Month: September 2020

Europe’s listed financial institutions face tougher demands on statements

first_imgThe authority expected financial institutions and auditors to take its recommendations into account when preparing and auditing the IFRS financial statements for 2013, he said.“ESMA believes accurate and comparable financial statements play a key role in maintaining both investor and market confidence, which in turn contributes to financial stability and promotes sound economic growth,” Maijoor said.Although the review found institutions were generally observing the required disclosures under IFRS, it also came across broad variations in the quality of information provided, ESMA said.In some cases, the quality was insufficient or insufficiently structured to allow comparability among financial institutions, it said.Separately, ESMA has finalised clearing and risk -mitigation obligations for non-EU OTC derivatives.The authority said it had issued final draft regulatory technical standards relating to derivative transactions by counterparties located outside the EU.These new standards implement provisions of the regulation on OTC derivatives, central counterparties and trade repositories (EMIR).EMIR aims to ensure risks posed to EU financial markets by non-EU deals are covered by regulation.The draft standards make clear OTC derivatives contracts entered into by two counterparties established in one or more non-EU countries — for which a decision on the equivalence of the jurisdiction’s regulatory regime has not been adopted — will be subject to EMIR if one of two conditions are met.The first condition is that one of the non-EU counterparties be guaranteed by an EU financial for at least €8bn, and for at least 5% of the derivatives exposures of the EU financial guarantor.The second is that the two non-EU counterparties execute their deals via their EU branches, and qualify as a financial counterpart if established in the EU. Europe’s listed financial institutions face tougher demands on the way they create financial statements, after the European Securities and Markets Authority (ESMA) found some statements were not structured well enough to allow for comparisons.In a review of the comparability and quality of disclosures in 2012 IFRS financial statements of listed financial institutions, ESMA said it has made recommendations to improve the transparency of financial statements in certain key areas.These areas are credit risk and impact of forbearance practices; liquidity and funding risk; asset encumbrance and fair value measurement of financial instruments.Steven Maijoor, chair of ESMA, said: “ESMA has identified a number of areas where financial institutions can improve the information that they provide in their financial statements, particularly on issues such as credit risk and forbearance.”last_img read more

UK’s USS expands stake in Sydney rail line

first_imgThe Universities Superannuation Scheme (USS) has grown its stake in an Australian railway line, buying a nearly 50% share from a local infrastructure fund.The Westpac Essential Services Trust, managed by the AUD7bn (€4.6bn) Hastings Funds Management, parted with its 49.9% stake in Airport Link Company (ALC).ALC is responsible for running the railway between the centre of Sydney and the city’s international airport, with USS already owning a stake in the company.Local infrastructure manager CP2, a part owner of ALC, will continue to manage the asset on behalf of USS. Gavin Merchant, senior investment manager at USS Investment Management, said: “The investment forms part of USS’s infrastructure portfolio and builds on a long track record of investing in high-quality Australian infrastructure assets including Connect East and Brisbane Airtrain.”According to its most recent annual report, covering the year to 31 March, USS had £1.1bn (€1.3bn) – or 3.6% of its £36.6bn in assets – invested in infrastructure.However, since then, the fund has bought a nearly 50% stake in UK air traffic control business NATS and invested £400m in Heathrow Airport.USS late last year also acquired a AUD110m stake in the trail line between Australian state capital Brisbane and its airport, and has offered debt financing to companies in the water utilities sector.last_img read more

EIOPA dismisses notion that prudence in accounting leads to valuation bias

first_img“EIOPA believes actors in financial markets are generally risk-averse,” it said. “This influences open market prices and should be taken into account in the valuation of assets and liabilities with uncertain outcomes.”The regulator further pointed towards the retention of prudence within IAS 12 and IAS 37 as being considered “appropriate by the majority of stakeholders”.The regulator joins a coalition of UK investors – comprising the Association of British Insurers, the Investment Management Association and the National Association of Pension Funds – in urging that references to prudence be retained.In a letter to the UK Financial Reporting Council, seen by IPE last year, the industry associations said: “We believe it materially correct to err on the side of caution – i.e. be prudent – in the face of uncertainty at an individual item level and view prudence as a predisposition.”At the time, the FRC said it had “often” called on the IASB to include a reference to prudence in its conceptual framework.In its own response to the consultation published this week, the FRC reiterated that references to prudence should be reinstated.“We do not agree the notion of prudence, correctly understood, is incompatible with neutrality,” it said. “The conceptual framework should state that the role of prudence is in the development of accounting policies,” the FRC added, “particularly in ensuring all losses and liabilities are reflected promptly and that gains are not recognised except where there is adequate evidence.”The UK accounting standards body said the notion of prudence could not be omitted simply because they were generally agreed concepts, as apparent agreement could “mask significant underlying differences”.The body concluded: “Explicitly addressing agreed concepts in the conceptual framework enables their interpretation to be clarified and reduces the possibility of undesirable interpretations gaining credence.”,WebsitesWe are not responsible for the content of external sitesEIOPA response to IASB consultationFRC response to IASB consultation The European Insurance and Occupational Pensions Authority (EIOPA) has dismissed suggestions by the International Accounting Standards Board (IASB) that retaining the notion of prudence within revised reporting standards would lead to a biased assessment of assets.Responding to the IASB review of the conceptual framework for financial reporting, the European pensions regulator sided with a number of institutional investors in calling for the retention of prudence within International Financial Reporting Standards (IFRS).In its consultation response, EIOPA said it did not support removing the reference to the notion of prudence as it disagreed with the IASB’s reasons for doing so.It said it disagreed that retaining the reference “would conflict with keeping neutrality, or that it would automatically lead to a biased appraisal of assets and liabilities”.last_img read more

ERAFP aims for maximum impact with new engagement policy

first_imgHe said the pension fund would give priority to collaborative investor initiatives, such as those started and the Principles for Responsible Investment or the Institutional Investor Group on Climate Change, which he said had proven to be more successful.In its new voting strategy for 2015, ERAFP says it will concentrate on making sure companies are transparent in their business and finance in each country they operate in; sharing added value and applying responsible dividend policies; ensuring women make up at least 30% of boards and promoting transparent, fair and moderate executive pay.ERAFP said that in order to make sure the voting policy truly worked, its SRI team would analyse the resolutions submitted at the general meetings of 40 major French companies and 20 major international companies.These companies represent more than 42% of the fund’s share-based investments, it said.Rouchon said ERAFP did not have the SRI resources at the moment to allow it to discuss the voting recommendations of its asset managers for more than 60 companies.But he pointed out this was an increase from 40 in 2013 and from 20 in 2012.“And it is important to keep in mind that since we are delegating our SRI equity asset management to investment managers, this means that for the remaining stocks we own, our asset managers still vote in line with our voting policy,” he said.The only difference was that in these cases, ERAFP did not check their voting recommendations beforehand, he said.ERAFP’s voting policy on the presence of women on boards has been sharpened with the minimum threshold of 30% up from 25%.“While we’ve observed some progress over the past few years, there is still a long way to go,” says Rouchon.“The argument saying that the female talent pool is not deep enough is both wrong and unacceptable,” he says.Read about how funds including ERAFP are tackling the risks associated with carbon emissions in the current issue of IPE France’s public service supplementary pension scheme ERAFP has updated its voting policy and shareholder engagement strategy for 2015, restricting the number of issues it will discuss with securities issuers in the next round of general meetings to four for each.The new shareholder engagement strategy will focus on climate change, responsible lobbying, labour conditions in the supply chain, and tackling aggressive tax optimisation practices, the pension fund said.Jean-Philippe Rouchon, socially responsible investment (SRI) analyst at the €20bn ERAFP told IPE the fund had decided to prioritise a number of critical issues it thought were the most material to ERAFP’s investments.“The objective is thus to concentrate our efforts on four main themes […] for 2015 and beyond so as to have more impact,” he said.last_img read more

CPPIB acquires GE private placement arm in $12bn deal

first_imgThe Canada Pension Plan Investment Board (CPPIB) has agreed to purchase the private lending business of General Electric Capital for $12bn (€10.6bn).Chicago-based Antares Capital, a private placement business, will now be wholly owned by the CAD265bn (€191bn) CPPIB and will continue its focus on lending to US middle-market companies, having provided more than $120bn of finance since 2010.GE has been selling down many of its investment businesses and portfolios to avoid being classed as a financial institution of significance by US authorities, thus being required to hold capital reserves.Under the new ownership, Antares will continue to operate as a standalone business, retaining the brand, leadership and investment team. However, the acquisition by CPPIB will expand and complement its existing private lending portfolios, in addition to giving it access the US middle market.Antares will see inflows into its portfolios from CPPIB, which said it would invest follow-on capital immediately, allowing the firm to “grow and prosper” for decades.President and chief executive at CPPIB, Mark Wiseman, said its strategy to find scale through platforms in asset classes was behind the purchase.“We are advancing the prudent diversification of our investment portfolio, strengthening the fund even further,” he added.Mark Jenkins, global head of private placements at CPPIB, said the fund had been studying the US middle-market lending sector for some time, and that the purchase of Antares now allowed it enter the market.“With this single transaction, we immediately acquire turn-key scale and a long-term partnership with the best, most experienced management team in the market,” he said.“This business is extremely complementary to our existing business.”last_img read more

Large Dutch funds see weak returns in 2015, despite boost from real assets

first_imgThe five largest pension funds in the Netherlands saw weak returns in 2015, with large deviations between listed and unlisted asset classes.With a 2.7% return on investments, the €351bn civil service scheme ABP was the best performing scheme, whereas the €161bn healthcare pension fund PFZW  generated a loss of 0.1%.However, property, infrastructure and other alternative asset classes delivered strong results. In contrast, commodities showed dramatic losses on the back of plummeting oil prices.The country’s five largest schemes also incurred lossed on their extensive interest and currency hedge. ABP reported returns of 16.9% from property and 13% on infrastructure, with private equity and hedge funds producing 24.8% and 13%, respectively.However, it said its commodities portfolio lost 20%, while suffering losses of 3.5% and 0.5% respectively due to its currency and interest rate hedges.ABP’s 33.7% fixed income portfolio returned 3.2%, with long-term government bonds, credit and emerging markets debt delivering 2.3%, 5.8% and 3.2% respectively.Its annual return on equity of developed and emerging markets was 11.7% and -4.7% respectively. However, during the last quarter, these equity returns were 8.1% and 4.4%.ABP said its overall result during the fourth quarter was 1.9%.Healthcare scheme PFZW also reported excellent results on property (14.9%), infrastructure (20.7%) and private equity (20.8%).It added that equity had generated 7.9% during 2015, whereas government bonds and inflation-linked bonds had delivered no more than 0.4% and 0.2%.PFZW’s credit portfolio yielded 2.6% and its allocation to structured credits – the insurance of banks’ loan portfolios – produced an 18.1% result.Its relatively good fourth quarter result of 1.1% could not prevent an annual loss of 0.1% at PFZW, which it attributed in part to a loss of no less than 40.4% on its 4% commodities holdings.PFZW’s combined hedge of interest and currency risk incurred a 4.8% loss, it added.Jan Willem van Oostveen, the scheme’s investment manager, attributed the negative result to the appreciation of both the US dollar and the Japanese yen relative to the euro. He said that 70% of the risk on both currencies had been hedged.Van Oostveen said that PFZW had ceased investing in hedge funds last year, “because of relatively high costs, undesired environmental effects as well as that the asset class insufficiently contributed to the pension fund’s overall return”.He added that the same went for its investments in food and metal derivatives.The €60bn metal scheme PMT, the €48bn pension fund for the building sector BpfBOUW and €40bn metal scheme PME reported annual results of 2.3%, 1% and 1% respectively.PME said its property had generated 12.6%, whereas PMT reported “above average” results of 13.2% on real estate.last_img read more

Pension funds should drop high-carbon investments ‘very quickly’

first_img“As long-term investors, you are the best positioned to make a choice about what kind of infrastructure we’re going to build in the next 5-10 years.”She said there was more awareness about the urgency of assessing climate change risk but serious engagement was lagging.“I woke up the day after Paris having swallowed an alarm clock,” she said. “We have five years to turn this huge ship around, but I don’t see the urgency being really understood, in particular in the financial world.”With respect to fiduciary duty, Figueres said there was a need to redefine what was understood by that concept and that long-term investors were best placed to take the lead.She urged anyone with a high-cost, high-carbon investment to “get out very quickly”.Donald MacDonald, chair of the Institutional Investors Group on Climate Change (IIGCC), said the Paris agreement, COP21, caused “a seismic shift in the way the investment world is going to have to look at the issues of climate change and capital”.It presents asset owners with several key issues they need to address from a fiduciary point of view, he said, including that “climate change is a reality accepted by virtually every government” and that the implementation of the targets set by countries, the INDCs (Intended Nationally Determined Contributions), “will have far-reaching consequences for pensions regulation, insurance regulation and financial regulation”.David Adkins, CIO at The Pensions Trust but sharing his personal views, focused on practical aspects for pension schemes and their trustees.Climate-change risk, he said, should be treated like any other risk, and trustees should refrain from focusing on ethical or emotional arguments.He suggested thinking about climate-change risk in terms of whether it would “make or lose money”, noting that active fund managers were better placed to manage the risk than a passive portfolio. On an earlier panel, pension fund executives discussed how best to deal with climate change from an investment perspective.They largely dismissed divestment as being ineffective – “a complete waste of time,” according to one – and instead argued in favour of engagement and exploring attractive clean-energy investment alternatives, such as solar or waste-to-energy. Pension funds are not investing enough in assets, like infrastructure, to combat global warming and should “get out very quickly” of “high cost, high carbon” expenditure, Christiana Figueres, executive secretary at the UN Framework Convention on Climate Change (UNFCCC), told delegates at the UK’s Pensions and Lifetime Savings Association (PLSA) conference in Edinburgh last week. The outgoing head of the UN’s climate body said awareness of climate change risk had improved but that more action was needed. Despite climate finance’s being aligned with long-term investor interests, by virtue of its timescale and predominant asset type – infrastructure – institutional investors are “paradoxically”, in comparison to their size, the least engaged in this area, she said.“I’m here to ring a bell of alarm for you and to tell you frankly that that can, should and must change – because of the risk to the global economy, that’s why,” she said. last_img read more

Environment Agency Pension Fund makes first co-investment

first_imgInvestment management costs rose year-on-year from £14.8m to £19.3m, the annual report showed. However, EAPF said it was “very conscious of costs and value for money”.“Our strategy changes, which involve us investing more directly in illiquid markets, has also resulted in a higher overall fee as these assets are more expensive to invest in and our more direct approach means we must account for their fees explicitly,” the scheme added.“To offset this, we continue to negotiate fee reductions or concessions with our managers. As part of this agenda we were pleased to make our first direct co-investment in our infrastructure mandate. Because co-investments are made directly they do not incur normal management fees and can be an effective way of reducing the high costs of investing in private markets.”The new investments were funded through a reduction in EAPF’s equity allocation. The scheme sold £30m of UK equities and £25m of global equities.In the 12 months to 31 March 2017, EAPF posted an investment return of 19.6%, helped by strong equity markets and the weak UK currency.“The performance underlines the value of our unhedged equity approach: hedging the currency would have cost us over £100m in the year,” the scheme said.Despite the “very strong” result, the scheme lagged its benchmark return. This was in part due to its long-term plan to reduce equity risk, which it said could mean its investment portfolio struggled to keep pace with its benchmark.“Several managers take a benchmark agnostic, long term, and absolute return approach,” EAPF said. “Thus we expect the fund’s performance to lag in strongly rising markets, particularly when there is a focus on cheap stocks.”However, EAPF emphasised that its focus on low-carbon and sustainable equity strategies had not negatively affected performance. “Our best performing managers were Generation and Impax, arguably our most sustainable,” the scheme said.EAPF reported that its equity portfolio was 8.16% more “environmentally efficient” per £1m invested than a year earlier. For active bonds, the allocation was 4% more efficient.Yesterday it emerged that CIO Mark Mansley and chief pensions officer Dawn Turner, who have established EAPF’s internationally recognised strategy, were to leave the scheme and take up senior positions at the Brunel Pensions Partnership. Brunel is the company set up to pool the investments of 10 local government pension schemes, including EAPF. The UK’s Environment Agency Pension Fund (EAPF) made its first co-investment last year as it explored new ways to drive down its overall costs.The £3.3bn (€3.7bn) scheme invested alongside other firms – including private equity giant KKR – in Calvin Capital, a financing firm for smart meters. The UK government wants to roll out 53m smart meters, which monitor electricity usage, by 2020.In its annual report for 2016-17, the EAPF said: “Despite a lot of demand from investors, we have found some good opportunities [in private markets], partly through focusing on partnerships and innovative structures.”As well as the Calvin Capital investment, the scheme also participated in Standard Life’s European Club III property fund, targeting “high-quality commercial properties across Europe”.last_img read more

UK charities rushing to shut costly DB schemes

first_imgCharities have been rushing to close their defined benefit (DB) pension schemes to future accruals, with 58% of the largest charities now having done so, according to Hymans Robertson’s 2018 Charity Benchmarking Report.The UK consultancy analysed the DB pension exposures of the largest 40 charities by income in England and Wales. The sample included the Wellcome Trust, Church Commissioners for England, the British Heart Foundation and Oxfam.Alistair Russell-Smith, head of corporate DB at Hymans Robertson and author of the report, told IPE: “Typically, the pension scheme is a bigger issue for charities than companies in, say, the FTSE 350.“Around 85% of those companies can pay off their scheme deficit with six months of earnings, but the pension scheme tends to be a bigger burden than this for charities.” He said charities were facing big financial challenges, with contracts being run on ever tighter margins and fundraising under increasing pressure from new data protection rules.Charity portfolios had an average allocation to growth assets of 53%, according to the report.Russell-Smith said: “Some charities have been slower to de-risk than in the private sector, so have been hit hard by falls in yields over the past few years. This has made pension fund deficits in the sector more volatile.”He added: “It is better to take a moderate amount of investment risk than to shoot the lights out. Doing this in conjunction with hedging inflation and interest rate risks stabilises the pension position and reduces the chance of having to pay higher pension fund contributions further down the line.”The survey also found that the average charity paid around 3% of its net unrestricted income into its pension scheme. Russell-Smith said this percentage was not likely to fall.“But it does not have to go up either,” he continued. “It looks small, but charities understandably want to use their resources to fund their charitable activities. Those with local government contracts also need to spend money on servicing those contracts.”He said the most important priority was to maintain the security of regular deficit contributions, bearing in mind that charities could work to a slightly longer recovery plan than in the private sector.last_img read more

Willis Towers Watson: Germany needs new approach to longevity data

first_imgCredit: VolkswagenVolkswagen has so far opted against using its own bespoke mortality dataSome major German listed companies have gone down this route, but Borst added that there were strict regulations regarding individualised mortality tables.Evelyn Stoll, head of the occupational pension department at Volkswagen in Germany, said her company had so far rejected the idea of compiling its own mortality tables as it wanted to avoid the ”efforts of follow-up checks”.European longevity comparisonsBorst also presented a European comparison showing significant differences in longevity assumptions used for calculating pension liabilities.While Germany currently expects a 65-year-old male to live another 20 years under the latest Heubeck tables, Austria adjusted its mortality tables (AVÖ) last year to a 23-year life expectancy from the same age.In the Netherlands and Switzerland the estimate at age 65 is just over 22 years, and France expects these males to live for almost 25 years.Comparing these assumptions to OECD statistics and life-expectancy calculations shows Germany is closest to the international group’s estimate of 18 years.The widest gap can be seen in the French longevity tables as the OECD only expects a 65-year-old French male to continue to live another 19.4 years. Georg Thurnes, AonHowever, Borst pointed out that one of the major differences between the general population and people in occupational pension plans was the share of lower earners. In Germany, people covered by an occupational pension plan are more likely to be from the medium to higher-earner section of the population, she said.Speaking to IPE last year, Georg Thurnes, chief actuary and board member at Aon Hewitt Germany, said: “To apply the reduction to both higher and lower income earners in retirement will only be meaningful when a company’s staff mirrors a representative sample of the population.”Fixing broken tablesBorst proposed the introduction of individualised longevity calculations for larger companies as a way of bringing more accurate data to the second pillar.However, she said this was only feasible for companies employing several thousand people.“But it gives the companies a much clearer calculation of their liabilities – albeit it will most likely lead to increased liabilities,” she said. Speaking in Berlin earlier this month, Borst said: “The discount only works in companies that have a balanced workforce with both higher as well as lower earners.”  All other companies would have to be aware that the recent update to the mortality tables could lead to assumptions in their liability calculations that did not match the actual payments, she added.Borst warned that any update to the mortality assumptions based on currently available general data could only be a best estimate: “And best estimate means exactly that – it is not necessarily closer to the truth.”Heubeck uses data from the German first pillar system, as no data that might be more relevant for the second pillar is available.center_img Critics of the most recent update to Germany’s mortality tables have been proven right by Willis Towers Watson’s head of actuarial consulting in Germany, Hanne Borst.A general discount applied to mortality assumptions to account for “socio-economic factors” only fits certain companies, Borst said in a presentation at MCC’s annual occupational pension conference Zukunftsmarkt Altersvorsorge in Berlin. Last year, the updated tables – traditionally issued by the Heubeck consultancy – had resulted in additional liabilities of up to €10bn for Direktzusage pension plans, which are benefits paid directly from company balance sheets. Heubeck later admitted its data was “inconsistent”.Heubeck introduced the socio-economic factors to take into account the fact that people with a lower income tend to die earlier than those with higher incomes.last_img read more