German institutions turning from equities to alternatives – Universal survey

first_imgCurrently, the exposure to alternative investments is below 3% in the majority of portfolios of the surveyed institutions, which included Pensionskassen, Versorgungswerke, insurers, foundations and banks managing around €300bn in total assets.Universal pointed out that nearly one-third of respondents wanted to up their quota by more than 300 basis points.At the same time, the interest in real assets such as real estate and infrastructure remained strong, but only 31% said they wanted to increase investments in those segments compared with 43% last year.All in all, the surveyed institutions remained pessimistic about the global economic outlook, with 78% saying the financial crisis is not over yet five years on.More than 60% noted quantitative easing helped to buy time but did not solve structural problems, and they did not expect either the US Fed or the ECB to cut rates over the medium term. German institutions do not see an end of the low-interest rate environment any time soon and are planning to up their exposures to alternatives, a survey by Universal Investment has found.Among the 90 German institutions polled by the asset manager, 70% want to increase their exposure to alternatives, and 29% said they were looking at investments in private equity and loans.In a similar survey last year, only one-fifth of respondents were looking into alternatives, while one-third planned to increase their equities quotas.This year, the trend is reversed and “growing stronger”, Universal said.last_img read more

IPE Awards: Pension funds warming to activist shareholding strategies

first_imgMore than half of respondents to a poll of European pension funds believe activist shareholding strategies have a role within institutional investment.The question whether activism should become part of institutional investors’ strategies was posed to an audience of European pension funds during the last session of the 2014 IPE Conference & Awards in Vienna, by a panel moderated by Craig Stevenson, senior investment consultant at Towers Watson.Pension funds attending the conference also agreed on the style of activist shareholding they would pursue, with most investors saying they preferred a mix of a collaborative and an aggressive style.The majority of investors in the poll said they were ‘agnostic’ as to where their activist allocation should sit in their portfolio, as they believe it should not necessarily take one single, specific form – such as equity, hedge funds or private equity.  With regards to returns from activist shareholding strategies, most said they would expect them to add alpha to their portfolios to the tune of 3% or more.This finding seems to represent a realistic expectation if compared with scientific evidence.Julian Franks, professor at the London Business School and academic director of the Centre for Economic Policy Research of the European Corporate Governance Institute, cited data from his several studies showing that activist strategies that are successful in bringing about change do deliver additional alpha returns for investors.All panellists agreed that activism was compatible with the way institutional investors operated, but there was disagreement as to how institutional investors and other activist investors, such as activist hedge funds, should join forces to make an impact on company management strategy.Franks pointed out that, while there has been a cultural change, and management are far more comfortable with activist ownership, that should not mean activist fund managers should disregard companies that do not show an immediate willingness to engage in a discussion.He said: “You cannot walk away simply because the company’s management does not return your phone calls. That is not what I would call responsible ownership.”Jens Tischendorf, partner and director of Cevian Capital, an activist hedge fund, explained that his fund’s strategy consisted of joining the boards of companies and changing management from the inside.As a result, the fund spends a considerable amount of time studying individual investments before acting, and the fund’s portfolio is highly concentrated. Peter Borgdorff, director of Pensioenfonds Zorg & Welzijn (PFZW) and chairman of Eumedion, the Netherlands’ corporate governance forum, pointed out that a large pension fund such as PFZW, with equity stakes in hundreds of companies, cannot systematically follow a strategy consisting of putting representatives on the boards of companies.However, he said, PZWF did pursue an activist strategy, using its weight to influence companies – especially in order to rectify issues at companies, as observed by PZWF directly or raised by other shareholders and the public.The fund uses proxy voting, as well as more direct dialogue, to have an impact on companies, on a case-by-case basis.Borgdorff added: “For me, activism is more than just generating additional alpha. That should not be the goal in itself. Activism is about our responsibility to society. Through activism, you can create a better market. I can’t imagine investing without taking responsibility about the companies you invest in.”Tischendorf agreed that activism could help improve society as a whole: “If through being an activist investor you make companies more competitive, it is better for society.” Anne Simpson, director of corporate governance and senior portfolio manager at CalPERS, US public-employee pension fund, said the fund had gradually developed an activist approach that now focused on several areas, from governance to gender issues.Simpson, who manages a team of 20 people dedicated to monitoring corporate governance at the companies that the fund is a shareholder of, said: “CalPERS has moved to an integrated approach to active ownership, to make sure all our activist strategies are managed in an integrated way across the portfolio.”Simpson added that, while CalPERS has worked with external “governance managers” in the past, the fund has now also trimmed that programme.She said: “We are finding can be more effective working directly with companies. We’re being thoughtful about the role of this kind of manager.“First, intermediation can dilute the conversations with the companies. Also, we have a long-term investment horizon, as we are simply a permanent investor in companies.”Panellists, however, highlighted a set of challenges in activist ownership of shares.Tischendorf said it was key for activist investors to make sure their strategy represented the long-term interests of all shareholders, and pointed out that that had not always been the case.Franks also expressed concern about the costs of activist strategies.He said: “Activism is quite expensive, at 1.5% to 2% performance bonus per year. Such high costs may be justified by the expenses paid by managers, but the question is, how can we make activist ownership less expensive?”last_img read more

Asset managers calm over risk of contagion from Greek election

first_imgEuropean asset managers have remained calm in the face of a potentially unstable Greek election result as the new party aims to renegotiate bailout terms.Yesterday, the left-of-centre and anti-austerity party Syriza won 149 seats in Greece’s 300-seat Parliament, falling just short of being able to form a majority government.Syriza, led by Alexis Tsipras, has now formed a coalition government with the Independent Greek party after it won 17 seats, with renegotiations with the Troika – the name given to the European Central Bank (ECB), International Monetary Fund (IMF) and European Commission (EC) – at the top of its agenda.The negotiations relate to restructuring the debt from Troika bailouts of the Greek government and banks, thereby allowing the government to scale back unpopular austerity measures. Greek GDP has fallen by more than 30% since the onset of the financial crisis, with equity markets falling 90% since 2007.Fidelity head of European equities, Paras Anand said Tsipras was likely to restructure the debt agreements to free the Greek economy from a “seemingly endless period of contraction.”He said much would be made of the threat to euro-zone stability from the left-leaning party’s plans, but that he expected the impact to be modest.“Syriza has repeatedly stated a desire to remain within the single currency,” he said. “The emphasis of key creditors within the euro-zone has already shifted from austerity to reform, and Syriza may find greater support from the mainstream European parties than its ‘radical’ tag would suggest.”Anand also said the risk of contagion to other euro-zone economies was limited given the uniqueness of the Greek situation and the tightening of yields across the euro-zone.Data from Bloomberg showed the yield on 10-year government bonds has risen since the election result, from 8.39% to 8.72%, but was still lower than the 10.68% seen earlier this month, a 15-month high.However, contagion risk in Spain and Italy seems limited, with yields continuing to trade much lower in the wake of the ECB’s quantitative easing announcement.Spanish 10-year government bonds are trading at 1.36%, falling from 1.53% since the ECB action, and more than half the yield from 12 months previous.Italy’s 10-year bonds paint a similar picture.“It is worth taking a step back and reflecting that the financial sector across Europe is in a significantly more robust position today than it was at the last ‘peak’ of the sovereign crisis in 2011,” Anand added.Meanwhile, Rob Burnett, investment director at Neptune’s European opportunities fund, argued that Syriza had no incentive to cause further turmoil in Greece.“Tspiras is taking power, with Greece having just registered its first quarter of GDP growth in seven years, and he is aware he has a tremendous opportunity to gather the plaudits as the economy recovers,” he said.“We expect Syriza’s negotiation with the Troika, comprising the ECB, the European Commission and the International Monetary Fund, will be difficult, but all sides are incentivised to come up with a face-saving compromise.”Viktor Nossek, research director at WisdomTree, said QE was likely to protect Spain and Italy from contagion, and preclude fiscal easing in these countries and Greece.“A compromise struck between the Troika and Greece is [also] likely to stabilise the euro as it dissipates contagion risk to Italy and Spain,” he said. “Nevertheless, a compromise should impact sentiment in Greece’s bond markets negatively.“Pressure on Greece’s bonds to fall further is likely. At risk, too, are Greek bank stocks that hold government debt of Greece.”last_img read more

Reform proposal could make Sweden’s AP funds ‘inflexible’

first_imgHessius said politicians were so far willing to defend only the proposals on sustainability, but she questioned the need to impose restrictive regulation on the funds.She argued that regulation would give AP3 less flexibility as sustainable investment evolved, and that the fund had begun to decarbonise its portfolio, sell off coal holdings and establish a dedicated sustainability portfolio worth SEK10bn (€1bn) – without government direction.The other buffer funds have also launched a number of other sustainability initiatives, and AP4 is a founding member of the Portfolio Decarbonization Coalition and recently tendered an equity mandate investing in companies tackling water scarcity. The managing director’s comments came as AP3 announced that it returned 6.4% over the first six months of the year.It estimated it would have returned 3.9% had it been required to invest passively, something critics have feared would result from the government reforms.“A passive index strategy [would have] amounted to SEK7bn less for the first half of the year alone,” Hessius said.“Were we to measure for a longer period, the difference is SEK18.5bn.”Hessius is not alone in her concerns for the reform of the AP fund system.Mats Langensjö, chairman of the 2012 Buffer Fund Inquiry, has previously warned that the government’s reforms would see the funds deploy a passive, index-tracking portfolio over time.Mats Andersson, managing director at AP4, has said the reforms could “destroy” the system, while AP2 managing director Eva Halvarsson has said the changes were “costly and risky”. Regulating how Sweden’s buffer funds tackle matters of sustainability could undermine their ability to adapt to market changes, AP3 has warned.Commenting on the government’s proposed overhaul of the system, managing director Kerstin Hessius said the reform package as a whole put the diversified nature of the four main funds’ investments at risk.A compromise agreed by Sweden’s government and the four main opposition parties would see AP6 merged with AP2 and the closure of a second, as yet undecided buffer fund.Additionally, the reform would establish a National Pension Fund Board charged with overseeing the system’s assets and agreeing levels of investment risk, which could be vetoed by the government.last_img read more

Foundation set up to pursue investor claims against VW in Dutch court

first_imgIt intends to do so by using the Dutch Collective Settlement Act, which allows a foundation, supported by representative investors, and a defendant company to petition the Amsterdam Court of Appeals jointly for approval of a settlement.If approved, investors that do not opt out receive payment, while the defendant receives a release of claims.  Investors that have opted out are free to pursue their individual actions.The Act can be applied to resolve securities claims of non-Dutch investors against a non-Dutch company.The court’s decision is enforceable throughout the European Union and several other European nations.The foundation, since its launch last week, has attracted a rapidly growing number of supporting investors, including some European pension funds, according to Anatoli van der Krans, senior adviser for European investor relations at Bernstein Litowitz Berger & Grossmann (BLBG), the US law firm financing the foundation.A San Francisco judge has already appointed BLBG lead counsel in the consolidated class action involving Volkswagen’s American depositary receipts in the US.But Germany, in contrast with the US, has no opt-out class action system, said van der Krans.He told IPE: “While there is an opt-in group model procedure – KapMuG – this is a lengthy process, does not solve all procedural aspects, and comes with a ‘loser pays’ rule.“Furthermore, any settlement will only apply to the group, not to all other investors.”The VISF’s board includes Huub Willems, the former president of the enterprise chamber of the Amsterdam Court of Appeals; Jean Frijns, former CIO at the civil service pension scheme ABP; Frans van der Wel, professor in accounting at VU University of Amsterdam; and Rob Okhuijsen, an expert in mass claim resolution and former board member of the Royal Dutch Shell Foundation.Investors can join at: http://volkswageninvestorsettlement.com.Meanwhile, third-party litigation funders Bentham have appointed lawyers Quinn Emanuel to pursue legal action against Volkswagen in Germany, using the KapMuG model process.They are currently putting together a list of investor plaintiffs.Jeremy Marshall, CIO at Bentham, said: “Dutch foundations are not the silver bullets they are portrayed to be. The danger is that investors are effectively in a subservient position – if VW says ‘You’re not getting anything out of us’, you’re stuck.”Marshall added: “With the certainty of litigation in Germany, it is hard to see how a defendant would come to a settlement with a Dutch foundation before that German litigation is itself compromised.” An independent entity – the Volkswagen Investor Settlement Foundation (VISF) – has been set up to pursue investors’ claims against Volkswagen in the Amsterdam Court of Appeals.The claims centre around revelations last year that the car manufacturer used “defeat device” software on thousands of diesel vehicles sold in the US, enabling them to violate emissions standards.The revelations provoked a collapse in the share price, with €25bn wiped off the company’s market capitalisation on German exchanges in two days.The VSIF is seeking compensation for economic loss on all Volkswagen securities, including equities and fixed income stocks, that were publicly traded outside the US, and purchased or held by investors worldwide between 23 April 2008 and 4 January 2016.last_img read more

ECB throws ‘kitchen sink’ at problems with expansion of QE’s scope

first_imgThe European Central Bank (ECB) is to grow the scale of its quantitative easing (QE) programme by €20bn a month, expanding it to include a wider range of corporate bonds. Its six new or amended policy measures – including lowering the base interest rate to zero and the bank deposit rate by 10 basis points to -0.4% – were likened by Patrick O’Donnell, investment manager at Aberdeen Asset Management, to the central bank’s “having thrown the kitchen sink” at the problem.All rate changes will take effect from 16 March.He said it was a “big surprise” that non-financial corporate bonds had been included within the remit of the expanded asset-purchasing facility but was uncertain how long the rally the announcement triggered would last. Stephen Years, head of fixed income beta at State Street Global Advisors, argued the steps were a realisation by the ECB that it could not continue with its usual approach.“The programme modifications and the new monetary policy tools embraced by the ECB today are reflective of the view that just pulling harder on the existing monetary leavers open to them is not sufficient to deal with the economic reality within the euro-zone,” he said.Ian Tabberer, global equity investment manager at Henderson Global Investors, argued that the ECB’s approach risked tackling the wrong areas.“At the margin, this will help financial assets, [but] it is anaemic demand for credit rather than the cost of supply that appears to be the fundamental issue, and this is creating the low-inflation environment in Europe,” he said.“We hope these measures can boost confidence but doubt whether monetary policy alone can kick-start the broader European economy.”He said questions remained whether the impact on the euro, down following the ECB’s decision, would in fact have a positive impact overall.“If these measures do lead to a weaker euro relative to other global currencies, it must be remembered that, in a global context, this is a zero-sum game,” he said.“Easing of pressures in one region may be creating pressures in another. There are no easy solutions, and the longer-term impacts of this announcement are likely to be complex.”Meanwhile, Neil Williams, chief group economist at Hermes Investment Management, was uncertain whether the actions of central bank governor Mario Draghi would have the desired effect, noting that the rate cuts were an indirect route to growth.“Either way,” he added, “while helpful in addressing the symptom, deflation, Draghi cannot alone solve the underlying problem – a monetary union devoid of economic union.“This will take years. And, meanwhile, the euro remains a currency in search of a government.”last_img read more

Transition to new pensions system poses ‘enormous challenge’, says APG

first_imgThe advisor pointed out the asset managers would have to switch from a uniform investment policy to a lifecycle-based system, which also needed to be designed.In addition, both shape and duration of the interest hedge would need to be changed, “as young participants wouldn’t need an extensive cover in the new pensions contract,” De Haan explained.“Providers also need to adjust their administration from the current rights-based system to individual pensions accrual.”He added that a different kind of pensions contract would also require new asset-liability management studies.In his opinion, however, the most important challenge would be to explain to pension fund participants what the transition to a new system, as well as the principle of individual pensions accrual, means to them.“Also, in a system of individual pensions accrual, we need to continue communicating in terms of benefits in order to keep things comprehensible,” he stressed.The challenges for the providers would come on top of the legal hurdles that need to be addressed in order for the SER variant to work.“Merging existing pension rights into the new system must be legally underpinned, and the same goes for the abolition of the average pensions accrual and contributions,” said the adviser.During a discussion at the seminar, the attention was also drawn to the importance of independent advice for participants, who would be offered options for pensions accrual.Currently, the SER, the Pensions Federation and the Labour Foundation (StAR) are assessing the social and economic aspects of a transition of the current pensions plans to a new system.Last week, Jetta Klijnsma, state secretary for social affairs, announced that she would present a memorandum to the Dutch parliament with an assessment of the various alternatives, including the SER variant, before August.A new pensions system is expected to be implemented within the four-year term of the next government, following next March’s general election. Dutch pensions providers and asset managers are facing an enormous challenge if the country’s pensions system is to be based on individual pensions accrual with extensive risk-sharing, a strategic policy adviser of the €417bn asset manager APG has suggested.Speaking during a conference in Amsterdam organised by IRR, Jurre de Haan, said this alternative was nevertheless “very interesting” as an option to replace the defined benefit system in the Netherlands.De Haan, who also advised the Social and Economic Council (SER), which examined the individual account variant as the basis for a future system, emphasised however that the feasibility would depend on political decisions and support from the employers and workers.Among unions there is still significant resistance against a transition to a defined contribution-based system.last_img read more

Carbon footprint increases at ABP despite efforts to reduce impact

first_img“APG was accustomed to applying risk and return as its main criteria and then checking for sustainability and costs in a later phase,” she said.“Sustainability now plays an equal role in every investment decision, which means processes and IT systems need to be adjusted.”She said ABP had also given investors concrete carbon-reduction targets for individual portfolios.Energy and mining companies are among ABP’s largest carbon emitters; the pension fund expects to offload stakes in more than 1,500 CO2 emitters to meet its reduction target.The scheme’s efforts on sustainable investments and renewable energy remain on track, according to Wortmann-Kool. By 2020, the civil service scheme expects to have invested an additional €29bn in “solutions for environmental problems”, such as sustainable buildings and pharmaceutical companies that seek to make their products more accessible in poor countries.The pension fund said it had already invested more than 37% of its €4bn commitment to renewable energy, including €180m in hydro power in Norway.Through a hedge fund, it also invested in Spanish solar and wind energy companies that ran into trouble following the government’s abandonment of energy subsidies.ABP said it had “saved” the companies in the process. The carbon footprint of ABP’s investment portfolio actually increased by 5% last year, notwithstanding the €359bn Dutch pension fund’s recent efforts to reduce it.Corien Wortmann-Kool, chair at the civil servant scheme, attributed the increase to “unintended effects” of its investments in relatively cheap energy companies. Presenting the pension fund’s annual report on sustainable investment, she took pains to emphasise that ABP would stand by its commitment to cut its carbon footprint by 25% by the year 2020.She also conceded that APG, its asset manager, had lacked the most up-to-date carbon data last year.last_img read more

KLP removes Chevron from blacklist after 13-year ban

first_imgChevron was banished from KLP’s investment universe in 2004 for links to serious environmental damage, relating to the company’s long-running legal battle over pollution in the Ecuadorian rainforest.In 2000 Chevron bought Texaco, which had been involved in oil extraction in Ecuador years before. Local communities sued Texaco, and later Chevron, for restitution, and KLP’s exclusion had been based on documentation from this case.But last year, a US appeals court ruling confirmed that lawyers for the communities had built their case on falsified documents and bribery of both witnesses and judicial officials in Ecuador.As well as this, the pension fund said Chevron had made big improvements to its human rights policy and environmental management systems.The Chevron decision was one of several changes the pension fund has made to its exclusion list. KLP said it had excluded two coal companies and one tobacco company from its investment universe.Alongside Chevron, AGL Energy, Alstom and L-3 Technologies have also been brought back into its investment universe.The changes were the result of a biannual review conducted by KLP with regard to the organisation’s Guidelines for Responsible Investment.This month, KLP’s list of potential equity investments is to expand to around 6,000 companies, from 3,000, following new investments in a global small-cap index. KLP, Norway’s main provider of municipal pensions, has added US oil giant Chevron back to its investment universe after a 13-year exclusion after the basis for the blacklisting was largely discredited.The NOK641bn (€65.7bn) pension fund said a 2016 US court ruling meant that documents in an environmental case against Chevron – upon which the KLP exclusion was at least partly based – had been falsified, and witnesses and judicial officials had been bribed.Anne Kvam, head of responsible investments at KLP, said: “We have been an active voice in calling for change at Chevron for years, despite the company’s exclusion.“With Chevron’s inclusion in KLP and the KLP fund’s investments, we plan to continue our engagement with the company as an active owner.”last_img read more

Brexit: UK recession warning as prime minister quits party leadership

first_imgSeema Shah, Principal Global InvestorsSeema Shah, senior global investment strategist, Principal Global Investors:“At $1.27 against the dollar, sterling has weakened in recent weeks, reflecting the repricing of Brexit risk as Theresa May’s time as prime minister draws inexorably to a close. Are we pricing in a no deal Brexit at these levels? No, the market is simply indicating that the risks of a no-deal Brexit have increased.“Were that nightmare scenario to unfold, sterling closer to parity against the dollar should be expected. Discussions of a potential rate hike remain almost incomprehensible, so an increase in uncertainty and volatility suggest the most likely path for UK rates is down rather than up.” What they said…Azad Zangana, senior European economist and strategist, Schroders:“[Boris Johnson] may look to take the UK out of the EU without a deal, despite parliament voting in favour of essentially removing the option. He could do this by failing to comply with the EU’s demands that the UK should continue to follow the rules. This presumably would lead to the EU agreeing to terminate the relationship in October.“If this were to happen, we would anticipate the economy to slow and fall into recession around the turn of the year. While the Bank of England would probably cut interest rates eventually, the expected depreciation in the pound would cause inflation to spike. The household sector has already run down its safety buffer in the form of its savings rate, therefore a contraction in demand is very likely.” Silvia Dall’Angelo, Hermes Investment ManagementSilvia Dall’Angelo, senior economist, Hermes Investment Management:“The risk is that under the next leader – most likely coming from the intransigent eurosceptic wing of the [Conservative Party] – the institutional tensions between the executive and parliament will intensify, potentially generating an even more fragmented and dysfunctional political landscape.“The next stage will probably result in early general elections, but other outcomes are possible, including a second referendum and a no-deal Brexit (the latter being the default scenario under current Brexit legislation). At any rate, the Brexit situation is unlikely to be resolved any time soon, and uncertainty will persist, which will continue to weigh on the country’s economic prospects and financial assets.” Theresa May delivers her resignation speech to journalists outside 10 Downing Street“It is, and will always remain, a matter of deep regret to me that I have not been able to deliver Brexit.“It will be for my successor to seek a way forward that honours the result of the referendum. To succeed, he or she will have to find consensus in parliament where I have not.“Such a consensus can only be reached if those on all sides of the debate are willing to compromise.”center_img Economists have issued renewed warnings of a possible UK recession after prime minister Theresa May this morning announced her resignation.May, who was appointed prime minister in the immediate aftermath of the country’s 2016 referendum on EU membership, said she would resign as leader of the ruling Conservative Party on 7 June, continuing as prime minister until a new leader has been chosen to succeed her.A number of Conservative Party members have been mentioned as potential successors, with former foreign secretary Boris Johnson tipped by bookmakers as the frontrunner. Johnson has been a vocal proponent of Brexit and several commentators today warned he could push the UK towards leaving the EU without a deal.Following May’s speech this morning, sterling strengthened against the euro after several days of poor performance as traders speculated on the likelihood and implications of May resigning. The FTSE 100 index was up nearly 1% for the day as of 2pm. Ludovic Colin, Vontobel Asset ManagementLudovic Colin, head of global flexible investment, Vontobel Asset Management:“In terms of the market reaction to today’s developments, the [sterling] and UK assets will be vulnerable in the coming month. But the hard Brexit would add bad news to a landscape that is worsening already. It could trigger deeper corrections to global risky assets like equities and credit markets especially in Europe.“At the moment, investors will need to avoid UK risk in their portfolio. Even if at micro levels there are some very good companies in the UK, investors will see much better entry points in the future.”Mark Dowding, CIO, BlueBay Asset Management:“Our analysis of the current composition of parliament suggests that any new prime minister might struggle to deliver a hard Brexit through parliament with the [Conservative] majority non-existent and a number of Conservatives still firmly committed EU remainers. Consequently, we continue to look for election risks with a new prime minister seeking a stronger mandate. Should this occur, this in turn points to a material chance that there will be a Labour coalition government in place before the end of the year. “In the same way risks seem skewed to a weaker pound, so we would see risks skewed to much higher Gilt yields with such an outcome and so continue to maintain short positions in both – even if little has really happened to either UK rates or FX since the 2016 referendum in the grand scheme of things. The Brexit endgame will be in sight before the end of the year and we therefore feel the moment where these views may play out is just around the corner.”… and what she saidTheresa May, outgoing UK prime minister:last_img read more