Bonizzi said his central contention was that the post-crisis environment was pushing pension funds from advanced countries to reallocate a growing part of their portfolios to emerging market assets.“The goal is to characterise and understand this issue and assess its implications,” he said.Congratulating Bonizzi on the award, IPE founding editor Fennell Betson said: “We are delighted to support the research being undertaken by Bruno. The fund’s board was unanimous in its decision to make this grant to the full amount we can provide.”The fund was established by IPE as a not-for-profit activity with the purpose of helping European students undertaking graduate or post-graduate studies relating to pensions matters at universities or research bodies in Europe.It was endowed with an initial fund of €10,000 to mark the 10th anniversary of the IPE Awards, an amount that has since been increased.This is the second student award to be made by the fund, following the award to Tilburg University PhD student Zorka Simon.The fund is overseen by a board comprising Chris Verhaegen, former chair of the Occupational Pensions Stakeholders Group at the European Insurance and Occupational Pensions Authority and former Secretary General of the EFRP in Brussels; Peter Melchior, executive director and actuary of PKA in Denmark; Peter Borgdorff, executive director of healthcare fund PFZW in the Netherlands; and Fennell Betson.The fund’s academic adviser is Debbie Harrison, visiting professor at Cass Business School’s Pensions Institute in London.The fund said it was keen to hear from European students involved in or considering undertaking pensions-related studies and research, or from the academic community.Further details are available from Fennell Betson or on the Fund’s website. The IPE Pensions Scholarship Fund has awarded its second grant to a PhD candidate in economics examining whether funded pension systems are inflating the value of long-term securities.Bruno Bonizzi, in the second year of his PhD programme under the supervision of Jan Toporowski, professor of Finance and Economics at London’s School of Oriental and African Studies, will be awarded the €5,000 grant to cover the costs associated with his research.In his letter of support of Bonizzi’s application to the IPE Scholarship Fund, Toporowski said the research would proivide important new evidence on pension fund regulation and capital flows.He added: “The topic of the doctoral thesis is the issue of the extent to which funded pension schemes in Europe and North America have been responsible for inflating the markets for long-term securities, the international portfolio capital flows that such inflation gives rise to and the effects of those flows in emerging markets.”
Swiss pension funds returned 6.2% on average last year, according to a preliminary performance comparison by Towers Watson commissioned by Asip, the Swiss pension fund association.The consultancy, drawing on asset-allocation reports from June 2013, said equities appeared to be the main driver of returns. It calculated a 6.2% median return for 2013 and a 3.7% median return over the last 10 years for Swiss schemes.Asip highlighted that some pension funds with riskier strategies and higher-than-average equity allocations “even managed to return more than 10% in 2013”. Domestic equity exposure among the 62 pension funds participating in its survey – with more than CHF188bn (€152bn) in combined assets – ranged from 3% to 20%, while foreign-equity allocations ranged between 6% and 42%.The median allocation to domestic equities was 10%, to foreign equities, 21%.On average, bonds comprise about 40% of Swiss pension funds’ portfolios, Asip said.Meanwhile, the CHF8bn Aargauische Pensionskasse (APK) has informed its members that it will be unable to increase the interest on accrued capital for this year, despite having reported relatively strong returns.Preliminary calculations show a return of 4.5% for the APK, which has invested around 25% of its portfolio in equities.The fund said it would need to strengthen buffers to account for increasing longevity, which means the funding level will remain at around 96%, and the interest granted on accrued capital at 1.5%.It added that generally low interest rates had continued to put pressure on its asset-allocation decisions – despite the fact strong equity performance largely offset commodity prices and slightly rising rates.
Over 2013, the pension fund outperformed its benchmark by 80 basis points.It also outperformed the average Swiss Pensionskasse, which returned approximately 6% over the period. The BVK’s strategic equity allocation is at 30%, with another 41% in fixed income and a relatively high real estate allocation at 22%, the vast majority of which is in directly held Swiss properties.To ensure alignment of interest between the managers of the property and the BVK as owner, the pension fund will be integrating the employees of its external facility manager in the coming months, it said.“This will ensure the properties are managed according to the investment strategy,” the fund said.The BVK said it was already well placed for its future as an independent foundation, as it operates with a relatively low total expense ratio (TER).All Swiss Pensionskassen have to calculate this benchmark figure in future, but the BVK was the first to do so before it became mandatory. Currently, its TER stands at 0.19%.For 2009, Swiss consultancy c-alm calculated an average TER of more than 0.5% for Swiss Pensionskassen. The Zurich pension fund also pointed out re-negotiating mandates had helped it save CHF70m annually compared with 2009. The CHF26bn (€21bn) BVK has generated a return of 7.4% in its last year as a public pension fund, raising its funding level to 96.1% from less than 90% in 2012.The pension fund for the Swiss canton of Zurich has also been reorganised as a private foundation as per 1 January, meaning that it will now have to achieve full funding and maintain sufficient buffers.According to a statement, the BVK said the transition to an independent foundation would be “formally finalised” in the third quarter.A trustee board has been named, while Thomas Schönbächler is to remain as managing director of the fund, which in recent years has weathered the storm of a corruption trial against its former head of asset management.
Swiss boutique Fisch Asset Management has transferred the CHF20m (€16.3m) in the Pensionskasse for its employees to a new fund that it is now opening for other pension funds.The multi-asset fund will start with investments in convertibles – which will comprise 50% of its portfolio to begin with – money market instruments, government bonds, corporate bonds (both investment grade and high yield) and managed futures, according to Patrick Gügi, chief executive at Fisch.Equities will “mainly be avoided”, as Gügi said he was convinced investors were “insufficiently compensated for the high volatility” in this asset class.He cited studies such as the ‘Equity Premium Puzzle’ and ‘Triumph of the Optimists’ on the return of equities since 1900 for his caution. Similarly, commodities and currency exposure were “not part of the strategic asset allocation”, as again, investors were “not sufficiently compensated for the risk in these asset classes over the long term”, he said.However, equities, commodities and currency exposure can be added on a tactical level to the Fisch MultiAsset Manta Plus fund, which seeks a return of 4% above money market annually over the long-term and a positive return over each three-year period, Gügi said.“For example, it can make sense for a euro-investor to have a tactical exposure to Swiss francs over certain periods,” he added.Gügi said Fisch would not consider real estate or infrastructure at the moment, as the risk premium with these asset classes such as liquidity and economic growth could be “invested cheaper via other asset classes”.He confirmed the fund, which is to be launched at the beginning of June for Swiss and foreign investors, will start with around CHF30m.The Fisch Pensionskasse, launched in 2007, is currently 108% funded and was so far “invested using a similar approach” to that of the fund.However, Fisch noted it did not have “clean return statistics” for the Pensionskasse to correctly depict flows in the pension fund.
Joe Sullivan, president and chief executive at Legg Mason, said the addition was the “perfect strategic fit” for the company.“Martin Currie’s active international equity capabilities fill our largest product gap and are a perfect complement to our existing investment capabilities,” he said.His counterpart at Martin Currie, Willie Watt, said the pairing was “ideal” and would allow the firm to grow its business further.A joint statement by the companies indicated that there would be no management changes as part of the transaction, noting that the management team had signed new long-term contracts in conjunction with the deal.The deal is not the first, or largest, asset management acquisition in the market this year.The end of March saw the acquisition of F&C Asset Management by Bank of Montreal finalise, as well as Standard Life Investments buy Ignis Asset Management.According to KPMG, the number of deals will only increase in the coming years, with the consultancy predicting the number of asset managers will halve by 2030.For more on the state of the global asset management industry, see IPE’s Top 400 Asset Managers. Legg Mason has acquired $9.8bn (€7.3bn) UK asset manager Martin Currie in a deal that will see the equity manager retain its identity.The deal, for which the acquisition price was not disclosed by either party, is set to finalise by the fourth quarter of the year.It will see Martin Currie’s six offices remain, while the $2.5bn Legg Mason Australian Equities will be rebranded to reflect the company’s new brand.Legg Mason highlighted that the acquisition would expand its equity capabilities across a number of asset classes, including Japan, China and emerging markets.
PGB, the €18bn pension fund for the Dutch printing industry, has committed €20m to a microfinance fund launched by Actiam, the successor of SNS Asset Management. The fund – the Actiam Institutional Microfinance Fund III – has been launched for six institutional investors, including the €13bn railways scheme SPF and the €3bn pension fund for public transport, SPOV.The asset manager said the duration of the fund would be eight years and that the target return would be approximately 6%.It added that total commitments were €130m to date. Rob Heerkens, board member for investments at PGB, said: “We consider microfinance as a deliberate choice for ESG investment.”The industry-wide scheme previously invested €8m in a predecessor of the Actiam fund.According to Jacques Kappé, SRI portfolio manager at SPF Beheer (the asset manager for SPF and SPOV), the new fund ties in with its clients’ desire to affect social and sustainable change against an acceptable return.“With a return of more than 5%, Actiam’s first microfinance fund fully met our expectations, and also demonstrated its social impact,” he said.However, Kappé declined to disclose the size of SPF and SPOV’s commitments to Actiam’s new fund.Theo Brouwers, director at Actiam Impact Investing, said the social and financial returns of these microfinance funds met market expectations.“Financially, the returns are at the same level as from regular funds with a similar risk profile,” he said.“However, in this case, both the investor and the investment target receive a social return.”Within Actiam, Actiam Impact Investing focuses on socially relevant corporate activities, such as microfinance, small and medium-sized enterprises in developing countries and clean energy.
In other news, supervisor De Nederlandsche Bank (DNB) reported Dutch mortgages funds had almost doubled in size to €6.7bn last year.This reflected a wider trend of Dutch pension funds replacing government bonds in part with mortgages.Last September, the €58bn metal scheme PMT invested €1bn in mortgages through the Dutch Mortgage Funding Company (DMFCO).At the same time, the €19bn scheme for the printing industry PGB and the €7bn scheme of steelworks Hoogovens invested €500m each through DMFCO, which said it expected to issue €3bn in mortgages within 18 months.Aegon and Syntrus Achmea have estimated that their mortgages funds would hold €6bn in combined mortgage investments by the end of last year.Finally, the €2bn Dutch scheme for Dow Chemical said it has replaced its final salary pension plan with an average salary arrangement.Manager of Dow Chemical’s pensions burear, Caroline van Eecke, said: “Following the decrease of the tax-facilitated pension accrual, sticking with the final salary scheme would have meant an accrual drop of at least 13%.”The allowed tax-free accrual for final salary plans has been reduced from 1.9% to 1.657% with the annual accrual under the new average salary arrangements set at 1.875%, she added.Since 1 January 2014, the Dow Pensioenfonds has been closed to new entrants. New employees accrue pension rights in the new low cost ppi vehicle of asset manager Robeco. Deloitte’s Netherlands office is to place its pension arrangements with Cappital, the new defined contribution (DC) vehicle from TKP and insurer Aegon. The accountacy and consultancy firm cited the lower investment costs as the main reason for the transition, writing on a website for its staff.Since 2001, the €860m Deloitte defined contribbution (DC) scheme has seen its investments managed by Dutch manager Robeco, who will see the assets transferred to Cappital, Deloitte said.At the end of 2013, the Pensioenfonds Deloitte had 16,300 participants, of whom 4,300 were workers and 1,570 pensioners.
Hermes EOS is wholly owned by Hermes Investment Management, the asset manager created by the £40.2bn BT Pension Scheme.Elsewhere, the Government Pension Fund Norway has begun tendering for three financial management consultancy firms to join its new four-year framework agreement.The NOK185.7bn (€21.5bn) sovereign fund said it required consultancy services in relation to the administration of the fund, with successful firms providing data and analysis for investment strategies, responsible investment practices and framework follow-ups.The fund produced an annual return of nearly 11% over 2014, with strong equity growth offsetting a decline in the oil price.The Oslo Stock Exchange was down 5.5% over the end of the fourth quarter – with energy-sector stocks falling in value by 25% – but nevertheless finished the year up by 5% due to the consumer and materials sectors. Consultancy Towers Watson has appointed stewardship overlay firm Hermes EOS to assist the company on its fiduciary management activities.Hermes EOS will engage on ESG matters on behalf of Towers Watson’s global fiduciary management business, which currently has around $75bn (€69bn) in assets under management.The stewardship firm normally engages companies on ESG matters with regards to public policy and also on social matters such as wages, health and safety and corruption.Towers Watson is its first fiduciary management client and now acts on behalf of £134bn (€183bn) of assets.
The Investment Association’s recent report on fees is so terrible it’s actually offensive, writes BrightonRock’s Con KeatingThe strapline to the press release of the latest Investment Association (IA) report, “Hidden Fees: The Loch Ness Monster of Investments”, was eye-catching and amusing. Having read the report several times – a painful process I would not recommend, even to a devout masochist – I have to conclude that, if the IA had been swallowed and lay, decomposing, in the belly of the beast, we would receive another press release from them announcing its capture, containment and domestication.I first studied undergraduate-level statistics and probability theory in 1963, and formal training in econometrics followed in 1971. I have edited several text-books on these subjects written by academic friends, and I have served – in august, honoured company – on the steering committee of the Financial Econometrics Research Centre for many years. In the intervening years, I have read many hundreds of empirical financial studies and reports, perhaps even thousands. This report is by far the worst – so bad that it is offensive, insulting both our common-sense and intelligence.The report has a veneer of transparency and rigour but left me with more than 30 questions. In a thirteen-page document, including four pages of cover, contents and blank space, that is a lot of questions. As many others have published similar concerns, I will raise only a few here. The sample dataset is odd, covering two full years and then just 11 months. What was the hurry – could it just have been to feed the report into and corrupt the FCA’s ongoing work on asset management, on which we expect a preliminary paper in September?With any piece of empirical work, there are always choices and assumptions to be made, which introduce bias. Of the assumptions disclosed, all but one serves to present fund management performance in a positive light. The IA has long, and rightly, criticised the use of the SEC algorithm for calculating portfolio turnover, and the much-maligned Brussels bureaucracy concurred, writing its own, now-abandoned, standard. Yet here it is, central to the IA report. As the lower of sales or purchases in a period divided by the average fund value, it is clearly the metric that will return the minimum turnover rate and, in this report, the lowest transaction costs estimate. In fact, transaction costs are incurred on both purchases and sales.It is irksome we are repeatedly told that 1,350 “equity fund accounts” are contained in the dataset, when there are in fact 387 funds in the first period, 504 in the second and 457 in the third. This is, in other words, an unbalanced panel with a common maximum possible of 387 funds, and likely many fewer. We have no idea how many funds are actually included in the “UK All Companies” active and passive universes in any period.In any rigorous academic study, the distributions, or at least their descriptive statistics, would be disclosed. Such disclosure allows us to make our own judgement of appropriate measures of central tendency, but we are repeatedly treated to “bundled” measures, and even an average bundled ongoing charges figure. It would also allow us to consider the riskiness of these investments, but ‘risk’ is a word entirely absent from this report.The aggregation taking place is between funds with a wide range of investment mandates, including FTSE 250 and AIM stocks, an inference drawn from their index presence in the final graphic of the report. But what purpose is there to showing those indexes for a different period from the data under investigation? There is a real problem with the benchmarks used as comparators in that these are presented without any description of their compilation. In 2012-13, the (simple average) active benchmark reported was 13.61%, and the tracker 17.27%, a huge difference not present in any other period, which demands explanation. The weighted average was slightly less extreme at 14.71% and 16.84%. Both are implausible. Bundling and averaging these different mandates simply serves to confuse and possibly mislead; it would have been so much easier to interpret had the various FTSE and AIM mandates been left separate and compared with their usual (market-cap weighted) benchmarks.The radical departure in this report from all other studies I have seen is that it reports that active fund management adds materially to performance. It seems that active fund managers are very consistently able to add value across mandates – a further finding not reproduced anywhere else, in my experience. We are asked to believe that, in 2013-14, the average active UK fund manager added 649 basis points relative to the simple average benchmark (555bps weighted).Quite apart from the significance of this one figure to the overall average quoted repeatedly, this level of gain is more commonly associated with highly leveraged hedge funds, even if rarely achieved by them. I was sufficiently taken with this that I spoke with friends in seven of the major fund management houses and asked how many of their funds had equalled or exceeded this, and these fund managers probably account for a plurality of the funds in this market. The question was greeted with incredulity. As one said: “If those figures had been achieved, I would have blown the advertising budget sky-high.”Of course, the returns cited cannot be chain-linked to produce a full period outcome, though we are treated to the three-period average of the Fitz Partners dataset and the wider sector sample (whatever that is) – in one, active returns are 14.83% and in the other 17.17%, while tracker returns are 11.83% and 13.45%. This raises another question: what statistical significance should we assign to any of the figures in this report?Moving specifically to hidden costs, at best, it is disingenuous to search public documents looking for them, as this report perhaps did. Surprisingly, stock lending revenue (simple average) is reported as zero in all periods. It is also perfectly possible to strip value from a fund by nefarious trading practices and other means. Contrary to their assertion that the published return of a fund will include all the explicit and implicit costs, and implicitly that we should not trouble our little heads, there are both revenues that rightly belong to the fund that never make it there, and payments that may be made through poor execution that simply reduce the headline return.Let us not forget that all costs and fees are a direct charge on alpha, a very serious business.As for the claims of significant benchmark-relative added value, time will doubtless tell. In the meantime, I see monkeys have again beaten hedge fund managers, as they have in every year since 2012. Regrettably, their retirement must be postponed yet again.Con Keating is head of research at BrightonRock Group
He is already a member of the PLSA board, chairing its DC Council, and is a regular commentator on industry issues.Butcher said: “Looking to the future, I intend to build on the hard work of the association members, the councils and committees and the executive of the PLSA to ensure that we continue to inform the debate and represent the views and interests of our members.” Richard Butcher will become the chair of the Pensions and Lifetime Savings Association (PLSA) in late October, the UK pension scheme trade body announced today.Butcher will succeed Lesley Williams, whose two-year tenure ends at the PLSA annual conference in Manchester on 20 October.He is managing director of PTL, an independent trustee firm, and has more than 30 years of experience in the pensions industry.He sits on the council of the Pensions Management Institute, is a member of the UK Pensions Regulator’s “Practitioner Panel” for defined contribution (DC) schemes, and sits on the Department for Work and Pensions’ trustee panel. Richard Butcher, PTL and PLSALesley Williams, current chair of the PLSA, said: “Richard and I have worked closely together on the board of the PLSA for some years now and I know his knowledge and insight will be a considerable asset to the organisation. He will be invaluable as the PLSA continues to push for market innovation and works to ensure that members’ views are well represented in Whitehall and Westminster.”During her tenure, Williams helped launch a campaign for diversity within the pensions industry.Williams is group pensions director at Whitbread – a hotel, coffee shop and restaurant company – with responsibility for corporate pensions strategy and to the trustee company for the operation of the pension fund and its investments.Joanne Segars left the PLSA at the end of June after more than 10 years as its chief executive. Julian Mund has taken over executive duties until the trade body appoints a permanent successor to Segars.Since announcing her departure from the PLSA, Segars has been appointed non-executive chair of LGPS Central, one of eight asset pools being formed by UK public pension funds.