Month: September 2020

IPE Views: Investors need to dig deeper into ‘Myanmar miracle’ to protect portfolios

first_imgKathy Mulvey of the EIRIS Conflict Risk Network examines how companies involved with Burma are managing the risks of conflict. A year ago this week, President Thein Sein became the first leader of Burma to visit the White House in almost 50 years. A few days later, new US government reporting requirements took effect so that all US companies making major investments in Burma became obliged to reveal information related to human rights, anti-corruption, the environment and other responsible investment issues.Burma’s opening has helped catalyse investment flows to the extent that the World Bank is predicting economic growth for the country of 6.8% in 2013-14 – leading some, perhaps optimistically, to proclaim a ‘Myanmar miracle’. The reporting requirements have also had an effect and so far a handful of companies, including the likes of Coca-Cola and Western Union, have produced reports about their policies and procedures to address the impact of their business activity in the country.Despite this progress, the political and economic reforms driving growth in Burma remain fragile. The military continues to be powerful, conflict is ongoing and there are still reported cases of human rights abuses (including persecution of the Rohingya Muslim minority), bribery and illegal confiscation of land. In general, the level of transparency of major corporations in Burma remains unsatisfactory for most institutional investors. Too many do not report at all – for example, companies not considered US enterprises are not bound by the US reporting requirements. Even among the corporate reports submitted so far, there are issues of missing information and uneven quality. Investors need more and better corporate reporting if they are to ensure the risks of doing business in Burma are safely managed and do not come at the expense of social freedoms and justice.Our research has looked at the policies, systems and reporting of companies active in the country. We found that Coca-Cola and telecoms firm Telenor are doing the best job of managing the risks associated with their investments.These two companies have both taken steps to manage operational and reputational risk in areas such as human rights and anti-corruption. However, even the companies in the sample that have done the best due diligence face enormous challenges to fulfil the responsibility to respect human rights as articulated in the United Nations Guiding Principles on Business and Human Rights. For example, Coca-Cola provides little information about its procedures for managing business partners’ relationships with security service providers or how it engages stakeholders in security-related decisions.Issues such as illegal land acquisitions or corruption pose real business risks to investors, particularly in conflict zones.In recent years we have seen how health and safety mismanagement led to the explosion at BP’s Macondo oil rig in 2010 and the collapse of the Rana Plaza garment factory in Bangladesh in 2013, causing not only human tragedies but serious damage to the value of the affected companies. Within 97 days of the Macondo tragedy, BP’s share price dropped 54% and BP was forced to suspend its dividends for a year. As of March last year the disaster had cost BP $42.2bn (€30.8bn). Similarly, ING faced a shareholder rebellion in 2013 when 59.8% of shareholders supported a proposal to stop it investing in companies linked to the genocide in Sudan’s Darfur region.Investors can help to avoid exposure to similar risks from corporate activity in Burma if they seek the right information. Indeed, that is why institutional investors played a pivotal role in the development of the US Reporting Requirements — a role recognised by the State Department.Furthermore, investors can make a positive difference. If responsible investors come together to demand that effective policies are in place and due diligence is carried out before companies begin to do business in Burma, they can help to ensure that the operations they fund in Burma contribute to peace, stability and broad-based economic development.Burma continues to be one of the biggest growth stories in the Asia-Pacific region, which itself is set to be perhaps the biggest engine of global growth during the next decade. It is a wonderful opportunity for investors to generate impressive long-term returns, but only if they ensure that growth does not come at the expense of the people of Burma.Investors must continue to push for more transparency about corporate activity in the country, and to utilise available information. This can play a major part in both advancing the country’s reforms and protecting their returns.Kathy Mulvey is executive director of the EIRIS Conflict Risk Networklast_img read more

Industry welcomes ‘pragmatic’ HBS despite capital-requirement concerns

first_img“The shift away from a ‘one-size-fits-all’ system and towards more flexible implementation at national level is an important step in the right direction, but there are more pressing priorities for EU policymakers to address.”In the consultation, EIOPA said it accepted that a ‘one-size-fits-all’ approach to the assessment of sponsor support should be replaced with a principles-based approach.Mark Dowsey, senior consultant at Towers Watson in the UK, told IPE the proposals were “very positive” but said he did not wish to underplay the potential risks.He said any attempts to proceed with elements of the HBS were likely to include a re-drafting of the risk-evaluation for pensions (REP) regime proposed in IORP II, tying the efforts in closely with the quantitative, pillar I proposals.However, due to the significance of the changes, Dowsey said he believed this would not be possible without a further revision of the IORP Directive, and that it was therefore unlikely to occur as part of the current revision.“EIOPA will be aware any attempt on its part or the Commission’s part to introduce quantitative measures to the REP during its current passage through the legislative process would probably cause it to flounder because they are going to trigger so much aggravation and animosity,” he said. Aidan O’Mahony, a partner at Aon Hewitt’s UK office, welcomed the more “pragmatic approach” pursued by EIOPA, particularly in terms of valuing sponsor support.But he said the continued focus on aspects of the abandoned pillar I matters surrounding quantitative measures was “unhelpful”.He echoed Walsh in welcoming EIOPA’s plans to abandon a ‘one-size-fits-all’ approach for sponsor support.“This is a step forward from the previous detailed specification of calculations to be applied to all IORPs, which failed to recognise the variation in the nature of IORPs between countries.”EIOPA’s consultation on the HBS will close in mid-January.,WebsitesWe are not responsible for the content of external sitesLink to consultation paper New proposals for the holistic balance sheet (HBS) have been given a cautious welcome by the pensions industry, with consultants and pension associations pleased with the “pragmatic” approach pursued by the European Insurance and Occupational Pensions Authority (EIOPA).The European supervisor yesterday launched a consultation on the shape of the HBS, outlining six possible approaches but also shedding more light on how it could assess the support of a sponsoring company or account for variable benefits.James Walsh, EU policy lead at the UK’s National Association of Pension Funds (NAPF), said the organisation was “disappointed” with EIOPA’s launching the HBS consultation despite pledges by the European Commission to abandon pillar I of the revised IORP Directive, detailing capital requirements.“Although we would prefer EIOPA to drop this altogether,” Walsh added, “we are pleased it has acknowledged the concerns raised in previous consultation rounds.last_img read more

​Irish deficits increase by third over 2014

first_imgAccounting deficits within Irish defined benefit (DB) schemes have increased by €3.5bn over the course of 2014, according to Mercer, despite continued positive investment returns.Sean O’Donovan, head of DB risk at the consultancy, said that it would come as a “disappointment” that the funding shortfall within company funds had increased despite continued asset growth.“Despite the recovery, sustained pension deficits remain an issue and is becoming an area of focus for companies who seek ways to reduce or cap their liabilities,” he added.Mercer said that the average DB scheme had seen assets increase by 4% over the third quarter, and that a decline in deficits would have been expected after the funding situation improved by €1.8bn over the course of 2013. The falling government and corporate bond yields in recent months, however, had seen a 20% increase in liabilities, offsetting any gains in assets under management.The consultancy said that accounting deficits stood at an estimated €5.4bn at the beginning of 2014, rising to €8.9bn at the end of September.“Bond yields are at historic lows and while they do provide a broad match for liabilities, the timing of switching out of equities to these assets remains a key issue for employers and trustees,” O’Donovan added.“Schemes need to maximise opportunities as and when they arise and put in place plans to capture funding level improvements.”last_img read more

UK government pressures local government schemes into asset pooling

first_imgThe UK government has told Local Government Pension Schemes (LGPS) to present it with cost-saving measures or face the strict implementation of its own pooled investment approach.In Budget documents released by HM Treasury today, the Conservative government elected in May said it would work with the LGPS to ensure that “pooled investments significantly reduce costs”.Local-government savings was a key theme in the previous Conservative-led coalition government, which aimed to cut investment-management costs among the LGPS.In further detail today, the government said it was now inviting local governments to approach it with their own proposals to meet a “common criteria” for cost-savings for pension funds. The government added that schemes failing to submit proposals could be forced to pool investments.It will consult on the details of the “common criteria” before legislating to ensure its own pooled investment approach can be forced onto non-complying schemes.On today’s annoucement, NAPF chief executive Joanne Segars said the organisation would work with the government on its new consultation.However, she added: “It’s clear pooled investments will work most effectively where they arise out of natural collaboration between funds rather than where funds are forced to invest together.”The 89 LGPS in England and Wales, with more than £190bn (€270bn) in assets, are still awaiting an official government response to the consultation that proposed the creation of two collective investment vehicles (CIV) for listed assets and alternatives.The proposals, from the last government, also called for shifting all listed assets into passive management, to save investment management fees.The statement in today’s Budget is the first sign the new government is continuing its work on pooling investments. But it has seemingly retracted from its single approach and appears willing to examine industry proposals first.Recently, two LGPS schemes from London and Lancashire won approval to create a partnership that aims to create a CIV and merge back-office functions, with the view to saving £32m by 2021.The CIV and passive management ideas put forward by the Department for Communities and Local Government (DCLG) in May 2014 were widely criticised by the National Association of Pension Funds (NAPF), as well as LGPS funds with in-house investment teams.Despite the DCLG’s launching the original consultation on pooling investments in May 2014, today’s statement from HM Treasury highlights tensions within government departments that have been blamed for the legislative delay.Bob Holloway, who heads up DCLG’s pensions department, said the delay was down to disagreements between his department and others within the government.In April, IPE learned that several schemes with long-term records of in-house investment management were considering legal action against the government should it consider forcing through a mandatory shift to passive management.They based their proposals on research conducted by consultancy Hymans Robertson, which showed the collective 89 schemes would have made significant savings but with higher investment returns had they invested equities and bonds passively.However, the consultancy distanced itself from the government consultation and said it believed active management had a place within the LGPS.last_img read more

Nordic investor tenders ESG-themed emerging market mandate

first_imgA Scandinavian institutional investor is tendering a $200m (€181m) emerging market (EM) equity mandate, using IPE Quest.The unnamed insurance company behind search QN-2162 said it was looking for exposure to large and mid-cap equities across the EM universe and was requesting proposals from active managers in the space.It said the UCITS funds put forward for the mandate should comply with Solvency II reporting requirements, and be able to apply an environmental, social and governance (ESG) screening.It also said the mandate’s investment universe must exclude weapons including cluster munitions, nuclear weapons and anti-personnel land mines. Additionally, the insurance company said it would prohibit exposure to coal mining companies or utilities drawing revenues from coal. The mandate’s performance will be benchmarked against the MSCI Emerging Market index, and should limit tracking error to no more than 10%.Interested asset managers should have at least $1bn in assets under management and a minimum track record of at least three years in similar strategies.Managers have until 8 March to submit proposals, stating their gross-of-fees performance to the end of January. The IPE news team is unable to answer any further questions about IPE Quest tender notices to protect the interests of clients conducting the search. To obtain information directly from IPE Quest, please contact Jayna Vishram on +44 (0) 20 3465 9330 or email [email protected]last_img read more

GMPF, LPFA infrastructure fund buys £150m wind farm stake

first_imgOn completion of the extension, owned by SSE, the stake jointly owned by GMPF & LPFA Infrastructure and Greencoat will fall to 30%.Kieran Quinn, chair at GMPF, said he was pleased with the deal, building on the joint venture’s existing renewables portfolio.The £500m venture’s first investment was to commit £60m to renewable energy projects, investing through Iona Capital.Lancashire County Pension Fund, which has partnered with the LPFA to pool assets but did not join the infrastructure venture, last year also invested in a Portuguese wind farm. Quinn said he looked forward to announcing future investments and attracting other local authority funds to the venture, which will target UK assets.Its numbers are expected to be boosted through support from Merseyside Pension Fund and West Yorkshire Pension Fund, which have committed to pool assets with GMPF as part of a reform of the English and Welsh local government pension sector.Each of the two schemes is expected to invest £250m into the infrastructure joint venture, boosting its capital to £1bn.However, GMPF has also pointed out that a fellow £32bn pool, the Border to Coast partnership founded by East Riding Pension Fund, is said to be in talks to collaborate with the venture. Greater Manchester Pension Fund’s (GMPF) infrastructure joint venture with the London Pensions Fund Authority (LPFA) has invested £150m (€193m) in a UK wind farm, the venture’s second acquisition.GMPF & LPFA Infrastructure acquired a 49.9% stake in the South Lanarkshire-based onshore wind farm alongside the Greencoat UK Wind fund, with the remaining stake being held by Scottish energy company SSE. The energy firm valued the farm at £355m.The Clyde wind farm currently consists of three separate installations, with a generating capacity of about 350 megawatts.However, SSE is expanding the project, boosting capacity by around 173 megawatts.last_img read more

ATP blasts ‘blatantly over-simplified’ WWF report

first_img“We find it extremely frustrating because the so-called ranking they have produced is blatantly over-simplified, and this is just not a serious way to treat a matter of this importance,” a spokesman for ATP said.The WWF, taking aim at ATP in particular, said the statutory pension fund had come out second to last in the ranking.It said ATP had reported back in 2009 that its climate-related investments would make up 10% of the total portfolio within 4-5 years, but that this had not happened.“Today,” the WWF said, “ATP’s profile is far from green. For example, ATP does not have investments in offshore wind farms that many of the others do, and the fund has not blacklisted any fossil fuel companies.”Nordbo added: “As a statutory pension fund, one has a particular responsibility to support a societal development that goes in the direction of the transition to green energy, and ATP has not taken on that responsibility at all.”However, the ATP spokesman said it was simply incorrect to say the pension fund did not have offshore wind farm investments.“We are heavily invested in DONG, the world’s leading off-shore wind farm utility company,” he said.He said the pension fund had more than DKK3bn (€403m) invested in this Danish energy company, which generated 85% of its revenue from wind energy business, as well as DKK1.6bn invested in the wind energy firm Vestas.The pension fund had been penalised in the WWF methodology because it did not have direct infrastructure investments in wind farms, he pointed out.“Any thorough and serious evaluation of our investor portfolio would document that we are behaving as a responsible investor and generating a high return for our members,” he said, in response to the accusation that pension funds were “gambling” with savers’ money.Last year, ATP generated a return of 17.2% on its investment portfolio, he added.PKA, on the other hand, had proved itself to be the greenest of the 16 pension funds analysed, according to the WWF.Its top position in the ranking was due to the fact it was the only pension fund to have identified climate early on as one of its three areas of focus, and the fact it was one of the pension funds that had invested the most in, among other things, offshore wind farms, it said.The report showed that only four out of the the 16 pension funds analysed – Nordea Life & Pension, PenSam, PFA and PKA – had excluded coal and oil companies on climate grounds.But all 16 had significant investments in conventional energy, it said, adding that 12 of them had investments in US oil company Exxon, for example, “which is notorious for its lobbying against climate action”.The WWF disagreed with what it said was the general view of pension funds that active ownership provided better results than divestment.“The WWF has serious doubts that it is possible, through active ownership, to get big oil and coal companies to change their course so significantly they would no longer contribute to increasing climate challenges,” it said.It cited the recent example of Exxon, which it said had at its general meeting last week decided against taking a more climate-friendly line, even though eight Danish pension funds had voted in favour of a greener stance.PenSam responded to the WWF comments on active engagement, saying it was generally in favour of active ownership.“We have the opportunity to change things for the better through dialogue,” a spokesman for the fund said.“By selling, we give up on that opportunity. However, selling is an opportunity if dialogue does not result in the changes sought after.”Last week, ShareAction and WWF Switzerland published a survey concluding that most of the 20 largest Swiss pension funds do not systematically consider sustainability criteria in their investment decisions. Denmark’s biggest pension fund, ATP, has objected to the way it has been criticised in a report on efforts by the country’s pension funds to mitigate climate change via investment.In an analysis of the effort pension funds are making in this regard, the WWF (formerly the World Wildlife Fund) in Denmark said none of the country’s large pension funds were aiming to divest their investments in coal and oil.John Nordbo, head of the conservation department at the WWF in Denmark, said: “We can confirm the pensions sector is still not taking the climate seriously, and, at the same time they are gambling with Danes’ savings by continuing to hold money in companies that are bleeding to death.”ATP condemned the way the report had been put together, saying it did not reflect what was really going on within Danish pension fund investment.last_img read more

Joseph Mariathasan: Brexit’s terra incognita

first_imgThe EU is a direct development of the European Coal and Steel Community (ECSC) established in 1951, just a few years after World War II. The ECSC’s prime purpose was to prevent another European war, and that political objective was achieved to the great satisfaction of everyone. But moving on from a trade organisation to an objective that seeks to establish a united states of Europe does not appear to have majority support within the UK, nor arguably in many other European countries.UK prime minister David Cameron seems to have achieved a fudge of sorts from the EU’s historic commitment to create an “ever-closer union” of the peoples of Europe. But demands for maintaining the sovereignty of the UK’s Parliament over EU legislation are completely at odds with the direction of change within the EU, whereby every crisis has been used to strengthen the role of the EU as a political entity. What may separate the UK is this very different vision of what the EU should represent. Continental Europeans want real integration – it means the euro, the Schengen passport with free mobility and even armies that are integrating, like those of the Netherlands and Germany.For the European periphery countries and the new entrants, the EU represents something else. It represents hope. Hope that individuals can escape from the burdens imposed on them by a dysfunctional state such as Greece, beholden to special interests, no matter which party governs. In the case of Greece, as part of the EU, Greeks see Greece’s security as enhanced against what it perceives as aggressive and unstable neighbours surrounding it. For Greece and to a lesser extent some of the other peripheral countries, the EU’s institutions and rules represents an escape route from the craziness of a country that aspires to be a developed, Western European democracy but remains wedded to practices dependent on patronage and privilege.The dilemma for the UK, as many Continental Europeans argue, is that Britain has always been an island, stuck between Europe and the US, culturally as well as physically. The economic arguments for the UK’s being either in or out of the EU are essentially indeterminate. There is no overwhelming case either way, and that is one reason why the decision is difficult. If the question were to join from scratch, the answer may be a strong negative. But that decision was made decades ago. Changing the status quo via Brexit may or may not be a good thing in the long run. But what can be guaranteed is that, by doing so, it will cause immense uncertainties for a considerable period of time.Will the benefits of Brexit outweigh the revised status quo within the EU? No one knows the answer. For most people, the decision, much like the Scottish referendum in the UK, will be made on emotional grounds. With both US president Barack Obama and aspiring president Trump wading into the debate, more heat has been generated but perhaps no more light.There is an apocryphal story that former US president Richard Nixon, on his ground-breaking visit to China, tried to make small talk with premier Zhou Enlai by asking him what he thought about the French Revolution. Zhou’s reply was reputed to have been: “It is too early to tell.” That answer may still be appropriate when it comes to discussing the impact of Brexit for decades to come.Brexit will introduce huge uncertainties in terms of the UK’s economic future, the stability of the EU and Continental European peace in the absence of the UK, and of the UK’s future position in the world. Doing so without overwhelming evidence that the outcome would be beneficial does seem foolhardy. But the EU may also have to accept it must recognise not all countries are seeking dissolution of their national identities within a pan-European behemoth. It would be a tragedy for both the UK and the rest of the EU if a compromise cannot be found.Joseph Mariathasan is a contributing editor at IPE Europe’s failure to hammer out differences could usher in enormous uncertainties, Joseph Mariathasan warnsDonald Trump has declared that Britain would be better off outside Europe. His rationale is not the result of any deep analysis but rather an outcome of his own domestic political posturing – if building a wall on the border with Mexico is his answer to illegal immigration from Mexico, then perhaps leaving the EU may seem a simple solution to him for problems arising from immigration for Britain. The fact the headline news of an influx of Syrian refugees into Europe is a quite separate issue from the legal immigration of EU nationals into Britain does not seem to have entered his thinking.Unfortunately, the debate on Brexit within the UK is no more profound. There is much rhetoric and claims about benefits and future costs by both pro and anti-Brexit supporters. But if the evidence that has accumulated so far is anything to go by, voters will be as confused at the end of the process as they are now.Ultimately, the gulf between the UK and the rest of the EU lies in differing visions of what the EU represents. For the UK, the EU should be a trading body and not a political entity with a commitment to ever-closer union and a common currency. But for Continental Europe, led by France and Germany, it represents a political union designed to eliminate the causes of wars that have dogged Europe for centuries.last_img read more

German bank sector pension fund claims Brexit-related client win

first_imgIn light of the UK’s impending exit from the EU the number of foreign banks partnering with BVV was “continuously increasing”, the pension fund said in a statement.The human resources department of the Standard Chartered Bank Germany branch stated it was already familiar with BVV, mainly through other employees’ experience of having a BVV pension.“In connection with the bank’s strategic decision in favour of Frankfurt we decided to adopt the market standard and in future we will offer all employees an occupational pension via BVV,” it said in the statement.It recognised that an employer-offered pension was becoming an increasingly important factor in the competition for qualified staff, the bank added.BVV – the third largest pension fund in Germany, according to IPE’s Top 1000 Pension Funds report – recently reported a surplus of €371.9m and assets under management of €28.1bn, up by €1.5bn from the year before. Its assets returned 4.3% last year.BVV did not respond to questions by the time of publication. One of Germany’s largest pension providers has said it is attracting business from foreign banks responding to the UK’s impending departure from the European Union.BVV, a pension provider for the financial sector in Germany, today announced that Standard Chartered Bank had chosen to partner with it to offer pensions to its staff in the country.Standard Chartered’s move follows the bank’s decision to establish an alternative EU hub in Frankfurt. It has previously said it was applying to turn its branch in Frankfurt into a new EU-based subsidiary.The pension provider – Germany’s largest Pensionskasse – said a large number of foreign banks were already using BVV to ensure staff in Germany were not missing out on pension accrual compared with peers in the UK given the auto-enrolment obligation there.last_img read more

Varma investment chief laments lack of options for investors [updated]

first_imgReima Rytsölä, CIO, VarmaHowever, Varma president and chief executive Risto Murto said: “Varma’s investments recovered from the market turmoil in the early part of the year and trade policy tensions failed to significantly weaken the return.”Private equity was Varma’s best performing asset class in the six-month period, returning 7.8%, but fixed income made a 1.5% loss, according to the company’s interim report.A 3.4% return on hedge funds significantly improved the total return on investments, the pensions firm said. Real estate generated 2.7%, while equites produced 3.3%.Varma reined in risk during the first half, reducing the market value risk position of its investments to 95% by the end of June, from 101% at the end of December 2017.However, Rytsölä told IPE that, generally speaking, these percentages were more illustrative of the use of derivatives than of the actual risk level.The pension provider also said its share of listed equity investments in the portfolio had been reduced slightly in the first half due to tensions in trade policy.This article has been updated to clarify Varma’s risk position. The greatest threat to global economic growth was the simmering trade war, Rytsölä added, while the gradual movement of central banks towards tighter monetary policies did not seem to have upset the market. Finnish pensions insurer Varma made a 1.7% return on its investments in the first half of this year on the back of strong private equity gains.Its investment portfolio grew to €46.4bn by the end of June, up from €45.4bn at the end of December. This ranked Varma as Finland’s largest pensions insurance company by assets, just ahead of rival Ilmarinen, which reported assets of €46.3bn earlier this month.The result came despite CIO Reima Rytsölä bemoaning the scarcity of investment opportunities available.“The day-to-day business of euro investors is still defined by a lack of options in the world of low-interest-rates and relatively expensive equities,” he said.last_img read more