Peter Kjærgaard, CIO at Danish mortgage bond specialist Nykredit Asset Management, said it was no secret the LD mandate win was very important to the firm and that the team had worked hard to get it.“LD has run a very professional process, and they’ve been good at giving us feedback,” he said.The reason Nykredit Asset Management won the contract was threefold, he said.“First of all, there is the well-documented investment process we have, secondly the experience of the team and thirdly, our risk management process – both within the investment team, but also the risk-management set-up that surrounds that within Nykredit Asset Management,” Kjærgaard said.Christian Hyldahl, head of investment at Nordea Investment Management, said the company was very happy to win its mandate.He said while the asset class the company had been re-hired to manage was very well defined, primarily involving Danish mortgage bonds, what was unique about Nordea Investment Management’s investment process was that it did not apply any macros or overlays.“We have a lot of focus on risk management, so we don’t have any large duration bets,” Hyldahl said. “The investment process is quantitative and risk-management-driven with focus on extracting alpha from securities selection.”LD also awarded a short-duration bond mandate of just under DKK2bn to HP Fondsmæglerselskab, which Christensen described as a specialist manager with a very experienced team, even through he said it was not so well-known.Foreign managers won the two global bond mandates, with Paris-headquartered AXA Investment Management taking on a portfolio of European investment-grade bonds of around DKK2.5bn.New York-based Fischer, Francis, Trees & Watts won the smallest mandate of around DKK700m for global indexed bonds.The contracts awarded all cover a four-year period starting as soon as possible, the pension fund said, adding that they could be extended for up to six years.The total volume of the mandates is between DKK20bn to DKK23bn, depending on allocation decisions and members’ withdrawal of funds.Christensen said that, for investment-grade bonds, it was important the manager have particularly strong skills in credit analysis and sector allocation.He added that competition on both quality and price in the award process had been stiff.“This led to changes in some of the appointments,” he said. “The tender was carried out according to EU rules, which only increased the competition.”Nykredit Asset Management is replacing Maj Invest, and HP Fondsmæglerselskab is taking over from Nordea Investment Management.Meanwhile, the mandate won by AXA Investment Management is a new one, replacing a fund investment.Christjansen stressed that LD had been very satisfied with the results generated by the managers that had worked for the pension fund up to now.In July and March this year, LD – which now outsources all investment management – awarded four equities mandates. Danish pension fund LD has awarded around DKK20bn (€2.7bn) of bond mandates, with existing manager Nordea Investment Management and newcomer Nykredit Asset Management taking on the lion’s share of the outsourced work.LD, which manages a non-contributory pension scheme for Danes based on cost-of-living allowances for workers granted in 1980, put the bond mandates out to tender earlier this year.Nordea Investment Management and Nykredit Asset Management have each won a large Danish and North European gilt-edged and mortgage bond mandate of around DKK9bn.Claus Buchwald Christjansen, head of investment at the DKK53bn pension fund, said: “The decisive factor was not just a deep knowledge of the Danish and Northern European bond markets. The Danish managers are also in the top class internationally within risk management.”
The Norwegian government may allow the Government Pension Fund Global to invest in unlisted real assets, with a move into infrastructure under consideration.The country’s Ministry of Finance has asked the fund’s NOK6trn (€699bn) Strategy Council, chaired by the London Business School’s Elroy Dimson, to assess whether it should adjust the current 5% cap on real estate.Minister of finance Siv Jensen said: “Developing the fund’s investment strategy through better diversification will help to ensure continued robust, long-term management of the fund.”Even if the Strategy Council decides to recommend that Norges Bank Investment Management (NBIM) be allowed to invest in infrastructure, it is unlikely to commit to any projects in the immediate future. In a statement, the ministry said its final decision would be presented to Parliament by the spring of 2016.However, it said that, if exposure to unlisted infrastructure was permitted, it would also allow the fund to grow its exposure to the unlisted renewable energy sector and infrastructure projects in emerging markets.So far, the fund’s renewable energy mandate has focused on technology facilitating energy saving, rather than solar or wind power, according to NBIM chief executive Yngve Slyngstad.The ministry added in a statement: “As with all other investments by the fund, such investments will have to be evaluated on the basis of expected returns and risk.”NBIM is currently restricted to investing in listed renewable energy options and is barred from any unlisted investments.In a strategy document covering 2014-16, NBIM said earlier this year that it was hoping to establish an infrastructure portfolio.The Government Pension Fund Global’s asset allocation allows for 60% exposure to equities and 35% exposure to bonds, with the remainder in property.According to its most recent quarterly report, the fund had 61.4% of assets in equities, 37.3% in fixed income and just 1.3% in property.To date, the fund struggled to deploy capital into the property mandate but has pledged that, for the three years to 2017, it will invest 1% of the fund’s assets in real estate.
A copy of a highly anticipated draft of a new law aiming to “strengthen occupational pensions” in Germany (“Betriebsrentenstärkungsgesetz”) is in the public domain.For several months now, experts in Germany have debated leaked bits and pieces of reform proposals.A draft of the proposed law dated 25 October is available on a social policy portal (in German) run by Johannes Steffen, social policy expert and adviser. With the new law, the government wants to lay the groundwork for industry-wide pension plans with more flexible pension promises. Studies commissioned by the government had shown that many employers were shying away from offering pension plans because of the long-term liabilities and the required top-up payment for guarantees. The introduction of “pure contribution-based pension plans” (“reine Beitragszusage”), as the draft law puts it, aims to “provide full cost and planning certainty for employers” with regards to their pension liabilities.In the discussions prior to the publication of the draft, the term “defined ambition” had often been used, or “Zielrente” (target pension) in German.However, the draft now uses “pure defined contribution” as a term.At a recent conference in Vienna, Heribert Karch, chairman of the German pension fund association aba, said: “We do not need defined contribution systems in Germany, which the people do not want anyway if we have defined ambition, or Zielrente, as we call it.”However, he generally agreed with the need to relax strict guarantees for occupational pension plans.“It will still need a lot of debate, but it is clear we need more flexibility in our pension promises in Germany,” he said. “In the current low-interest-rate environment, you have to go into assets that were formerly called risky assets. To do so, you have to be able to make use of the long-term investment horizons over which you can easily digest crises and drawdowns.“Therefore, we need to re-phrase hard guarantees into softer ones. And this also allows for a pension promise to remain a promise.”The government argues in its draft of the proposed law, which will now go into the consultation phase, that the introduction of defined contribution plans will “sustainably strengthen the role of the social partners”.Employer and employee representatives will now have to help operate these new pension plans, it said.The industry-wide pension plans can be set up either in new industry pension funds or within the framework of existing Pensionskassen, Pensionsfonds or Direktversicherungen (i.e. insurance-based pension funds).The new law would require several existing legal frameworks to be amended.Among other things, the government wants to create “legal certainty” for opting-out models, which, at the moment, can only be negotiated at an employer’s own risk.The government also noted it was aware that a mandatory occupational pension system or a general opting-out model would have helped increase the number of participants in the second pillar.However, it argued that such models would have been “more invasive” for companies and workers.The voluntary models are, therefore, to be promoted instead.Apart from making pension promises more flexible, the government also wants to introduce pension subsidies for lower-income workers.As part of the amendments to the second-pillar pension laws, the threshold for tax-free contributions an employer can make to a pension fund will also be adjusted.If the draft is approved by all stakeholders and parliament in time, the new law is scheduled to take effect from 2018.
The German Pensionskasse for the financial industry, the €26.6bn BVV, will offer pension plans without guarantees for its members from 2018, it said.The announcement came shortly after the smaller chamber of the German parliament, the Bundesrat, passed the country’s pension reform law – “Betriebsrentenstärkungsgesetz” (BRSG) – on Friday. This was the final step in the legislative process.Its passage means that Germany might see its first pure defined contribution plans in the second pillar in 2018, when the law comes into effect. The law makes it possible to set up occupational pension plans without guarantees as part of collective bargaining agreements. The BVV noted it “is prepared” for the new legal framework and confirmed in a press release it will be offering pension plans without guarantees from next year when the law comes into effect. “With the new law the legislator makes organisations like the BVV, which are run collectively by employer- and employee representatives, the centre of occupational pensions,” said Helmut Aden, board member at the BVV.The new defined contribution pension plans will only be available for companies having signed on to collective bargaining agreements. The same applies to some other provisions in the new legal framework, such as subsidies for smaller companies and lower earners, and the right to auto-enrol members if they are given an opting-out option. Before the vote in the Bundesrat the minister for the province of Baden-Württemberg, Manfred Lucha, had noted he would vote in favour of the law but criticized it for not going far enough.He said he doubted it will reach as many companies as planned because many small and medium-sized companies have not joined a collective bargaining agreement.Lucha proposed a review of the law at a later point and possible adjustments, which could include making it mandatory for companies to offer occupational pension plans.In a first reaction to the passing of the law on Friday, Reiner Schwinger, head of northern Europe for Willis Towers Watson Germany, noted it might take some time to truly come into effect.“We might only see the first collective bargaining agreements containing pure defined contributions plans in a year’s time.”He added: “Many companies will now carefully assess their occupational pension offerings and this might lead to a run on guarantee products in the short term.”In a survey among insurance-based Pensionskassen, Willis Towers Watson had found only limited interest in the new product without guarantees.
The start of 2018 sees the global economy looking in healthy shape, but the dynamics of populist politics in Europe and the US should still raise concerns over what the long-term future holds.Karen Ward at JPMorgan Asset Management (JPMAM) in a recent presentation highlighted key questions for 2018.First, can the global economy sustain momentum in 2018? To which JPMAM’s answer was ‘yes’, particularly if there is a revival in productivity.Second, how much should we worry about central banks normalising policy? The asset manager’s view was ‘not too much’ – normalisation is likely to be gradual, but beware of duration and liquidity risk. Third, are equity valuations now stretched meaning it is time to derisk? JPMAM’s view was ‘no’. Macro-economic factors matter more than valuations over a one- to two-year timeframe. The main risk is inflation, so derisking to cash or fixed income does not make much sense.If 2018 looks fine, what lies beyond?Unemployment rates in the US are now below 5%, having been around 10% following the financial crisis. UK figures have shown a similar fall. In the euro-zone, levels are still high at not much below 9%, but they are down from peak levels seen a couple of years ago. However, what has been increasing – and is clearly evident in the US – is a huge rise in inequality. The new jobs that are being created are not of the same quality and wage levels of the middle-income jobs that have disappeared.Over periods of 10 or 20 years, the developed world faces two major structural challenges that are becoming the driving forces of populist politics. They both lead to rising inequality and the disappearance of middle-class jobs.The first appears to be the rise of emerging markets, where educated workforces at lower wage levels than developed markets provide an economic arbitrage in whole sectors, particularly manufacturing. The rise of automation, internet and artificial intelligence (AI) in their widest forms is also serving to destroy large numbers of low-level and even mid-level service jobs in areas such as banking, law and insurance.Trump’s ‘America First’ policy is an attempt to roll back globalisation and the export of middle-class jobs to emerging markets. Some 400 years ago, the per-capita income in China and India was higher than that of Europe. Within one or two generations, the same could be true again.Trying to stop that realignment smacks of King Canute trying to hold back the tide (he was actually making the point to his courtiers that the powers of a ruler are limited – something that perhaps President Trump has yet to learn).The rise of emerging markets is something to celebrate. Their rising prosperity is also an enabler for rising prosperity in developed markets. However, the issue that has not been addressed is how rising prosperity in developed markets should be redistributed across the population. It is rising inequality within developed markets, rather than a narrowing of the gap with emerging markets, that politicians need to be addressing.The second key challenge has to some extent, been explored in a recent paper by Nobel prize-winning economist Joseph Stiglitz (together with Anton Korinek). Korinek and Stiglitz point out that, while some commentators propose that advances in AI are merely the latest wave in a long process of automation, others emphasise that AI critically differs from past inventions.“As artificial intelligence draws closer and closer to human general intelligence, much of human labour runs the risk of becoming obsolete and being replaced by AI in all domains,” they say.They argue that the primary economic challenge posed by the proliferation of AI will also be one of income distribution. If redistribution is too costly, it may be impossible to compensate the losers of technological progress, and they will rationally oppose progress, much as the famed Luddites who destroyed machinery at the dawn of the first industrial revolution.Korinek and Stiglitz argue that inequality rises because innovators earn a surplus: “Unless markets for innovation are fully contestable, the surplus earned by innovators is generally in excess of the costs of innovation.”In addition, innovations change the demand for factors such as different types of labour and capital, which affects their prices and generates redistributions. AI, for example, may reduce wages and generate a redistribution to entrepreneurs.Understanding and dealing with these two challenges should be a long-term priority of political parties throughout developed markets. Both should be regarded as unambiguously positive.But, as Korinek and Stiglitz warn, while individuals and economies may be able to adjust to slow changes, they may struggle when the pace is rapid. The more willing society is to support the necessary transition and to provide support to those who are ‘left behind’, the faster the pace of innovation that society can accommodate.“A society that is not willing to engage in such actions should expect resistance to innovation, with uncertain political and economic consequences,” declare the authors. Politicians should take note.Korinek and Stiglitz’s paper is available here.
Baillie Gifford is to open an office in Dublin in anticipation of the UK’s departure from the European Union, it has announced.The decision was aimed at supporting the firm’s European expansion, according to the Edinburgh-based investment company.“In recent years, Baillie Gifford has seen growing demand from clients from across Europe,” said Andrew Telfer, joint senior partner at the £193bn (€216bn) manager.“We are committed to servicing our existing EU-based clients, as well as expanding further.” The firm had been exploring various options to allow it to continue this development before opting to set up an office in Dublin, according to Telfer.The Dublin office is to be established in the form of a new EU subsidiary company, subject to authorisation from the Central Bank of Ireland. According to IPE’s Top 400 report for 2017, Baillie Gifford managed €52.9bn of assets for European institutional clients, making it the 38th largest European institutional manager.Other asset managers to have set up or expanded operations in EU fund management hubs in recent months include Columbia Threadneedle Investments and M&G, which have both moved assets run for some non-UK investors in their UK-based funds to Luxembourg. In May Legal & General Investment Management announced the Central Bank of Ireland had authorised its Dublin-management company.A recently published State Street survey found that more than half of asset managers surveyed expected to increase their staffing levels in new locations in response to Brexit within the next five years.
Denmark’s huge statutory pension fund ATP has confirmed it has no intention of setting up any other foreign pensions businesses in the foreseeable future, after announcing the sale of its ill-fated UK subsidiary NOW: Pensions last week.However, draft legislation is being discussed in Denmark that could see the DKK785bn (€105bn) pension provider’s incoming contributions rise by up to 40% in a decade’s time, interim CEO Bo Foged told IPE.Foged – who has been in charge at ATP since Christian Hyldahl quit in November – declined to quantify the loss ATP incurred through NOW: Pensions, which it agreed to sell to Anglo-Dutch consultancy and fiduciary manager Cardano.The venture capital investment was part of ATP’s investment portfolio, the DKK92bn section earmarked for potential bonuses for members of the ATP Lifelong Pension. Foged said the loss on the UK pensions venture could not be seen as an isolated case, because it had to be reckoned alongside the many other private equity investments made by the pension fund. “From our point of view, it has become more complicated to run a pension fund these days”Bo Foged, acting CEO, ATP“Some of them outperform, others performed as planned and others performed below benchmark – and this is one of the bad performers, and we’ve been honest about that,” he said.The interim CEO said ATP would not consider making a similar investment in the near future.“It’s not part of our current strategic focus to go abroad and run a pension fund. We’re more focused on our home market,” he said.Strategy shiftThe Danish pension fund began to focus strategically on simplifying and consolidating two years ago when former chief executive Hyldahl took over, Foged said.“From our point of view, it has become more complicated to run a pension fund these days,” he explained. “First of all, we have been going into alternative investments, which are more complicated than investing in, say, listed bonds or equities.“Secondly, ESG [environmental, social and corporate governance investing] has become much more important, so we are having to do more screening on more ESG factors.“This all drives complexity so we have had to ask ourselves what to stop doing, and we have identified this investment [NOW: Pensions] as one of these things.”Big and getting biggerHowever, while ATP’s activities are contracting geographically, domestically it could see a considerable expansion in the long term as a result of a plan currently before parliament.Whereas ATP’s main scheme – the ATP Lifelong Pension – takes in mandatory contributions from working people in Denmark, draft legislation is currently in motion to create a pension scheme for people who receive social welfare benefits.The new scheme is slated for introduction in 2020, beginning with 0.3% contributions from welfare benefits, and rising to contributions of 3.3% in 2030.ATP has estimated the new scheme would bring inflows amounting to around 40% of the deposits it currently receives, Foged said.However, whether the new scheme would actually come into existence was uncertain, he added, as the proposal had to go through multiple consultation phases, and changes in the political landscape were possible in the meantime.
A major increase in immigration to Finland, or an equivalent fall in emigration, would ease pressure on Finland’s squeezed pension system, new research from the Finnish Centre for Pensions shows.The organisation – which is the central body of Finland’s statutory earnings-related pension scheme – said a population influx would help counteract the negative impact that dwindling birth rates are predicted to have on contribution rates for Finnish pension savers within the earning-related system in the years to come.Jaakko Kiander, the centre’s director in charge of research, statistics and planning, said: “A net immigration that is higher than it is today could compensate for the upward pressure on pension contributions caused by declining birth rates.“The magnitude of the effect depends on the employment outcome of the immigrants,” he added. Back in March, the Finnish Centre for Pensions issued a warning about falling birth rates, saying the falling dependency ratio could push contributions up by around 30% after the 2050s.According to the centre’s baseline projection, which follows the 2018 population projection from Statistics Finland, contribution rates under the Employees’ Pensions Act, TyEL, are set to rise to more than 30% in the latter half of this century – up from the current level of 24-25%.However, the centre warned that reduced immigration would weaken Finland’s pension finances, saying that, if the number of people coming to the country were to fall by 5,000 per year, contribution rates would then have to rise as early as the 2030s.The new study splits immigrants into earnings brackets based on their countries of origin to illustrate the effects that different types of immigration would have on pensions. This analysis revealed that an increase in newcomers from the high or medium earnings group could reduce pension contribution rates by around one percentage point by the mid-2040s.On the other hand, an increase in the low employment outcome group would reduce contribution rates less, and until the end of the 2060s.But looking even further ahead, the research showed that the different scenarios drew closer to each other, with the gaps in employment rates between the source countries disappearing.Tuija Nopola, mathematician at the Finnish Centre for Pensions, said: “Immigrants in the low employment outcome group are more fertile than the immigrants of the other groups. Their children are expected to have a better employment outcome than their parents, which will increase the number of employed and even out the gaps in the scenarios in the long run.”
LSE made four specific proposals for reducing its current trading hours of 8am to 4pm London time, each one cutting the daily period by either one or 1.5 hours, and also included the option of maintaining today’s timetable.It said the European banks and brokers’ Association for Financial Markets in Europe (AFME), and the Investment Association (IA), had recently proposed European exchanges reviewed trading hours with the aim of benefiting market structure as well as improving wellbeing, culture and diversity across their member firms.In the letter, signed by Emil Framnes, NBIM’s global head of trading, and its global head of systemic strategies, Yazid Sharaiha, the Oslo-based manager said it used a wide range of trading venues.Differences in market design across venues – from transparency regimes to trading protocols and trading hours – could have an impact on market liquidity and price discovery, said Framnes and Sharaiha.Recent trends in financial markets, such as the institutionalisation in the asset management industry and the growth of trading at the close, had changed the distribution of daily volume, they said. Overall, they added, this made it more challenging for institutional investors to access natural liquidity during continuous-time trading.“In this regard, we believe that the proposed adjustment of LSE’s market trading hours can potentially improve trading conditions,” the pair wrote.NBIM plumped for the 9am to 4pm London time as the opening hours option that could benefit markets the most.“This choice would allow for adequate time in the morning for maintaining alignment with Asian trading hours, and at the same time shift the UK trading day nearer to the opening of North American markets, where we observe a sizeable peak in trading interest,” Framnes and Sharaiha wrote.These hours would also benefit after-hours activities, they said, such as placements, that could take place earlier allowing investors to make timely decisions. The manager of Norway’s NOK10.6tn (€1tn) sovereign wealth fund said it supports London Stock Exchange’s (LSE) idea of shorter trading hours, saying both retail and institutional investors are likely to benefit from the improvements laid out.Norges Bank Investment Management (NBIM), which runs the Government Pension Fund Global, wrote in a letter to the exchange: “The basic intuition is that the shortening of trading hours and their harmonisation with best practices from North America and Asia could concentrate trading and, thus, increase the probability of a natural liquidity match.”The improvement in market liquidity could, theoretically, also lead to improvements in price discovery, it said in a response to LSE’s consultation launched on 10 December.The consultation, which ended on 31 January, is on several potential market structure changes including an adjustment to trading hours.
Not a bad view to wake up to each dayDESIGNED to withstand a 1974-style flood, this West End waterfront home passed with flying colours when the Brisbane River broke its banks in 2011.Retired Bicycle Queensland CEO Ben Wilson and his wife Shelley purchased 105 Ryan St just six months before the floods, which inundated many homes in the River City.When the floods of 2011 hit, the owners of 105 Ryan St, West End, just hosed out the mud and the fish and got on with their day“The house had no damage whatsoever,” Mr Wilson said. “Water came in to the yard, into the plunge pool and into the concrete downstairs entertainment area.“But we just hosed it out once the water receded, removed four fish and three crabs, but there was no repairs needed whatsoever.”The lower floor allows for the whole area to be hosed outMr Wilson said the house was designed by a local doctor who had no intention of living in the property but wanted to build a self-sustaining, eco home.He said they had planned to renovate an older house nearby when they discovered the contemporary home, which was built using materials recycled from the previous house on the site.“It’s a wonderful family home. It’s modern but built using some recycled materials … so it has a sense of warmth and belonging.” Mr Wilson, the now-retired former CEO of Bicycle Queensland said.“Also the river is a massive tranquil parkland teeming with bird life and recreation opportunities.”More from newsParks and wildlife the new lust-haves post coronavirus17 hours agoNoosa’s best beachfront penthouse is about to hit the market17 hours agoDesigned by architect Conrad Gargett Ridde, the three-level, four bedroom home sits on a 683sq m lot and boasts spacious and airy living zones, a gallery with natural light and a sunlit courtyard.Upstairs the finishes are high-endThere is polished concrete and reclaimed timber flooring throughout, solar panels and grid-connected electricity, a 71,000L rainwater storage and grey water recycling system, an entertainment deck and plunge pool.And the kitchen is spacious and functionalIt is also within easy reach of the West End markets, South Bank, art galleries, parks and cafes, and close to the ferry, City Glider bus and bikeway.Mr Wilson said they have moved in to a smaller house about 300m away, with their children now adults.“It’s the best inner city suburb by far. West End has it all – a great school community plus interesting people and exciting eateries,” he said.Ray White New Farm principal Matt Lancashire says there has been strong early interest in the home which will be auctioned on-site on August 18.“What a house and what a location? West End has long been known for its vibrant community and amazing lifestyle,” Mr Lancashire said.“ I have to applaud the architects of this house for its innovative and sustainable design features, it’s truly special and very rare.”