Asset manager Amundi and energy group EDF are linking up to form a joint asset management company offering funds that will finance energy-transition projects.The two companies said they aimed to raise €1.5bn for two investment products – one focusing on renewable energy, such as wind power, photovoltaic and small-scale hydroelectric power, and the other centring on business-to-business energy-saving strategies, including those for electro-intensive industries.The new company will raise funds from both institutional and retail investors.Amundi and EDF said they were trying to develop a new alternative asset class de-correlated from the volatility of traditional investment markets. The partners said they also expected the joint asset management company to create an investment fund based on high-yield real estate.This will be created through EDF Invest – the entity in charge of managing non-listed investments within the portfolio of assets dedicated to the decommissioning of EDF’s nuclear plants.This approach could eventually be extended to non-energy related infrastructure, they said.The deal to create the new asset management company is subject to regulatory approval.
Dutch Pensions Federation – Emile Soetendal has been appointed in the newly created position of policy project leader, starting in his job on 1 January. Soetendal currently serves as programme manager for the nationwide debate on the reform of the Dutch pensions system. He is also co-ordinator for pensions policy at the Dutch Ministry of Social Affairs.Aspect Capital – The systematic investment manager has appointed Kevin Carter as independent non-executive director to its Board. Carter has worked in key roles at Old Mutual in South Africa, the UK and the US, Watson Wyatt and JP Morgan Securities. He now holds non-executive positions at JP Morgan American Investment Trust, the Universities Superannuation Scheme, the Centrica Combined Common Investment Fund, Lowland Investment Company, the BBC Pension Trust and the Murray International Trust.River and Mercantile – The Derivative Solutions division has expanded its team with five new hires. The new hires include Richard Worrall, a developer appointed from Goldman Sachs. The division has also hired Tom Clayson, Holly Steward, George Webb and Alex King into the derivatives graduate recruitment programme.Invesco Perpetual – The asset manager has promoted two fund managers within its European equities team. Oliver Collin will become manager of the Invesco Continental European Small Cap Equity Fund, while Matthew Perowne will become fund manager of the Invesco Perpetual European Opportunities Fund.Sturgeon Ventures – Tanya Hailes has been appointed as a compliance and risk analyst at the “regulatory incubator”. She joins from Railpen, where she was a compliance analyst. PIMCO, Kempen Fiduciary Management, Unipension, Sampension, Dutch Pensions Federation, Dutch Ministry of Social Affairs, Aspect Capital, River and Mercantile, Goldman Sachs, Sturgeon Ventures, RailpenPIMCO – The asset manager has put together a “global advisory board” of five economic and policy experts, including former US Federal Reserve chairman Ben Bernanke, former UK prime minister Gordon Brown, former Government of Singapore Investment Corporation CIO Ng Kok Song, New America president and chief executive Anne-Marie Slaughter and former ECB president Jean-Claude Trichet. They are to “contribute their insights” on economic, political and strategic developments and their relevance for financial markets. Bernanke will serve as chairman.Kempen Fiduciary Management – Erik Hulshof has been appointed executive director of the London team. He will be responsible for the integration of Kempen’s activities in the UK and the Netherlands, as well as growth in the UK. In the past, Hulshof has worked for MN and Robeco. He is currently trustee at several Dutch industry-wide pension funds.Unipension – The Danish scheme, set up by three professional pension funds to manage their assets and administration collectively, has lost two of the funds to rival Sampension. Cristina Lage, chief executive at Unipension, decided to resign from the role in connection with “the divorce”. Jens Munch Holst, Unipension’s CFO and CDO, will replace her.
India, with its traditions of democracy and tolerance, is likely to be one of 2016’s ‘good stories’, writes Joseph Mariathasan“The world is on fire” declared Anders Fogh Rasmussen, the former NATO secretary general, in the opening speech of the 2015 IPE Conference & Awards. For him, four key stories will drive geopolitical movements and the global economy in the coming decades. The “extremely bad story”, he thought, was the Middle East, and few would dispute that, although they may dispute both the trigger for the current chaos and what the steps towards establishing a stable solution would be.The “bad story”, he said, was Russia. As a former head of NATO, perhaps one could argue there was a hint of bias there. But as he argued, the current Putin-led leadership is obsessed with restoring the idea of Russian greatness. This can be seen in the concept of EuroAsianism, the idea a Christian Orthodox Greater Russia can stride the world alongside the US, Europe and China. That philosophy can be evidenced in the links Russia is cultivating with its fellow Orthodox country, Greece. But, as Rasmussen added, the falling oil price has meant a Russia in decline. That creates a more unstable environment, which does not bode well. But moving onto a positive note, Rasmussen argues that China is a good story. Despite the negative headlines in the press over disputes in the South China Sea, China, Rasmussen argues, prefers peaceful co-operation. The regime’s survival requires economic growth, which is dependent on an effective global trading system. Moreover, the persistent Beijing smog is a powerful reminder China needs transfer of new technology to tackle the severe challenges it faces such as heavy pollution.The very good story Rasmussen sees is the US, which he predicts will maintain its global leadership for decades to come. Unlike Europe, Russia and China, it has secure borders and faces no threats from hostile neighbours. Indeed, the mega companies of tomorrow are more likely to arise from the US than anywhere else in the world.Rasmussen, though, may have left out another good story, which is likely to have a major impact on geopolitical and economic trends in the years going forward. That is India. To appreciate the context, it is worth remembering that, prior to the collapse of the Soviet Union, India was far closer to the USSR than to the US, which had instead backed Pakistan as a counterweight to Soviet influence in India. During the 1971 Indo-Pakistan war that led to the liberation of Bangladesh, the US under president Richard Nixon supported Pakistan.That experience coloured relations until the dissolution of the Soviet Union. US president Bill Clinton imposed sanctions on India in 1998 following its nuclear tests, although only Japan joined the US. Meanwhile, India during the whole period post-independence in 1948 had also fallen far behind China in growth rates, and anyone who has visited both countries can see the contrast in the state of the infrastructure. It may still take a generation for India to catch up.The remarkable change that has occurred, though, was from 2004 onwards, when after the sanctions, US policy reversed with the creation of what amounts to an almost strategic partnership between the world’s most powerful democracy and the world’s most populous. Relations between the two have become so close that some have argued US foreign policy in the region has been delegated to India.But if that is the case, India has not yet risen to the challenge. It lacks an effective, long-term strategic foreign policy towards its neighbours in the region, or a well-staffed foreign service, along with the paraphernalia of think tanks focused on foreign policy able to contribute to the formulation of policy in the US. That, however, may change, particularly as India strives to achieve its objective of a permanent seat on the UN Security Council.To achieve success requires economic clout. But, in the last couple of years, India’s growth rate has also increased to be comparable with that of China and may even surpass it in the years ahead, as the country’s demographic advantage starts kicking in more powerfully. India’s rise, with its traditions of democracy and tolerance, should be a positive force for good despite its many and well-publicised problems. Hopefully, if Rasmussen gives his talk in another decade, there will be more good stories than bad.Joseph Mariathasan is a contributing editor at IPE
An undisclosed European pension fund has tendered a $300m (€280m) global emerging market bond mandate using IPE Quest.The client is open to splitting the mandate in two, for $150m each.According to search QN-2144, the tender calls for an active investment process.Performance should be measured against a benchmark composed of JP Morgan’s diversified global emerging market sovereign index (60%) and its corporate bond index (40%). The client expects a maximum tracking error of 5%.Applicants should have a track record of at least five years and at least $5bn in assets under management, $2bn of which should be in bonds.Experience with managed or segregated accounts is essential, according to the mandate.The client is only seeking investments in “hard currency”, adding that no local currency exposure is “desired at this point in time”.Interested parties should state performance, gross of fees, to 31 December. Applications should distinguish between the asset management company’s process for emerging market government bonds and emerging market corporate bonds.Eight to 12 portfolio managers are likely to be long-listed. Conference calls with these candidates will probably take place the week of 29 February, with on-site due diligence provisionally targeted for the week of 25 April.The deadline for applications is 18 January. The IPE 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 3465 9330 or email [email protected]
Nine underfunded Irish defined benefit (DB) schemes have yet to submit funding proposals to the Pensions Authority, more than two and a half years after initial submissions were due.Brendan Kennedy, head of the Irish regulator, said the Authority planned to resolve the situation before the end of 2016 and stressed that the funds in question were small.“Some of those schemes have very, very specific issues and, at least in one case, are probably not capable of resolution,” he told IPE.“We may [have] to force the scheme to wind up.” Kennedy said it was important for the regulator to see that all avenues were explored before using its powers to force a fund to wind up, a situation that would trigger benefit reductions where a deficit has not been addressed.“But at the same time,” he added, “while we are reluctant to use the powers, we have to recognise our legislature has given those powers to us with the view to be potentially used.“Like any regulator, we have to strike a balance between using them sparingly but recognising they do exist and have a purpose.”The nine funds account for only a small fraction of the approximately 700 DB funds remaining in Ireland, managing €60bn in assets.The Authority has long struggled with overdue funding proposals.The initial June 2013 deadline for funding proposals, which followed the reinstatement of the funding standard in the wake of Ireland’s banking bailout, was missed by more than 70% of affected funds.The number had fallen to approximately 60 a year later, when the Authority warned it would deal with “persistent non-compliance” by schemes, but, as of February 2015, 30 funds still had yet to agree final funding plans.Kennedy noted the formal processes that needed to be adhered to ahead of a fund’s being wound up or reducing benefits, but he said the Authority was “certainly confident” the situation with the nine funds would be resolved later this year. Funding requirements became more onerous at the beginning of 2016, with the introduction of a risk reserve equivalent to 10% of fund liabilities.However, funds are able to offset the requirement by investing in certain government and supranational bonds.
It called on the government to make explicit in the investment regulations that LGPS must apply fiduciary duty – i.e. that the ultimate purpose of LGPS investments is to pay members’ benefits.The PLSA is also concerned about the scope for the government to interfere in LGPS’s investments, referring to the “broad powers” being taken in connection with proposals for pooling and the need to ensure funds are committed to delivering these pools.“Whilst we agree with the government’s proposals for pooling,” said Segars, “there is a risk such broad powers, combined with the lack of an explicit fiduciary duty, could be used by future governments to direct what and where funds invest.“It would be more reassuring for employers and scheme members if there were greater checks and balances included in the regulations before using any power to direct.”The rules proposed by the government have been described as “unprecedented”, giving the secretary of state for communities the power to amend a fund’s investment strategy statement and direct investment in specific assets.UK trade union Unison previously raised concerns about the government hijacking new LGPS asset pools’ investments, while BNY Mellon warned that LGPS “shouldn’t be seen an easy way to plug the nation’s funding gap” when it comes to infrastructure.The PLSA criticised government efforts to stipulate that policies on non-financial factors – environmental, social and governance (ESG) issues, for example – should reflect (UK government) foreign policy as “meddling with flexibility”.The association said there were valid reasons why pension funds might apply a particular screening of divestment strategy in line with the long-term interest and values of members.“It seems unhelpful and unnecessary for the government to hinder the flexibility of pension fund governors in this respect, and undemocratic to prevent fund members from placing certain stipulations over how their own savings are invested,” it said.The association also raised concerns about the envisaged time frame for implementation of the new regulations, saying the six months “could prove incredibly challenging for funds”.It called on the government to consider extending to pensions committees the knowledge and understanding requirements that currently fall on local pensions boards (under the Public Services Pensions Act 2013).This would help ensure funds are in a position to apply the prudent-person principle and invest in line with their fiduciary duty, it said.“A prudent-person requirement,” it added, “ultimately only works if those making investment strategy decisions, collectively, have the capacity and capability to do so.” The UK pension fund association has raised concerns that new regulations and guidance for local government pension schemes (LGPS) will allow the central government to interfere with pension fund investment decisions.Partly to protect against this, it called for fiduciary duty to be made explicit in the country’s investment regulation for LGPS.Responding to the government’s consultation on new investment regulations for the UK LGPS, the Pensions and Lifetime Savings Association (PLSA) said it welcomed the move to a prudent person approach by removing arbitrary limits on the amount that local authority funds can invest in certain types of legal structures.However, Joanne Segars, chief executive of the association, said “there is a danger government may have gone too far in a number of areas”.
The Pensions Regulator, Bank of International Settlements, Bank of Spain, Hyman Robertson, eValue IS, BNP Paribas, Everest Capital, Deutsche Asset ManagementThe Pensions Regulator – Nicola Parish has been elevated to the post of executive director for front-line regulation, a wide-ranging brief that includes leading investigative and enforcement teams. Parish has held a number of posts at TPR for the past eight years, most recently as director of case management. Her 20-year career in regulatory affairs in the financial sector previously included senior prosecutions lawyer at the Securities and Futures Authority and eight years in the enforcement division of the Financial Services Authority.Bank of International Settlements – Fernando Restoy has been installed as chair of the Financial Stability Institute with effect from January 2017 for five years. He succeeds Josef Tosovsky, who has retired. Restoy is the deputy governor of the Bank of Spain, a position he has held since 2012. Prior to this, he held other senior positions at the Bank of Spain, which he joined in 1991. Restoy was commissioner of the Spanish Securities and Markets Commission (CNMV) in 2007‒08 and the CNMV’s vice-chair from 2008 to 2012. He has been a member of the supervisory board of the European Central Bank’s single supervisory mechanism for the past two years.Hyman Robertson – Ian Smith has become head of distribution with responsibility for developing sales at the firm’s technology-led segments. He joins from eValue IS, where he was head of institutional sales. BNP Paribas Investment Partners – Jean-Charles Sambor has been appointed deputy head of emerging market fixed income. His previous job was as managing director and head of global emerging and frontier fixed income at Everest Capital. Deutsche Asset Management – Nicolas Moreau is to lead Deutsche Asset Management, joining from French insurance group AXA, where he held a number of positions, including chief executive of its asset management arm AXA Investment Managers.
Switzerland’s pension fund association has called on stakeholders to be ready to compromise to ensure the passage of a pension reform package, issuing its appeal ahead of a parliamentary committee hearing on the measures.The association, ASIP, issued its appeal earlier this week to coincide with the second reading of the Swiss government’s reform package, Altersvorsorge 2020 (AV2020), by the social security and health committee (SGK-N) of the lower house of parliament, or Nationalrat.Hans-Peter Konrad, ASIP’s director, said the association hoped for a successful resolution.“We want AV2020 to succeed,” he told IPE. “To do so we need a proposal that fairly distributes the burden across citizens, beneficiaries, and employers.” “Reform is needed of the first and second pillar, and we support the comprehensive reach of the reform,” he added.ASIP believes that the upper house of parliament, the Ständerat, which has already debated the AV2020 reform package, has come up with a proposal that is “more or less acceptable”, according to Konrad, and hopes for a similar outcome from the SGK-N.Key reform areasASIP highlights three areas of reform, including the harmonisation of retirement ages for both men and women to 65. It also says pension funds should retain the ability to offer benefits from age 60, and backs lowering the so-called conversion rate with certain measures in place to offer compensation.ASIP said that it supports the proposal from the Ständerat to lower the conversion rate, which is used to calculate the pension benefits from accrued assets, from 6.8% to 6%, even though it thinks that from a technical perspective it should be even lower, namely 5.5%.“But we know that politically this is not feasible,” Konrad told IPE.The association believes that the 6% proposal “goes in the right direction” and can be accepted as the basis for the calculation of accompanying measures to mitigate the impact of the lower conversion rate.Crucial for ASIP is that these compensating measures are taken within the second pillar, and not within the state system.The measures to maintain the pensions level should be limited to a 10-year period and should be “decentralised”, in other words be left up to each individual pension provider to come up with a solution.The Ständerat’s reform proposal involves a centralised model, under which a protection fund would be responsible for financing the compensation for the lower conversion rate.ASIP is against this centralised approach, in part because it considers it too complicated.The Nationalrat committee proposed modifications to the AV2020 reform proposal this afternoon (19 August), saying that it needs to be further developed during parliamentary debates.One of its main decisions, it said, was to reject as “counterproductive” measures proposed by the Ständerat to compensate for the targeted lower conversion rate and higher retirement age for women.The Ständerat’s proposal included first pillar supplements, which the Nationalrat committee today said would burden future generations without representing a structural solution to the problem of financing the state pension. It has come up with alternative measures to compensate for the lower conversion rate, which it has also backed being set at 6%.
In the trio’s plan, liabilities are increased annually based on the expected GDP growth per head of the population. This would make the effects of economic headwinds visible straightaway, they said.Frijns, Van Nunen, and Van de Klundert contended that such an approach would be better than the current nFTK, under which a slowing economy had a delayed impact on pension benefits through falling interest rates, which then lead to lower coverage ratios and reduced indexation.Liabilities would be discounted against a percentage equal to the expected GDP increase, rather than the risk-free interest rate.In the opinion of the pensions experts, this would be prudent, as diversified investments ought to generate returns at least equal to economic growth. It would also improve stability as asset growth would also depend on GDP growth.Frijns, Van Nunen, and Van de Klundert argued that their system would encourage pension funds to further diversify their asset mix, increasing their stakes in equity and illiquid assets.In their opinion, the current financial assessment framework was comparable to an insurance with-profit arrangement, which seldom pays out.Once a pension fund had a low funding level, the chances of returning to higher levels and indexation were very slim as the scheme had to focus on hedging the interest risk on its liabilities, they argued.Commenting on the proposed ETK, Fieke van der Lecq, professor of pension markets at Amsterdam’s Free University (VU), questioned how a GDP increase could be established.“The forecast of the Netherlands Bureau for Economic Policy Planning would have an enormous impact on the valuation of pensions, while the use of historic data would trigger a discussion about the number of years taken for the historic average,” she argued.Van der Lecq predicted that benefits would fluctuate more strongly under the proposed ETK. The assessment framework for pension promises in the Netherlands should be based on economic growth rather than interest rates, three pensions experts have argued.In an article in the specialist journal for economists (ESB), Jean Frijns, Anton van Nunen and Theo van de Klundert laid out that their plan for an “economic assessment framework” (ETK). They argued that it had the advantage of being directly linked to salaries and the general health of the economy.In addition, the system would encourage pension funds to invest for returns, rather than taking interest rates into account, as is the case under the current financial assessment framework (nFTK).Frijns is a former CIO at the €389bn civil service scheme ABP, while Van Nunen is widely credited with launching the concept of fiduciary management. Van de Klundert is emeritus professor of economics at Tilburg University.
The world is experiencing what many would argue is a series of exponential changes across many industries that are proving to be transformational – and often in ways that are completely unforeseeable.Moore’s Law that the number of transistors able to be packed into integrated circuits doubles every year is an example. It has essentially been the driving force behind the growth of computing power, which in turn lies behind the digital world we experience today.Another more recent example is the cost of DNA sequencing, which has moved even faster. The first human genome sequencing cost $2.7bn (€2.2bn) and took 15 years. By 2008, the cost had fallen to $10m. By 2011, it had fallen to less than $10,000 and by 2015 it was $1,500. Today, estimates report costs approaching $100. The implications are mind-boggling; the applications are evolving fast. Where it will lead to is limited only by imagination.Of course, not every area is moving that fast. Washing machines is a case in point. Very little has changed in their construction over decades. Moreover, even if their costs were to plummet, it is difficult to see it would make much difference to society. I doubt whether households will be any cleaner as a result. President Trump’s decision to impose a 20% tariff on the first 1.2m imported large residential washing machines in the first year – and a 50% tariff on machines above that number – is unlikely to create much impact on society as a whole. It may, however, boost domestic manufacturers such as Whirlpool, which is facing stiff competition from foreign manufacturers like Samsung and LG. In that sense, whatever one’s views are on the “America First” policy, tariffs on imported washing machines can be seen as having a clear-cut positive impact for US firms as a whole (even if US consumers end up worse off). Donald Trump is pushing for a tariff on imported washing machinesAs well as imposing tariffs on imported washing machines, President Trump also chose to impose a 30% tariff on imported solar cells and modules, at least for one year. Domestic solar panel producers such as Suniva and SolarWorld wanted tariffs of 50%. US solar cell producers are facing competition predominantly from Chinese companies, which has led to solar panel prices falling by more than 30% in the last couple of years.Solar cells are not washing machines though. Their potential usage is, like DNA sequencing, a function of their costs. If costs of solar cells were to drop exponentially, it would lead to a revolution in energy usage and a possible solution to the global warming caused by fossil fuel burning.Understanding what the eventual impact of exponentially cheaper solar cells would be on a fossil-fuel burning, industrialised economy is again limited only by one’s imagination. The outcome is clearly beneficial.Trump’s America First policy seems incapable of distinguishing between products whose usage and impact is limited, and those where exponential cost reduction would lead to positive transitional changes to society.Tariffs may protect a couple of domestic panel manufacturers, but the solar cell industry in the US also includes companies that promote, install and support the development of solar energy as well as pure manufacturers.Industry trade group the Solar Energy Industries Association (SEIA) campaigned against the tariffs.Abigail Ross Hopper, SEIA’s President and CEO, argued: “While tariffs in this case will not create adequate cell or module manufacturing to meet US demand, or keep foreign-owned Suniva and SolarWorld afloat, they will create a crisis in a part of our economy that has been thriving, which will ultimately cost tens of thousands of hard-working, blue-collar Americans their jobs.” The solar industry trade body has hit out at tariff plansSEIA estimated that the president’s decision would effectively cause the loss of roughly 23,000 American jobs this year, including many in manufacturing, and the delay or cancellation of billions of dollars in solar investments. The SEIA also pointed out that, of the 38,000 jobs in solar manufacturing in the US at the end of 2016, all but 2,000 made something other than cells and panels. Those 36,000 Americans manufactured metal racking systems, high-tech inverters, machines that improved solar panel output by tracking the sun, and other electrical products.Imposing tariffs on any product is not necessarily as straightforward a decision as it might appear at first. Even imposing tariffs on imported steel may be great for US steel producers, but not so great for US steel consumers – so arguably negative for the country’s economy as a whole.President Trump may not be a follower of Ned Ludd, but imposing tariffs on industries that are experiencing exponential changes in their cost structures may have the same effect as the Luddites who chose to destroy industrial machinery to try to preserve their jobs.