AstraZeneca pension fund agrees £2.5bn longevity swap deal

first_imgHe said the firm ran a competitive process with Deutsche Bank, which included the established reinsurers, as well as several new market entrants.This allowed the fund to get the best available terms, he said.Linklaters also advised the trustee of the fund on the longevity swap deal.Consultancy Towers Watson said the AstraZeneca deal and the Carillion longevity swap deal announced last week brought the number of UK pension liabilities hedged in such deals to more than £23bn.But the firm predicted 2014 would be a year of change for the longevity hedging market.Sadie Hayes, senior consultant at Towers Watson, said: “Pension schemes will be increasingly willing to look at innovative approaches to access the reinsurance demand for longevity risk.”She said reinsurers were looking beyond the UK market for longevity swap business, and deals abroad would compete for reinsurance capacity with the UK.Although reinsurers are unable to take longevity risk directly from pension schemes, there are currently very few middlemen actively marketing longevity swaps, she said.Because the market has become more transparent, the other parties to the longevity hedge are increasingly questioning whether it is necessary have a third party standing in the middle, Hayes said.She said one option was for pension schemes to set up an insurance company purely as a conduit to pass the risk between them and the reinsurance market, but retaining none of the risk.“Clearly, this type of structure will have different risks to a transaction with an established and well-capitalised provider, and will have higher governance and operational requirements,” Hayes said.But for pension schemes ready to act as middlemen, this kind of structure could have big financial and flexibility benefits, she said. British-Swedish pharmaceuticals group AstraZeneca and the trustee of its pension fund have agreed a £2.5bn (€3bn) longevity swap with Deutsche Bank to cover defined benefit liabilities.The deal hedges against the longevity risk of around 10,000 of the scheme’s current pensioners, according to Aon Hewitt, which acted as lead adviser to the trustee in the transaction.Matt Wilmington, partner at the consultancy, said the arrangement was robust and priced acceptably.“It was clear during the negotiations for this transaction that the capacity and appetite of the global reinsurance market to take on pension fund longevity risk is ever increasing,” he said.last_img read more

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UK roundup: AXA IM, LGPS, DWP, same sex benefits, TUC

first_imgAXA Investment Managers has warned the government that UK local authority pension schemes would witness a “tsunami of foregone returns” if the funds were banned from using active management.It said proposals to reduce costs in the local government pension schemes (LGPS) by either launching several collective investment vehicles (CIVs) or shifting assets to an index-tracking approach were “well-intended policy changes that could, in fact, have negative repercussions”.In its response to the Department for Communities and Local Government’s (DCLG) consultation, the asset manager said a focus solely on CIVs and passive management overlooked the longer-term contribution that investment returns and risk management made towards reducing deficits.It said the DCLG’s decision to push for passive management was based on analysis that showed active management not significantly outperforming market indices. “These numbers are clouded by a broad spectrum of active styles and strategies, including some whose holdings did not deviate much from the market index (thus making it difficult to deliver excess return net of fees),” the paper says.“Others that are less benchmark aware and have consistently outperformed the market index over the long term.”Instead AMA IM suggested a greater focus on risk management and hedging strategies to smooth any funding level volatility within individual LGPS.“Passive management and use of CIVs might be an ideal solution for some schemes, but these investment decisions need to be made in consideration of a fund’s own strategy,” it continues.“Low cost does not need to mean passive management or use of CIVs, and similar cost savings are likely to be available through collaboration and collective bargaining.”The asset manager urged the DCLG to consider the wider consequences of implementing the “seemingly small” change.“Cost reduction should not be the key measure of success or the main focus of reform,” the paper concludes.“Deficit reduction is about improving funding levels, and success should be measured through a combination of factors that – outside of changing the benefit structure and increasing contributions – also include return enhancement and risk management.”Meanwhile, government has estimated that equalising the survivor benefits of same sex couples is set to cost UK defined benefit (DB) schemes £3.1bn (€3.8bn).According to the Department for Work & Pensions (DWP), which was required to review the matter following the introduction of marriage equality in England and Wales earlier this year, the immediate cost to public sector schemes would be £1bn, backdating benefit payments that would have been paid prior to April 2015.The review added that the ongoing cost of putting same and opposite-sex spouses on equal footing would be £100m “into the 2020s, reducing thereafter” for the public sector.It also found that private sector DB schemes would see their liabilities increase by £400m, with the impact limited to a relatively small number of funds.The problems stem from the introduction of civil partnerships for same sex couples in 2005, and the subsequent allowance in the Equality Act 2010 that pension funds need not account for spouse benefits of same-sex partners prior to that time.Frances O’Grady, general secretary of the union umbrella group TUC, said the discrepancy between the two survivor groups was “disgraceful”.“This discrimination is especially widespread in the private sector, where one in four defined benefit schemes discriminate against same-sex couples,” she said. O’Grady was referencing survey data published by the DWP that found 27% of schemes employed two distinct ways of calculating pre-2005 survivor benefit entitlements for same and opposite-sex spouses.“This equates to 1,334 schemes that have a difference in this entitlement,” the DWP said. “Small schemes were more likely to have a difference in how these benefits were accrued (35%) compared with large/extra large schemes (15%).”The DWP said it would need to consider the “costs and potential impact”, as well as the wider impact of making retroactive changes to DB benefits, before settling on how to proceed.However, O’Grady noted that equalising benefits would only amount to a 0.03% increase in private sector liabilities, which, according to the Pension Protection Fund 7800 Index, in May stood at £1.29trn.,WebsitesWe are not responsible for the content of external sitesLink to UK government review of survivor benefits for same sex couplesLink to Axa’s ‘The unintended consequences of change’ paperlast_img read more

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​Finland’s Ilmarinen promotes CIO to chief executive

first_imgHe then spent four years as managing director at Opstock Securities and joined OKO Bank as executive vice-president in 1997.In 2001, he was promoted to deputy chief executive at OKO, a position he held until he moved to Pohjola in 2006.In addition to his responsibilities at Ilmarinen, Ritakallio is also a board member at several local foundations, as well as business park operator Technopolis and the Finnish Securities Market Association (Arvopaperimarkkinayhdistys).Jussi Pesonen, chairman at Ilmarinen, said Ritakallio would assume the new responsibilities from next February, ahead of Sailas’s departure in May.“Timo Ritakallio has comprehensive expertise in investment operations, has demonstrated strong leadership skills and is highly experienced in the field of earnings-related pensions due to his time on Ilmarinen’s board,” Pesonen said.“These strengths, combined with his comprehensive experience in the financial sector, were decisive factors [in his appointment].”The pensions mutual reported returns of 3.4% over the first half of the year.Ritakallio has recently been overhauling Ilmarinen’s investment strategy, targeting increased infrastructure and foreign real estate exposure. Timo Ritakallio, long-standing CIO at Ilmarinen, has been named the Finnish pensions mutual’s next chief executive.He will succeed Harri Sailas, who is to retire next May after more than eight years as president and head of Ilmarinen, the country’s largest private pension provider, with €33.5bn in assets.Joining in 2008 from Pohjola Bank, Ritakallio was named CIO and deputy to Sailas after the departure of Jussi Laitinen.He began his career in 1991 at OP-Pohjola Group within the cooperative bank group’s Uusikaupunki branch.last_img read more

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Lancashire, LPFA partnership to reach crunch point with July meetings

first_imgA final decision over the proposed Lancashire and London local government pension scheme (LGPS) partnership will be made in less than four weeks when the boards assess final proposals.The governing boards for the Lancashire County Pension Fund and the London Pension Fund Authority will sit simultaneously on 2 July and decide whether to push ahead with the so-called ‘asset-liability partnership’.Both boards are separately weighing legal advice on the partnership’s creation and briefings on the progress of the proposed collective investment vehicle expected to manage around £10bn (€13.7bn) in assets.However, a joint report will be submitted for both governing boards’ consideration before they simultaneously, but separately, decide whether to push ahead, IPE understands. Should the vote pass next month, the newly created investment vehicle, the cornerstone of the partnership in its current form, is likely to start investing by April 2016.The vehicle would be jointly owned by the two pension schemes but run separately as a Financial Conduct Authority (FCA) authorised investment arm.Legal analysis has also been done to ascertain whether any of the ideas contained within the proposal contravene local government regulations or constitutional requirements.The schemes have held discussions with central government over whether the proposed partnership would interfere with any plans to amend and consult on the LGPS framework or investment regulations.Further discussions are expected to take place now the general election is over and the UK returned a Conservative Party majority government.The pair first announced their intention to partner in December last year, as the £5.3bn Lancashire fund and the £4.9bn LPFA looked to streamline their operations.The partnership would see the schemes merge investment expertise and liability management – and eventually see administration jointly managed to cut costs.The LPFA was created by the merger of several legacy pension arrangements stemming from the abolition of the Greater London Authority, and now administers around 20,000 members.The Lancashire fund provides pensions to 150,000 public sector workers in the North-West English county.In preparation for the anticipated partnership, Lancashire hired 53 investment consultants to aid its transition to the new collective investment vehicle.It also created a new management body, directed by George Graham, current council deputy treasurer.last_img read more

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Pension fund for Dutch medical consultants returns 10% over H1

first_imgSPMS, the €10bn occupational pension fund for medical consultants in the Netherlands, returned more than 10% on investments over the first six months of the year.It attributed its performance largely to the effect of falling long-term interest rates on its 55% fixed income portfolio.The return, however, was relative, as liabilities increased by even more.The scheme’s funding fell by 2 percentage points to 117%, as of the end of June. According to its 2015 annual report, SPMS decided to introduce infrastructure debt as a new asset class with a target portfolio of 5%, in a bid to diversify its portfolio.The new investment category is to come at the expense of the full allocation to inflation-linked bonds, as well as 2 percentage points of the scheme’s stake in hedge funds, which is to be reduced to 7%.Jeroen Steenvoorden, director at SPMS, pointed out that the risk profile of infrastructure debt was lower than that of direct infrastructure investments.The expected return, however, is also lower, according to Steenvoorden, who estimated that performance would range between 2.5% and 3%.He said the board still needed to decide whether the investment was to come as a mandate or through a fund, adding that the managers’ selection had not yet been completed.SPMS reported a net annual return of 0.9%, chiefly due to considerable losses on its full hedge of the currency risk on the US dollar, Japanese yen and British pound, which all appreciated relative to the euro.The pension fund for medical consultants also made a 0.7% loss on its interest hedge as a consequence of the 0.2% interest rate rise last year.It said property delivered 11.7%, in particular thanks to listed real estate in Europe and the US, which returned 19.4% and 19.9%, respectively.Equity returned 8.4%.The scheme attributed the 4.4% return on fixed income largely to US credit (11.2%), emerging market debt (4.7%) and inflation-linked bonds (6.8%)Government bonds produced 0.3%, while the pension fund lost 1.5% on European credit.Last year, SPMS lowered its risk profile by replacing 8% of its equity portfolio with an equal percentage of government bonds, while raising its interest hedge from 70% to 78% of liabilities.In its opinion, the adjustment of the interest hedge offsets a slower improvement of its financial position once interest rates rise again.SPMS posted costs for asset management and transactions of 0.61% and 0.18%, respectively, and said it had spent €544 per participant for pensions administration.The scheme carries out an occupational pension plan for 7,500 self-employed medical consultants and has 6,700 pensioners.last_img read more

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UK DB schemes see big bulk-annuity opportunities in wake of Brexit

first_imgTrustees and sponsors of defined benefit (DB) pension schemes in the UK need to take another look at risk levels in their schemes given the swiftly changing Brexit environment, and could cash in on good bulk-annuity opportunities as pricing fluctuates, according to consultants.Mercer’s UK leader of bulk pensions insurance advisory, David Ellis, said: “Rapidly changing political and economic circumstances following the UK’s vote to leave the European Union have reinforced the need for trustees and sponsors to look again at their pension schemes.”In the company’s latest market review of UK DB bulk pensions insurance, he said trustees and sponsors should check that what they were doing continued to be relevant, and that the scheme’s overall level of risk was still appropriate.In the second half of this year, market volatility will be a key theme, said Harry Harper of the Mercer division. “There is potential for significant bulk-annuity pricing opportunities to appear, for those in the right place at the right time,” he said.The second half promises to be “interesting” now that the volume of quotation requests from pension schemes increased rapidly mid-year, he said.“The nature of the quotation requests is also changing – instead of the pensioner-only pricing requests from earlier in 2016, we now see a growing number of exercises that include deferred members,” Harper said.On deferred member pricing, he said the wide range seen since the introduction of Solvency II from 1 January 2016 showed indications of stabilising. “We see signs of more aggressive pricing for those members in the second half of the year,” he said. Meanwhile, Aon Hewitt said in its UK bulk-annuity market update that, over the first half of this year, bulk annuity pricing had improved year on year relative to other asset classes used to back pension liabilities.Volatile financial markets following the EU referendum in the UK have created pricing opportunities, it said.“Some providers indicated that their pricing improved materially relative to Gilts in the first days after the Brexit vote, driven by a widening in credit spreads,” Aon Hewitt said in the report. “This was an excellent opportunity for schemes seeking to settle risk.”Of course, schemes need to be actively in the market to get such deals, it added.“A scheme can engage with the market, obtain competitive quotations, select a preferred insurer, agree terms and then monitor movements in the insurer’s pricing against an agreed trigger,” the firm said.In the first half of July, it said credit spreads had fallen back – “but there is every chance of further market disruption over the coming months given the political environment”. Earlier this week, the closed ICI Pension Fund insured £750m (€891m) of its DB liabilities with Legal & General, in its fifth buy-in, just after the EU referendum.L&G commented that the “strength and depth” of its relationship with the ICI Pension Fund had allowed it to move fast when the market opportunity arose.last_img read more

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Deficit now stands at £10bn at UK’s largest pension fund

first_imgThe Universities Superannuation Scheme (USS) has seen its funding decline to 83%, equivalent to a £10bn (€12.7bn) deficit, despite outperforming its benchmark last year.The UK’s largest pension fund saw its deficit continue to increase, with funding down by 6 percentage points since 2014, during which time assets increased by more than £8bn to £49.8bn.However, neither the absolute deficit figure nor the funding ratio were as bad as reported in 2013, when USS calculated an £11.5bn shortfall – equivalent to 77% funding. A return of 1.6%, nearly 2.4 percentage points above its benchmark, was praised as “exceptional” by CIO Roger Gray, while emphasising the fund remained focused on delivering strong returns over the longer term. “On a five-year basis,” the fund’s annual report said, “returns have also been very good, with 1.1% annualised outperformance contributing an additional £2.2bn above the scheme’s strategic benchmark.”The report added that investments generated income of £1.2bn over the course of the last financial year, although some of the gains were undone by losses from its derivatives holdings and equity portfolio, resulting in net returns of around £700m.Chief executive Bill Galvin also warned the UK’s vote to leave the European Union would have a “substantial” impact on the fund, specifically on the universities acting as its sponsors, due to the potential changes to free movement and EU research funding.“As an institutional investor,” Galvin added, “we are invested in more than 100 countries worldwide, and we will need to review the implications of any proposed constitutional changes for areas such as tax, counterparty exposure and investor protection.“There will be much contingency work to do as negotiations proceed.”Galvin also highlighted that new governance structures in place since January last year, with trustees agreeing an appetite for risk, had allowed the fund to be more nimble.He cited the acquisition of Moto Hospitality as one of the cases where USS had put the new flexibility to good use.USS acquired Moto in October 2015 for an undisclosed sum, only to sell a 40% stake to CVC Capital a few months later.The fund has also launched a defined contribution section, a move agreed as it seeks to control its deficit and cap pay accruing under its current defined benefit (DB) scheme.last_img read more

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Swiss asset owners join forces in alternative risk premia foray

first_imgA group of large Swiss institutional investors with more than CHF150bn (€138bn) in assets under management is teaming up in what is said to be an innovative move into alternative risk premia.The group consists of three pension funds and two insurance companies, from French and German-speaking Switzerland.The plan is to invest in an Alternative Risk Premia (ARP) strategy via a dedicated Luxembourg-incorporated alternative investment fund (AIF), with launch targeted in the first quarter of 2017.The group is in the final stages of selecting the asset manager to run the investments, having started with a long list of more than 10 managers and then shortening this to five. The name of the asset manager selected will be disclosed once agreements between the parties have been signed.The identity of the investors has not yet been revealed for similar reasons.InPact Advisory has been advising the asset owners, and Antoine Prudent, founding partner at the Geneva-based investment adviser, believes that the arrangement is innovative in several ways.“To our knowledge, it is one of the first times large Swiss institutional investors are coming together to pool assets and intelligence to invest in new alternative strategies,” he told IPE.He said this had been done in other countries such as France and Denmark, and that these examples helped provide the motivation for the Swiss initiative.He also cited instances of pension funds partnering in Switzerland, in investment foundations (Anlagestiftungen), for example.However, these collaborations have been more focused on domestic assets, and the asset owners are typically smaller, according to Prudent.“This is different,” he said. “These are five of the largest Swiss institutional investors, targeting pooled investment in an international, new alternative strategy.”Other institutions have already asked to join the group, according to Prudent.The investor group is also in the final stage of selecting a Luxembourg-domiciled Alternative Investment Fund Management (AIFM) company, which will be in charge of creating the regulated special investment fund and governing it afterwards.This includes selecting custodians, administrators and auditors, and making other appointments.Prudent said: “In the end, we decided to opt for Luxembourg, as Swiss institutional investors are familiar with Luxembourg funds, the quality and pricing of the services are very competitive, and it will also allow institutional investors from other European countries to join and ultimately reduce the costs.”The group is looking to deploy about $250m (€227m) at launch, with the goal of increasing the fund to $1bn within 12-18 months, according to Prudent.This would be via increased commitments from the initial investors as well as new investors.As concerns the investment strategy, the group is pursuing a long/short alternative risk premia approach with a focus on value, carry, momentum, quality and low-volatility premia.The strategy will be applied across different asset classes (equities, fixed income and currencies) but target beta neutrality with regards to traditional assets. The group’s investments will take environmental, social and governance (ESG) factors into account, Prudent confirmed.The investors are working with the asset manager candidates on a screening process that will constrain the investment universe on the basis of ESG criteria.Still undecided but looking likely is that the investors will ask the asset manager to also exclude exposure to so-called soft commodities, which are agricultural products such as coffee or wheat.This to avoid becoming embroiled in any controversies about speculation on food prices, said Prudent.last_img read more

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PGGM: Pension funds should engage firms on long term strategy

first_imgIn the opinion of Van Dam, pension funds should not be reluctant to engage if they hold a reasonably sized stake in a company. Pension funds should engage with firms in which they invest about their long term strategy, PGGM’s Jaap van Dam has argued.During the annual conference of IPE’s Dutch sister publication Pensioen Pro last week, the director for strategic investment advice said that companies have indicated that they would like engagement, as long term investors can add real value.According to Van Dam, companies prefer such an approach instead of “the umpteenth young man with a spreadsheet making enquiries about the profit per share”.As an example, he quoted Paul Polman, chief executive of Anglo-Dutch firm Unilever, as saying that he has never had an investor at the doorstep for a discussion about the company’s long-term strategy. Jaap van Dam, PGGMWith their long-term focus, asset owners could offer a counterbalance against the dominant short-term approach of some shareholders and companies, he pointed out.“[Short-termism] will lead to costs as a result of missed prosperity, sustainability and returns, and it is in the interest of pension funds’ participants to plug this gap,” Van Dam added.During the ensuing discussion, Justus van Halewijn, CIO at the €20bn asset manager SPF Beheer, said he was satisified with the results of his firm’s long-term strategy. SPF Beheer introduced a strategic investment portfolio with a seven-year horizon in 2010.“During the first seven years, the holdings have outperformed relative to the MSCI World Index,” he said.last_img read more

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Mandate roundup: Pension fund seeks green bond strategies via IPE Quest

first_imgIPE Quest Discovery is a pre-RFP service allowing institutional asset owners to carry out a preliminary search for managers and/or research an asset class they are considering for the first time.The IPE news team is unable to answer any further questions about IPE Quest, Discovery, or Innovation 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] lands €1.7bn bond mandate from IrcantecIrcantec, the €10.9bn French public pension scheme, has awarded a €1.7bn bond mandate to AXA Investment Managers. It will manage a dedicated fund for inflation-linked bonds issued by OECD members.Ircantec – France’s mandatory scheme for non-tenured state, hospital, local authority and other public sector employees – had around €1.6bn invested in inflation-linked sovereign bonds via Natixis Asset Managers and BNP Paribas Asset Managers as at 31 December, according to its latest annual report.UK nuclear plan seeks ‘bundled’ provider The UK’s multi-employer pension plan for the civil nuclear decommissioning sector is looking for a “bundled” provider for the defined contribution (DC) sections of the £2.4bn (€2.8bn) plan, covering administration and investment.The Combined Nuclear Pension Plan has nine DC sections, which are currently administered by Aon Hewitt. As at the end of March 2017 it counted some 5,800 members, compared with around 15,000 members for the defined benefit sections.Aviva to run broadcaster schemeThe BBC has appointed Aviva to operate its DC scheme. The arrangement, known as Life Plan, is predominantly for staff who joined the broadcaster after 1 December 2010.As the pension plan provider, Aviva will select and manage a range of funds and provide a portal for BBC employees to choose and manage their pension savings.According to the tender documents, Aviva will earn fees of £2m-£7m over the seven-year period of the agreement.Six other providers tendered for the contract. A European pension fund is seeking green bond strategy ideas from managers via IPE Quest’s Discovery service.According to search DS-2463, the pension fund is interested in investing globally via an actively managed segregated mandate. The estimated size of the allocation is €150m.It has specified that it is looking for hard-currency investment grade green bonds.The deadline for interested parties to submit strategies is 9 August.last_img read more

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