Active real estate managers outperform, study shows

first_imgHe said the average outperformance of 1.9% per year “was not accompanied by increased risk or less diversification”.The research carried out by Cremers and Lizieri, professor of real estate finance at Cambridge University in the UK, looked at 256 funds in IPD’s UK database over the 10 years to the end of 2011.The research compared property holdings by aggregating fund weights by segment and geography in order to compare them to a benchmark. This enabled the researchers to see whether a fund had a higher or lower share of assets managed actively.It then used this adapted active-share measure for property at the segment level in the UK and tested whether higher active-share managers tended to outperform lower active-share managers.Funds in the highest active-share group had 31 properties on average — the lowest number of holdings among all groups — and had an average size of around £200m (€239m).Russell Chaplin, CIO for property at Aberdeen Asset Management, noted that such funds could have been forced to be active because they were too small to enter markets such as prime Central London offices or large shopping centres.He said managers of these types of property portfolios could not track an index and so had to take a bottom-up approach to stock selection to deliver long-term value. “This research is a vindication of that approach and extends principles which have a firm basis in the equity markets to the property sector,” he said.Chaplin added: “This research shows you don’t need to be that big to be able to outperform.”The research also shows that benchmarks are there for measurement purposes and not as construction tools, according to Chaplin.He said it was always tempting for managers to monitor how they were performing relative to an index even if they were not tracking it, which could lead them to change allocations.“This shows you shouldn’t worry about those positions benchmark-related,” he said.“Each manager needs to have the courage of their convictions in the assets they’re selecting and stick with those assets.” Real estate funds are more likely to outperform and generate returns that are less volatile if their sector weightings deviate from the index, according to new research.The study by Aberdeen Asset Management, advised by professors Martijn Cremers and Colin Lizieri, found that funds with the “highest segment active share” — or those with the highest proportion of assets allocated independently of the index — generated an alpha of 1.9% on average per year.The research applied principles to the UK property sector that had previously only been used for equities, to see whether active managers generated outperformance.Cremers, professor of finance at the Mendoza College of Business at the University of Notre Dame in the US, said: “Our study confirms that active management in property has benefitted investors.”last_img read more

Five largest Dutch schemes report stable funding in Q1

first_imgThe scheme’s stakes in property, private equity and commodities produced 4.3%, 2.9% and 1.2% respectively. Infrastructure and hedge funds delivered 3% and 1.4%, according to ABP, with its loss in emerging market equities (-0.7%) the only negative.The civil service scheme saw its funding improve by 0.2% to 106.1%, which included the effect of reversing an earlier rights cut of 0.5%.PFZW made a quarterly return of 3.3%, including 1.6 percentage points from interest and currency hedging. The scheme said its funding remained stable at 109%.The healthcare scheme reported yields of 0.5%, 2.3% and 1.1% across its equity, private equity and property holdings.With a result of 4.5%, government bonds were its best performing asset class.PFZW said its index-linked bonds and credit portfolios generated 1.9% and 2.5% respectively, adding that a 1.1% yield on commodities was largely due to a price rise in the crude oil benchmark.The €50bn metal scheme PMT returned 3.6% over the three months, chiefly thanks to a 5.7% result on its 59% fixed income portfolio, following the decrease of interest rates.Its holdings of equity, property and alternatives produced profits of 0.4%, 1.4% and 0.3%, it said.PMT saw its coverage ratio rise by 0.5 percentage point to 104.9%. However, as it had a funding shortfall of 0.4 percentage point at year-end, it must apply an equal rights cut on 1 May.The metal fund further announced that its 2013 return only stood at 1%, attributing the result mainly to the effect of the increase of interest rates on its large fixed income portfolio.During last quarter, the funding of PME, another metal scheme, rose by 0.7 percentage point to 105%, following a 3.1% result, including 1.1 percentage points due to its interest cover.PME’s assets increased by €2.1bn to €34.4bn, including €1.2bn of assets from the pension fund of copier manufacturer Océ, which merged with PME recently.The metal fund made clear that it profited from the value increase of long-term government bonds, and added that credit and emerging markets bonds also returned more than 2%.PME’s holdings of equity and property generated 0.6%, 0.5%, whereas its alternative investments delivered a 2.5% loss.BpfBOUW, the €40bn pension fund for the building sector, did not reveal its quarterly returns. It said that its coverage rose by 2.8 percentage points to 114.2%. The coverage ratio of the five largest pension funds in the Netherlands – with combined assets of €577bn – has remained stable during the first quarter, as a drop in the discount rate for liabilities largely nullified positive returns on investments.The €309bn civil service scheme ABP and the €143bn healthcare fund PFZW reported results of 3.1% and 3.3% respectively, however, this included positive results on their hedge of interest and currency risks.Investment results were positive for almost all asset classes across the funds.ABP’s holdings in government bonds, credit and emerging markets bonds generated returns of 4%, 2.5% and 1.9% respectively, with equity and inflation-linked bonds both yielding 1.5%.last_img read more

Mandate roundup: EC, Tajikistan, Aberystwyth University, L&G, SEI

first_imgThe European Commission is supporting the central Asian country of Tajikistan in the creation and implementation of a notionally defined pension system.The Commission is tendering for support from organisations or individuals in the EU to support the country in drafting secondary legislation and normative acts and develop the organisational, administrative and IT structures required.The mandate will be supported by a grant from the European Commission and initially run for three years, although this may be extended at Tajikistan or the Commission’s discretion.It envisages narrowing down applications from eligible participants to 4-8 candidates that would be required to submit detailed tenders. Invitations to tender are likely to be made by June 2015, with commencement of the support to Tajikistan in November.In other news, Aberystwyth University has selected Legal & General Investment Management (LGIM) as its insurance-based defined contribution (DC) provider. Aberystwyth required a group personal pension (GPP) after it closed its defined benefit (DB) Aberystwyth University Pension and Assurance Scheme, moving employees to DC.LGIM will now take over the 729 members of the pension scheme and any new employees ineligible to join the University Superannuation Scheme (USS), the multi-employer offering for academic staff.LGIM will initially hold the contract for 10 years after beating four rival providers to the tender.Finally, the SEI Master Trust has obtained an independent quality assurance after submitting to the framework devised by The Pensions Regulator (TPR) the Institute of Chartered Accountants in England and Wales (ICAEW).PwC conducted an audit of the DC master trust’s governance and administration before providing the award.The framework was voluntary and devised by TPR and ICAEW to improve quality in trust-based multi-employer DC schemes and help employers select schemes for auto-enrolment.SEI becomes the third master trust to submit to the voluntary framework after The People’s Pension and NOW: Pensions.last_img read more

OECD calls for vigilance on ‘search for yield’, lenience on solvency

first_imgInternational regulators must monitor pension funds in their ‘search for yield’ as they try to secure benefit promises by investing in increasingly risky assets, the Organisation for Economic Co-operation and Development (OECD) has warned.The Paris-based think tank published a paper looking at whether pension funds and insurance companies would be able to maintain promises made in higher-interest-rate times, given the current low-yield environment.In a stark warning, it said regulators should be more lenient on forcing solvency requirements in times of market stress while ensuring pension funds were not taking excessive investment risks that could lead to insolvency.It said there was a serious concern for the financial longevity of pension funds should they become embroiled in an “excessive search for yield” to cover promises made when interest rates were higher. In its Business and Finance Outlook 2015 report, the OECD said pension funds, by increasing the risk profiles, could be “seriously compromising their solvency situation” if a financial shock such as a liquidity freeze took place.Its data showed that, while the overall investment in alternatives had increased, this could be down to overall larger portfolios, with the exception of the UK.The OECD’s UK data showed pension funds clearly engaging in the search for yield, with an upward trend in private equity and structured products.Given the prolonged effect of low interest rates on pension funds, the OECD highlighted duration-matching assets, renegotiating promises, increasing contributions and easing regulation as solutions to alleviate concerns.It echoed calls for regulatory requirements to fund solvency shortfalls to be counter-cyclical, meaning additional funding should be made when pension fund liabilities are not being exacerbated by falling rates.The OECD’s call for leniency in solvency, and focus on investment risk, goes against the rhetoric seen from Europe’s government and regulators.Solvency requirements were discussed under the previous European Commission, while work on a risk-focused solvency framework – which may require additional funding in riskier times – is being worked on by the European Insurance and Occupational Pensions Authority (EIOPA).The OECD said: “The outlook is troubling for pension funds, as solvency positions will deteriorate unless they actively adopt risk-management strategies.“However, the lack of good quality, very long-term financial assets in sufficient quantities poses serious problems to these risk-management strategies.”It said pension funds should look to close the duration gap between assets and liabilities, while policymakers should avoid excessive pressure on pension funds to correct solvency in times of weak markets.“The regulatory framework and policymakers have an important role to play in [ensuring pension funds do not take excessive risk] and need to remain vigilant to prevent excessive ‘search for yield’,” it added.However, Charles Cowling, director at UK consultancy JLT, sounded a note of caution on the OECD’s proposals.He said: “If [regulators] responded to concerns from the OECD on the poor level of funding of pension schemes and increased pressure on employers to take less risk and fund their pension schemes better, this could force some of the weaker employers into bankruptcy and put downward pressure on equity prices and make matters worse – as deficits widen as a result.”last_img read more

Swiss government weighs further changes to pension system

first_imgThe Swiss government is weighing amendments to the supervisory structure of the second-pillar pension system, as well as strengthening governance at first-pillar scheme AHV. It commissioned the Interior Ministry to draw up a reform plan in which the responsibilities of implementing organisations, as well as the first-pillar supervisor, are stated more precisely and, where necessary, “disentangled”. Further, accounting, reporting and administration costs are to be brought up to date by applying unified and defined standards.The changes will also be applied to smaller first-pillar funds such as the EO, the fund for maternity leave and military service, and the fund for so-called Ergänzungsleistungen, or people who have too little money in their retirement. The government said the supervisory structure for the second pillar, implemented in 2012, had “proven itself” but could be “optimised in certain areas”.Three years ago, the federal supervisory authority Oberaufsichtskommission (OAK) was created.At the same time, the mostly cantonal supervisory authorities were merged to form larger regional bodies.With the next step of the reform, the Swiss government wants to further strengthen the independence of these regional authorities from cantonal bodies.This means representatives from cantonal governments will no longer sit on the boards of these authorities.A further reform proposal for Pensionskassen is to state the responsibilities of pensions advisers and auditors more precisely and differentiate them more clearly.The government gave the Interior Ministry until the end of 2016 to come up with a draft reform.“The aim is to achieve a risk and impact-oriented supervision for the whole social system,” the government said.last_img read more

UK pensions regulator, Arcadia row over details of BHS sale

first_img“This evidence of Ms Titcomb has been widely reported in the press, but it is incorrect,” Goldman said.He went on to detail how TPR was informed of Arcadia’s desire to sell BHS, and noted that the regulator sought – and was granted – an “urgent” meeting a week before the sale was announced to clarify how the sale could impact the BHS schemes.“Specifically,” the letter adds, “in relation to the BHS pension schemes, [Arcadia chairman] Sir Philip [Green] expressed his strong wish to agree a sustainable solution, and there was a discussion as to the possibility of implementing a restructuring with the approval of TPR.”The chairman of the work and pensions select committee, Labour MP Frank Field, said the letter was an “important intervention”, and that the central message was “disturbing”.Responding to the letter, a TPR spokesperson said that, while it did conduct the meeting with Arcadia, it was not given “sufficient information” to gauge the impact of the sale on the pension fund.The regulator also noted that companies hoping to conduct a sale were able to apply for a clearance statement if there were concerns about the sale’s impacting a fund.However, it noted that Arcadia did not approach it for such a clearance statement.“Given our concerns regarding the BHS pension scheme and the circumstance relating to the sale, and in the absence of clearance, we opened an anti-avoidance investigation, which superseded our earlier valuation investigation,” the spokesperson added.TPR confirmed last month it was investigating the collapse of BHS. Arcadia Group, the former owner of UK retailer BHS, has criticised the Pensions Regulator (TPR) over evidence given to a parliamentary committee, arguing the regulator’s chief executive made inaccurate statements.In a letter to the work and pensions select committee and the business, innovation and skills committee, Arcadia company secretary Adam Goldman criticised Lesley Titcomb, chief executive of TPR.Titcomb was speaking to the joint parliamentary committee about the combined £571m (€734m) buyout deficit left in the two BHS defined benefit schemes following the sponsor’s collapse – a hearing that saw suggestions that the regulator lacked the “teeth” to enforce existing laws.Goldman criticised Titcomb for saying the regulator only learned of Arcadia’s decision to sell BHS to Retail Acquisition when deal was made public in March 2015.last_img read more

UK regulators boost senior oversight teams

first_imgAt TPR, Hill will be tasked with ensuring that the regulator’s new “clearer, quicker and tougher” regulatory approach works effectively across the industry, as well as taking the lead on improving its use of data to monitor emerging risks.TPR chairman Mark Boyle said: “I am extremely pleased Jo has been appointed to this key role at TPR. Under our TPR Future programme, we have made great strides in developing and implementing a new, more proactive culture and approach to regulation and I am confident Jo will ensure our clearer, quicker and tougher strategy continues to have an impact.“The effective use of data in the early detection and mitigation of risks is crucial and through her wealth of experience and knowledge in this area, Jo will help maximise our effectiveness as we strive to make workplace pensions work for savers.”The appointment comes as TPR’s chief executive, Lesley Titcomb, prepares to step down in February after a four-year tenure.Separately, the FCA has named Sheldon Mills as its new director of competition, joining from the Competition and Markets Authority (CMA) where he is a senior director for mergers and state aid.Mills has worked at the CMA – previously the Office of Fair Trading – since 2010, overseeing the regulator’s approach to UK company mergers since 2014. Before joining the CMA he worked at London law firms including SJ Berwin, Jones Day and K&L Gates.He will join the FCA in November and will be responsible for promoting competition “in consumers’ interest”, the regulator said, as well as overseeing its activities to “enforce prohibitions on anti-competitive behaviour” within financial services. The UK’s Pensions Regulator (TPR) has hired an executive director of strategy and risk as it prepares to take on new powers granted by government.Jo Hill will join the regulator’s team in November from the Financial Conduct Authority (FCA), the UK’s financial services watchdog.Hill is currently the FCA’s director of market intelligence, data and analysis. She has worked at the FCA since 2009 in a number of roles, including head of data and analysis and head of corporate strategy.She has also worked for the FCA’s predecessor, the Financial Services Authority.last_img read more

Debenhams schemes enter PPF assessment, cash increase agreed

first_img“In the event the CVA is passed, we would expect the schemes to then exit PPF assessment,” she added.“We have been working closely with the Pensions Regulator, the company and trustees of the scheme to ensure the best outcome for members and PPF levy payers.“Members can be reassured that the PPF is there to protect them if needed.”Debenhams’ schemes had assets worth £1.1bn (€1.3bn) at the end of September 2018, according to company accounts, and a funding surplus of £156m.Dan Mindel, managing director at Lincoln Pensions, said: “As with other recent high profile cases, the initial financial restructuring is an important first step in stabilising the business but the need to address the underlying operational challenges of these companies remains the key issue for the future of the schemes.”To become effective, each CVA proposal has to be approved by 75% or more in value of the creditors voting at a creditors’ meeting – to be held on 9 May – and by more than 50% of the total value of the unconnected creditors. The defined benefit pension schemes of UK retailer Debenhams have entered into the country’s lifeboat fund’s assessment period after the company proposed to restructure its store portfolio.The high street retailer was placed into administration earlier this month and today proposed two “Company Voluntary Arrangements” (CVA) that would see around 50 of its 166 stores closed, starting with up to 22 store closures in 2020.The company said that, as part of the overall restructuring and turnaround plan, it and its lenders had agreed it would increase cash contributions to the pension schemes by £9m annually from September this year to 2023. This was as part of a revised funding agreement reached with the trustees.A spokesperson for the Pension Protection Fund (PPF) confirmed that the company’s pension schemes had entered into PPF assessment as a result of the CVA proposal.last_img read more

Climate change: PKA chief urges business backing for €1.6trn investment push

first_imgA UBS office in ZurichHowever, it said they needed to better articulate how their business strategies were resilient to climate change. More than half of the 50 companies it engaged with did not detail the possible long-term impacts of global warming on their businesses, it said.The asset manager said the companies could also improve the availability of data on direct and indirect greenhouse gas emissions and the clarity of reduction targets. Just over half of the companies validated emissions data independently, and 12 had set “what they believe are science-based targets’.The asset manager also said the companies could “increase exposure to renewable energy”.UBS Asset Management launched its climate change engagement in September 2017, deciding to focus on energy and utility firms because power generation accounted for 42% of global greenhouse gas emissions.Taking stock of the initiative so far, the asset manager said collaboration with other shareholders and with senior company management was “fundamental to ensure a consistent message from the financial community and to support sustainable change”.UBS Asset Management led engagement with Equinor as part of its membership of Climate Action 100+, an initiative bringing together investors with more than $33trn (€26.7trn) in assets under management to try to drive change at large corporate greenhouse gas emitters. The Norwegian oil and gas company agreed to pursue a business strategy consistent with the Paris Climate Agreement. Candriam to offset asset management business’ carbon output Damgaard Jensen said: “The report clearly shows that if we do not deal with climate change, it will result in great costs both humanitarian and economic. It requires us to work together across governments, civil society and, not least, the private business community.”Damgaard Jensen – who has been appointed by Denmark’s Ministry of Foreign Affairs as the country’s representative in the Global Commission on Climate Change – said the private sector played a key role in the fight against climate change through supporting and financing the necessary restructuring. Governments alone could not solve the problem, he said.He cited examples of investment in green infrastructure and micro-loans for the world’s poorest farmers as ways the private sector could help those most affected by climate change.UBS urges better communication over climate changeUBS Asset Management has found energy and utility companies it engaged with on climate change to be responsive and “broadly producing positive disclosure”, according to an update on its climate change engagement work. The €36.8bn fund cited conclusions from a report from the Global Commission on Climate Change, which was produced with the co-operation of the fund’s chief executive Peter Damgaard Jensen (pictured).The report concluded that DKK12trn (€1.6trn) must be invested by 2030 to deal with some of the most pressing consequences of climate change. It also predicted that this investment could yield nearly DKK50trn in savings through more efficient communities and savings on prevented natural disasters and famines. Danish pension fund PKA has called for businesses to help finance the changes needed to tackle climate change. Candriam has cut by half the carbon footprint from its paper usageCandriam has announced plans to offset the carbon emissions from its asset management activities as part of a proactive corporate environmental strategy.The €125.3bn investment house has partnered with South Pole, a sustainable business consultancy, to explore ways to offset its estimated carbon output of 9,400 tonnes a year.In a statement, Candriam said it had been working to reduce the environmental impact of its operations for the past five years, through initiatives such as cutting the carbon dioxide emissions of its company vehicles and halving the carbon footprint of its paper consumption.“South Pole will invest in carbon offsetting projects such as reforestation, renewable energy and energy efficiency schemes on Candriam’s behalf,” the asset manager said.last_img read more

Pension bosses call for flexible systems to support increased savings

first_imgMargaret Snowden, chair of the Pensions Administration Standards Association, added: “I think we make it hard for people to save sometimes by insisting that they save X percent every week or every month without fail.“A little bit more flexibility to allow them to increase or decrease contributions as they go through life would be favourable. We need our systems to be a lot more flexible, to cater to what the members actually do.”Bill Galvin, chief executive of the Universities Superannuation Scheme (USS), the UK’s largest pension fund, echoed calls for flexibility to help cope with the rising cost of retirement provision and help individuals “manage through changes in circumstances and changes in their position”.Dean also highlighted research being done by NEST’s Insight arm into the potential benefits of so-called “sidecar savings”. NEST launched a pilot programme earlier this year designed to help auto-enrolled savers build up an emergency pot of liquid savings alongside their pension.She cited Harvard University research that had shown benefits for individual savers in terms of health, financial wellbeing and pension saving, and called for more research into similar areas.“There’s quite a bit of academic research looking at… how can you translate a long-term goal into a short-term goal for someone,” Dean added. “Should you talk about saving a certain amount of money this year? Or is it better to say, ‘you’ve bought a year of retirement’? We need to understand what works in practice: try different things with cohorts of members and do proper A/B testing to see what works.”The PLSA this morning launched a set of “Retirement Living Standards”, an illustrative framework to help individuals picture the lifestyle they want when they retire and what it might cost. Forthcoming regulations should focus on making the UK pension system more flexible for defined contribution (DC) savers, according to speakers at the Pensions and Lifetime Savings Association’s (PLSA) annual conference in Manchester.Helen Dean, chief executive of £8bn ((€9.3bn) DC master trust NEST, called for a more holistic approach to retirement savings, taking into account long-term and short-term savings as well as “scalable, affordable solutions” for the decumulation stage, in particular for lower earners.“Automatic enrolment has been a great thing – it’s got people saving, and it’s a great foundation to build on,” Dean said. “But having built the foundations, we now need to build the house.”She highlighted women and self-employed workers as two groups requiring more flexibility than the current DC system allows.last_img read more