The fund has seen an uneven investment performance so far this year, returning 5.45% in the three months to January, followed by a 0.1% return on investments in the second quarter and a return to stronger growth in the third, led largely by a resurgent equity portfolio.Announcing third-quarter results late last month, Norges Bank Investment Management chief executive Yngve Slyngstad credited the 7.6% return from its equity holdings to increased economic activity in China, but he noted that the remainder of its emerging market stocks continued to see weak growth.The NPFG recently announced a review of its active management approach and also made its first investment into real estate debt, partnering with Axa Real Estate Investment Management. The Norwegian Government Pension Fund Global (NPFG) is on track to increase its assets under management by NOK1trn (€123bn) in one year, according to revised government estimates.Announcing its decision to amend the 2014 Budget introduced by its predecessor, the conservative coalition led by prime minister Erna Solberg said it would slightly increase the amount of money drawn down from the fund to balance the books.However, the Ministry of Finance simultaneously predicted the GPFG would exceed NOK5.3trn by the end of 2014 and estimated that the fund’s assets under management would be above NOK4.8trn by the end of December, a 7% increase over predictions published by the previous Labour Party-led government in May.If the predictions hold true, then the GPFG will have seen assets under management increase by more than one-fifth, or NOK1trn, in a year.
OTPP, which as of year-end 2013 had CAD139bn (€94.4bn) of net investments, has a 22% allocation to real estate.Investments are made through the plan’s Cadillac Fairview subsidiary, which has a North American portfolio of more than CAD23bn.In the UK, OTPP has invested in the country’s HS1 high-speed rail link between London and the Channel Tunnel.Private equity firms PAG Asia and TPG, meanwhile, have both previously invested in the real estate sector.TPG has closer ties to Canadian institutional money, having worked with Ivanhoe Cambridge, the real estate arm of the Canadian pension fund Caisse de dépôt et placement du Québec.The firm, which has invested in real estate since 2009, has also run separate accounts for New Jersey’s state pension fund.It has recently targeted distressed property in Europe.PAG’s Real Estate division manages opportunity and core-plus property funds in Japan and China and across Asia-Pacific.The firm has made both direct and indirect investments in opportunistic, value-added and core-plus real estate.DTZ’s strength in Asia has been noted in previous years by observers, making it an attractive proposition to those looking to increase exposure to the Asia-Pacific region. Ontario Teachers’ Pension Plan, TPG Capital and PAG Asia have agreed a AUD1.2bn (€832m) cash offer to buy property advisory company DTZ.DTZ’s current owner, Australian services firm UGL, said it expected the deal to close in September, resulting in DTZ to change ownership three times in as many years.Prior to going into administration in 2011, DTZ was 52% owned by Saint Georges Participations, controlled by the French Mathy family.UGL managing director and chief executive Richard Leupen said the decision to sell DTZ was due to diverging operational and strategic priorities and financial requirements.
Shifting from the Dutch pension system’s predominantly defined benefit (DB) arrangements to individual defined contribution (IDC) would make it “much less complicated”, according to Bas Jacobs, a professor of economics and government finances at Rotterdam’s Erasmus University.Speaking at the recent Pensioenforum in Scheveningen, he argued that an IDC approach would solve most of the system’s current problems.Jacobs said the proposals of state secretary Jetta Klijnsma for an updated financial assessment framework (FTK) were an “incomplete and very complex mixture” of a guaranteed nominal pensions contract and a soft contract under real terms.By contrast, a mandatory IDC would deliver a transparent and complete contract, with the paid premium also producing the future benefits, he said. In such an approach, the negative redistribution effects, as a consequence of the current average pension accrual and contribution, would disappear, he said.The same would go for the “subjective” criteria for risk premiums, the discount rate and the ultimate forward rate (UFR).Jacobs noted that the proposed FTK legislation – with an increased threshold for indexation – would leave an unpaid bill of €300bn, and predicted that the conflict over risk sharing between generations and other groups of participants would continue.Referring to the combination of longevity risk, inflation and financial risk that pensions funds currently faced, Jacobs concluded that schemes were trying to “insure something that is actually impossible to insure”.The professor also claimed that the pensions system would remain procyclical following the prescribed “asymmetric” recovery periods, and reminded his audience that the procyclical character of the current system had greatly contributed to the deep recession in the wake of the financial crisis.In his opinion, the nominal guarantee under the new FTK will result in too little investment risk for young participants and too much risk for older participants.He stressed that a mandatory DC system would allow for a correct age-dependent investment mix, without a conflict between generations.“In addition, there won’t be funding shortfalls or a procyclical policy for investments, contributions and benefits,” he said.However, Jacobs acknowledged that the lack of risk-sharing among the generations, such as longevity risk, would be one of the disadvantages of a DC scheme.He said that, under IDC arrangements, participants should be offered longevity insurance, and be protected against “short-sighted” investment decisions.
Norges is likely to retain its interest in the two Lenbach Gärten properties – which total 29,000sqm – for some time.The two assets are let to McKinsey & Co and Conde Nast.AM Alpha has kept a 5.1% stake in the two properties for a co-investment fund it advises.The firm will manage the co-investment vehicle, which will buy stakes in German real estate.Norway’s sovereign wealth fund began stepping up acquisitions in ‘core’ Europe in 2012, entering the German real estate market via a €784m joint venture with AXA REIM. The fund’s first German acquisitions were in Berlin and Frankfurt – a primarily retail asset in the German capital and a second combining office and retail in Frankfurt’s central business district.A spokeswoman at NBIM at the time said the German market would form an important long-term focus for its real estate portfolio, alongside the UK and France. Norges Bank Investment Management has bought its first properties in Munich on its own.The Norwegian sovereign wealth fund has paid AM Alpha €176.1m for two office assets in the centre of the German city.The deal is the fund’s first German purchase without a partner.Siegmut Boehm, managing director at AM Alpha, said: “We had overwhelming interest when we started the bidding process from both international and domestic investors, and we are glad to have chosen a top financial institution like Norges Bank Investment Management as an investor for our prime properties.”
Helma Lodders, MP for the liberal VVD party in the Netherlands, has announced she will soon table a bill that would allow participants who retire under defined contribution (DC) pension arrangements to purchase annuities gradually.Currently, full annuities must be bought in a one-off transaction at retirement, which has reduced pension benefits, given the low interest rates.Lodders said participants in DC plans should not have to depend on a single window to make a purchase.“Some would like to convert part of their accrued capital every year, while others would prefer a conversion every five years, or even variable and interest-related benefits,” she said. According to the MP, participants require a number of options due to low interest rates. Pensions adviser Aon Hewitt recently estimated that benefits from DC plans had fallen by 8% on average over the first quarter of this year and attributed the drop to falling interest rates.In 2013, Lodders called on Jetta Klijnsma, state secretary for Social Affairs, to transform the temporary ‘pension click’ – providing for temporary benefits for a period of no more than five years, followed by a life-long pension – into a permanent one.However, the temporary scheme, which ran between 2009 and 2014, was used by just 100 participants, whose pensions turned out to be lower than those of participants who followed the traditional route.Lodders’s bill will also enable participants in DC schemes to keep investing with their remaining pensions capital after retirement.The Dutch Cabinet is currently working on similar legislation, but Lodders said she doubted whether its bill could be tabled before Parliament’s summer break.
The new chief executive of Finnish local government and church pension fund Keva has resigned suddenly due to a crisis of confidence between him and the management board, the fund announced.Anna-Kaisa Ikonen, chairman of the Keva board, said: “Unfortunately, Jukka Männistö’s term is very short. “I would like to thank Männistö for his cooperation with the board and for his role in implementing changes in the management of Keva.”Keva, which has €41.5bn in investment assets, manages pensions for employees of local government, the state, the Evangelical Lutheran Church of Finland and benefits agency Kela. Keva said Männistö had handed in his letter of resignation to the board of directors on 30 September.“The reason behind the resignation is a crisis of confidence between the board and CEO Männistö,” the pension fund said.Ikonen was not immediately available for further comment.The pension fund said the resignation would be put into effect once Keva’s council approved it, adding that the next council meeting would take place on 8 October.But the process of appointing a new chief executive will begin immediately, it said, with the new leader likely to take up his or her post in the spring of 2016.“Despite the resignation of the CEO, Keva will continue to operate without disruption,” Keva said.Männistö’s appointment as chief executive was only announced last year in May. He was then taking over from Pekka Alanen, Keva’s deputy managing director, who had been acting as interim head following the resignation of Merja Ailus in November 2013.Ailus had become caught up in a scandal involving accusations over personal expenses, taxes and benefits.Following the scandal, Keva worked on reforming its management guidelines, saying it needed to develop a leadership culture by other means than just instructions and rules.
It also manages a separate CHF4bn portfolio for seven closed pension funds with no active members.In this portfolio, the share of domestic bonds stood at 36% – twice as high as in the larger portfolio.A 2.9% return on domestic bonds helped the performance reach a positive 2.1% for 2015 for the retiree portfolio.This return was further aided by a large exposure to domestic real estate, which, at 20%, was almost three times that of the open portfolio.According to Publica, domestic real estate was the best-performing asset class in 2015 at 6.3%.The pension fund noted that, despite last year’s loss, it has still outperformed its benchmarks, Pictet’s BVG indices, by 20bps between 2000 and 2015, with a 2.9% average return.Meanwhile, Swiss companies saw their pension funding decline over the last year as discount rates fell and returns were only just positive, according to the quarterly Willis Towers Watson Swiss Pension Finance Watch.Year on year, funding levels came down from 96.5% to 94.8% after an even lower drop at the end of September to 92.4%.According to Willis Towers Watson, the fact the discount rate remained steady in the last quarter helped prevent a further decline in the funding level.This development was aided by the fact that the overall average return in Swiss company pension funds stood at approximately 1% at year-end.The consultancy’s calculations are based on the returns of Pictet’s BVG-40 pension index with a 40% equity exposure.Other Pictet BVG indices with different underlying asset allocations estimated a much lower return for 2015 at less than 0.5%. Publica, Switzerland’s largest public pension fund, has reported a 2.5% loss on its open portfolio for 2015.In a statement, it cited the negative impact of a 14% exposure to emerging market debt and equities, with director Dieter Stohler also pointing out that emerging market currencies devalued by approximately 11% against the Swiss franc over the period.He said the fund’s decision, however, to hedge developed-markets fully had boosted Publica’s overall return by 130 basis points.Publica manages the open portfolio – by far the largest component of the scheme, with more than CHF32bn (€26bn) in assets – on behalf of 14 other pension funds, including its own.
In addition to sustainable mutual funds, EAM manages a special sustainable equity fund and a number of bond funds for VBV VK, one of Austria’s mandatory severance pay provident funds.The move to exclude investing in companies that mine coal comes after EAM and VBV VK signed the Montréal Carbon Pledge last year.The Vorsorgekasse was the first Austrian institutional investor to do so.Pledge signatories commit themselves to measuring and publishing the carbon footprint of their equity portfolios annually as part of efforts to contribute to the reduction of CO2 emissions.Heinz Behacker, chief executive of VBV VK, said that the exclusion of companies in the business of coal mining “is how the two companies emphasise their pioneering role as institutional investors in Austria in the fight against climate change”.VBV is also aiming to ramp up investment in renewable energy, it has said.Large cuts in coal mining are “an indispensable milestone” in achieving global climate targets agreed at the UN conference in Paris in December (COP21), noted EAM.A maximum of 10-20% of global coal reserves are estimated to be burnable if global warming is to be capped at 2° C, endorsed at COP21 as the largest temperature increase the planet could tolerate. With climate change having risen up the investment and policy agenda over the past few years, EAM and the Vorsorgekasse are not the first to turn their back on coal mining companies.Norway’s sovereign wealth fund, for example, already has a policy of not investing in companies that derive more than 30% of their revenue from coal-based activities. Compatriot asset owner KLP embraced the lower threshold in December, having previously applied a more lenient exclusion trigger of 50%.Sweden’s AP2, meanwhile, carried out its first climate risk assessment in 2014, which led to the pension fund selling off holdings in 12 coal producers and eight oil and gas companies. In December it announced that it is divesting its stake in 28 power utility stock because the companies were in the business of carbon-based electricity generation and did not have any convincing strategy for reducing their climate impact. Austria’s €2.4bn VBV-Vorsorgekasse (VBV VK) has become the latest asset owner to divest from coal companies on climate change grounds, working with Erste Asset Management (EAM) to exclude companies deriving 5% or more of revenues from coal mining from their responsible investment universe.The criterion captured 30 companies, of which 26 were already excluded for other reasons related to their environmental, social or governance (ESG) performance, according to a spokesperson for the company.Glencore, for example, was already blacklisted on human rights grounds. Anglo-American and South Africa’s African Rainbow Minerals are among the fresh exclusions, however.The securities of companies falling foul of this criterion were sold at the end of 2015. This only affected EAM’s sustainable equity funds, according to a statement from EAM.
In a statement, the pension fund explained the measures had become necessary because of the “massively worsened conditions on the capital markets”.“The historically low interest rates mean that insufficient returns from the capital markets are flowing into Swiss pension funds,” the BLPK said.“This means the Swiss retirement system can not longer rely on the capital markets as third contributor to the system to the same extent as before.”Caisse de prévoyance de l’Etat de Genève, the CHF11.8bn pension fund for employees of the canton of Geneva, has also announced that, despite the fund’s positive estimated performance as at the end of 2016 – of 5.5% -, it is cutting the technical rate in one go from 3% to 2.5%. In a statement, it said this would significantly reduce the pension fund’s margin relative to the minimum coverage requirement, and that, in the event of significant market fluctuations, it could therefore take temporary sanitation measures on top of structural measures to restore long-term financial equilibrium.However, the board decided it was better not to wait to lower the technical rate if the trend toward lower rates persisted in the coming years.CPEG has also decided to increase the retirement age for its plans, effective 1 January 2018, representing a cut in benefits of around 5%.Other structural measures to ensure the long-term financial equilibrium of the pension fund may be on the cards, with CPEG saying that raising the retirement age only partially compensated for the lowering of the technical rate.It said the board would therefore explore other structural measures, such as lowering the pension target. ‘Painful but necessary’With their adjustments, the BLPK and CPEG follow the lead of other Swiss Pensionskassen that have already cut their rates in recent years.Among them was the BVK, with one of the most drastic cuts in the conversion rate, to below 5%.The pension fund – for the canton of Zurich – faced tough criticism from members, with some companies and authorities opting to leave the scheme. While the average cut in future pension promises was calculated at 8% at the BVK, the average losses at the BLPK are even higher, at 14%.“The cuts are painful but necessary to guarantee the financial sustainability of the BLPK,” the Pensionskasse explained.Each of the 60 affiliated pension plans in the BLPK now has to decide on whether to accept the cuts or leave the BLPK.A third option is for a pension plan within the BLPK to offer better rates, but this would mean higher contributions.The changes only apply to future retirees, as existing pension promises are untouchable under Swiss law.In 2014, the BLPK came under fire because it had to negotiate a financial top-up from the employers and the canton to fill a CHF2.2bn gap that had amassed over the years. From 2018, the pension fund of the Swiss canton of Basel-Landschaft, bordering the city of Basel to the south, will drastically lower its pension promises for future retirees.The pension fund for employees of the canton of Geneva is also making cuts, albeit smaller ones.First, the CHF27bn (€22bn) Basellandschaftliche Pensionskasse (BLPK) will cut the technical rate it applies to active members’ accrued capital (technischer Zins in German, or taux technique in French) from 3% to 1.75% from 2018.Subsequently, the conversion rate (Umwandlungssatz) used to calculate members’ pension payout levels, will be lowered in four steps from 5.8% to 5% between 2019 and 2022.
Passive funds and concentration risk pose threats to the development of actively managed green bond funds, according to Fitch Ratings.The credit rating agency highlighted the challenges ahead of what it said could be a pivotal year for the green bond sector in 2018. Next year will see a number of funds launched in 2015 reach a three-year track record, an important milestone for many fund selectors.Although green bond issuance increased “dramatically” last year, the market was still small and there were a limited number of issuers, Fitch said.It estimated there were around 100 issuers of green bonds, compared with 3,000 issuers in broader market indices. “Many of these [green bond] issuers are in a handful of sectors, such as supranationals, utilities and local authorities, while sectors like banking and energy, which represent a large part of the broader bond market, are currently under-represented,” Fitch said.The investable universe could end up being even smaller if funds applied additional exclusion criteria, thereby increasing concentration risks, the rating agency added.It cited the example of a green bond issued by Repsol, a Spanish oil and gas company, in May, which was shunned by some investors due to concerns about the compatibility between the company’s business and environmental goals.Fitch said some funds mitigated concentration risk by buying a certain proportion of non-green bonds from issuers that meet broader green criteria.Fitch also raised the prospect of passive funds “cannibalising” active products, as has happened in broader markets. It highlighted Lyxor’s launch of a green bond exchange-traded fund earlier this year as potentially “hamper[ing] the prospects for managed funds”.“In the green bond sector limited diversification makes it harder for managed funds to differentiate themselves from the index, and the small size of the sector creates the risk of active funds being crowded out,” it said.Chris Wrigley, senior fixed income portfolio manager at Mirova, said that although the green bond market was young and still growing, the asset manager had not encountered any particular diversification restraints.“Green bonds are now diversified by currency, country, sub class, credit rating, maturity, sector, etc.,” he said. “We believe there are more than 165 issues in the Bloomberg Barclays Green Index and so there is a significant universe for portfolio managers to select from.”Active managers can engage with issuers while passive managers will tend to wait for an index provider to remove a bond issue from an index if there are concerns from an ESG perspective, he noted. Fitch counted 17 dedicated green bond funds to date in Europe and estimated sector-wide assets under management of around €1.4bn as at the end of June, up more than 400% since 2015.Continued growth in assets could also prove crucial to the sector’s success, Fitch added, as many institutional investors set minimum levels before they can invest in a fund and also typically cap their maximum percentage holding of any given fund. Five of the 17 green bond funds had assets in excess of €100m as at the end of June, with €100m being a common minimum hurdle for larger fund investors.Although strong investor appetite for green bonds – combined with technical factors – could support the growth of the green bond fund sector, its prospects were “far from certain”, the credit rating agency said.For example, green bond funds could simply be subsumed into ESG-integration bond funds, while limited issuance could also curtail sector growth.However, Fitch also emphasised that “all fund sectors have to start somewhere and there are plenty of examples of specialist fund sectors developing over time”.“In this case, broad institutional investor support is an important factor both within green bond funds and in direct green bond mandate-based investment,” said Fitch.
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