The French Court of Audit will today single out the multi-occupation public insurance pension fund for poor governance in its annual update to the country.The Court of Audit, a quasi-judicial body known locally as Cours des comptes is responsible for auditing central government, public and private institutions and other bodies.In a speech tonight, the Court will provide its annual update, singling out the near 500,000 member pension fund Caisse Interprofessionnelle de Prevoyance et d’Assurance Vieillesse (CIPAV) for poor governance.President of the Court, Didier Migaud, is set to provide a detailed list of failures at the fund that have affected governance, investments and member services. The pension fund manages the retirement savings for architects, professional consultants, engineers and the self-employed.Migaud is to recommend that a provisional administrator, who will oversee future transitions, replace the board of the pension fund.The Court’s report suggested assets held by the fund had been poorly managed – stemming from a lack of proper financial management – until 2010.It rebuked the fund for failing to use appropriate procurement procedures in line with requirements for public bodies, and for shirking legal duties.The report also suggested the fund had “significantly” failed its members, providing pensioners with poor service.On the fund’s assets, the Court pointed out that the annual return rate of 6% between 1989 and 2012 was significantly below benchmark bond rates over the same time period, highlighting poor investment management.The Court’s report said the cause of the poor performance was a lack of financial management, and the fact investments were managed by a committee that did not employ a code of ethics, even though this has been required by law since 2004.Prior to 2010, the scheme also placed 75% of its investments with a single investment manager. Even after CIPAV hired a CFO, the single investment manager still oversaw more than one-third of investments at the end of 2012.In line with its requirements for a provisional administrator replacing the board, the Court highlighted that 80% of procurement was acquired outside of the framework public bodies are required to follow.More than half of retirees within the scheme face severe delays in receiving their pension, the report added.CIPAV’s call centre can only process 25% of received phone calls, resulting in at least three months of delays for pensioners.
The remaining equity in the company is equally shared by Rabobank (40%) and CommonWealth, the investment vehicle of the Dreesmann family (40%). Separately, Vink confirmed PGGM has also invested in a new €300m Nordian investment fund targeting management buyouts at small and medium-sized companies with an annual profit of approximately €3m.PGGM’s head of private equity said he expected the investment to return at least 11-12% over the next 10 years.The asset manager’s average private equity return over the previous decade is 13.25%.Vink said the investment in the Nordian fund would be a “proper contribution” to PFZW’s indexation target.Currently, PFZW’s private equity holdings amount to approximately €8bn, while the scheme’s strategic allocation is 5%.Vink said the transaction was entirely separate from PGGM’s investments through AlpInvest, the €61bn private equity investor jointly owned by PFZW and the €325bn civil service scheme until 2011, when they sold their stake to Carlyle and AlpInvest’s management.At the time of the divestment, PFZW and ABP jointly committed themselves to €10bn of new worldwide private equity investments through AlpInvest.Since the sale of AlpInvest, PGGM’s own private equity team has been focusing on local investments and managing PGGM’s relationship with AlpInvest, according to Vink.In an earlier transaction aimed at supporting the local economy, PFZW agreed to share the risks on Rabobank’s €3.2bn corporate loans portfolio. At the time, it said the deal allowed it access to a credit portfolio, diversifying the scheme’s investment mix for attractive and stable long-term returns. PGGM, the €167bn Dutch asset manager, has acquired a 20% stake in Nordian Capital Partners, Rabobank’s former private equity company, now owned by its management.PGGM bought the stake on behalf of its main client, the €152bn healthcare scheme PFZW, to increase its investments in the local economy, according to Eric-Jan Vink, head of PGGM’s private equity team.The portfolio of Nordian Capital Partners – formerly known as Rabo Capital – includes 15 medium-sized companies.Vink declined to provide details about its value, but industry sources have estimated it at €100m-200m.
The mandate calls for a long-only, active management investment style.Asset managers should have a minimum of CHF1.5bn invested in private placements and a total AUM of CHF20bn to qualify.They should also be highly transparent and have a proven track record to private placement management.Managers should also have a strong standing in private placement markets and a comprehensive risk management process.Closing date applications is 4 December, with performance data supplied, gross of fees, until the end of September.In other news, the Newham Local Government Pension Scheme has begun the search for a real estate property adviser to manage its £87m (€108.5m) real estate portfolio.The pension fund requires the adviser to review its portfolio and increase or decrease exposure as directed.The adviser should also consult the scheme on operational matters, and monitor the scheme’s portfolio.It should also be able to advise on additional allocations to its UK real estate assets and establish investment opportunities.The contract would run for three years.Managers should provide details on staff numbers over the last three years alongside details of educational and technical capabilities at the company. Publica, the Swiss federal pension fund, has tendered a CHF150m (€125m), corporate credit private placement mandate using IPE-Quest.Under search QN1471, the CHF36bn pension fund said it was looking for senior secured private placements of investment-grade rating.Placements should be made exclusively in OECD countries, the fund said, and ideally provided on a segregated account basis.Publica said the mandate formed part of its change in investment strategy that included a shift towards private placements and private infrastructure debt.
The £10m commitment will be invested over three years, with return expectations between 11-13% based on a five-year exit, in addition to offering an on-going income stream.The investment, Strathclyde’s first in hydro-electricity, sits within the New Opportunities Portfolio (NOP) for real assets and real estate, which the pension fund has expanded with a raft of new commitments.In its June meeting, the fund sought approval of six new projects worth roughly £45m while approving £68m in December for an additional four commitments.Chair of the fund, Councillor Paul Rooney, said he was pleased Strathclyde could provide funding to innovative projects which would otherwise be unable to attract capital.“There are many great opportunities to generate sustainable, renewable energy at a community level, including here in Western Scotland – but it can be difficult for even the best-structured projects to access good long-term finance.“The investment made by our members in their own future will support the future of our communities, through improved infrastructure and jobs,” he added.Chair of ACP, Volker Beckers, said the combination of Strathclyde’s and GIB’s commitments gave credence to institutional demand in the sector.“Demand for community-scale renewable energy is growing, and having institutional investors will help ACP build many more renewable energy plants in 2015,” he added.Strathclyde is not the first UK LGPS fund to consider community power projects, with the £5.3bn Lancashire Pension Fund committing £12m in 2013 to a solar power plant in Oxfordshire.Then chair, David Westley, said the 23.5-year bond would interest members, as they knew pension investments fund worthwhile and sustainable schemes.For more on low-carbon investing, see the current issue of IPE The £14.4bn (€18.2bn) Strathclyde Pension Fund has committed £10m to community power projects backed by the UK’s Green Investment Back (GIB).GIB, a government-backed development bank, will provide a further £50m of in capital, marking the largest equity funding to date for community renewable energy projects.Albion Community Power (ACP) will manage the capital with first investments earmarked for a hydro-electric power station in Western Scotland.Strathclyde, the largest local government pension scheme (LGPS), managing benefits for over 200,000 public-sector workers in Western Scotland, first touted the investment to its board at a meeting in June 2014.
Publica, Switzerland’s largest public pension fund, has divested its equity holdings in coal companies because of the financial risks posed by their vulnerability to public policy measures to combat climate change.The €34bn pension fund is a “Sammelstiftung”, an independent collective institution that manages the assets of 20 Swiss public pension schemes, seven of which are closed to new entrants.Stefan Beiner, head of asset management at Publica, told IPE the pension fund has sold the totality of its equity stakes in coal companies, worth around CHF10m (€9.2m) at the time, on the back of a decision taken early this year in the context of its annual risk-management review process.“Once a year, we look at risks that are difficult to quantify, which tend to be ESG risks, and last year we prioritised climate change,” he said. The next step was for the pension fund to investigate this risk in three sectors – coal, gas and oil.It did this first by assessing the likelihood of operating conditions changing in the form of a carbon tax, and in a second step by analysing the extent to which the companies in a given sector could adapt.It concluded that, sooner or later, there will be a carbon tax, or any such tax already in effect will be increased.“We don’t know when or by how much, but the probability is high that there will be one,” said Beiner.It decided that oil and gas companies were “relatively broadly diversified and capable of adapting” but that this was not the case in the coal sector.“The companies tend to be very focused, namely on coal extraction, and our view is that they will struggle if carbon taxes are increased,” said Beiner.In a final step, the pension fund considered whether coal companies’ carbon risk was adequately priced in, and decided it was not.“When it comes to coal companies, we don’t think the financial risks are compensated,” said Beiner. “The risks for oil and gas companies are manageable.”A coal company, for the purposes of Publica’s exclusion policy, is defined as such based on the classification applied by MSCI for its GICS coal and consumable fuels sub-industry index.Some 10 companies, mainly from emerging markets, were affected by Publica’s policy.Asked about the roll-out of the policy to other asset classes, Beiner noted that the universe of effected companies was very small and that Publica did not own any bonds issued by them, so the question did not arise.The exclusion of coal is hard-wired into Publica’s compliance system, he added, meaning that the entry into its universe of any company meeting the exclusion criterion is immediately flagged. For the time being, the decision to exclude investments in coal is borne as an active risk by Publica, although, in the medium term, the pension fund intends to adjust its customised benchmark to reflect its new policy on coal.Publica is thought to be the first major Swiss pension fund to divest on climate change-related grounds, although local government schemes are coming under pressure to do so, too.The municipal council of Carouge, a town in the canton of Geneva, for example, has recently unanimously voted in favour of divesting from fossil fuels, according to Swiss news service Le Courrier. The motion was put forward by Green party officials, emulating a move made by their counterparts at the city and canton of Geneva, according to the media report.
That approach has now had about a year to bed in after it was unveiled to the public at the pension fund’s annual results news conference at the beginning of February – having been up and running for some months before then.The portfolio is now built from blocks of four risk factors – interest-rate factor, inflation factor, equity factor and other factors – with each investment decomposed into the different risk factors it carries in order to be assessed as part of the overall desired mix.The method was specifically designed to succeed in all market environments and was in part inspired by the All-Weather Portfolio devised by Ray Dalio and offered as a fund by his hedge-fund firm Bridgewater.Though ATP has had an ongoing dialogue on multi-asset investing with Bridgewater for more than a decade and talked to the Bridgewater CIOs in the development phase of its risk-factor approach, Lorenzen said the Danish institution’s new multi-factor method owes more to the thinking of investment manager AQR and the academic field of “financial economics” more generally.For Lorenzen, one of the main achievements of ATP’s new multi-factor investing approach is the ability to cover both liquid and illiquid assets within the same framework.While liquid managers such as Bridgewater and AQR can restrict themselves to the liquid universe, he points out that ATP cannot.“So we have the investment strategy and risk-decision processes in place, and it will be interesting to see what the return drivers are from now on, and what is going to work,” Lorenzen said.“We’ve seen that, during the global financial crisis, ‘cash was king’, and for the past seven years ‘beta has been king’.”Balanced portfolios performed extremely well in this period, he said, with central banks’ quantitative easing programmes feeding easy credit into the system, and most asset types producing reasonable returns at the same time.Price appreciations across asset classes – risk premia compression across risk factors – have driven returns, he said. “I find it hard to imagine a similar beta-tailwind going forward, so maybe carry will be king in the years to come,” Lorenzen said, referring to the decomposition of asset returns firstly in terms of price appreciation – or depreciation – and secondly in terms of the carry components of return, come about even at unchanged prices, such as bond coupon and ‘roll-down’ on the yield curve, equity dividend-yield and illiquidity premia.The pension fund’s house view now is that interest rates – again – will stay lower for longer than previously assumed, he said.In such an environment, it is possible to generate returns on carry trades alone – borrowing at short-term rates to buy further out along the yield curve where rates are marginally higher, for example.ATP has been building up its stocks of US Treasuries in recent weeks, having pounced on the opportunity to buy interest-rate risk at better levels that opened up after the shock election of Donald Trump as the next US president in early November. “The re-pricing of US Treasuries presented a good opportunity for us to rebalance the exposure in our portfolio,” he said.Carry trading could produce tactical returns for ATP in equities, particularly if the pension fund’s assessment of stock market dynamics proves correct.“If you look at equities, we think there’s a good chance there’s going to be mean reversion,” Lorenzen said.The third component of carry, he said, is the illiquidity premium.Some 50% of the assets in ATP’s DKK100bn (€13bn) investment portfolio – which consists of the fund’s bonus reserves, and not the DKK700bn of hedging instruments used to back the fund’s pension guarantees – is now invested in illiquid investments.Because the jury is still out on what the real return drivers will turn out to be in this new phase of political and economic uncertainty and continuing low interest rates, ATP is keen to keep its powder dry for big opportunities that might arise.“We’re not going to bet the bank that carry is to be king, and that we are not going to get returns from beta,” he said, adding that a balanced set of factor exposures was the backbone in the investment strategy.“Particularly in the illiquid space, we want to be in a position to act quickly.”Certainly, ATP’s investment portfolio has seen some of its highest returns from large private equity and debt investments such as the part-privatisation of DONG Energy, and the stock-market listing of financial payments business Nets.“It is on the large deals that it’s more likely that we have an edge,” Lorenzen said.Deals are now coming up, with banks keen to do “balance sheet sharing”.Given Trump’s rhetorical focus on improving infrastructure in the US, Lorenzen said it would be interesting to see what happened in practice in the new presidency and whether new infrastructure investment opportunities did indeed emerge on a large scale.“There is so much uncertainty around this, but it’s going to interesting to follow,” he said.The development of the dollar on foreign exchanges will be a crucial factor for investment in the next phase, he said, because the US has been the main growth market in the current global economic cycle.“That is going to be diluted because of the dollar, and that’s another reason why rates are likely to stay low for longer,” Lorenzen said.Doubts around the US currency are making emerging market debt, denominated in dollars, less attractive for ATP.“I prefer corporate bonds, if there were a repricing,” he said. Six months into his new job, Kasper Ahrndt Lorenzen, CIO of Europe’s fourth-largest pension fund ATP, is seeing the institution through two major transitions.Not only is a new chief executive set take the reins in the new year, but, in common with other institutional investors around the world, in 2017, ATP faces a rarely seen level of political and economic uncertainty that its investment strategy must weather.“We will stick to the mindset we have had over the past few years, and use what we have developed – that’s still going to be valid,” Lorenzen said in an interview at IPE’s London office, referring to the institution’s current portfolio construction approach.
Dutch pensions think tank Netspar plans to expand its work into data science and artificial intelligence.In a recent newsletter, the network for pension researchers and professionals said that a working group would look into the impact of “big data” on pension contracts and market structures.The working group – headed by Tilburg University’s Lans Bovenberg, professor of economy, and Bas Werker, professor of finance and econometrics – was to elaborate on a report about pension funds’ and providers’ expectations of big data, Netspar said.Data science focuses on new ways of deploying data and “unstructured” information, such as text files, sound, photos, and videos. “We expect that data science will affect the development of tailor-made solutions for individual participants at pension funds and increase the efficiency of risk management and investing, as well as supervision and policy,” said Marike Knoef, head lecturer at Leiden University, who co-authored the original report with Werker.Talking to IPE’s sister publication Pensioen Pro, she explained that linking data such as postcodes and home ownership would enable providers to improve tailor-made solutions as well as communication.Knoef argued that integral financial planning for an individual’s life course – including other assets on top of a second and third-pillar pension – was becoming increasingly important.Knoef said that the exact task of the working group was not yet clear.“We expect, for example, that a pension fund’s care of duty towards their participants will require much additional research,” she said. “We also assume that we can calculate the effect of a pensions system update on individual participants.”Knoef added that the study could also provide useful information by analysing participants’ internet behaviour and that it could improve the understanding of individuals’ life expectancy.She further pointed out that investors could use data science to identify links between market developments and certain events.“Important to us, however, is to subsequently find an explanation for any link,” she said.Last summer, APG, the €443bn asset manager and provider for the large civil service scheme ABP, announced that it would investigate the potential of blockchain and artificial intelligence in co-operation with Maastricht University and technical research institute TNO.
Dutch civil service scheme ABP has announced that it will divest its entire holdings in tobacco and nuclear weapons – worth an estimated €3.3bn – as part of a new assessment framework for sustainable and responsible investment.The divestment will affect its stakes in manufacturers, associates and producers elsewhere in the production chains for such products, it said.According to the €405bn pension fund, it reached the decision after extensive consultations at board level, based on the views of its participants, affiliated employers and various special interest organisations.Last summer ABP came under pressure from a group of university medical centres to exit from tobacco-related investments. In 2015 the scheme came under pressure concerning its exposure to nuclear weapons development. ABP made clear that it intended to sell its entire stake in tobacco and nuclear arms – estimated at €3.3bn – within a year.It said the assessment framework was to serve as a new instrument for its board to review its investments, and was meant to offer additional criteria for investment exclusion.The new rules provided for divestment if a product was by definition harmful to humans, and if ABP’s influence as a shareholder couldn’t change anything about this.The scheme would also divest if the absence of a product would have no harmful effect, as well in case of the existence of a worldwide treaty aimed at eliminating a product.In ABP’s opinion, these criteria would enable a uniform and consistent assessment of all products.It said that tobacco and nuclear arms had yielded “healthy returns” in the past, but believed that the outlook had changed and there were options for strong returns on other investments.“Therefore we expect that missed profits, if any at all, as a result of this decision, will be very limited,” the scheme said.Several other large Dutch funds – including PGB, PFZW, SPH, SPMS and PME – have cut tobacco from their investment universes in recent years.Renowned pension fund consultant Keith Ambachtsheer last year urged asset owners to consider removing tobacco from their portfolios, arguing that such assets were unethical and financially risky.This is despite both Norway’s sovereign wealth fund and the California Public Employees’ Retirement System reporting that divestment from the sector had meant they missed out on investment gains.
The historian Niall Ferguson, in his book Colossus: The Rise and Fall of the American Empire, makes the point that the US has invaded and occupied many countries over the past two centuries, yet in terms of their economic and political institutions, relatively few of these have evolved into anything remotely resembling miniature Americas. That may be unduly harsh, given the post-war occupations of Germany and Japan which have led to stable democracies, but there are few other examples.Ferguson sees three fundamental deficits that together explain why the US has been a less effective empire than its British predecessor: its economic deficit, its manpower deficit, and – most serious of the three – its attention deficit.It is the latter that is most responsible for the chaos in the Middle East. Solving the issues requires deeper understanding and longer timeframes than the US has ever been prepared to give. Perhaps, unlike the British, the problem with the US is not that they invade a country to create regime change, but that they then leave too quickly without leaving time to build up the institutions that underpin democratic societies.Removing Saddam Hussein from Iraq without any plan for what should happen next has been the clearest example of this. Minorities in Iraq and Syria have sheltered to a great extent under the regimes in power. Iraq’s Christians, estimated at 1.5m and one of the oldest continuous Christian communities in the world, fled in their hundreds of thousands after the US invasion led to increased violence against them.William Dalrymple, in his book From the Holy Mountain, follows the journey of a Byzantine monk around the Middle East and laments the destruction of Christian communities throughout what used to be its heartlands. Short-sighted foreign policy decisions by the US and European powers have not encouraged the creation of pluralist societies in the region.So what can and should be done? Ed Husain gives some valuable advice that is worth discussing, even if some of it may sound naïve. First, he thinks that the US and European powers should assist in the creation of a Middle East Union akin to the EU. As he points out, conflict in Europe was eroded through growing interdependence on each other for trade, security and prosperity. These were the founding principles for the creation of what is now the European Union.His second suggestion is more controversial, advocating a Muslim Marshall plan. The war in Iraq was estimated to cost the US $2trn, according to an estimate from the Congressional Budget Office in 2007, but no economic reconstruction plan for the region has been conceived. But, as the author admits, if Arabs, Turks, Kurds and Iranians do not expedite the creation of a Middle East Union, then responsibility for the breakdown will be theirs: “The West cannot be held accountable for the failings of a divided people.” It is also difficult for politicians to justify financing a Middle East reconstruction fund when the oil states within the region have the resources themselves.Perhaps the most significant suggestion that Husain makes is the requirement to expel the violent extremists from within Islam. “The House of Islam is on fire – and the arsonist still lives there”, he declares.By that, he means the violence of Salafi-jihadis who, in the earliest days of Islam, were known as Kharijites, or outsiders. They were, he says, declared to be non-Muslims by Muslim scholars. As Husain points out, Salafi-Wahhabism is the prevailing Islamic movement in Saudi Arabia today, yet represents less than 5% of the world’s Muslims. The reason it has become such a potent force is that Saudi Arabia has spent an estimated $200bn of its oil wealth in recent decades strenuously propagating its hard-line theology around the globe. “The 1749 allliance between the Saudi royal family and Wahhabi clerics must be nullified,” argues Husain.Europe and the US are living with the consequences of short-term responses to the problems of the Middle East. The House of Islam should be required reading for any European or US politician attempting to deal with the instability and violence in the region that shows little sign of abating. The “War on Terror” announced by then-US president George W Bush after the 11 September 2001 attacks has been often characterised as essentially a war against militant Islamic fundamentalism. Unfortunately, a lack of understanding has led to negative associations with Islam as a whole, exemplified by current president Trump’s suggestion at various times of a temporary ban on all Muslims entering the US.Europe faces the consequences of the disruption caused in the Middle East since the US invasion of Iraq, the removal of a stable (albeit very unpleasant) government in Libya, and the chaos in Syria caused by the attempts to remove another, very unpleasant regime. Home-grown terrorists have been created through the dissemination of a narrow virulent set of beliefs that are contrary to what the mainstream set of beliefs of Islam has been throughout the history of their religion – so goes the premise of Ed Husain’s book The House of Islam: A Global History. Husain argues that there are ways forward that could conceivably bring peace and stability to the region. What is absolutely clear, however, is that causing violent regime change without any plan for post-war stable and just societies has been a recipe for disaster.Creating such societies does not consist of simply holding an election in countries with little history of democracy, and without the institutions such as a free press and an independent judiciary that underpin stable democracies.
Peter Damgaard Jensen, a prominent figure in the Danish pensions sector for decades, has announced he will quit as chief executive of labour market pension fund PKA in a year’s time.He will step down in the spring of 2020 after 19 years in the role, according to an announcement from the DKK275bn (€36.9bn) pension provider.Damgaard Jensen said: “I have been very happy to lead PKA for so many years, and I am proud of what we have achieved.”PKA was in a strong position today, creating “great value for members, while making a positive difference to our environment” through its investments, he said. Peter Damgaard Jensen, PKAHe has agreed with Stephanie Lose, chair of PKA, to step down as chief executive next spring, to coincide with his 66th birthday.Lose said Damgaard Jensen had been at the heart of the positive development PKA had undergone.“He has been in charge of a PKA which today is stronger than ever, when it comes to the number of members, value creation and accountability,” she said. “So I appreciate the good dialogue we have had about the decision, and the fact that Peter has chosen to continue until April next year, so we have plenty of time to find the right replacement.”PKA, which runs four pension funds in the social and healthcare sectors, said its supervisory board would now start the process of recruiting a new chief executive.Damgaard Jensen is chair of the Institutional Investors Group on Climate Change and is a board member at Forsikring & Pension, the Danish trade body for insurers and pension providers. He also sits on the advisory boards of outsourced services provider Forca and Copenhagen-based private equity group Axcel.Further readingInterview: Institutional Investors Group on Climate Change Peter Damgaard Jensen spoke to IPE in April 2017 shortly after becoming chair of the IIGCC, outlining his plans to push climate change issues up the corporate agenda “For the same reason, I have considered that it is the right time to lay down a plan for when to pass on the assignment,” said Damgaard Jensen.