The GIC Portfolio generated a nominal annualised return of 6.5% over the same period.CIO Lim Chow Kiat said: “Asset yields are low, and all major asset classes are facing potentially low future returns.“We continue to strive for a steady long-term real rate of return by focusing on price discipline as our investment teams originate, structure and pursue investment opportunities across asset classes and across the capital structure.”GIC adopted a new investment framework in April last year.Under the new strategy for asset allocation, developed market equities will range between 20% and 30%, emerging market equities between 15% and 20%, private equity 11-15%, real estate 9-13%, inflation-linked bonds 4-6% and nominal bonds and cash between 25% and 30%.Its latest portfolio allocation reflects those changes.Holdings of developed markets equities were reduced to 29% from 36% a year ago, while exposure to emerging market equities rose from 17% to 19%. Nominal cash and bond holdings increased by 2 percentage points to 31%, and the company’s inflation-linked bond exposure rose to 5% from 2%.The allocation to real estate was cut to 7% from 8%, while private equity holdings rose to 9% from 8%.The company said it continued to build its exposure to emerging market equities and bonds while keeping its portfolio risk at around the same level.It added that it did not make major changes to its geographical exposure, and that adjustments were largely driven by allocation, as well as valuations.As at the end of March, exposure to Europe increased by 4 percentage points to 29%, while exposure to the Americas was down 2 percentage points to 42%.Allocation to Asian investments fell to 27% from 28% and exposure to Australasia dropped to 2% from 3%.GIC set up its tenth office, in Sao Paulo, Brazil, in April as it aimed to “develop investment opportunities with a local presence in Latin America”.The company declined to provide details of its individual holdings.However, under a feature article on private equity published in its annual report, it said it had investments in “well over 100 companies globally”, with a focus on financial services, business services, consumer, healthcare, technology/media/telecommunications and natural resources. GIC, the Singaporean sovereign wealth fund, has increased its holdings in cash and bonds and cut exposure to developed markets as it warned of a challenging global investment environment ahead.In its annual report, GIC said: “As monetary policy normalises and interest rates rise, financial assets will see diminished returns.“Further, the current high prices in financial markets portend weaker future returns, including possibly negative returns at some point.”For the year ended 31 March, GIC posted a 20-year annualised real rate of return, in excess of global inflation, of 4.1%.
Judgment provides clarity on maxim that trustees must act in best interests of beneficiaries, says Mayer Brown’s Philippa James and Stuart PickfordFew cases go to the heart of trustees’ duties, but, in Merchant Navy Ratings Pension Fund Trustees Ltd v Stena Line Ltd and others, the UK High Court has given important guidance on whether trustees can take into account the interests of the scheme’s sponsoring employers as well as the interests of the beneficiaries.The case saw a ruling allowing the Merchant Navy Ratings Pension Fund (MNRPF) to implement a new deficit contribution regime, going back to former sponsors for assistance in removing the deficit – despite the fact around 210 companies had not contributed since the fund closed in 2001.It also ruled 40 sponsors that had made deficit contributions from 2001 onwards could be given some respite, shifting the burden onto those employers who had not. The maxim that trustees must “act in the best interests of the beneficiaries” reflects a long-standing principle that can trace its roots back to 19th century cases concerning private family trusts. But what does it mean in the pensions context? Does it mean trustees must disregard the interests of the employers upon whose shoulders responsibility for funding the scheme ultimately rests?The High Court has held that this duty is not free-standing but has to be viewed in the context of the purpose of the scheme – namely to ensure members get their promised benefits. Provided trustees exercise their powers to further that purpose, it is legitimate to take into account their sponsoring employers’ interests, should they decide this is the right thing to do. In this case, the judge held that it was appropriate for the trustee to take into account the relative burdens on different types of employer when designing a new regime for collecting deficit contributions.Although it might be argued this will make decision-making that much harder, in practice, most trustees are likely already to consider the employer’s position when making certain types of decision that directly impact the employer – for example, in relation to funding and investment. The judge’s decision, therefore, gives trustees useful guidance on the relationship between the interests of the members, whose pension benefits the scheme is established to provide, and those of the sponsoring employers responsible for funding those benefits.The second part of the case dealt with whether a scheme might remain “open” once accrual of years of pensionable service had ceased, but members who remained in employment received some other benefit compared with members who had left service – a point of great importance to the wider pensions industry and that has been debated for many years without being determined.Although the judge was deciding the question in the context of a rule providing enhanced revaluation for members who remained in employment, her reasoning appears to apply equally to schemes that have closed to accrual but retained a final salary link. Essentially, the judge considered that the question comes down to whether members are accruing additional years of pensionable service. If they are not, then the scheme is frozen – irrespective of any additional benefits members may enjoy by virtue of still being employed. This would include a final salary link.The ruling gives schemes a framework for deciding whether they are open or frozen. There will be significant implications for schemes that have treated themselves as open but should now be considered as frozen. In particular, such schemes will need to re-assess who their statutory employers are.Philippa James and Stuart Pickford are partners at law firm Mayer Brown and acted on behalf of the MNRPF trustee
SPF Beheer, Norges Bank Investment Management, Investec Asset Management, Goldman Sachs, EIOPA, Société Générale Security Services, State Street, AMP Capital, Sarasin & Partners, Cartwright Group, Jetstone Asset Management, Alliance Bernstein, Capital Group, Ashmore Group, KAS BankSPF Beheer – Albert Akkerman has announced his departure as chief executive at the €18bn asset manager and pensions provider SPF Beheer, after almost 14 years in the job. Akkerman said he planned to retire on 1 July and that, between now and then, he would help ensure a smooth transition for his successor, Edwin Kreikamp. Kreikamp, a member of the executive board at insurer ASR Pensioen, is to start at SPF Beheer on 1 March and assume the chief executive position on 1 April.Norges Bank Investment Management – Karsten Kallevig has been appointed chief executive at Norges Bank Real Estate Management, starting in his new position on 1 January 2016. Kallevig, who joined NBIM in 2010 as global head of real estate asset strategies, has been CIO for the asset class since 2011. Kallevig’s new role will see deputy chief executive Trond Grande, who had managed the division, hand over day-to-day responsibilities.Investec Asset Management – The asset manager has expanded its Frankfurt team with the hire of Maik Fechner as sales director, further building its presence in Germany and Austria. He previously held positions at Goldman Sachs and JP Morgan, focusing on institutional relationships within capital markets. At Investec, Fechner will primarily handle institutional relationships. EIOPA – The European Insurance and Occupational Pensions Authority has endorsed Gabriel Bernardino for a second term as chairman. In a statement released following a vote by the parliament’s economic and monetary affairs committee (ECON), Bernardino said he was thankful for the trust of both the parliamentarians and EIOPA’s board of supervisors, which in October extended his term until 2021. Société Générale Security Services – SGSS has set up an Amsterdam-based team to support its development in the Netherlands and the Nordic region, creating two new positions. Roel van de Wiel has been appointed commercial director, joining from State Street’s Sector Solutions team, where he was responsible for business development in the Netherlands, Belgium and the Nordics. Bastiaan Aalders has been appointed head of business development, also joining from State Street, where he was head of asset owner products for the EMEA region. AMP Capital – David Allen has been appointed global head of equities. He joins from Sarasin & Partners in London, where he was co-head of asset management. Before then, he was co-head of London equities at Fidelity International. He has also held a number of equity research, fund management and leadership roles at Pioneer Investments. Cartwright Group – The actuarial and consultancy firm has appointed David Carstairs as business development director. Carstairs has held a number of senior positions at Trafalgar House Pensions Administration, Merchant Navy Pensions Administration and Xafinity Paymaster Limited (Equiniti).Jetstone Asset Management – Patrick Rudden has been appointed CIO. He joins from Alliance Bernstein in London, where he was international head of multi-asset solutions and co-manager of the company’s dynamic diversified portfolio.Capital Group – Julie Dickson has been appointed as an investment specialist. She joins from Ashmore Group, where she was a client portfolio manager. Before then, she held senior investment roles at Aviva Investors, AXA Rosenberg and Barclays Global Investors.KAS Bank – Mark Stoffels has been appointed as a member of the managing board and chief financial and risk officer. Stoffels, who has worked at KAS for 17 years, is currently managing director of Finance and Control.
The Hounslow Pension Fund is tendering a multi-asset mandate worth up to 15% of its assets under management, in an attempt to improve cashflow and investment return.The UK local authority fund – which had assets of £762m (€964m) at the end of February, largely managed by Aberdeen Asset Management and BlackRock – said it was looking to appoint a single manager to a long-running multi-asset income mandate, which should aim to return at least 4% per year.In the tender notice, Hounslow said the return should be achieved through a “diverse” set of assets, including equities, fixed income and property holdings, with an initial allocation of £75m-100m.It added that all currency exposure should be hedged back into sterling but that, otherwise, use of derivatives should be kept below 10% of risk capital when measured by value at risk. “In addition, there is a liquidity requirement such that, under normal market conditions, 70% of the assets can be realised within one day, 20% within one week and 10% within one month,” the tender added.The investment management agreement, which Hounslow hopes to have in place by the beginning of September, could run for an initial term of seven years, with further extensions doubling the initial contract length.Hounslow hopes to see interest from at least five fund managers, all of which are asked to answer the request for proposal by 18 April.The tender comes after the fund’s pensions committee conducted a review of its investment strategy to address its investment performance and a potential cash deficit, according to a report prepared by the fund’s chair Mukesh Malhotra for a committee meeting on 24 March.The fund achieved an 11.2% return during the 2014-15 financial year, more than 2 percentage points below its benchmark but, at 8.8%, tied with its benchmark over a five-year period and outperformed by more than 1 percentage point over the last decade, achieving an annualised return of 9.1%.The fund’s investments are largely managed by Aberdeen and BlackRock, responsible for 41.9% and 51.7% of assets, respectively, as of the end of March last year.A further £40.9m in assets were split across property mandates manages by Threadneedle and CBRE, with a small holding managed by the Local Authorities Mutual Investment Trust.The fund’s remaining £8m is invested in private equity.Both main managers have underperformed their benchmarks over the last year, three years and five years, although BlackRock achieved a 1.3% annualised benchmark outperformance over a 10-year period, and Aberdeen a 0.9% outperformance over the same period.In his report to the pensions committee, Malhotra said: “The intention is for the yield from this portfolio to cover the cash shortfall of the fund as pensions in payment continue to outgrow employee and employer contributions into the fund.”It added that the portfolio would “at a minimum” include the three asset classes mentioned in the tender, and that its size could grow to £116m, based on the current predicted growth of the local authority fund.Hounslow hired Allenbridge to advise it on the eventual appointment of the multi-asset fund manager.
Bert Rürup, a long-term adviser to the German government on pensions, has said that hybrid models offer “a good chance” to react to demographic changes and that “hybrid means full funding is never required”. Rürup, who is also president of the Handelsblatt Research Institute, was speaking at the 100th anniversary of the municipal civil servant pension fund – part of the Bayerische Versorgungskammer (BVK) and set up as a hybrid scheme, with pay-as-you-go (PAYG) elements and liabilities that require funding.Rürup said full funding requirements would “massively expose” pension funds to the risk of interest-rate changes. For him, hybrid pension plans offer “more advantages than disadvantages” compared with pure PAYG or pure funded pension plans, given their collective accounting setup. He said the contribution equivalence promised in most funded pension plans allowed for an “inter-temporal shift of assets but no inter-generational redistribution”.Rürup also argued that German chancellor Otto von Bismarck’s original plan 120 years ago had been to establish a funded state pension system, but that the debt crisis after World War II prevented this.He told IPE he would not introduce a funded element to the current first pillar, as the German pension system is facing “not a construction problem but an adjustment problem in existing vehicles”.One of the problems, he said, was the “low interest but not low-yield environment”, something he attributed to interest-rate policies.He cited domestic equities as a possible source of yield for German institutions.“At the moment, more than 55% of the equities in the German DAX are owned by foreign investors, and especially US pension funds are very keen to invest in German companies,” he said.Rürup also proposed making it easier for domestic institutions to invest in foreign equities.In a recent research note, he warned that most calculations and predictions on the future of the German pension system were calibrated to the year 2030.“But the fact we are close to another ageing shift is left out,” he said.“We have another 25 years of increasing dependency ratios ahead of us, and the policies have not yet been adjusted to that.”
Norway’s Government Pension Fund Global (GPFG), the world’s third largest institutional investor, says it is considering adopting a risk-factor based portfolio construction similar to that developed by Denmark’s ATP.Norges Bank Investment Management (NBIM), which manages the NOK7.5trn (€845bn) fund holding the country’s petroleum wealth, has introduced a new two-year strategy plan that heralds the inclusion of risk factors in its portfolio.NBIM presents the fund’s investments in terms of the traditional asset classes – equities, fixed income, and real estate – but recent statements have indicated more flexible thinking is coming to the fore.Asked if NBIM saw a case for using an ATP-style risk-factor approach, for example, the manager’s chief executive Yngve Slyngstad told IPE in an interview: “This is something we are thinking about. I think the new model of how we are funding real estate is one step in that direction, re-thinking asset allocation. “It is also giving the board the possibility for asset allocation with regard to how we fund real estate.”Some people would consider this a move towards the type of risk-factor approach ATP now uses to build its investment portfolio, he said.“For us it is an adjustment of the current model, just recognising that real estate does not fit to the typical framework of giving a clear reference index,” he said. “Therefore instead of trying to measure it against some other buildings that we didn’t buy, we are measuring the return on real estate against the rest of the fund.”NBIM wrote to the Ministry of Finance last October about changing its mandate to allow for a new framework for property investments, which allows it sell specific parts of its equities and bonds holdings to release funds for new real estate investments.Under the new framework, for example, NBIM may decide to fund a London property purchase with targeted sales of UK equities or sterling-denominated bonds, rather than by selling assets across its whole portfolio.In the October letter, NBIM said the management mandate for the GPFG “should ensure a holistic management approach”.On the last day of February, NBIM published its new strategy document covering the period 2017 to 2019.It stated that it did not expect the fund’s growth of NOK2.5trn seen in 2014 to 2016 to continue.“We will develop the reference portfolio further to improve the total return-risk of the fund,” it said.NBIM also said it would decide the funding for each real estate investment considering its impact on the overall fund.The GPFG already includes systematic risk factors in its reference portfolio to enhance returns, but it said in the new strategy document that it would include value, size, and quality factors in equity market investments, as well as term and carry factors in fixed income.“We will assess additional sources of priced risk,” it said.Øystein Olsen, chairman of NBIM’s executive board, told IPE: “In general terms we think the strategy is sophisticated and robust and solid, and we are going to continue the main elements of the strategies we have used previously, but with a number of new elements which you will find there.”He added that the GPFG would going to have “very important new strategic parameters” for equities in the future. The fund is to be granted a new limit for equity exposure of 70%.Separately, Slyngstad told journalists that some of equity exposure the fund would be used to finance part of the real estate investments, and eventually – if there was a change in the investment mandate – to finance infrastructure investments. NBIM has been lobbying Norway’s government for the ability to invest in the latter asset class for some time.“You shouldn’t expect any action in terms of a large buying programme if the equity is moved to 70%,” Slyngstad added.When it was last granted an increase, in 2007, NBIM phased in new purchases, rather than buying large amounts of shares straight away.“The lesson to be learned from last time is we may well sit around for some time and see when we find a good moment,” Slyngstad said.
The auto-enrolment scheme, once established, would cover workers on the Channel Islands of Guernsey and Alderney, which have a combined population of roughly 65,000. While the UK introduced auto-enrolment laws in 2012, the Channel Islands are a British “crown dependency”, so are not governed directly by Westminster.The principles for the introduction of a second pillar auto-enrolment scheme have been approved by the government of Guernsey, subject to further research. Detailed proposals are expected to be presented to the government next year.The estimated contract start date is January 2020. Interested suppliers should register on www.channelislandtenders.com, the online tender portal for the States of Guernsey and States of Jersey, and respond by Friday, 29 September.LGPS pool launches service provider tender Border to Coast Pensions Partnership (BCPP), a £43bn (€48bn) asset pooling project of 12 UK local government pension schemes (LGPS), is looking to appoint a service provider to support “core capabilities” as it builds its infrastructure. According to a tender notice, BCPP Limited, the investment fund manager owned by the administering authorities of the 12 schemes, is looking for the provider to provide outsourced dealing, middle office, depository, and fund administration services.It has estimated the contract value at £65m, but said it could vary significantly as a result of the phased set-up of the pension pool and the rate at which assets are transferred to it.The LGPS pools have to be ready to start accepting assets from their members by April 2018. European insurer seeks fixed income manager via IPE Quest A European insurance company with a €600m investment portfolio is looking for a buy-and-maintain euro fixed income manager via IPE Quest’s Discovery service. According to search DS-2344, the company prefers an asset manager with Dutch origins or with a well-established Dutch representative office “as it believes that the portfolio benefits from pro-active communication and cooperation”.The insurance company said it was a long-term investor with limited risk appetite and that the mandate is for long-only fixed income denominated in euros.The company is looking for a tailor-made solution within a segregated mandate, and said a standard benchmark was therefore not an option.Investable debt should be rated no higher than A-/A3, with exclusions and limits on a number of sectors and titles. It does not want any “complex structures” and said it was aiming for low turnover.Interested parties should have a track record of at least five years.The insurance company is also in the process of deciding on an extra asset class and although this was not part of search DS-2344, it said it was an advantage if managers also had an “excellent” track record in buy-and-maintain equity portfolios – euro or global.The closing date for submissions to the Discovery search is Thursday, 31 August, at 5pm UK time.IPE Quest Discovery is a pre-RFP service allowing institutional asset owners to carry out a preliminary search for managers. The IPE news team is unable to answer any further questions about IPE Quest, Discovery, or Innovation tender notices to protect the interests of clients conducting the search. To obtain information directly from IPE Quest, please contact Jayna Vishram on +44 (0) 20 3465 9330 or email [email protected] The government of Guernsey has launched a tender for a pension provider as it seeks to establish a second-pillar auto-enrolment scheme for its workforce.In a tender notice, the Committee for Employment and Social Security said it was “seeking to establish the level of interest there might be for the delivery of the scheme administration and to further inform the Committee on how to refine the technical specification for the potential procurement”.Deputy Michelle Le Clerc, president of the committee, said this stage of the procurement process was about “early due diligence of potential providers to ensure that any potential supplier has the appropriate experience to provide the scheme on the scale expected”.If accepted, providers will be invited to tender for the provision of the services later this year, she added.
SBB S-bahn to Zurich While PK Post was hoping for amendments to this situation, it ended its membership in the Ethos foundation as per year-end 2017.“The shares the PK Post is holding in Ethos will be put up for sale,” the Pensionskasse confirmed in a press release.The pension fund also explained that its decision was based on statements made by Ethos regarding the conflict and threats made by Biedermann to take legal action against Bruderer Thom for her leaving the trustee board.“Given the shortcomings in corporate governance Ethos’ credibility is severely weakened,” PK Post said.Railways scheme reports 5.4% returnMeanwhile, the CHF17bn PK SBB – the pension fund for Swiss federal railways – reported a 5.4% investment return for 2017.While this was 60 basis points above its own benchmark, it was lower than the market average of around 7.5%. “The result reflects the cautious asset allocation policy as the pension fund has a low risk capacity,” PK SBB noted in a press release.Only around 17% of the scheme’s portfolio was invested in equities at the end of the year, due to the “high share of retirees” in the fund’s membership and “a continued lack of buffers”.The positive returns, however, helped to push the funding level from 104.6% to 107.3% year-on-year. The trustee board at the CHF16.7bn (€14.4bn) pension fund for the Swiss postal services has decided to end its membership of the shareholder engagement platform Ethos.However, should Ethos make amendments to its management structure before the annual general meeting in mid-June 2018, PK Post said it was “prepared to resume the dialogue – even with regards to a possible renewed cooperation”.Late last year, Françoise Bruderer Thom, managing director of PK Post, quit her seat on Ethos’ trustee board in protest at the association’s governance. She demanded the resignation of Dominique Biedermann as president of the supervisory board. Bruderer Thom and other critics claimed his position was incompatible with his wife Yola’s role as head of Ethos’ corporate governance department.
The Church of England Pensions Board said it and the other investors behind the resolution have assets totalling nearly £50bn (€56bn).The UK pension fund said the resolution calls on the company to review and fully disclose its relationships with industry bodies including the MCA that block progress on Australian and global climate and energy frameworks.Adam Matthews, the fund’s head of engagement, said: “It is a matter of public record that Rio Tinto has supported the Paris Agreement and limiting climate change to 2 degrees.“However, that position is undermined when industry associations and lobbying groups, financially supported by Rio Tinto, take contrary lobbying positions,” he said.Meanwhile, AP7, which runs the default option in Sweden’s premium pension system, said it owned shares in Rio Tinto worth around SEK800m (€78.6m).“I find it unacceptable that companies directly or through their industry associations, are lobbying against effective climate policy, and therefore jeopardising the long-term value growth of our pension portfolios,” said Richard Gröttheim, AP7’s chief executive.Australia’s Local Government Super (LGS) said that as a long-term shareholder in Rio Tinto, it wanted to get a better understanding of the shareholder value it received from the company’s third-party industry groups, whose policy stance seemed to contradict the mining firm’s formal commitment to the Paris Agreement’s target.“Our research shows that Rio provides significant funding to these industry groups whose policy advocacy position has helped create the prolonged energy and climate policy stalemate in Australia,” it said.This deadlock had in turn created the recent strong increases seen in electricity prices, LGS said. This had happened as the policy uncertainty deterred “the much-needed investment in new energy generation across Australia,” it added.“We estimate these high electricity prices are adding tens to hundreds of millions of dollars extra to Rio’s overall costs,” the Australian pension fund said.The AGM for Rio Tinto plc will take place in London on 11 April, while Rio Tinto Limited’s AGM is to be held in Melbourne on 2 May. The Church of England Pensions Board and Swedish national pension fund AP7 have joined Australia’s Local Government Super in confronting mining group Rio Tinto over its membership of lobby groups they say are hampering progress on climate change.The three pension funds have thrown their weight behind a shareholder resolution coordinated by the Australasian Centre for Corporate Responsibility (ACCR) and to be heard at the company’s AGM this year.ACCR, a not-for-profit shareholder lobby group, says it is recruiting investors to act as co-filers on the resolution because Rio Tinto is using shareholders’ money to pay for an expensive membership of the Minerals Council of Australia (MCA).“Rio Tinto and the MCA’s positions on climate change and energy policy drift further apart every year,” ACCR said.
Industry leader Martin Fahy said Australia cannot expect to regulate its way to better outcomes from its superannuation industry through an overly zealous focus on short-term investment performance.Fahy, chief executive officer of the industry’s peak body, the Australian Superannuation Fund Association (ASFA), spoke at ASFA’s 2019 conference this week that a focus on regulation was more likely to detract from than to enhance net performance within the system.“I would argue that superannuation is currently in the grip of a contagious false narrative, which risks undermining the retirement outcomes of Australians,” he said.The irony, he intimated, was that the Australian superannuation system was universally regarded as a benchmark, and an excellent example for global pension industry leaders to follow as they looked to progress their own pension industries. According to the most recent Organisation for Economic Co-operation and Development (OECD) report, Australia has “about the best investment returns and lowest costs charged to fund members in the world”, he noted.The OECD ranked Australia as the top performing country over a five-year period, and second best after Canada over 15 years, returning 6.7% and 4.7%, respectively.“So how can it be that, locally, our system has so many detractors, despite all evidence to the contrary?” asked Fahy. “Others want to emulate us, yet we find ourselves in a deep malaise that is proving difficult to shake.”Australia is to hold yet another inquiry into its superannuation industry, the recently-announced Review of the Retirement Income System.“If the review is to fully deliver on its aspiration to establish a single source of truth, then it should place into the public domain the all-important Model of Australian Retirement Incomes, (MARIA)” he said.Otherwise, “the contagious false narrative will continue to permeate debate and hold us all back”.Fahy said Australia had to move beyond a fractious debate on adequacy and contribution rates and focus on the next chapter of the unfinished superannuation story.That chapter would see large pools of patient responsible pension capital that had the potential to address many of Australia’s most pressing issues.Among these was the challenge of creating liveable cities in the face of growing urbanisation.“Superannuation has the potential to address the vexed issue of how we develop the necessary infrastructure, and specifically what role private capital should play in the development of transport, energy, real estate, and health and education infrastructure,” he added.Private capital had a role in creating social spaces, and as large pools of capital competed to be deployed into these in low yield environments, there was an opportunity for governments to embark on the infrastructure projects needed for liveable cities.