Finnish pension funds Keva and LocalTapiola Pension (LTP) have agreed to acquire the Finnish electricity distribution networks of Fortum Corporation, as part of a consortium, Suomi Power Networks (SPN).The overall purchase price is €2.55bn.Keva’s stake in the consortium is 12.5%, while LTP has a 7.5% interest.The remaining partners – international infrastructure investors First State Investments and Borealis Infrastructure, the infrastructure asset management arm of the Ontario Municipal Employees Retirement System – have a 40% stake each. Fortum’s distribution network is the largest in Finland, with a 20% market share.Earnings before interest, taxes, depreciation and amortisation for its Finnish distribution business in 2012 were €154m on sales of €321m.Fortum is also the leading electricity distribution company in the Nordic countries, with more than 1.6m network customers.The transaction excludes Fortum’s electricity sales business.Esko Raunio, head of private market investments at LTP, said: “We are looking for good, stable, long-term returns. We consider Fortum’s electricity distribution network as a good company, with opportunities for further development and investment in the network.”He added: “We’re pleased to be working with experienced international partners to make a significant long-term investment into the Finnish economy and strategically important infrastructure, through Finland’s largest electricity distribution network.”LTP already owns a 4.5% share in Fingrid, the Finnish transmission system operation.LTP’s investment assets amounted to €10.3bn, as of 30 September.The Fortum investment will form part of its private equity allocation, which at that date was 4.6%, including direct investments and fund investments.The allocation to listed equities was 29.8%.Completion of the transaction is expected during the first quarter of 2014, subject to customary regulatory approvals.
The €137bn healthcare scheme PFZW has invested an undisclosed amount into a €3.2bn Rabobank portfolio of corporate loans. The private risk-sharing transaction involved a stake in more than 500 corporate loans, mostly to Dutch companies.Rabobank and PFZW said the deal gave the pension fund access to a credit-risk portfolio that increased the diversity of its asset mix, as well as a “stable and robust” long-term return, but declined to provide further details.PFZW pointed out that it had some experience with similar risk-sharing transactions, adding that their added value had remained, even through the financial crisis. Rabobank said the deal would reduce its own credit risk, allowing it to free up capital for new corporate lending.Jan-Willem van Oostveen, PFZW’s manager of financial and investment policy, said the pension fund “really appreciated” working with banks with a good track record in corporate lending.“This collaboration shows how Dutch pension funds and banks together can stimulate investments in the Dutch economy,” he said.In the opinion of Tanja Cuppen, chief financial risk officer at Rabobank International, the new cooperation is a sign of the growing opportunities for Dutch pension funds to participate in the financing the local economy.Both PFZW and Rabobank declined to provide details about the ratio between local and foreign loans, or how both players were to share the credit risk.A spokesman for Rabobank said local loans were provided to large companies, and that loans to companies overseas would focus on food and agri business, one of the bank’s core sectors.According to Maurice Wilbrink, spokesman for PFZW, the expected duration of the transaction would be between five and six years on average.“We have agreed that, during the first three years of the transaction, Rabobank may replace the loans that are being paid off by new loans matching the agreed criteria,” he said.“After this three-year period, the loans in the portfolio pay off.”
Jointly organised by the UN Environment Programme’s (UNEP) finance initiative, the Principles for Responsible Investment (PRI), the Institutional Investor Group on Climate Change (IIGCC) and its counterparts in North America, Australia and Asia, the letter estimated that clean-energy investments currently stood at $250bn a year but needed to increase to $1trn annually to prevent a 2 degree Celsius increase.“Stronger political leadership and more ambitious policies are needed for us to scale up our investments,” the signatories argued.UNEP executive director Achim Steiner said the perception prevailed that there was a choice between economic well-being or climate stability.“The truth is,” he said, “we need both.”Signatories’ proposals to governments:Provide stable, reliable and economically meaningful carbon pricing that helps redirect investment commensurate with the scale of the climate change challengeStrengthen regulatory support for energy efficiency and renewable energy, where this is needed to facilitate deploymentSupport innovation in and deployment of low-carbon technologies, including financing clean-energy research and developmentDevelop plans to phase out subsidies for fossil fuelsEnsure national adaptation strategies are structured to deliver investmentConsider the effect of unintended constraints from financial regulations on investments in low-carbon technologies and climate resilience The letter called for an “ambitious” global agreement to be put in place by the end of 2015 – the date of the Paris climate conference.“This,” the signatories added, “would give investors the confidence to support and accelerate the investments in low-carbon technologies, in energy efficiency and in climate change adaptation.“Ultimately, to deliver real changes in investment flows, international policy commitments need to be implemented into national laws and regulations.“These policies must provide appropriate incentives to invest, be of adequate duration to improve certainty to investors in long-term infrastructure investments and avoid retroactive impact on existing investments.”Alongside the letter, the investor groups also published a report detailing investors’ current activity in climate-sensitive investments – and cited AP4’s low-carbon equity portfolio.Additionally, it highlighted a fund set up for BTPS by Legal & General Investment Management, which adjusted the weighting of FTSE 350 companies within the index according to their carbon footprint.The report also praised green real estate and the advantages offered over what it deemed “conventional” buildings, such as lower energy consumption and operating costs.In a move that is likely to be controversial, the call for “reliable and economically meaningful carbon pricing” was backed by several Australian investors, weeks after the domestic government abolished its emissions trading scheme (ETS).However, an ETS remains in place within the European Union, with China currently considering one.European pension signatories (34):Denmark (3): PensionDanmark, PKA, UnipensionFrance (2): ERAFP, Fonds de Réserve pour les RetraitesNetherlands (7): ABP, APG, bpfBOUW, Mn, PMT, Woningscorporaties, VervoerNorway (1): KLPSpain (1): Pensions Caixa 30Sweden (6): AP1-4, AP7, Folksam Switzerland (1): Ethos FoundationUK (13): BBC Pension Fund, Bedfordshire Pension Fund, BT Pension Scheme, Church of England Pension Fund, Greater Manchester Pension Fund, Kent County Council Superannuation Fund, Merseyside Pension Fund, Northern Ireland Local Government Officers’ Superannuation Committee, RPMI Railpen, South Yorkshire Pensions Authority, Environment Agency Pension Fund, Universities Superannuation Scheme, West Midlands Pension Fund,WebsitesWe are not responsible for the content of external sitesLink to letters and report Institutional investors with more than $24trn (€18.5trn) in assets – including APG, PensionDanmark, the UK’s BT Pension Scheme (BTPS), the Universities Superannuation Scheme (USS) and Sweden’s AP funds – have argued that delays in implementing a global climate policy are increasing the risk profile of their investments.In an open letter ahead of the UN Climate Summit in New York next week, more than 340 institutions – including 34 pension investors from Europe – urged governments to aid the deployment of low-carbon technologies and strengthen the regulatory support for the energy-efficiency and renewable-energy markets.It argued national governments should offer up an “ambitious” policy response to combat climate change and said the signatories were concerned “gaps, weaknesses and delays” in climate change and clean-energy policies would increase the risk to their current investments, while also necessitating more radical action at a later date.It insisted governments needed to consider the “unintended consequences” of financial regulation on low-carbon investment, and called on governments to phase out fossil fuel subsidies.
Hybrid pension funds must have a “balanced” governance structure in place to ensure no one group of beneficiaries is penalised, the latest paper by the 300 Club has said.David Villa, a member of the group of investment professionals seeking to improve the investment landscape, argued that the hybrid approach of blending defined benefit (DB) and defined contribution (DC) was preferable to “going off the defined contribution cliff”.Villa – CIO at the State of Wisconsin Investment Board (SWIB), which reformed to offer employees of the US state hybrid benefits – insisted governance was a crucial risk when determining pension outcomes.“Governance decisions are ultimately equivalent to a change in return and can contribute significantly to volatility of outcomes,” he argued. In his paper, ‘The Third Way: A hybrid model for pensions’, he claims that if the governance model is not designed properly, then one group of beneficiaries risks losing out at the expense of another.“Both the DB and DC models lack the countervailing force provided by risk sharing,” he writes. He argues that the model used by SWIB, which manages assets worth $91bn (€74.8bn), was easily copied by other providers by offering a minimum benefit guarantee and any gains made above the level split between sponsor and member.“The risk sharing aspects of this design have profound implications for the governance of the system,” he says. “Interests are not aligned in DB or DC structures. “In the hybrid structure, risk is shared, and the alignment of interest that results contributes to a virtuous cycle of governance.”Villa argues in favour of the benefits of any hybrid approach.“Society,” he writes, “would also be better off if we could avoid going off the defined contribution cliff, wherein financially unsophisticated individuals take on large risks that significantly change their wealth in retirement if they get it wrong.”
Such requirements could have significant negative effects on IORPs, sponsors and members, he said.The Council of the European Union yesterday said it had agreed the revised EU directive for occupational pension funds with the European Parliament.Bouma said the association, which represents national associations of pension funds, welcomed the fact the IORP II Directive recognised IORPs were first and foremost institutions with a social purpose. “Considering the diversity of occupational pension systems across the EU and the central role played by national social and labour law, we are happy the member states retain flexibility to implement the IORP II Directive,” he said.PensionsEurope was also glad the delegated acts, which would pass many regulatory competences to EU level, were not included the legislation, Bouma said.Matti Leppälä, the association’s secretary general and chief executive, said the directive made the rules on IORPs’ cross-border activities clear. Even though the requirement for cross-border IORPs to be fully funded at all times was retained as a matter of principle, Leppälä said PensionsEurope welcomed the fact the possibility of being underfunded was now mentioned in the directive for the first time.“Furthermore, we are pleased that both transferring and receiving authorities have a role in cross-border transfers, their roles are clearly defined, and EIOPA’s (European Insurance and Occupational Pensions Authority) mediation is not binding,” he said.The modernised legislation makes pension funds better governed and more transparent, he said.“PensionsEurope is happy that the new rules are more principles-based than the European Commission’s original proposal, and therefore, they take better into account the diversity of occupational pension systems across the EU,” Leppälä said. PensionsEurope, the Brussels-based lobbying association, said it welcomes the modernised rules for pension funds under the IORP II Directive, which has now officially been agreed, and in particular the flexibility it allows member states in its implementation and its principles-based nature.Janwillem Bouma, chair of PensionsEurope, said: “I would like to warmly congratulate the EU member states, the European Parliament and the European Commission for finding an agreement on the modernised rules for pension funds.”He singled out the Dutch EU presidency and European Parliament rapporteur Brian Hayes for special thanks for taking on board many concerns that had been raised by pension funds.“In particular, PensionsEurope is pleased that the updated legislation does not contain new solvency capital requirements for IORPs,” Bouma said.
Scheltema said pension funds should be more persistent in recruiting female trustees, and urged women to consider taking up a board seat “as pension funds are very interesting from a governance point of view and offer many part-time jobs”.She stressed that not all board members had to be financial experts, and that other competences, such as communication, administration, and financial housekeeping, were also needed.The monitoring committee also highlighted problems with communication in several areas. A quarter of the pension funds it surveyed hadn’t accounted for how far they had come in reaching goals mentioned in their vision, strategy, and mission.Scheltema said pension funds had communicated “fairly” about the possibility of rights discounts, but said that there was room for improvement. She cited her own uniform pension statement as “not being the best example of clarity yet”.In the interview, the chair of the monitoring committee also noted that 40% of the pension funds hadn’t contributed to the survey.“Some of them had a sound explanation, pointing out for example that they were busy with a merger, but others haven’t provided clarity about why they hadn’t co-operated,” the FD quoted her as saying.Scheltema acknowledged that pension funds were already facing an enormous administrative burden, but stressed that the committee had only made inquiries about a “limited number” of the 83 norms of the code.The code for pension fund governance was introduced in 2014, and received legal backing in the same year. Dutch pension funds are still falling short in implementing diversity requirements contained in the Netherlands’ code for pension fund governance.The monitoring committee responsible for the code concluded that there was room for improvement regarding the representation of women and younger participants on pension fund boards.It found that no more than 55% of the 150 surveyed schemes had appointed a female trustee, while just 33% had a board member aged under 40.In an interview in Dutch financial news daily Het Financieele Dagblad (FD), Margot Scheltema, the committee’s chair, emphasised that the introduction of diversity onto pension funds’ boards was happening “far too slowly”.
In addition, the consultancy found that where sponsors shorten their schemes’ deficit recovery periods, including through paying lump sums, this has a “limited impact” on funding levels “as they are just a small acceleration of monies the scheme would expect to receive in any event”.The Pensions Regulator (TPR) came under pressure last year for being seen to allow some pension schemes – most notably BHS – to have lengthy deficit recovery plans. The BHS pension scheme had agreed a 23-year recovery plan, well above the typical average recovery plan (as recorded by TPR) of eight years.Punter Southall also argued that sponsoring companies shouldered the investment risk of the pension scheme, meaning derisking strategies made little impact on the ability of the scheme to pay benefits in full.UK DB schemes connected to bankrupt sponsors are protected by the Pension Protection Fund (PPF). Retired members of underfunded schemes are paid in full, with some limits on annual uplifts. Members yet to retire are paid 90% of their pension payment.Richard Jones, principal at Punter Southall Transaction Services, said: “Since the introduction of the Pension Protection Fund in 2005, more than 10% of defined benefit schemes have failed to deliver their promised benefits in full and around 1% of schemes fail each year. Over the long term, our projections suggest that around one third of UK schemes will fail to deliver members’ benefits in full.”Punter Southall’s report, Risk of Ruin, can be found here. One in three UK defined benefit (DB) pension schemes could fail to pay the full level of benefits promised to their members, according to an analysis by consultancy Punter Southall.In a report, titled Risk of Ruin, Punter Southall also claimed only one in five companies had a “high chance” of paying benefits in full.The consultancy analysed schemes’ investment, funding, and management strategies along with their sponsors’ covenant strength, with the latter element determined to be “key” to delivering members’ full promised benefits.“For schemes with a sponsor rated as weak – representing around 20% of total UK DB schemes – the ‘risk of ruin’ is estimated to be 66%,” Punter Southall said.
The 2023 deadline set by the German government to assess the impact of its occupational pension reform is too ambitious, according to speakers at an industry conference.At the end of 2023, five full years from the time the government’s Betriebsrentenstärkungsgesetz (BRSG) comes into force, the government will assess the state of play in occupational pensions. However, panellists at a Willis Towers Watson conference in Frankfurt last week expressed concerns about the 2023 timeline.If the government was not satisfied with the situation it could move to make workplace pensions mandatory, according to Thomas Jasper, head of retirement for Western Europe at Willis Towers Watson.The BRSG, coming into force next year, aims to expand occupational pensions coverage, in particular in small and medium-sized enterprises and among those on low income. One of the law’s main impacts will be the introduction of defined contribution (DC) schemes, if agreed to by trade unions and employers. The German government has previously stated that there were alternatives if occupational pension coverage did not expand as a result of the new reform law. The alternatives would be to introduce a mandatory occupational pension system or oblige employers to auto-enrol staff into a workplace plan.Dirk Jargstorff, head of retirement provision at Robert Bosch Group, urged employers to make use as much as possible of the options introduced by the BRSG. If not, they risked being forced to do something they didn’t want to do, he said.Thorsten Linnmann, responsible for human resources and global pensions at Lanxess, a chemicals company, said 2023 was “definitely” too short a timeframe to judge the success or otherwise of the DC model introduced by the BRSG.Many employers and other people in the pensions industry were still struggling to get their heads round all the facets of the new law and its implications, but it was their duty to break this down for employees, he said.This was a task for the weeks, months and years ahead, and “I hope, not only until 2023,” said Linnmann.Overall he saw the DC model as a positive step and likely to help boost pensions coverage. However, with Lanxess having introduced a new plan earlier this year, the company had little appetite to start over again, he said – at least at the moment.The majority (58%) of delegates at the conference only expected a substantial take-up of the DC model from 2020 onwards. A third envisaged this happening starting in 2019, while only 9% anticipated this happening next year.According to calculations presented by Willis Towers Watson’s Jasper, the BRSG could increase workplace pensions coverage by 25 percentage points, from 40% of employees to 65%.However, he too questioned whether the five years to the end of 2023 would be enough to measure the effect of the reform law. This was a message that needed to be jointly communicated to the government, he said.Willis Towers Watson is to launch a new index to track the effect of the BRSG. The German Pensions Index will capture the development of the German occupational pensions landscape over the coming years starting from the end of 2017. It will monitor the use of different types of plans, opting out models, salary sacrifice, matching arrangements, and more. Bosch re-assessing bAV Riester Technology giant Bosch could decide to re-introduce a state-subsidised Riester pension plan as an occupational offering given that the BRSG has made this more attractive, according to Jargstorff.Bosch used to offer employees a Riester pension savings option more than 10 years ago. Jargstoff said that a comprehensive analysis recently carried out by the company in light of the BRSG had shown that it was an option worth re-examining.The results of the company’s analysis were “at least in their unambiguity, surprising”, he said. However, he emphasised that the company had yet to come to a final decision about offering a Riester.Riester plans have primarily been used by private individuals rather than being offered by employers, but the BRSG has made workplace Riester, or “bAV Riester”, more attractive.From next year, payouts will not be subject to social security payments, as was already the case for privately adopted Riester contracts. In addition, the basic allowance has been increased from €154 to €175.
Before the change, auditing of the fund had also been the responsibility of Arion Bank, but from now on Frjálsi said it would entrust the internal audit of the fund to an auditing company. Arnaldur Loftsson, chief executive of Icelandic pension fund Frjálsi, has had his employment status changed as part of a move to distance the fund from its manager Arion Bank.The supervisory board of Frjálsi last week decided to make Loftsson an employee of the fund, rather than of the bank. The decision was taken in conjunction with Arion Bank, which has been managing the fund’s operations since 2008.The change is aimed at ensuring the pension fund’s independence from the bank, Frjálsi announced.The pension fund said that one reason behind the move towards its increased independence was to reduce the risk to its reputation that an operating arrangement with a bank could entail.
The appointment of Brändström is part of an organisational change at the Stockholm-based pension fund, involving the creation of a Real Assets department, which will be sub-divided into International Real Assets and Real Estate Sweden.Lena Boberg has now been appointed as Alecta’s new head of Swedish real estate, and is coming to the company from her most recent job of chief executive officer at ICA Fastigheter.Meanwhile, Frans Heijbel will continue to lead International Real Assets.Boberg has been CEO of Västerås-based property firm ICA Fastigheter since 2011, having joined the firm in 2007. Her previous jobs include that of chief financial officer of Skandrenting AB, and one of her current roles is supervisory board member of Ancore Fastigheter, which is jointly owned by ICA and Alecta.Alecta told IPE that the pension fund’s real assets allocation – the vast majority of which is in real estate – had been growing over the last few years to around 10% in 2019 from about 7% in 2016.This development was the main reason for creating the new role of real assets chief, the spokesman said. Sweden’s biggest pension fund Alecta has lured Skandia Investment Management’s chief investment officer to switch sides and head up its rapidly-growing real assets operation, amid indications from the fund that the expansion of its property and infrastructure allocation has much further to go.Axel Brändström is set to join Alecta this month in the newly-created role of head of real assets, having worked at rival Skandia for almost 15 years, according to a spokesman for Alecta.The news follows the departure of Fredrik Palm, Alecta’s former head of real estate, on 25 September last year, and his temporary replacement by Danor Ghersinich, who had previously been responsible for the fund’s directly owned properties.Palm, who headed up the the SEK928bn (€88bn) pension fund’s real estate operation since 2013, left to start his own business.