Ireland’s National Pensions Reserve Fund (NPRF) has launched a $100m (€73m) technology growth fund backed by China Investment Corporation (CIC).The China Ireland Technology Growth Capital Fund, backed by a $50m contribution from each sovereign investor, will consider investments in software and clean technology in both Ireland and China, the NPRF said in a statement.“The fund’s strategy will be to make minority equity investments in fast-growing technology companies in Ireland that have a substantial presence or strategic interest in China, and in Chinese fast-growing technology companies that have a substantial presence or strategic interest in establishing a presence in Ireland as a gateway into the broader European market,” the statement added.The fund will be co-managed by Beijing-based WestSummit Capital and Atlantic Bridge, headquartered in Dublin. Both managers also maintain offices in Silicon Valley.Irish finance minister Michael Noonan said he was “very pleased” to see the country’s reserve fund partnering with CIC and noted that recent state visits had shown there was opportunity for increased economic activity between the two countries.“The cooperation between these two dynamic economies and creation of this fund exemplify that opportunity,” he said.NPRF chairman Paul Carty, meanwhile, noted the potential stemming from China as one of the “largest and fastest growing” markets globally.The NPRF’s $50m commitment to the fund joins earlier investments in the Innovation Fund Ireland, managed by Highland Europe.The venture capital fund in March last year attracted $12.5m from the NPRF to invest in growth-stage technology companies.It comes as the NPRF prepares to transfer its €6.8bn discretionary portfolio to the Ireland Strategic Investment Fund, intended by the government to stimulate economic activity in Ireland through a reallocation of its assets towards domestic investment.
EIOPA, however, identified three major obstacles for the creation of a single market, namely taxation, social law and contract law.Within taxation, the largest barrier to EU-wide savings, its analysis highlighted four areas where member states’ taxation policies affected the single market.The transfer of accumulated capital proved a significant taxation obstacle, with transfers between providers in different member states currently subject to withholding tax, or prohibited entirely.Differences on taxation on contributions paid in, and benefits paid out, regarding non-domestic schemes also caused concern.EIOPA said, currently, no case law created by the European Court of Justice (ECJ) prevented the discriminatory treatment of savings in non-domestic providers.Alongside this, there are also significant differences in taxation policy on investment income, and in tax-relief arrangements on contributions, which vary widely among member states.Social and contract law has also proved problematic, with a lack of harmonisation across member states resulting in large product variety, EIOPA said.To combat this, the regulator provided the directive and regulation options.It said there was a strong case for a directive to establish a single market, given that common regulation already exists for the majority of personal pension providers.With regards to a second regime, EIOPA said there was strong interest to further explore the pros and cons of such an approach, as its own analysis should not been seen as exhaustive.It added that any new regime would also need tackle the de-cumulation stage, and that it would need to focus more on defined contribution products and product standardisation.Gabriel Bernardino, chairman at EIOPA, said its conclusions were consistent with stakeholder contributions, which agree that a single third-pillar market would benefit consumers, providers and the EU economy.“Pensions should be dealt with from a European perspective,” he said. “EIOPA is committed to strongly promote this single market for pensions.“Our report should lay the foundation for future EU initiatives aimed at fostering sustainable, adequate and safe pensions for EU citizens.” The European Insurance and Occupational Pensions Authority (EIOPA) has written to the European Commission to submit its initial analysis on the creation of a single market for third-pillar pensions.The Frankfurt-based regulator was requested by the Commission to submit a report looking at the required prudential regulations and consumer-protection measures required to form an EU-wide single market for personal pensions.In its initial response, EIOPA has identified two feasible options, a directive to introduce common rules for current and future third-pillar savings, or regulation to create a new regime for common EU savings vehicles.The regulator said its finding supported either option, in its correspondence with the Commission.
The Financial Reporting Council (FRC), the UK’s financial reporting watchdog, has released proposals for a new accounting regime for both small entities and micro-sized entities.Among the areas of accounting affected by the new accounting regime, which will apply in both the UK and the Republic of Ireland, is pensions accounting.The proposals affecting small entities will replace the Financial Reporting Standard for Smaller Entities (FRSSE).The micro-entities requirements follow the introduction into UK company law in November 2013 of the micro-entities regime. The Republic of Ireland is consulting on whether to take such an approach.Andrew Mandley, a UK-based pensions consultant at Towers Watson, said he broadly supported the proposals.“I don’t think it will have a huge amount of impact,” he said. “If anything, it is probably more sensible than where we are at the moment.”The release of the proposals means an entity using UK GAAP in the future would report under one of the following:Full IFRS as endorsed for use within the EUThe FRS 101 reduced disclosure frameworkFull UK GAAP in line with FRS 102The small entities regime in section 1A of FRS 102The micro-entities regime in FRS 105Mandley said: “We have FRSSE, which is trying to paraphrase FRS 17, so it feels as though this is a sensible move to bring the smaller entities regime of UK GAAP into line with FRS 102. This strikes me as a pragmatic thing to do.“Different rules apply to micro-entities under FRS 105, but the number of micro-entities that will have to do anything will be few and far between. They are unlikely to be sponsoring a DB plan. If they are, they will be doing so as part of a larger group.”The FRC said each accounting regime from full EU IFRS downwards “correlates to the increasing size and complexity of the entities that are most likely to apply a given standard”.In addition, the FRC has also given entities the option of applying “a more comprehensive regime.”The small entities regime is potentially available to companies, limited liability partnerships and many non-incorporated entities.Alongside this, the micro-entities regime is only available to the smallest incorporated entities.Its requirements are a subset of the small entities regime. Use of the regime is optional, even where an entity qualifies to use it.The FRC issued FRS 102 in March 2013 and revised it in August 2014.It is effective for accounting periods beginning on or after 1 January 2015.FRS 102 replaces more than 70 accounting standards and Urgent Issues Task Force interpretations that ran to more than 2,400 pages with a single document.In a statement, the FRC said it “reflects developments in the way businesses operate and uses up-to-date accounting treatment and language”.The starting point for pensions accounting under the small entities regime is section 28 of FRS 102.FRS 102’s requirements dealing with annual expense are based on the 2011 revisions to IAS 19 ‘Employee Benefits’.FRS 102 retains the differing treatments for defined contribution plans and defined benefit plans used by FRS 17 and IAS 19.This means that, under the small entities regime, a DB sponsor will produce its pensions numbers in more or less the same way as it would under FRS 102. Accrued pension obligations are therefore discounted using a high-quality corporate bond discount rate. The difference between pension scheme assets and the discounted value of the obligation will be reported on the balance sheet as a net asset or liability.This means a DB sponsor would report a net balance sheet asset or liability using the projected unit credit method and a finance cost based on the discount rate in the income statement.Entities must discount their future pension obligation to arrive at a net present value using a AA-corporate bond discount rate.The proposed minimum disclosure requirements for the small entities regime are set out in paragraph 1A.14(l) of section 1A.The requirements are much less onerous than those in FRS 102.The only requirement is a note on pension commitments that are not already included within the main financial statements. Experts expect this to amount to a description of group or multi-employer DB schemes that are being accounted for on a DC basis.But where an entity has a material pension scheme, it must make a meaningful disclosure to give a true and fair view of its position.This could mean an entity must consider the full set of FRS 102 pension disclosures.Meanwhile, the micro-entities regime dispenses with the standard FRS 102 approach.Instead, a DB sponsor under this regime must instead show a balance sheet liability equal to the present value of any agreed schedule of deficit contributions, the FRC has proposed. Despite the contrast between the smaller entities and the micro-entities regimes, Mandley believes it will make little difference in practice.“If you are a small entity or a micro entity, it may be that you are participating in a much larger scheme such as an industry-wide scheme.”In these circumstances, he says, under both reporting regimes, the present value of any deficit contributions would be placed on the balance sheet.In the case of a small or micro UK group subsidiary with perhaps one or two employees participating in the group pension scheme, it is likely that the group parent will have a policy of absorbing any pension deficit.“I expect them to allocate the liability within the rest of the group and not burden the subsidiary with the need to do full DB pensions accounting,” Mandley said.Interested parties have until 30 April to comment on the proposals.
The €189bn asset manager PGGM talking to the Dutch justice ministry about the introduction of a class action system in the Netherlands that would allow duped investors to jointly claim damages. In its annual report about responsible investment, PGGM – the provider for the €178bn healthcare scheme PFZW – said the initiative was part of its new engagement policy focusing on legislators and important companies.The adjustment followed a new phase of ESG investing, with an emphasis on societal impact and the financial sector, it explained. PGGM has previously focused on voting and dialogue, as well as integrating ESG factors into the investment process.Eloy Lindijer, PGGM’s chief investment manager, stressed that measuring the impact of investment on social issues was becoming increasingly important. Last year, the asset manager replaced British firm F&C as engagement advisor with Sweden’s GES, which specialises on human rights, environmental matters and corruption.“The services of GES are complementary to PGGM’s, which focuses on strategic subjects within selected themes and countries,” explained a spokesman for PGGM. “Moreover, GES could also work more cost efficient.”At year-end, PGGM had invested €4.7bn in targets such as sustainable energy against climate change, and water purification in China to combat water shortages.Its largest client PFZW previously said it wanted to quadruple its investments in key areas, including food security and healthcare, over the next five years.In 2014, the asset manager excluded two firms from its investment universe because of the manufacturing of “controversial weapons”.Since then, it also excluded investment in government bonds of the Central African Republic because of violation of human rights. Currently, it has blacklisted 124 companies and 13 countries.PGGM further said that engagement with 510 companies had resulted in improved governance in 80 cases, and that it had achieved positive results on 21 environmental and 32 social issues.In order to improve the market standards for financial reporting, the asset manager had linked up with the Investors Financial Reporting Programme of the International Accounting Standards Board (IASB).
IASB director Peter Clark told the board meeting: “Reading through the letters we’ve had on the agenda consultation, we are still getting a fair number of people who are saying it should be a higher priority.”But, he warned, those commentators had provided an incomplete analysis of discounting under IFRS.“The impression I have is that a lot of people who said that didn’t focus on the fact different standards have different measurement objectives, and so the discount rates may or may not be appropriate to those measurement objectives,” he said. “What [this project] is trying to do is identify which parts of that inconsistency are caused by differences in measurement objective and which parts are caused by other factors.”Until now, the IASB’s research effort on discount rates has operated at a low level. The board’s last agenda consultation revealed moderate support for the board to examine the issue.Commenting on the board’s discussion, Aon Hewitt consultant actuary Martin Lowes told IPE the issue of discounting was linked to the wider issue of measuring pension liabilities.“If they let themselves re-work DB accounting, they could come up with a single accounting model,” he said.“If you want to allow for credit risk, you need to do it on an entity-specific bond rate rather than using an arbitrary rate.“DC has no credit risk, and DB assumes the risk from a fairly arbitrary point using a AA corporate bond rate. If you look at the discount-rate research paper, it is not trying to come up with the ‘right’ answer but rather look at how different IFRSs approach discounting.”The draft research paper has also singled out the option to use a government bond rate for discounting purposes in the absence of a deep AA-corporate bond market as a further anomaly.“You can see there is only one place where you have a AA corporate bond rate, and that is pensions accounting,” Lowes said. “That is both an anomaly and food for thought.”According to research by consultants Towers Watson, more than 99% of pension liabilities are currently accounted for using corporate bond rates around the world.Staff said that, even though there are two possible rates available for discounting, it was possible to conclude on those numbers that this is “not really a big issue”.This picture could change, however, were the market for high-quality corporate bonds to become less deep in the future. The International Accounting Standards Board (IASB) on discount rates has identified the extent to which the so-called fulfilment value measure in International Accounting Standard 19, Employee (IAS 19), is discounted on a basis with little or no underlying principle.Project manager Aida Vatrenjak said: “There is really no measurement objective as such. We have a set of rules … this is evidenced by the number of submissions [the interpretation committee] has had to deal with relation to IAS 19 discount rate.”Her comments came during a 21 January discussion of the board’s draft research paper on discounting across the whole of International Financial Reporting Standards.Pensions accounting and discounting both ranked as priorities during the IASB’s 2011 agenda consultation process, as well as its latest one.
KLM’s €7.6bn pension fund for ground staff reported a first-quarter return of 3.1%, citing a 4.7% return on its government-bond allocation and a 0.5% return on real estate.It lost 2.2% on equities.The Algemeen Pensioenfonds KLM closed out the first quarter with a coverage ratio of 101.8%.It said it moved to shore up its deteriorating financial position by shifting the concentration risk of its inflation-linked bonds across more countries.It has also started investing in residential mortgages, together with its two sister schemes.The pension fund for ground staff has established a dedicated committee for “investment matters” that has been tasked with “strengthening the board’s grip on the investment process”.The new body is to operate as the link between the scheme’s board and the investment advice committee, covering all three KLM schemes, according to Erik Voorhoeve, the pension fund’s secretary.He added that KLM’s other two large pension funds were also considering setting up similar committees.According to the pension fund, the committee came as a consequence of a recent investment survey conducted by the Dutch regulator.Meanwhile, KLM’s €2.6bn scheme for cabin staff, Cabinepersoneel, said that, despite having produced a first-quarter return of 3.5%, its funding fell by 8.2 percentage points to 98.1%.The pension fund achieved positive returns on bonds (3.9%) and property (0.8%) but lost 2.1% on its equity holdings. Falling interest rates and rising liabilities as a consequence have taken their toll on KLM’s largest pension funds in the Netherlands over the first quarter of the year.KLM’s €7.9bn pension fund for pilots returned 1.3% over the period, yet its funding fell by 9.4 percentage points to 112.6%.As a result, the Pensioenfonds Vliegend Personeel’s official policy funding – the average coverage over the 12 months previous, and the criterion for indexation and rights cuts – fell by 2.1 percentage points to 120.8%.That figure falls 1.3 percentage points short of the scheme’s required financial buffer.
Welsh local government pension schemes (LGPS) are set to launch a tender for a third-party provider for a tax-transparent fund to house the emerging £12.8bn (€17.4bn) asset pool.The eight* pension funds plan to select an outside company to provide the Authorised Contractual Scheme (ACS), but have not ruled out in future “designing and building” their own regulated operator.The formal decision to appoint a third party operator was originally taken by the Welsh funds in September 2015, and was “revisited and re-confirmed” by the Wales Pool earlier this year, according to the pooling proposal the group submitted to the UK government in July, as per the deadline set by the Department for Communities and Local Government (DCLG).The local authorities administering the schemes are currently considering the scope and specification of the services that will be required of the third party operator, and will decide on this as part of the selection process. It has for the time being informed the market of its intentions, publishing a prior information notice on government procurement portals to help identify potential candidates, and gather further details on the services it should require from operators. In its July submission to the government, the pool stated that the operator will be responsible for managing and operating the asset pool, including selecting and contracting with investment managers for the funds in which the assets of the eight participating schemes will be invested.However, the pool said it anticipates working closely with the operator of the ACS – a collective, tax transparent investment vehicle – and the sub-investment funds.The eight pension funds participating in the pool have £12.8bn of assets between them, as at March 2015. They aim to hold 95% of their assets within the pool by April 2021, and to have pooled all their assets by April 2030.The funds have already appointed a single asset manager for their passively managed equity and bond holdings, having in April announced the selection of BlackRock following a joint procurement exercise.The London CIV, comprising all of the capital’s LGPS, appointed Northern Trust as its ACS provider in January 2015.*The eight schemes (and their administering authorities): Cardiff and Vale of Glamorgan Pension Fund (Cardiff), City and County of Swansea Pension Fund, Clwyd Pension Fund (Flintshire), Dyfed Pension Fund (Carmarthenshire), Greater Gwent Pension Fund (Torfaen), Gwynedd Pension Fund, Powys Pension Fund and Rhondda Cynon Taf Pension Fund.
Without a new system or a significant improvement of coverage ratios, rights cuts affecting millions of Dutch workers and pensioners would become inevitable in 2020 and 2021.Last month, negotiations between the social partners in the Social and Economic Council (SER) about a reform of the labour market fell through, but the players are still talking about the pensions dossier.However, as employers and workers have failed to produce ideas for a new pensions system after more than a year of negotiating, the pensions sector expected politics to take the initiative.“The update of the pensions system is really a matter for the social partners,” the FD quoted a source close to the negotiations as saying.The initial assumption was that the SER would come up with a plan for a new pensions system – focused on individual pensions accrual combined with collective sharing of some risks – ahead of last elections.According to the FD, the social partners are closely in touch with the coalition partners about the subject.Last month, supervisor De Nederlandsche Bank warned against waning attention for the reform of the pensions system.Frank Elderson, director of pension fund supervision, said the update was necessary “to tackle flaws, such as an opaque and difficult to justify redistribution” between the high and the low educated and well as between young and old workers. The pending new Dutch Cabinet – which is still engaged in coalition negotiations – is to delay plans for a new pensions system, financial daily Het Financieele Dagblad (FD) has suggested.Citing sources close to the discussions, it said that the coalition partners wanted to postpone crucial decisions to enable the social partners of employers and workers to come up with their own proposals.Prime minister Mark Rutte’s party, the liberal-right VVD, is attempting to build a four-way coalition with the D66, CDA and Christian Union parties. The Netherlands has been without a permanent government since March’s election result.Ahead of the elections, the country’s political parties seemed to be convinced of the need for quick decisions for a thorough update of the pensions system.
Danish labour-market pension provider Sampension has been gradually reducing its exposure to listed equities in order to protect its overall portfolio from a possible market correction.Henrik Olejasz Larsen, CIO of the DKK260bn (€34.9bn) pension fund, said: “We have taken some of our overweight in shares down very gradually, and we don’t have as many shares in our risk total as we had before.”The move had been made, he said, with a view to avoiding being as hard hit as the fund might be, if and when there was a correction in global equity markets.“We have had a long recovery in the equities market, and we can’t expect the current high level of earnings in many of these listed companies to continue at a time when the economy is not going as fast as it is right now,” Olejasz Larsen said in a video commentary on Sampension’s website. Share prices were particularly high right now, he said.“They are so high that they are on a level that we have only seen a few times in recent history – back at the end of the 1920s, or back in the period running up to the bursting of the dotcom bubble,” he said. Henrik Olejasz Larsen, Sampension“The risk is that our expectations will be disappointed, but there is nothing that points towards it being the same as last time time, because things are going really well regarding the underlying economy, and corporate earnings are still growing.”Equities were also expensive because bond yields remained so low, Olejasz Larsen added.At the end of 2016, Sampension had 24.3% of total assets invested in listed shares and 50.5% in bonds, including interest-rate hedging.In addition, 9% of assets were invested in property, land and infrastructure, and 7.5% in bonds with credit risk, according to the fund’s annual report.
Japanese pension funds are rewriting their asset allocation strategies in response to shrinking returns from traditional assets such as domestic equities and bonds, according to a newly-published survey.The 11th annual survey of the sector by JP Morgan Asset Management (JPMAM) found that today’s priority among Japanese pension funds is international diversification.In the survey of 120 Japanese pension funds and three so-called mutual aid pension schemes, the asset manager found that alternative investments had become a mainstream asset class for return-constrained Japanese pension fund investors.JPMAM highlighted as notable that the survey showed 41% of Japanese pension funds had already adopted some new or different form of portfolio management framework. It said they were rethinking asset allocation to better reflect their investment objectives, enhance their investment efficiency, and improve their diversification.The survey found that 20% of pension funds had abolished domestic bond and equity categories altogether in favour of consolidating into global bond and global equity categories.JPMAM interpreted this shift as a reflection of the funds prioritising international diversification.“Within these newly-condensed buckets, exposure to domestic assets is generally falling at the expense of greater allocation to foreign assets,” said JPMAM.There was increasing adoption of asset allocation strategies modelled on a variety of role-based, risk-based or factor-based approaches, according to the manager.“This gradual adoption of more dynamic and holistic approaches to asset allocation suggests Japanese pension funds are experimenting with portfolio construction in the search for superior diversification.”It gave as an example that some pension funds had begun categorising assets based on their risk level within the portfolio, with a 60/40 split between ‘base assets’ generating steady income and ‘growth assets’ seeking higher returns.“Others are redesigning asset allocation on role-based categories, such as assets intended to help meet liabilities, cover payments or provide long-term growth appreciation,” it said.Yoichiro Nitta, JPMAM’s head of institutional sales, said: “As these institutional investors grow increasingly sophisticated, lines are starting to blur between individual traditional ‘asset classes’ as investors focus more on underlying return drivers.”Japanese corporate defined benefit pension plans would continue to face a challenge to generate returns sufficient to fund their obligations, Nitta said.“We expect to see institutional investors continue to push the envelope on alternative and non-conventional allocations and innovate with new asset allocation frameworks to try to bolster returns and increase portfolio resiliency,” he said.