IFRSIC mulls sponsor refunds

first_imgThe original guidance, IFRIC 14, says that a plan sponsor can benefit from a refund where it has ‘an unconditional right’ to that asset. Critics of IFRIC 14 argue, however, that puts too much focus on recognition of an asset and not enough on measurement issues. “There is almost a step missing in its logic,” Simon Robinson, a principal at consultancy Aon Hewitt, said. “It is quite binary. Once you have the right to a refund, that’s it. “It doesn’t consider the amount of a refund. Rather it just tells you to recognise the present value of the surplus using the IAS 19 methodology, which is a big leap. I’m not sure that logic hangs together.” The lack of an explicit formula or mechanism for calculating a pension scheme’s minimum funding requirement has proved challenging in the UK environment for businesses applying IFRIC 14. Clive Fortes, a pensions accounting expert with consultancy Hymans Robertson, told IPE: “A lot of auditors have taken the view that you can recognise a surplus if there is a theoretical possibility that the company can access the surplus – even if it needs to wait for the last member to die to do so,” he said. “You don’t see many companies restricting any IAS19 surplus an asset. In our experience, companies are looking for a mechanism that means they aren’t precluded from recognising a surplus.I suppose it boils down to asking the question: does this feel like an asset?”  Fortes added that because financial statements are prepared on the basis that a business is a going concern, auditors tend to apply IFRIC 14 in the context of an ongoing scheme. “This has tended to push the focus away from what happens on a winding-up of the scheme so that surpluses are typically recognised unless it isn’t blindingly clear that the company can access the surplus,” he said. Staff at the International Financial Reporting Standards Interpretations Committee (IFRSIC), the body responsible for developing guidance on the application of IFRSs, have recommended that the committee should approve an amendment to its asset-ceiling guidance. The move has been prompted by doubts over whether defined-benefit plan sponsors should factor in possible future actions by a scheme’s trustees ahead of recognising a balance-sheet asset.The IFRS Interpretations Committee had received a request to clarify whether the right of pension plan trustees to increase member benefits or wind up a plan affect an employer’s unconditional right to a refund of plan contributions. The committee’s staff wrote in a meeting paper: “We think that the fact that any surplus could be decreased or extinguished by uncertain future events is not relevant to the recognition of an asset, because this fact may affect the amount of the right but does not affect the existence of the right.” last_img read more

Mandate roundup: IPE-Quest, Barnett Waddingham, Buck Consultants

first_imgThe closing date for applications is 29 January.In other news, Barnett Waddingham has been appointed to provide independent investment consultancy services to the trustees of the £2bn (€2.6bn) Stanplan A DC master trust and the £800m Standard Life DC Master Trust.Stanplan A and the Standard Life DC Master Trust are DC arrangements for multiple, non-associated employers.Lastly, the trustee of the Manchester Airports Group defined contribution pension scheme has appointed Buck Consultants at Xerox to provide pensions administration and member technology services.The services will include guidance on reforms related to the new Freedom and Choice proposals that come into effect in April.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 jayna.vishram@ipe-quest.com. An undisclosed corporate pension fund in Switzerland has tendered a $70m (€59m) developed-world equity mandate using IPE-Quest.According to QN1480, asset managers should employ the MSCI World ex Switzerland index, with a maximum tracking error of 2.5%.Interested parties should have a minimum of $250m in assets under management (AUM) for the mandate itself and $1bn in AUM as a company, with at least a three-year track record.Managers should state performance (net of fees) to the end of 2014.last_img read more

IPE Views: The impact of European QE on asset allocation

first_imgSo if bond yields remain low, where should pension funds seek to find returns? There is no simple answer. Equities are highly priced, and some markets, like the UK, are touching all-time highs. But again, QE is likely to inflate the price of all assets as the relative valuation of equities should follow bond prices higher, as those equities may begin to look good value in the face of low or even negative yields elsewhere. Since many equity markets are dominated by global stocks, it is hard to see whether any single region will benefit.Obviously, euro-zone investors may switch their focus onto euro-zone equities first, which may lead to those stocks performing well relative to other areas, although there is a risk recent falls in the value of the euro may continue. Hence, some globally diversified equity exposure would seem reasonable – even with the current pricing levels, albeit with currency hedging – as the effect of QE may be to continue to erode the value of the euro compared with other currencies.Pension funds should equally look outside equities for returns. Whilst diversifying sources of returns has been common for many investors, at a time of low absolute prospective returns, many investors should find some room for absolute return strategies in their portfolios. Asset classes that return a steady low positive return over the next decade may suddenly begin to look quite exciting if the alternative is lower-risk, negative-yielding bonds.So investors need to assimilate the impact of QE quickly to position their portfolios for the economic circumstances ahead. Hedging interest rates and inflation rates still looks wise, together with diversifying sources of returns. Whilst bond and equity markets are at historically high levels, other sources of returns, and specifically absolute return strategies, should be used in any diversified portfolio.Danny Vassiliades is head of investment consulting at Punter Southall European investors will need to assimilate the impact of QE quickly to position their portfolios, says Punter Southall’s Danny VassiliadesQuantitative easing (QE) in the euro-zone has begun and is already having some noticeable effects. Bond yields in Germany were already negative, but elsewhere it is noteworthy that recent issues of Irish sovereign debt have also been taken up at negative yields. The normal rules of investment seem to have been suspended as investors seek to scramble for euro-zone government bonds in the hope they will be able to sell them on to the European Central Bank (ECB) at even higher prices!For pension funds, making decisions on asset strategy becomes evermore bewildering. For liabilities that are valued with reference to the yield on UK Gilts, we can expect the value of those liabilities to increase as Gilt yields fall, with demand for sovereign bonds in the euro-zone feeding through to the UK, where yields are still positive. This extra demand for bonds from euro-zone investors can also be expected to increase demand for other types of assets, including corporate bonds.With extra demand comes higher prices and lower yields. If bonds and Gilts are not a significant part of a pension scheme’s portfolio, interest rate and inflation hedging should continue to be considered, in order to mitigate the impact of interest rates staying lower for longer. Whilst yields are at historical lows, it does not necessarily follow that they will revert to some ‘mean’ that is significantly higher. They are equally as likely to stay low and may even go lower if further bouts of QE bring more demand into the bond markets.last_img read more

Asset manager involvement in lending market raises ‘new risks’ – BIS

first_imgAsset managers’ increasing activity in the lending market raises new risks and should be counteracted by a renewed emphasis on bank lending, according to the Bank for International Settlements (BIS).The organisation, whose membership consists of central banks from across the world, said institutional investors’ search for yield was partly to blame for the growth of lending by asset managers.A chapter from the organisation’s annual report warned: “Even when asset managers operate with low leverage, their investment mandates can give rise to leverage-like behaviour that amplifies and propagates financial stress.”The report questioned whether asset managers would be able to take over the role played by banks in light of their reduced role in the lending market. “Financial institutions’ success in performing such functions depends on their capacity to take temporary losses in their stride,” it said.“But this capacity has recently declined in the asset management sector, where retail investors have been replacing institutional investors as the ultimate risk bearers.”The restoration of banks as the “successful intermediaries” they were in the past should be the ultimate goal.The report also touched on the Financial Stability Board’s recent consultation on globally important financial institutions, which a number of asset managers criticised for excluding pension funds from its remit.It also argued that asset managers should tackle existing incentive-driven fees to ensure their investments are for the long term, which in turn could offset “temporary adverse shocks”.“Furthermore,” the BIS added, “redemption risk can be addressed by liquidity buffers and – in the spirit of recent amendments to US money market fund rules – by restrictions on rapid redemptions from managed funds.“This could insulate asset managers from hasty swings in retail investor sentiment, thus boosting the sector’s loss-absorbing capacity.”last_img read more

LOIM hires catastrophe bond team to add new insurance-linked product

first_imgLombard Odier Investment Managers (LOIM) is hiring Gregor Gawron and a colleagues from Zurich-based investment managers Dynapartners to create its own catastrophe (CAT) bond and Insurance-Linked Strategies (ILS) team.LOIM said the three-person ILS team it had lured would offer institutional clients another asset class which had low correlation to mainstream assets, and would help it launch its own ILS product.Jan Straatman, LOIM’s CIO, said: “CAT bonds are uncorrelated to other risks, including economic and capital market events, while the 4% to 6% returns on offer remain attractive.”The overall ILS universe is nearly $60bn (€54.6bn) in size and growing steadily, he said. Insurance-linked securities transfer risk from the insurance market to the capital market, with insurers typically sponsoring catastrophe bonds, or CAT bonds, which are usually linked to natural disasters such as hurricanes.If the insured catastrophe fails to happen, bondholders receive their capital at the end of the term plus a coupon, but if disaster strikes, the insurer uses the bond capital to meet claims.LOIM said it had hired Gawron along with Simon Vuille and Marc Brogli to form the team.Gawron led the CAT bonds and ILS offering at Dynapartners and before that at Falcon Private Bank, LOIM said. He was previously a portfolio manager in the ILS team at RMF/Man Investments, where he worked closely with Vuille and Brogli. Brogli comes to LOIM from Dynapartners and Vuille joins the firm after working at a single family office.The new ILS team will be based in LOIM’s Zurich office, and will report to Straatman.LOIM said Gawron and his team used their own particular approach aimed at putting together the best portfolios of ILS, diversifying the securities as much as possible across different risk types and different regions.Straatman predicted fixed income would become more volatile and subject to rising rates over the next two years.“It will be crucial to add active and high conviction strategies which protect clients better against rising rates, instead of the traditional market-cap based strategies,” he said.CAT bonds could meet these criteria with a higher starting yield and floating rate coupon, he said.last_img read more

Investment Association seeks ‘reset’ after controversial report on costs

first_imgIt said there was no evidence implicit costs were significantly damaging investor returns and that, contrary to criticisms, transaction costs linked to portfolio turnover were not “several multiples of disclosed charges”.  Transparency campaigners were quick to criticise the IA for its statements.Andy Agathangelou, founding chairman of the Transparency Task Force (TTF), described the reference to the Loch Ness monster as “churlish”, while Con Keating, head of research at BrightonRock, said it was an “offensively” bad report.Mark Fawcett, chair of the IA’s independent advisory board on cost disclosure, wrote a letter to the editors of several news publications stating that the board had not been consulted on the matter, and that it did not endorse the report.  Speaking to IPE after a “transparency strategy summit” organised by the TTF on 12 September, the IA’s Morrissey, who recently stepped down as chief executive at Newton Investment Management, said “someone thought, in a communications way, that that would be a good headline for this empirical evidence, but, actually, it then inadvertently but understandably upset people” and “looked more defensive than it should have been”.Instead, what the association has been trying to do, she said, is work with the Transparency Taskforce and have the advisory board advise the IA on the code and “actually lead the IA’s work, or at least influence it”.She said she did not sign off on the publication of the report and that Chris Cummings, who has joined the association as its new chief executive, was “in transition”.She said she was “delighted” to have been encouraged by Agathangelou to attend the transparency event and that she was trying to communicate that the IA was “trying to press the reset button”.Morrissey added that “we all want transparency” while acknowledging that this “shouldn’t be confused with saying no-one can make any money”, or that there should be no charges for performance.The key, she said, is that all of this must be disclosed.One suggestion made by a participant in the transparency event was for the pension industry’s “sell-side” to use a standardised cost-calculation methodology, and Morrissey said she was positive on this as a potential alternative to a code of conduct. The Investment Association (IA) is looking to “press the reset button” after the communication of its recent report on investment-management fees “inadvertently but understandably upset people”, according to the association’s chair, Helena Morrissey.Earlier this month, the IA released a report into charges and costs in the UK fund industry, announced by a press release its press release announcing the reportentitled ‘Hidden fund fees: The Loch Ness monster of investments?’.The Loch Ness monster theme ran through the rest of its press release, referring to “hidden-fees hysteria” and suggesting “‘hidden fund fees’ may in reality be the ‘Loch Ness Monster of investments’”.The report itself, based on research of active and passive equity funds carried out by the IA with Fitz Partners, did not use this language.last_img read more

Unisys scheme to join general pension fund De Nationale

first_imgThe company pension fund will be liquidated when the transfer to De Nationale APF has been completed.At the APF, the Unisys pensions will be managed in an individual compartment, SPUN said.Currently, €480m of SPUN’s defined benefit assets are managed by MN.According to Geert Bierlaagh, director of the pension fund, the €5m of assets under defined contribution arrangements are managed by NN IP, but are likely to be transferred to BeFrank.Syntrus Achmea Pensioenbeheer is administration provider of SPUN.De Nationale APF also looks after the pension plans of the general pension fund’s co-founder AZL, as well as potato chips company McCain.Including SPUN’s assets, the general pension fund will have approximately €750m of assets under management. SPUN, the €485m Dutch pension fund of IT firm Unisys, has announced it will join the general pension fund De Nationale APF, set up by asset manager NN Group and its subsidiary AZL.In a joint statement, SPUN and De Nationale APF said that the general pension fund would carry out both asset management and pensions provision for the pension fund’s 2,700 participants as of 1 January 2018.The APF is to take over the implementation of the pension plan, which has been closed to new entrants since 1 July.Since then, new pensions accrual has switched to BeFrank, the low-cost defined contribution vehicle owned by insurer Delta Lloyd – which was in turn taken over by NN IP earlier this year.last_img read more

KLP unfazed by emergence of potential rivals

first_imgNorway’s leading local authority pension scheme provider believes the impact of municipal reform on its client base will be minor.Under the reform, the number of administrative regions in the country is being reduced, creating larger local authorities. This could give them critical mass to justify forming their own independent pension funds. Kommunal Landspensjonskasse (KLP) is the main provider of staff pension schemes for local authorities.Reporting interim figures for July to September, KLP said: “There were small movements in the customer volume, but the ongoing council and regional reforms could lead to small changes and the company is following this closely.”In the the case of Asker, for example – a municipality close to Oslo – the region is merging with the neighbouring municipalities of Hurum and Røyken at the beginning of 2020. Since Asker already has its own pension fund, one option is for the new merged authority to use this arrangement for incoming staff, rather than KLP, but no decision on this has yet been taken by the local authorities.Oliver Siem, KLP’s director for finance, told IPE: “We know many municipalities will merge, but only a few that merge will potentially move into a municipality with a self-managed pension fund. “Our estimations show that the potential volume of pensions assets will be limited and not significant to our business.”KLP reported small changes to its overall customer volume in the third quarter. The group’s premium income in the period fell to NOK8.8bn (€933m) from NOK10bn in the same period last year.In the third quarter, KLP reported that it had picked up its first new independent municipal pension fund client through offering a new combination of services.“This is the first customer KLP has won with a new solution for independent pension funds,” the firm said – although it declined to name the new client.While KLP Forsikringservice (Insurance Service) is not a new line of business, it has mainly provided actuarial services in the past, Siem explained.“The new client has asked for several services provided by the company, and in that sense [it is] the first client on a broader platform,” he said.But KLP does not expect this type of service to become a large part of its business as there are only a limited number of potential clients, he added.last_img read more

UK regulator’s new chair named, shadow pensions minister resigns

first_imgThese include advising the UK government on the resolutions of Northern Rock, Bradford & Bingley and the Icelandic banks. Randell also advised the Portuguese government on the recapitalisation of the country’s banking sector.  Alex Cunningham, MP Stockton North“After my constituents voted overwhelmingly to leave the EU I saw it as my responsibility to support them in that decision and ensure I worked for the best possible outcome for them in terms of jobs and rights. That I will continue to do.”Cunningham was appointed to the post of shadow pensions minister in October 2016. Before that he was shadow minister for environment, food and rural affairs, resigning from that position in June 2016. The day before resigning as pensions minister he had criticised the government for lack of action over controversial matters arising from the situation of the British Steel and higher education pension schemes.Separately, the pensions select committee has extended to 31 January the deadline for comments on an inquiry about collective defined contribution schemes. Charles Randell, incoming chair of the FCASource: Bank of EnglandAndrew Bailey, FCA chief executive, said: “I am very pleased to welcome Charles to the FCA.“His experience of regulation, both during the financial crisis and more recently as a member of the Prudential Regulation Committee, mean that he has a strong understanding of the challenges that the FCA faces and I look forward to tackling these with him in his new role.”Shadow pensions minister steps downLabour politician Alex Cunningham has stepped down as shadow pensions minister after going against party lines in a vote about Brexit legislation. The member of parliament for Stockton North, in the north-east of England, resigned on 20 December after voting in favour of an amendment on the EU Withdrawal Bill, contrary to instructions from the party.In a statement, he said: ”I voted as I did as I believed I was leaving the door open for any deal with the EU to possibly include the membership of the customs union – something I felt was in the best interests of industry and jobs in my Stockton North constituency. center_img The Financial Conduct Authority (FCA) has appointed Charles Randell as its new chair, it was announced today.He will take up the role on 1 April, replacing John Griffith-Jones, who has been the FCA chair since its formation in April 2014.Randell is currently an external member of the Prudential Regulation Committee of the Bank of England and a non-executive board member of the Department for Business, Energy and Industrial Strategy. He is also a visiting fellow in financial services regulation at Queen Mary University of London.He began his career in law, working at Slaughter and May from 1980 to 2013. He specialised in corporate finance law, and worked on financial stability and bank restructuring assignments.last_img read more

ABP gains €700m from tobacco, nuclear arms divestment

first_imgSeveral other large Dutch funds – including PGB, PFZW, SPH, SPMS and PME – have cut tobacco from their investment universes in recent years.In 2017, renowned pension fund consultant Keith Ambachtsheer urged asset owners to consider removing tobacco from their portfolios , arguing that such assets were unethical and financially risky.This is despite both Norway’s sovereign wealth fund and the California Public Employees’ Retirement System reporting that divestment from the sector had meant they missed out on investment gains. Dutch civil service scheme ABP made a 20% profit on the divestment of stakes in tobacco producers and the nuclear arms industry.Speaking to IPE’s Dutch sister publication Pensioen Pro, a spokeswoman for the €408bn pension fund said that it had gained €700m relative to the holdings’ estimated total value of €3.3bn at the start of 2018 .She attributed the result to good timing, as the largest part of the portfolios were sold just after the summer when the investments had benefited from rising stock markets.ABP said it had subsequently re-invested the proceeds worldwide across various sectors. Last year, divesting from tobacco-related equities generated “tens of millions” for the Dutch €26bn multi-sector scheme PGB.With the exclusion of tobacco and nuclear arms, ABP has increased the number of excluded firms from 20 a year ago to more than 170.ABP said it did not have plans for further exclusions in the near future.Its criteria for divestment included assessing whether a product was harmful to humans, and whether the pension fund was able to change this as a shareholder.ABP also considered whether the disappearance of a product had harmful consequences, and whether a worldwide treaty aimed at banning the product existed.As a result, producers of food with a high sugar content are still investable for the civil service scheme. However, these firms could qualify for its “inclusion policy”, which is aimed at enforcing improvements through engagement.‘Unethical and financially risky’last_img read more