The list of Polish state institutions criticising the government’s proposed second-pillar pensions overhaul gets longer by the day.The Attorney General’s Office has described the plan to transfer all sovereign, state guaranteed and central bank assets from the pension funds (OFEs) to the Polish Social Insurance Institution ZUS as a “classic expropriation” and unconstitutional.The Office, while representing the State Treasury’s legal interests, is an independent body.It believes the OFEs, as legal persons, are the owners of the accumulated contributions, with that ownership guaranteed by the Polish Constitution. To date, the pensions industry has claimed the monies belong to the members, while the government insists they are state property.The Office also highlighted an inconsistency in the non-governmental securities the funds would be allowed to buy.These include bonds issued by Bank Gospodarstwa Krajowego (BGK), which channels most of the EU funding granted to Poland and finances large infrastructure projects.The OFEs have in the past been the biggest purchasers of BGK road bonds.As the Office points out, BGK is a state-owned bank and thus part of the Polish Treasury.The Polish Statistics Office (GUS) has noted that, under new Eurostat accounting methodology (ESA 2010), which comes into effect in on 1 September 2014, the state bond transfer would not affect the ratios of government deficit and public debt to GDP.This undermines the Finance Ministry’s argument that the main purpose of the reform is to improve public finances.The Justice Ministry has warned that the timetable envisaged in the draft bill between the publication of the law and its enactment is too short, while both the central bank and the Insurance Ombudsman have concerns about the impact of a ban on state bond investment on future pension returns.The prime minister’s Chancellery has questioned why the penalties envisaged under the proposed OFE advertising ban – a fine of PLN1m (€234,000) and up to two years’ imprisonment – are so much more punitive than those imposed on other banned advertisements, notably tobacco.Given the proposed ban, the Polish Chamber of Pension Funds and Konfederacja Lewiatan, the Polish private sector employers’ confederation, plan their joint mass media campaign between November and mid-December.They have some ground to make up.According to a recent study by the Kronenberg Foundation and Citi Handlowy bank, only 13% want the OFEs to continue investing part of their social security contributions, while 51% want to hand the full amount to ZUS.
In addition to a five-year track record, applicants must have at least $500m in assets under management (AUM) for the mandate itself and $1bn in AUM for the company.Interested parties should state performance, net of fees, to the end of May.The closing date for applications is 23 May.The IPE.com news team is unable to answer any further questions about IPE-Quest 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 7261 4630 or email [email protected] An investment consultant based in the UK has tendered a global, developed-market, large-cap equity mandate using IPE-Quest.According to search QN1408, the client has expressed a preference for a bottom-up, fundamental stock-picking approach.ESG integration is also an important criterion of the tender, it said.The mandate will be worth $10m (€7.2m) or more.
London’s Greenwich local authority fund has tendered a £100m (€140m) alternatives mandate as part of an overhaul of its asset allocation towards a more diversified portfolio.The £1bn fund for the Royal Borough of Greenwich said it was planning to invest in one or more diversified alternatives funds via segregated mandates.Any fund should have access to a “broad” range of alternative assets, the scheme added, providing a non-exhaustive list of a dozen alternative asset classes into which any selected fund could invest.It said managers would be able to pitch funds that included exposure to active currency management, commodities, emerging market debt, global tactical asset allocation strategies and hedge funds, as well as high-yield bonds, insurance-linked securities and private equity. Greenwich said the selected funds could invest in real assets as well, such as infrastructure, real estate, timberland and agriculture.It said the expected return for any fund would be 3-5% above the three-month sterling LIBOR rate.Managers have until 14 December to apply for the mandate, which could be awarded for up to a decade.The new mandate forms part of the local authority fund’s overhauled asset allocation, which saw it decide in February to allocate 10% of assets to diversified alternatives, and a further 10% towards a multi-asset strategy.The new asset allocation has seen a slight increase in the overall equity allocation – previously 45% of the fund’s assets divided evenly between UK equities and overseas equities.Instead, the fund is now targeting a 15% exposure to UK equities and a 35% exposure to overseas equities, split across a smart beta allocation, an actively managed emerging market portfolio and a passively managed global equity portfolio.Exposure to real estate and fixed income remains stable at 10% and 20%, respectively, while a 5% private equity allocation has been removed in favour of the 10% diversified alternatives mandate and higher listed equity allocation.The changes also saw the fund end a 20% strategic allocation to absolute return products.
Delegates at a recent conference in Vienna have heard that the UK must still be included in cross-border pension discussions in spite of the UK’s recent shock decision to leave the European Union.Othmar Karas, an Austrian member of the European Parliament, said: “For the UK, any alternative to EU membership would have to include freedom of movement and labour – cross-border pensions is therefore still an important topic.“We need European pension funds, not just an EU pension fund directive, because we need Europe-wide service providers in this segment, where a joint domestic market is essential.”After the conference, Paul Jankowitsch, founding chair of the RESAVER group, told IPE the pan-European pension plan would also include non-EU members. “We have UK members in the consortium that, as far as we know, will continue to prepare for making use of RESAVER.”He added his belief that the European research area would “most likely remain larger than the EU”.RESAVER is an IORP set to be established on 14 July in Brussels, and the “preparations for receiving the first contributions are well underway”, Jankowitsch said.Bruno Gabellieri, president of the European paritarian organisation (AEIP), said he would like to use RESAVER as a role model.“There are some European industry sectors where the idea of RESAVER could be applied,” he said. Gabellieri also speculated that the dynamics of negotiations on cross-border solutions within the EU might change for the better after Brexit.“Maybe these topics will now be easier to negotiate,” he said.However, not everyone at the conference, organised by the European Parliament and the European Commission, saw pan-European pensions in a positive light.Michael Reiner, from the University of Vienna and formerly of the Austrian supervisory authority FMA, warned about the “communitisation” of pension plans and argued that pan-European schemes made “no sense” and were “legally impossible”. “According to Article 153 of the Treaty on the Functioning of the European Union, the European legislator is neither allowed to regulate remuneration nor the basic set-up of the national pension systems,” he said. He said he also feared a “monopoly if there is one single European player” and the creation of financial service providers “too big to fail”.But Francesco Briganti, chief executive and founder of the Employee Benefits and Welfare Institute, said: “A single European pension plan is already legally possible – the political will is a different topic.”He said the project could be started as an ‘enhanced cooperation’ within the EU by at least nine countries, citing “Western European countries with similar approaches to pensions regarding employer contributions, and the involvement of both employer and employee representatives”. He said it was “already assumed” that the UK would have not been involved in such a project because of its “historical reluctance” to EU policies in the “social field”.
Ros Altmann’s departure as the UK’s pensions minister after little more than a year heralds the return of instability for the industry, predicts Jonathan WilliamsAfter six years of relative stability, the UK pensions industry faces upheaval, following the departure of pensions minister Ros Altmann.Vacating her post on 15 July, days after Theresa May succeeded David Cameron as prime minister, Altmann promised she would continue to offer her opinions on all matters pension and long-term savings, albeit now as a backbencher in the House of Lords, the UK’s upper house .Her elevation to Baroness, the only way for her to be named pensions minister last May, will significantly boost her already substantial profile as self-styled consumer champion and allow her to hold future governments to account when she sees a short-term pensions agenda emerging. The Treasury has, arguably, long been responsible for pensions policy, with Webb and the Pensions Regulator believed to have only been informed of the sweeping pensions freedoms reforms of 2013’s Budget shortly before they were unveiled .While the importance of pensions is without doubt, questions remain over the regard in which the government holds the industry in light of Altmann’s departure, and the fact Harrington is only an under-secretary, the most junior of ministerial ranks.It is questionable whether a shift to the Treasury would solve the problem, as the pensions-freedoms reform appear to have been designed with the sole purpose of allowing savers to draw down pension pots earlier than expected – triggering a tax windfall. The Treasury has therefore proven its desire is only for the short-term gain rather than the long-term prosperity of the sector.Altmann’s call to take private pensions away from the Department for Work and Pensions should, therefore, be heeded and instead see the creation of a standalone ministry solely in charge of long-term care and savings, as she and Webb have previously championed .Such a senior minister could then be responsible for laying out a long-term vision for reform, championing auto-enrolment and fending off any attempts to water down company staging dates, or increases to contribution rates, as the UK suffers the likely inevitable economic shock from its decision to leave the European Union. While not universally liked during her time in government, Altmann at least understood her portfolio and succeeded in winning support for needed reform of the UK master trust market to better protect the savings of those compelled to save through auto-enrolment .In common with her predecessor Steve Webb, who enjoyed an unprecedented five years as pensions minister, Altmann was a minister able to field questions from the industry while appearing at events. And while she was not always able to answer due to the constraints of political life, she could at least not be thrown by a query about an obscure and long-forgotten piece of law.Her departure, which she said came after a year of pressure to focus on “short-term” political concerns ahead of big-picture pension reform, brings to an end six years of ministers skilled in their brief and could herald the return of new pensions ministers once a year.When Webb was initially named minister, it was often wryly observed that he would not return to the then-National Association of Pension Funds’ next annual conference, as there had been seven pensions ministers between 2001 and 2010.Altmann’s departure, and the appointment of Richard Harrington , could signal the return of the pensions minister portfolio as a staging ground for politicians eager to prove themselves on a technical beat rather than a portfolio where hard work and good policy can significantly improve the life chances of future generations.Altmann seems keen to see her past role vanish entirely, with responsibility for pensions policy formally moving to the Treasury.She shared her thoughts on social media following her departure, saying she had argued for such a transfer only a week ago.
European regulatory discussions are already being affected by the still-unknown impact of Brexit, according to the director general of the European Fund and Asset Management Association (EFAMA).Speaking at a conference in Brussels this week, Peter De Proft said that, while the UK’s impending exit from the European Union (EU) was not being discussed generally, it was “already coming up in every file” as regulations make their way through parliament.De Proft added: “For example, one of the first implications we see from a political decision like Brexit is that we feel [the European Securities and Markets Authority is] already losing power because there is a shift going to national competent authorities because of hesitation.” In addition, De Proft pointed out that, after the next European elections in two years, there may be no more British MEPs on European parliament committees. The UK currently has 73 MEPs, 13 of which are members or substitutes on the economic and monetary affairs committee.Members such as Neena Gill and Kay Swinburne have been particularly influential in recent regulatory discussions.Gill is the rapporteur for the money market funds regulation currently under discussion.De Proft said: “Very often, files have people from the UK as rapporteur. We have a very important financial centre, and, in two years, we will have elections in the European Parliament. Will there still be Brits coming in? This is one of the things already influencing attitudes.” The next European parliamentary elections are scheduled for 2019.UK prime minister Theresa May has vowed to trigger Article 50 by March 2017 at the latest, which will begin formal discussions about the UK’s exit from the EU.As a result, the two-year negotiation process may be complete or almost complete by the time the next elections are held.Asked whether he was concerned about the future role of UK bodies such as the Investment Association – a key member of EFAMA – and the Financial Conduct Authority, De Proft said he hoped the industry would “continue to work all together to the benefit of the investors”.“We have our single market, why should we start dividing that?” De Proft added. “We see it as something we have to cope with from a technical point of view, and I would say the asset management industry is less vulnerable.”De Proft pointed to existing EU asset management hubs such as Dublin and Luxembourg as an indication the sector is already well organised to cope with any fallout from Brexit.Of EFAMA’s 62 corporate members, 25 are based in London, and most of the rest have offices in the UK capital, De Proft said.“We see this from a point of view of a European market and not from a political point of view,” he added.“With the FCA and other colleagues, we work with them on a daily basis so we don’t see a need to change that. The treatment of investors is going to be the same.”
With the liberals under prime minister Mark Rutte as the clear winner of the Dutch elections, and current coalition partner PvdA having imploded, the long-debated new pensions system is likely to be shaped by a new centre-right government.Such a coalition could be possible with the Christian democrats, CDA, and the liberal democrats, D66, but will need the support of at least one other party.Candidates for a backing role could be the five-seat religious-right party CU or the green-left party GroenLinks, which jumped from four to 14 seats.The possibility of Geert Wilders’s populist Freedom Party, PVV – which gained 20 seats in the 150-strong lower house – becoming part of a new government is remote, as most parties have ruled out co-operation with the PVV. The PvdA, which collapsed from 38 to 9 seats, is also unlikely to be part of a new coalition or to provide a new pensions minister.Jetta Klijnsma, who oversaw the discussions about a new system as state secretary for Social Affairs, has already said she won’t return to parliament.Coalition negotiations in the fragmented Dutch pensions landscape – with 13 political parties to be represented in the lower house – will be complicated and wil probably take months to complete successfully. It is far from clear what a coalition agreement would say about the final design of a new pensions system.The views of the political parties differ widely and the complexity of the various issues has turned the discussion into a conundrum.One of the key issues is what kind of pensions contract is to replace the current predominantly defined benefit plans, which are deemed unsustainable.The Social and Economic Council (SER) is still elaborating two alternatives. One comprises individual pensions accrual, while the other is a “target contract” for accrual in real terms, with both contracts sharing some risks.The VVD strongly supports the individual contract, but most other parties have different views on the issue.Parties are also divided on replacing the current average pensions accrual with an age-related degressive one, which is expected to benefit younger workers but would cost at least €25bn in compensation for affected participants.An analysis by IPE Dutch sister publication Pensioen Pro suggested that the support of the CDA is crucial for a switch to individual pensions accrual and the abolition of average accrual.Another important issue is whether pension funds should offer participants freedom of choice for personalised arrangements.VVD and D66 present themselves as the champions of additional options, but these are likely to complicate pensions administration.One thing is clear. In the new parliament there won’t be a majority for turning back the increase of the official retirement age for the state pension from 65 to 67, as advocated by the PVV and 50Plus, the party for the elderly.
The world’s largest pension fund has selected three environmental, social and governance (ESG) indices that it will track for around ¥1trn (€7.8bn) of Japanese equity investments, and has called on overseas investors to follow suit.The ¥145trn Government Pension Investment Fund (GPIF) today announced that it had selected three benchmarks, especially created for the fund by MSCI and FTSE Russell. The FTSE Blossom Japan index and the MSCI Japan ESG Select Leaders index are two broad ESG indices, and the MSCI Japan Empowering Women index is a benchmark with a social “theme”.It has already started investing based on these indices and said the initial allocation accounted for 3% of its Japanese equity portfolio, equating to roughly ¥1trn.GPIF president Norihiro Takahasi said the pension fund expected the indices would incentivise Japanese companies to improve their “ESG evaluations and enhance enterprise values in the long term”. “If overseas investors focusing [on] ESG with long-term horizon follow, the investment returns of Japanese equities are likely to improve,” he said. “GPIF, as a universal owner – a large scale investor holding well diversified portfolio – and its pension beneficiaries are considered to reap most benefit by the optimisation of [the] investment value chain.”The GPIF said it aimed to expand its ESG investment by adopting other indices or active investment strategies. It said an index with an environmental theme was still being examined.The Empowering Women index comprises companies whose gender diversity initiatives MSCI considers encourage more women to enter or return to the workforce. The Japanese government has set explicit goals to encourage women’s participation and promotion in the business world, with research suggesting this may benefit the Japanese economy.The MSCI ESG Select Leaders index targets Japanese companies with the “best ESG profile” relative to their sector peers. The FTSE Blossom Japan index includes companies meeting standards for ESG practices based on the FTSE4Good index’s inclusion rules. The GPIF put out a tender for Japanese equity ESG indices last year. It today said that in choosing the indices, it emphasised that they apply “positive screening” that selects companies for inclusion based on an evaluation of their ESG behaviour. In addition, the evaluations should be based on public information and the methods and results should be disclosed. ESG “evaluators” and index providers should be properly governed and their conflicts of interest properly managed, the fund said.At a Responsible Investor conference early last month, Hiromichi Mizuno, CIO of the GPIF, spoke about the importance of index providers’ governance and the need for more clarity about company ESG evaluations.
Already high prices were going even higher, with 92% of private equity fund managers having identified valuations as a key challenge for this year.Christopher Elvin, head of private equity products at Preqin, said: “Although fund managers remain confident in their ability to find value and deliver returns, significant proportions are now planning on reducing their targeted returns for future funds, recognising that the industry’s strong historical performance cannot continue indefinitely.“The twin pressures of pricing and competition show no signs of abating, and with the huge influx of investor capital set to continue in 2018, the industry faces a critical juncture.”Denmark’s statutory pension fund ATP has decided to drop venture capital from its investments, with the managing partner of its private equity unit saying that it had not been able to find enough interesting opportunities in that segment. Reducing complexity was the main reason for the move, however.The mid-market segment, meanwhile, was “pretty brutal and there is a lot of competition there”, Hogan Lovells’ head of private equity has said.Preqin reported in August that there was more than $900bn (€730bn) in uninvested capital, or “dry powder”, available to private equity funds.Several pension investors have done well out out of private equity recently, or at least been active in the area. Ilmarinen, one of Finland’s largest pension insurance companies, netted a 26.8% return from unlisted equity investments for 2017. PFA, Denmark’s largest commercial pension fund, completed several large private equity and infrastructure deals as part of consortia last year, and its CEO said it had “great expectations for all the investments as they also establish PFA as an attractive business partner on the international stage.” In Norway, academics have said the country’s sovereign wealth fund would benefit from investing in private equity. The fund’s manager has advocated a 4% allocation. Three times more private equity managers are planning to cut targeted returns than increase them, according to data provider Preqin.More than a third of managers surveyed in November said they planned to reduce the targeted returns of their funds in the market because of high valuations.Just 11% planned to increase targeted returns.This was against a backdrop of increased investor appetite for private equity and increased competition for deal opportunities among managers. More than 90% of respondents said finding attractive investment opportunities was just as or more difficult than 12 months ago, according to Prequin.
A code of ethics for a global investment industry must therefore be universal and consistently applied to the highest standard, regardless of jurisdiction, to enable it to support the building of trust and integrity for the profession and its participants.INTEXTLINKTEXT” src=”/Pictures/web/y/x/x/Dr-Tony-Tan-CFA-Institut_660.jpg” />Tony Tan, co-head of ethics, standards and professional conduct at the CFA InstituteIt must also ensure that the stewards of assets act both in the spirit and the letter of the guidance set out therein, in pursuit of true professionalism.A code that supports this ethos can help industry participants in re-establishing awareness of the fundamental societal purpose of finance, which is to connect those who have capital with those who need it.In an interconnected global economy, employers and professionals must be aware of how their actions, products and services, impact on the long-term health of the capital markets and market participants. Decisions made in one country often have unplanned effects on others, and these ripples of change can quickly become huge waves.To ensure capital markets retain their role as efficient capital allocators for market participants, investment professionals must consider the broader impact of their decision-making processes, and those in authority must consider market sustainability in their corporate policies.This goes far beyond environment, social and governance (ESG) investment strategies.“A universally upheld code of ethics, improved hiring practices, continuing education and [flexibility] are all required to bring this shared goal to pass.”We must also encourage organisations to move away from hierarchical, cause-and-effect structures to ones that hire purpose-driven, ethical and highly educated talent. These hires will increase the industry’s alignment with its operating environment, and positively contribute to a society that benefits from a more professional investment management industry.So how do we support an industry fraught with complexity and nuance to do better?Standards and best practiceThe CFA Institute’s Code of Ethics and Standards of Professional Conduct, currently in its 11th edition, offers a benchmark for every investment management professional globally, regardless of job title, cultural differences or local laws.The Code and Standards are governed by the CFA’s Standards of Practice Council, a committee that has continuous oversight of them and meets periodically to ensure they remain relevant and guide best practice.Understanding of the Code and Standards is tested at each of level of the three-level CFA Program, and every CFA charterholder has committed to uphold the code by signing up to its principles and following them in their daily practice.The CFA Institute Professional Conduct Compliance and Enforcement group oversees this commitment by CFA charterholders, and additionally provides for the monitoring of 250,000 candidates in over 175 markets.Since 1987, CFA Institute has provided the industry with the Global Investment Standards (GIPS), which provide investors with investment performance measurement and reporting rules that are reliable and comparable across markets. Greater public understanding of these codes and standards, to which so many in the investment management profession are committed, will indeed support Raj Thamotheram’s belief that “investment can be a true profession”. Of course, self-regulation, standards and professional credibility must be established, integrated and fully embedded into the ecosystem of investment management if practitioners expect society at large to recognise their industry as a profession.A universally upheld code of ethics, improved hiring practices, continuing education and an industry that can flex to the changing needs of society are all required to bring this shared goal to pass.Tony Tan is co-head of ethics, standards and professional conduct at the CFA Institute. He is responsible for leading the institute’s efforts in advocacy, policy development and regulatory outreach in the Asia-Pacific region. This article is a response to Preventable Surprises CEO Raj Thamotheram’s February 2018 Long Term Matters column, ‘Investment can be a true profession’. Read the full article here.A universal culture of integrity, principles and ethics should be taught, reinforced and practiced. Yet while many of us champion and support this goal, public confidence in the investment management profession continues to suffer as corporate misconduct headlines persist.In his February 2018 article, Raj Thamotheram raised the question of ethics in the investment industry and the importance of a universal code of ethics that is fit for purpose and enforced. We agree.In a complex environment, even good people can make poor decisions. Across the financial services industry, local or regional norms often guide the day-to-day behaviour of employers, regulators and professionals. Situational influences can shape thinking, decision-making and conduct, and even the highest personal or local standards can fall short when compared to global ones.