Hedge funds are facing a ‘critical period’ in wake of US pension fund’s decision to divest from asset class, writes Christopher O’DeaThe recent decision by US benchmark public-employee pension fund CalPERS to eliminate its entire $4bn (€3.1bn) hedge fund allocation signals the potential review of hedge fund holdings at all pension funds at a time when the vehicles are struggling to improve sluggish returns and reduce volatility that’s unsettling investors looking to them to dampen fluctuations in portfolios.While hedge funds represent only about 2% of CalPERS’ portfolio, the fund’s investing strategy is a widely watched barometer for how public-employee funds allocate their assets.“Hedge funds are certainly a viable strategy for some, but, at the end of the day, when judged against their complexity, cost and the lack of ability to scale at CalPERS’ size, the Absolute Return Strategies programme is no longer warranted,” said Ted Eliopoulos, CIO. CalPERS’ move has been in the making since this spring, when Eliopoulos took over as interim CIO, replacing his predecessor, Joe Dear, who died earlier this year. Eliopoulos, who joined CalPERS in January 2007 as senior investment officer for real assets, was named CIO just days after CalPERS announced it was terminating its hedge fund programme.The change will result in asset withdrawals from 24 hedge funds and six funds of hedge funds. CalPERS says it will take about a year to exit the funds in a manner that does not result in a negative impact on the value of its holdings.But CalPERS’ decision has already put a spotlight on the value of hedge funds to pension portfolios, says Frederick Rowe, vice-chairman of the Employees Retirement System of Texas and general partner at Greenbrier Partners, a money management firm in Dallas. Rowe believes it’s time for all pension funds to weigh the contribution of alternatives against the cost of holding hedge funds. “I think they should look,” he says.Meanwhile, Donald Steinbrugge, CFA and managing partner of hedge fund consultancy Agecroft Partners, says investors, as a result of the CalPERS news, can expect continued downward pressure on hedge fund fees for large mandates.Over the last five years, “there has been a strong trend of hedge funds increasingly offering fee breaks for large pension funds and the clients of institutional consulting firms”, he says.Managers initially discounted management fees only, but now discount performance fees as well.“For a typical hedge fund with a 2-and-20 fee structure, the discount is often 25% off standard fees,” he says. But he adds that, on average, pension funds will continue to increase their allocations to hedge funds.That’s because most institutions currently target an after-fee return assumption of 4-7% for a diversified portfolio of hedge funds – compared with core fixed income at only 2.5-3%.“As long as the expected return is higher for hedge funds than fixed income,” he says, “we will continue to see money shift from fixed income to hedge funds.”That’s held true so far. Hedge funds continued to garner assets at a strong pace in August, with more than $12bn flowing into alternatives, pushing total industry AUM to another all-time high of more than $3trn, according to eVestment’s Hedge Fund Asset Flows Report.With US equities at record highs, “alternative exposures to equity and credit markets make a lot of sense for today’s institutional investors”, says Peter Laurelli, eVestment vice-president of research.Yet, despite fee discounting, hedge funds just aren’t getting the job done. Hedge fund returns have lagged the S&P 500 by a wide margin over the last one, three and five-year periods ended in June, according to research firm Preqin.And while institutional investors look to hedge funds to dampen volatility, the sector got off to a rocky start in 2014 – the Preqin All Hedge Fund Benchmark posted a loss in three of the first four months of the year, leaving nearly one-third of respondents in the firm’s second-quarter investor confidence survey dissatisfied with hedge fund performance.While it may take some time for pension investors to alter their alternative allocations, Rowe says the industry has entered a critical period – and hedge funds face a fundamental challenge.“When you have a diversified group of managers,” he says, “it’s going to be hard to beat the market after expenses and fees.”And fee discounting only proves the point. “You start out behind, and it’s hard to catch up.”
The financial position of Dutch pension funds PGB, PNO Media and PND has worsened significantly over the third quarter, due to the combined effect of falling interest rates and anaemic equity markets.As a consequence, funding fell sharply, having a knock-on effect on official policy funding – the average coverage over the 12 months previous and the criterion for indexation and rights cuts.The €4.9bn PNO Media said its policy funding fell by 2.1 percentage points to 98.4% following a quarterly drop in its actual funding of 8.6 percentage points to 94.2%.The pension fund attributed the narrowing coverage ratio to interest rates, which fell by 26 basis points to 1.7%. A 2.7% loss on investments over the quarter translated to a 3-percentage-point drop in the coverage ratio.The scheme reported quarterly losses of 9.7% on equity and 11.4% on local currency-denominated emerging market debt.Government bonds returned 4.3% year to date.Infrastructure returned 4.5% over the third quarter and 8.5% year to date, while private equity returned 6.8% and 21.9% over the same periods.Overall, PNO Media returned 0.5% year to date.In other news, PGB, the €20.1bn pension fund for the printing industry, lost 2.1% on its investment portfolio, bringing its overall return for the year to date to -0.4%.It attributed the performance chiefly to a 10% loss on equity, but it also reported a 2.8% quarterly loss on infrastructure.Infrastructure, which returned 7.7%, and private equity, which returned 15.2%, were PGB’s best-performing asset classes over the first three quarters.Government bonds, meanwhile, returned 4.6% over the third quarter.According to PGB, falling interest rates over Q3 increased its liabilities by €1.2bn to €20.5bn.Its policy coverage fell by 1.5 percentage points to 102.5% in the wake of a drop in actual funding, which decreased by 7.5 percentage points to 97.6%. Lastly, PDN, the €6.5bn pension fund of chemical company DSM, said it lost 2.8% in the third quarter, having reported a 7.4% loss for the quarter previous.It said a €253m increase in liabilities, culminating in a 8.2% drop in actual funding, had exacerbated a €221m quarterly loss.PDN closed the last quarter with a policy coverage of 107.5%.A number of Dutch pension funds have produced disappointing results over the third quarter, including the five largest schemes in the Netherlands, the KLM schemes and Vervoer.
The Dutch pensions industry has concluded that the ongoing debate over the discount rate for liabilities and funding ratios is a “dead end”, according to Gerard Riemen, director at the Dutch Pensions Federation.Speaking with local financial news daily Het Financieele Dagblad (FD), he pointed out that the discount rate was used to calculate, among other things, how much cash a pension fund would need today to pay a pension in 50 years’ time.“There is no objective truth for this, however, as nobody can look into the future,” said Riemen, who recently called on the industry to come up with an alternative to the predominantly defined benefit (DB) system in the Netherlands.At the time, he recommended switching to a collective defined contribution (CDC) system, with individual pensions accrual and as much risk-sharing “as possible”. Contributions should be calibrated to achieve a pension that is 70% of salary, he added.During the FD interview, Riemen highlighted that it was not the recent performance of equity markets that worried the sector but rather the long-term prospect of low interest rates.He said Dutch pension funds had, for all intents and purposes, abandoned their call for a higher discount rate.He argued that last summer’s reduction of the ultimate forward rate – as part of the discount rate – had destabilised the discount rate and hurt coverage ratios.In the opinion of the Pensions Federation, he said, all current pension claims should be converted into CDC arrangements ”as soon as possible”.“If we don’t do this, we will keep having the same problems for decades,” he said.“We don’t want to tell people in their 30s how much exactly their will receive in 40 years’ time because this is totally impossible.”Riemen also took pains to emphasise the urgency for quick decision-making. “If markets remain suppressed this year, and interest rates don’t rise either, we are facing rights cuts for large numbers of participants next year,” he said.“As things stand at the moment, many participants won’t receive any indexation for years, and we risk losing public support for the existing pensions system.”Riemen said he hoped the new government would make a decision on the shape of the new pensions system next year, and fully implement the system no later than 2019.
Swiss bank Vontobel is buying the asset manager Vescore from Switzerland’s Raiffeisen for an undisclosed sum, in a deal the two banks say strengthens their collaboration.The Swiss banks said they were redefining their partnership within asset management and also bolstering their collaboration.In a deal signed by the two on 29 June, Raiffeisen is to focus on advising clients in the investment business, continuing to expand in this area, while Vontobel will concentrate on product development and product management, the banks said.Vontobel said it would make its global asset management, investment process and distribution capabilities available to Raiffeisen, and continue developing and managing certain asset management products for the Raiffeisen group. Axel Schwarzer, head of Vontobel subsidiary Vontobel Asset Management, said: “Vescore ideally complements our existing asset management product portfolio, which is focused on long-term growth.”Vontobel Asset Management began expanding internationally after it was spun off from its parent Vontobel in 2014.In March last year, Vontobel Asset Management took a 60% stake in London-based TwentyFour Asset Management.Vontobel said the acquisition would let it expand its investment capabilities in the areas of sustainable investing and quantitative investing in particular.In addition to this, Vontobel said the move would mean Vontobel Asset Management would strengthen its overall presence in Switzerland, as well as its position in the institutional market in Germany.Vescore’s asset management capabilities include sustainable investing – based on macro, financial, corporate and sustainability research – and quantitative investing and fundamental equity strategies.Vescore’s headquarters are in St Gallen, and it has offices in Basel, Munich, Lausanne, Riga, Vienna and Zurich, managing a total of CHF15bn (€13.8bn) in client assets.The purchase will be financed wholly from Vontobel’s own funds, and the deal – subject to regulatory approval – is expected to close in the third quarter.
The European Commission calls for input on the debate over a pan-European pension productThe European Commission is inviting pension funds, asset managers, insurance undertakings, individuals, consumers associations and public authorities to join the debate on the need for a pan-European pension product during a public hearing to be held on 24 October in Brussels.The hearing is part of the Commission’s work to consider proposals for a simple, efficient and competitive EU personal pension product. More investment into personal pensions could contribute to a stronger single market for capital through an increase in the funds available to finance the economy, as highlighted in the Commission communication ‘Capital Markets Union, accelerating reform’, adopted on 14 September.Vice-presidents of the Commission Valdis Dombrovskis and Jyrki Katainen, and commissioner Marianne Thyssen, will deliver keynote speeches. Prominent representatives of industry, consumer associations and academia will provide their views and take part in panel debates. All participants are invited to join the debate on key topics: Is there a need for promoting personal pensions in the EU? How can the current demographic challenges be addressed? Complementing public pensions and occupational pensions with personal pensions could be beneficial to individuals, increasing the choices for retirement savings, and to the wider economy, contributing to the creation of a capital markets union.How should a European personal pension product look like?A European personal pension product should be an attractive choice of saving for individuals and create benefits for providers. An adequate level of investment protection, transparency and the potential for good returns could attract savings from individuals. Economies of scale and efficiency gains, as well as cross-border passporting and distribution, could be among the benefits for providers operating in a European personal pension’s market.What are the challenges of a European personal pensions framework?Switching between personal pension products, domestic products and, when moving across borders, the decumulation of retirement savings and the general tax treatment of personal pension products remain important challenges to creating a single market for personal pensions. The hearing will provide important feedback from stakeholders to determine if EU action fostering the emergence of European personal pension products that are simple, affordable, transparent and provide better returns, would be appropriate and proportionate. The hearing also feeds into a public consultation due by 31 October.For more information on the hearing and registration, click here. To respond to the public consultation, click here. Philippe Caluwaerts is policy officer for insurance and pensions at the European Commission’s directorate general for Financial Stability, Financial Services and Capital Markets Union
Van Gelderen left APG in August after seven years at the Dutch asset manager. He joined initially as CIO, before succeeding Angelien Kemna as CEO in 2014.When APG announced his departure in May 2017, its spokesman told Pensioen Pro that he had always wanted to work in the US. He added that Silicon Valley close by would make Van Gelderen’s new role “even more attractive”.US publication Institutional Investor first reported Van Gelderen’s departure last week. It highlighted two other resignations from the university investment team in a three-week period.In Bachher’s opinion, the job changes proved that the talent at his investment fund was being noticed by other large institutional investors.However, he also made clear that Van Gelderen’s position would not be filled in and that other members of the executive team would take over his tasks. Eduard van Gelderen, former APG chief executive, is to leave his position as senior managing director at the $107bn (€91.4bn) investment fund of the University of California after less than a year in the role.Jagdeep Bachher, the fund’s chief investment officer, confirmed to IPE’s Dutch sister publication Pensioen Pro that Van Gelderen was to leave the university’s investment office, which runs endowment, pension and cash assets.According to Bachher, Van Gelderen has accepted a new position as chief investment officer of the Public Sector Pension Investment Board, a CAD153bn (€99bn) investment manager based in Montréal, Canada. This has not been confirmed by the Canadian company.When contacted, the former APG CEO indicated he could not comment, citing his current employer’s rules that forbid him to talk to the media.
Sweden’s third largest pension provider AMF has been given official approval to market 12 of its products on the Premium Pension System’s (PPM) funds platform – the third firm to get the green light since it was overhauled last year.Of 13 funds AMF included in its application process for the PPM – the defined contribution section of its state pension system – one was rejected, the firm said.The AMF Corporate Bond fund was only launched in the autumn of 2018, giving it too short a fund history to qualify, AMF said.The PPM has now authorised three companies to offer a total of 20 funds on the PPM platform. Lannebo Fonder was the first to have its products approved this year, getting the go-ahead for seven funds on 15 February, followed by HealthInvest Partners with approval for its small and micro-cap offering a week later.Altogether, the Swedish Pensions Agency has received applications for inclusion on the platform from 70 companies representing 553 funds. A spokesman for the regulator said 269 funds were deregistered.Jonas Eliasson, chief executive of the SEK590bn (€56bn) pension fund’s AMF Fonder division, said: “It is gratifying that our funds have been selected for the new fund marketplace by the Swedish Pensions Agency. We will continue to manage the funds in the best way and keep the fund fees low.”The Swedish Pensions Agency introduced new rules for the PPM’s fund marketplace (fondtorget) in November, as the first step in a larger reform of the system. Private sector providers had to re-apply to continue offering their funds on the platform.The overhaul of the PPM was triggered by a spate of scandals over the past few years involving poor behaviour by asset managers. Prior to the new rules, the platform had more than 800 fund management firms offering products.Eliasson said AMF Fonder, which has been managing funds in the premium pension system since it began in the late 1990s, hoped the review and new requirements would lead to a safer funds marketplace.“It is about people’s livelihoods as pensioners, which requires responsible players,” he said.
He said other investors can also use the index, which comes in addition to the existing MSCI Europe SRI and the MSCI Europe ESG Leaders.PostNL said its index is applicable to all its European equity holdings, which make up approximately a quarter of the scheme’s entire €2.3bn equity portfolio.The tailor-made index consists of about 200 companies, which is sufficient for a diversified portfolio, said Van de Kieft.The concentration risk in the Europe SRI index is too high as approximately 40% of investments had been made in the top 10 firms, it added.“The addition of the climate goal greatly improves diversification as well as reduces carbon emissions,” the chair said, adding that carbon emissions had been important in the selection process of companies as well as their role in health care and affordable and sustainable energy.“The addition of the climate goal greatly improves diversification as well as reduces carbon emissions”René van de Kieft, chair of PostNLHe said the sector allocation of PostNL’s index matches the MSCI Europe, but the scheme’s approach had led to an underweighting of the energy sector, focusing on firms with concrete carbon reduction targets.“As we have excluded some ‘carbon criminals’, CO2 emissions in our index are no more than 20% of the MSCI Europe’s”.Van de Kieft said that, within the sustainable development goal of health and wellbeing, the treatment of important illnesses, the prevention of pollution as well as food are key subjects.Based on treaties and undesired sectors, including tobacco, the new sustainable index has excluded an additional 18% of the broad index, according to the chair, who noted that the index is overweight healthcare (5%) and the industrial sector (3%).He added that the assessment of pharmaceutical companies took, for example, their pricing policy into account.With the introduction of its tailor-made index, PostNL has replaced TKP Investments as its asset manager for its European equity with Northern Trust, as part of Kempen’s fiduciary mandate.PostNL indicated that it also wanted to increase sustainability of other asset classes, including real estate and direct lending.Van de Kieft said: “Because of the COVID-19 crisis, investors can add conditions to direct lending. This enables us to emphasise the importance of sustainability in covenants, and also set additional credit conditions”.To read the digital edition of IPE’s latest magazine click here. The €8.7bn Dutch pension fund PostNL said it had developed its own sustainable index for European equity in collaboration with MSCI.It said the index covered companies with a high environmental, social, and governance (ESG) rating and had an increased focus on low-carbon firms.“After assessing existing ESG indices, we have opted for a tailor-made one, which offers more leeway to achieving our sustainable development goals and impact investment,” said René van de Kieft, the pension fund’s chair.According to Van de Kieft, the index has been developed in collaboration with MSCI as well as fiduciary manager Kempen Capital Management.
“We note that there have been violations of guidelines, rules and laws”Julie Brodtkorb, the leader of Norges Bank’s supervisory councilIn his introductory statement, Olsen said he understood the supervisory council’s desire to remove risk, but that any company board had to make trade-offs between different types of risk.“With the agreement that has now been established, the executive board believes that we have stopped possible conflicts of interest,” he said.Other points of contention raised at the hearing included the use of tax havens by parts of Tangen’s finance empire surrounding his main firm AKO Capital.While Brodtkorb repeatedly warned of the danger of undermining confidence in both Norges Bank and the GPFG, Olsen pointed several times to Tangen’s qualities and experience which he said had set him far above any other candidate for the CEO job.“He has unique experience gained from international asset management and can point to impressive results. At the same time, he is an innovative and committed leader with a deep understanding of the strategic challenges facing the oil fund,” Olsen said.The finance committee is now due to compile a report on the matter by 21 August, just days before Tangen is to take up his new job as NBIM CEO on 1 September, replacing long-term incumbent Yngve Slyngstad.While the parliamentarians do not have power to prevent Tangen’s appointment, any politically broad-based criticism of Norges Bank’s leadership could nevertheless put it under strain. Parliamentary overseers say laws were broken in the SWF chief hiring.Looking for IPE’s latest magazine? Read the digital edition here. The governor of Norway’s central bank was grilled by parliamentarians this afternoon about his handling of the highly-controversial hiring of hedge fund billionaire Nicolai Tangen as the new leader of the country’s NOK10.3trn (€970bn) sovereign wealth fund.Answering questions in a finance committee hearing, Øystein Olsen said: “We were aware that the appointment would attract attention. But, well, we did not foresee this whole storm that has happened.”Olsen’s testimony to the cross-party panel followed that of Julie Brodtkorb, the leader of Norges Bank’s supervisory council.She told the politicians that despite complex efforts made by the bank and Tangen to separate him from his vast financial interests during his coming tenure as CEO of Norges Bank Investment Management (NBIM), the risk of conflicts of interest was still there. Brodtkorb referred to ethical guidelines for employees of Norges Bank which stated that staff could not have personal interests which could cause conflicts of interest or which could be perceived as giving rise to such conflicts.She said Norges Bank had made a written assurance that the risk of conflicts of interest between Tangen’s personal wealth and his role as leader of the Government Pension Fund Global (GPFG) had been, for all practical purposes, eliminated.“The supervisory council does not share this opinion,” she told the committee, which had co-incidentally been convened on Tangen’s 54th birthday.Asked by the committee’s leader, Labour Party member of parliament Hadia Tajik, about the handling of the appointment by Norges Bank’s executive board – which Olsen leads – and how it could affect the GPFG’s reputation, Brodtkorb said:“We do not want to give opinions or make statements about what the consequences are, but we note that there have been violations of guidelines, rules and laws.”
40 Lakelands Drive, Merrimac.A JUNGLE of trees and manicured grass create a picturesque backdrop for this Merrimac home.The 674sq m property’s position backing onto the golf course was one of the main reasons Lynn and Wilf Maillet bought it 10 years ago.“We’ve got a beautiful view over the golf course and it’s just so quiet,” Mrs Maillet said.The two-storey residence on Lakelands Drive has five bedrooms, three bathrooms and a double garage. 40 Lakelands Drive, Merrimac. 40 Lakelands Drive, Merrimac. 40 Lakelands Drive, Merrimac.More from news02:37International architect Desmond Brooks selling luxury beach villa16 hours ago02:37Gold Coast property: Sovereign Islands mega mansion hits market with $16m price tag2 days agoIt has an open floorplan that flows seamlessly outdoors on both levels.The kitchen was Mrs Maillet’s favourite part of the home.“Because it’s all open plan, you can talk to people and mingle,” she said.It has stainless steel appliances and a gas cook top as well as a walk-in pantry that mirrors the kitchen’s size.The master bedroom with ensuite and walk-in wardrobe is downstairs and has golf course views.There are three bedrooms upstairs, one of which also has an ensuite and walk-in wardrobe, as well as a study.There is also a family room that leads onto a covered patio.Outside, there is a saltwater pool and a built-in barbecue in the outdoor entertaining area, which overlook the golf course. 40 Lakelands Drive, Merrimac.The home may be more than a decade old but Mrs Maillet said quality fixtures and her husband’s attention to detail in maintaining them made it look near new.“It looks like it’s brand new, Wilf likes everything top quality,” Mrs Maillet said.The couple held many fond memories of the home, including milestone birthdays celebrated there, but they have decided to sell it so they can travel around Australia.Residents of the Lakelands village also have access to the community pool, gym and function room. The property will go under the hammer on June 20.