYL group hired as head of impact investing in July, is the CEO of Asteria. “It truly is a unique opportunity to be able to create from scratch a new asset management company entirely dedicated to impact investing,” she said.last_img read more