Month: September 2020
Efforts to create coherent and consistent metrics for measuring and analysing sustainable and responsible practices have been underway for years. At the forefront are organisations such as the Sustainable Accounting Standards Board (SASB), the International Integrated Reporting Council (IIRC), the Global Reporting Initiative (GRI) and the Sustainable Stock Exchanges Initiative (SSE), as well as the United Nations Principles of Responsible Investment (UNPRI).However, given the multiplicity of cross-border issues that exist, it will take years to gain policy mandates and decades to achieve standards. With the best will in the world, GAAP and IFRS standards, with strong backing and determination, took decades to construct. We cannot realistically expect that the many hurdles to a sustainability standard will be overcome any faster without meaningful influence.The UN PRI holds its annual gathering of signatories in Cape Town this week. It’s no surprise. South Africa, through the King Report on Corporate Governance and the recent Code for Responsible Investing in SA, is a global leader in the field of responsible accountability. As an organisation, the PRI represents 1,237 of the world’s leading financial institutions, accounting for more than $30trn (€22.2trn) in investment assets. Since its launch in April 2006, the PRI has successfully heightened awareness and created education programmes around the issues of responsibility in the investment community – the environment, our society and governance, generally.However, most of the membership struggles to recount the number of principles that make up the PRI, let alone describe any one of them in any detail. Partially a victim of its own success, the PRI for many institutions is no more than a kite mark to display on websites and marketing materials with an underlying level of commitment that is all but vacant.Capital deployment by financial institutions represents one of the most powerful forces in our global economy. It is hard to imagine that many of the listed companies among the more than 50 regulated exchanges in the world do not have a single PRI signatory as a shareholder. The reach of the PRI is unparalleled. The potential influence to bring about tremendous change is enormous. But it is desperately underutilised.There is no need to amend or alter the commitment. There is no need to change the charter or adjust the principles to achieve enormous impact. The third principle states very clearly that all signatories will seek appropriate disclosure by the entities in which they invest.On the basis that you get better at the things you measure, the third principle should be the first domino in a perpetuating chain reaction of measure, monitor, manage and improve. Compelling disclosure is key – it creates the necessity to measure, and it is an existing PRI commitment.This is not to say the PRI is not contributing today. Clearly it is. Without the PRI, responsible accountability in the investment community would be far more disjointed than it is today. But the measure of progress should be tangible. According to the Corporate Register, only 6,559 of the world’s more than 50,000 listed entities produced a corporate sustainability report in 2012. Given the reach, influence and purported commitment of the PRI, this is far too few.Ultimately, the objective of the PRI is to use the power of capital allocation to embed behaviours of responsible accountability in the companies in which we invest. Commitment is required to drive this mandate beyond the status of a kite mark. Signatories have been challenged in the past, but it’s time to take the commitment seriously and leverage the enormous power of the organisation to uphold a set of well-constructed principles whose time has come.Gerrit Heyns is a founding partner at Osmosis Investment Management and member of the UNPRI Gerrit Heyns, member of the United Nations Principles of Responsible Investment, says his fellow members must do more on the issue of disclosure. Sustainability is a behavioural posture adopted by companies in order to meet the challenges and risks of an increasingly accountable world. It is part of the culture of a business, not a strategy or an overlay, an initiative or agenda item. It doesn’t require a board seat or a brass plate. It is a vital, differentiated, distinguishable behaviour that exists in well-managed forward-thinking businesses.On their newest assembly lines, BMW produces less than 50 grams of waste per vehicle against an average of more than 10 kilos per car. Less than the weight of keys already, and still the company has plans to further reduce waste. This is a well-managed business driven by economic imperatives producing responsible accountable outcomes.You only get better at things you measure – a mantra for workout warriors, but sage advice from business leaders that understand the economic benefits of responsible accountability. The first key step is to measure. Increasingly productive improvements evolve from there.
He pointed out that APG had already established a lobbying office in Brussels.However, he warned against cooperating with banks on the issue, “as Brussels doesn’t listen to banks any longer”.According to Warringa, who is also a board member at APG, pension funds must now comply with 40 different kinds or legislation, mostly originating from Brussels, and triggered by the financial crisis.“As most of the legislation has been drafted in a hurry and without impact analysis, it often contains unintentional, bad and even contradictory effects,” he said.APG’s legal affairs chief further chided European legislators for applying a one-size-fits-all approach for all 28 EU member states, ignoring the “unique character” of the Dutch pensions system. As an example of a particularly damaging policy, Warringa cited EMIR derivatives rules, which require large deposits in a central clearing system, where assets cannot generate returns.“EMIR ignores the fact Dutch pension funds deploy derivatives to decrease interest and currency risks,” he said.“As a consequence, it forces the sector into dramatic adjustments in investment policy.”He also argued that the new MiFID II Directive, aimed at increasing pre-trade transparency, would increase costs, as it would “inform the markets at an earlier stage about a pension fund’s intentions”.He also singled out concept legislation for Systematically Important Financial Institutions (SIFI), which would also require pension funds to keep financial buffers.He said this would pose additional liquidity risks for pension funds. The Dutch pensions sector must be much more assertive to counter new and damaging legislation coming out of Europe, according to Guus Warringa, legal affairs chief at the €346bn asset manager APG. Speaking at a legal conference in Amsterdam organised by IPE sister publication IPNederland, Warringa called on pension funds to take a tougher position in negotiations.“The Dutch culture of concluding compromises doesn’t work in France,” he added, referring to Michel Barnier, the French EU commissioner for the regulation of financial institutions.In Warringa’s opinion, pension funds should use their commercial clout to move things in the direction they want, and he suggested asset managers should unite forces against new European legislation.
The Wellcome Trust, the UK’s biggest charity, returned 15.4% on its investment assets for the year to 30 September 2014, boosted partially by its in-house team.The return was £2.5bn (€3.1bn) on an investment portfolio value of £16.4bn at the start of the year, with investment assets now worth £18bn, after cash payments to fund medical research, the Trust’s main activity.Danny Truell, the trust’s chief investment officer said: “Our internal investment team and external investment partners have again added significant value across the board, enabling us to perform better than global stock markets with considerably lower volatility.“Prospective investment returns are now lower, but, with strength in breadth and depth across our investment team and the businesses and partnerships in which we invest, I am confident that we can continue to reinforce the Trust’s robust financial position.” The trust has returned an average 10.2% per year over the past ten years, and 10.4% per year for the six years since the start of the global financial crisis in September 2008.All major elements of its portfolio – public equities, hedge funds, buyout funds, venture capital and property – made double-digit returns for the year to 30 September, and have made positive returns over one, three, five and 10 years.Nearly half – 49.4% – of the trust’s assets are invested in public equities, with 25.8% in private equity, 11.1% in hedge funds, 10.3% in property and the rest in cash and bonds.The trust does not invest in companies deriving a material turnover or profit from tobacco or tobacco-related products.In their annual report, the trustees said: “A key common feature across the portfolio was the stronger performance from our directly-managed assets compared with those outsourced to external managers.”The proportion of assets managed directly, excluding overlays, rose by 6 percentage points to 42%, up from 26% four years ago. The trust expects it to reach 50% by 2016.The report said that while there were areas where the trust was content to pay higher fees to external managers in order to access superior net returns, managing assets directly has several advantages.The approach allowed the trust to express long-term views on parameters such as the US dollar or technology by using an integrated combination of its very stable and liquid equity Mega-Cap Basket (MCB), plus a number of overlays including the new commodity overlay, which were al liquid enough to cover billions of dollars of notional exposure.The trust said the function could simply not be outsourced.Furthermore, almost 60% of the trust’s public equity exposure was in directly-held equities, principally the 31 stocks in the MCB and the 12 stocks in the Optionality Basket. The average holding size of $200m (€162m) meant that individual names can impact overall returns.The report said: “Our focus is on 10-year total return targets. Hence we can focus on the evolution of long-term business models rather than short-term share prices in a way that is much harder for an external manager.”This philosophy extends to its property holdings (90% directly held). For example, in agriculture, the trust acquired the Farmcare farming business from the Co-operative Group for £249m last August to become the UK’s largest lowland arable farmer.Private equity also produced substantial gains over the year, especially from initial public offerings. Eight companies in which the trust had at least a $10m stake were listed or acquired during the year, boosting an overall cost of under $300m to a realised or unrealised value of almost $1bn.The largest monetary gain of $191m was made in Twitter, the social networker, while the trust’s stake in Alibaba, the Chinese e-commerce company, made $162m.Turning to the global outlook, Wellcome said it would retain its US bias for the present.The report said: “Having approximately 60% of our assets in US dollars has helped us considerably over recent years, as the US equity market has outperformed world markets by 25% in the past five years and its private equity and venture markets have similarly been robust.”But it was less sanguine about Europe, where it sees little immediate prospect of resolving structural problems.It said: “In many countries including the UK, France, Spain and Italy, populist politics appear to have largely derailed progress in driving public-sector supplyside reforms to restore fiscal balance through greater efficiencies. The European Central Bank monetary stimulus programme has stalled, while banks remain constrained from supplying credit.”The trust has hedged out exposure to the euro and is holding sterling exposure to just over 25%, as it considers both currencies appear vulnerable to further depreciation against the US dollar.It said: “Overall, our long-run expectations, whilst still attractive, have moderated. We are not persuaded that there will be a substantial return premium for higher risk or illiquid assets after the strong performance of the past five years.”It concluded: “We shall remain opportunistic and seek to broaden our sources of net returns using our intrinsic competitive advantages, but with a focus on preserving our real wealth.”
“Our basic premise and working assumption has been that, to engage financial markets with climate change, it is advisable to appeal to investor rationality and self-interest.“Our argument is simply that, even if some investors happen to be climate-change sceptics, the uncertainty with respect to climate change and climate change mitigation policies cannot be waved off as a zero-probability risk.”Low-carbon indices are not without their critics.Anne Simpson, global head of governance at the $288bn (€257.4bn) California Public Employees’ Retirement System, recently warned that investors could end up measuring themselves “against going to hell in a handcart” if they focused too heavily on carbon index underperformance.In the paper, Andersson also detailed how AP4 had gradually begun decarbonising parts of its equity portfolio – starting with its US holdings, and then expanding to emerging markets and Pacific ex Japan holdings.AP4 last year also announced that it had been working with Amundi on a low-carbon index ahead of fulfilling its ambition to decarbonise its entire equity portfolio.The Swedish buffer fund has also stepped up its activities in other areas of sustainable investment, recently tendering a water scarcity mandate.,WebsitesWe are not responsible for the content of external sitesLink to Financial Analysts Journal article ‘Hedging Climate Risk’ Those hoping to engage investors with the risk of climate change must appeal to the self-interest of fiduciaries, the managing director of AP4 has suggested.In a paper published in the Financial Analysts Journal on how to hedge the risk associated with climate change, Mats Andersson said basing investments around a decarbonised index strategy would help “mobilise financial markets in support of the common good”.The paper, written with Patrick Bolton of Columbia University in the US and Amundi’s deputy global head of institutional and sovereign clients Frédéric Samama, suggested the uptake of decarbonised indices would trigger a virtuous circle resulting in pressure to reduce carbon output and building support for climate change mitigation policies.“Governments, businesses, technology innovators and society, in turn, will thus be encouraged to implement changes that accelerate the transition to a renewable energy economy,” the paper said.
European parliamentarians should force pension funds to weigh up the environmental risks associated with their investments, under changes proposed to the IORP Directive.ShareAction, a UK responsible investment charity, and sustainable investment association Eurosif have approached members of the parliament’s Economic and Monetary Affairs Committee (ECON), urging them to reinstate the European Commission’s wording on environmental, social and governance (ESG) risks, after changes made by EU member states.In a note published by ShareAction, it said it supported rapporteur Brian Hayes’ emphasis on general principles, rather than overly prescriptive rules. But it added that it was important the directive still deliver “meaningful positive change” in areas of disclosure, and investment and risk management.Amendments suggested by ShareAction include requirements for a greater emphasis on the long-term interests of beneficiaries, and the impact of investments on the financial system and a member’s future quality of life. It further argued that all funds covered by IORP II, which it would like to see capture pension funds under 100 members where it covers investment guidelines, governance arrangements and a member’s right to request information, should be required to publish its Statement of Investment Principles and detail how these have been implemented.Hayes, an Irish MEP, tabled his proposed amendments to the revised IORP Directive over the summer, and ECON recently convened to discuss them and agree a compromise position.The MEP’s suggestions largely mirror those proposed by EU member states, and the notion that climate investment risk should be assessed was dropped in a compromise draft put forward in September last year.A report commissioned by the Commission’s directorate-general on climate action in April urged the inclusion of environmental risk assessment, as it would set an example for other pension markets to follow. Commission urged to include climate risk assessment in IORP
French institutional investors, including the country’s mandatory pension fund for civil servants and the national pension reserve fund, have stumped up an additional €405m for the Novo funds.The new money was allocated as part of a second capital raising, which surpassed the initial target of €305m and takes the total size of the Novo funds to more than €1.4bn.“Practically all” of the 24 initial investors in the Novo funds participated in the increase, according to a statement from Caisse des Dépôts et Consignations (CDC), the state-backed financial institution, and the French insurance association.IPE understands that four of the initial investors did not participate in the fresh capital increase, although this was for reasons independent of the Novo funds themselves. The four are ACM, AG2R La Mondiale, Crédit Agricole Assurances and Humanis Prévoyance.A spokesperson for ERAFP, the €23.5bn mandatory additional pension scheme for civil servants, confirmed that it participated in the capital raising, noting that this was done under the pension fund’s multi-asset mandate managed by Amundi.Among the other investors in the Novo funds is Fonds de Réserve pour les Retraites (FRR), France’s €36.3bn pension reserve fund, and several insurers.The Novo funds were set up in 2013 at the initiative of CDC as part of the French government’s launch of “fonds de prêts à l’économie” (FPE) to kick-start a market for lending to small and medium-sized enterprises (SMEs).They were initially open to, and backed by, insurance companies but have since been made accessible to a wider range of institutional investors, including pension providers.There are two Novo funds, Novo 1 and Novo 2, which invest in SMEs and what in France are known as ETI, for “intermediate-sized enterprises”.Although the Novo funds can also invest in public bonds in practice, the type of companies they target prefer to borrow by way of issuing what are known as private placements – bonds that have some similarity with loans given that their terms are typically heavily tailored to the needs of the company and the usually small group of investors.Thierry Giami, adviser to CDC’s executive committee and a key figure behind the Novo funds, said Caisse des Dépôts was pleased with the funds’ performance and the impact they have had on the wider market for SME lending in France. “The Novo funds launched a market for private bonds that small companies didn’t have access to in France before 2013,” he told IPE. Several other private placement bond funds (FPEs) were created in the wake of the Novo funds’ launch, and Caisse des Dépôts and the investors are “happy to have been copied”, he added.FRR is looking to invest further in SMEs, having recently tendered a mandate to manage some €600m of investments in French private debt. Novo 1 is the larger of the two funds, now with €928m in assets, and is managed by BNP Paribas Investment Partners. Novo 2, with €492m, is managed by Tikehau Investment Management.The new capital raised is being split across the two funds in the same proportions as for the first closing, IPE understands, with two-thirds (€268m) being allocated to Novo 1 and the balance to Novo 2.
Pension Protection Fund (PPF) – Leanne Clements has resigned from her position as responsible investment manager at the PPF to pursue other opportunities. Clements joined the UK lifeboat fund in April, having most recently been at West Midlands Pension Fund.Church Commissioners – Sir Andreas Whittam Smith is to step down as chairman of the Assets Committee after 15 years’ service. The decision will take effect at the next AGM of the Church Commissioners, scheduled for June 2017. A successor is to be announced “in due course”.Manulife Asset Management – The investment management arm of Manulife has appointed Neil Summers to the newly created role of head of EMEA client service and sales support. He joins from Aberdeen Asset Management, where he spent 12 years, most recently as head of client service for the EMEA.AMF – Fredrik Ronvall, transaction and analysis manager at AMF Fastigheter, the real estate arm of the Swedish pension provider AMF, has been appointed manager and investment manager of unlisted real estate companies in Sweden and abroad at AMF’s asset management business, a role he will take on in addition to his current position.Be Frank – Jan Hein Rhebergen is to start as commercial director at the Dutch pensions provider from 1 October. Rhebergen will make up the executive team together with Marianne de Boer-Maasland. He has been sales manager for pensions at insurer Delta Lloyd since 2012, having previously worked in commercial and management roles at ING and insurer Nationale Nederlanden.Kring van Pensioenspecialisten (KPS) – The Dutch association of pension specialists has appointed Mark Verschuren to its board. He is to focus on fintech developments. Verschuren, an econometrist, is a consultant at Sprenkels & Verschuren.Aon Hewitt – Frank Driessen, CCO for the Netherlands, has also been appointed as CCO for Germany, as part of a restructuring at the company. In the new set-up, Heleen Vaandrager, who has been sales director since 2014, is now also a member of the executive team of Aon Hewitt Netherlands. Xander ’s-Gravendijk has taken over the executive tasks of Judith van Ree, after the latter left the company. He has worked at Aon Hewitt for 16 years and currently serves as COO/CIO. Aon Hewitt said Pascal Hoogenboom would remain as chief executive, as well as a board member on United Pensions, Aon’s pan-European pensions fund.Achmea – The insurance group has appointed Michel Lamie as a member of its executive board, as of 1 January 2017. He is to succeed Huub Arendse as CFO in April, when Arendse is to complete his four-year term. Achmea is parent company of Syntrus Achmea Pensioenbeheer.Managing Partners Group – The asset management boutique has appointed Philip Eaton Richards as head of its capital markets team. Richards built and managed his own professional services business, which he founded in 1992, and has taken senior roles in entrepreneurial organisations since 2009. West Midlands, USS, International Centre for Pension Management, Railways Pension Trustee Company, Cardano, PwC, Pension Protection Fund, Church Commissioners, Manulife Asset Management, Aberdeen Asset Management, AMF, Be Frank, Delta Lloyd, Kring van Pensioenspecialisten, Aon Hewitt, Achmea, Managing Partners GroupWest Midlands Pension Fund – The former deputy head of equities at the UK’s largest pension fund has joined the £11.5bn (€15.7bn) West Midlands to lead the local government scheme’s in-house investment team. Jason Fletcher joined West Midlands as assistant director of investments on 16 September. He joined from the Universities Superannuation Scheme, where he was head of North American equities and deputy head of equities until April.International Centre for Pension Management (ICPM) – Three new members are joining the board of directors this September to fill the vacancies of Ole Beier Sørensen, Alexander Dyck and Rosemary Vilgan. The three appointees include Chris Hitchen, chief executive at Railways Pension Trustee Company and its operating subsidiaries, RPMI and Railpen Investments; Sarah Owen, general counsel and general manager of corporate strategy at the New Zealand Superannuation Fund; and Laurence Booth, CIT chair in structured finance at the Rotman School of Management at the University of Toronto.Cardano – Eric Mathijssen, a senior manager at PwC’s risk team, has been appointed as client director as of 1 October. He has previously worked at Ortec Finance, Towers Watson and Mercer Investment Consulting. Mathijssen is also chairman of the asset-liability management committee at the Dutch Association of Investment Professionals (VBA).
In a statement, the LPP said: “The expansion allows GLIL Infrastructure access to a greater pool of financial commitments and investment expertise from its five contributing funds, cementing it as a significant and serious investor in the UK infrastructure market.”The planned link-up was first reported in February, but today marks the first official confirmation.The funds have previously stated their intention to raise infrastructure allocations to 10% of each pension fund’s portfolio.The Berkshire Pension Fund is also in talks to join GLIL and plans to become the third stakeholder in the LPP.The £35bn Border to Coast pool of 12 pension funds is also said to be in talks to join the infrastructure joint venture.Increasing public pension funds’ investments in infrastructure is a cornerstone of the UK government’s asset-pooling project.Each of the eight LGPS pools has been specifically told to factor in infrastructure investment to their plans. The London Pension Fund Authority and Greater Manchester Pension Fund’s joint venture for infrastructure investing has been boosted with three new public sector investors.West Yorkshire Pension Fund, Merseyside Pension Fund and Lancashire County Pension Fund have signed up to the GLIL Infrastructure fund, taking its assets from £500m (€598m) to £1.275bn.The collaboration brings together the Local Pensions Partnership (LPP) and Northern Powerhouse local government pension scheme pools, which are working on plans to pool assets more broadly.The two pools were in talks to combine their efforts across all asset classes, but this plan was abandoned during the summer.
The preamble is also being changed to specify that “institutional investors are particularly important for companies”.It says institutional investors should exercise their ownership rights actively and responsibly “in accordance with transparent principles that also respect the concept of sustainability”.“The [commission] has therefore actively contributed to the debate, on a European as well as an international level, according to which institutional investors have particular responsibility in assessing how corporate governance is put into practice,” it said.Manfred Gertz, the outgoing chair of the commission, said the responses to the consultation underlined “the vast interest on questions regarding good corporate governance that exists within German listed companies”.“The focus is on strengthening self-responsible conduct by corporate bodies and committees complimented by a sensible level of transparency, allowing stakeholders to better assess how corporate governance is being put into practice,” he added.The changes to the code itself impose more transparency requirements for companies, with the commission seeing transparency as the basis on which investors can assess good corporate governance.The requirements relate to compliance management, supervisory board composition, periodic reporting to investors, and the role of the chair of the supervisory board in engaging with investors.Unlike in countries such as the UK where non-executive directors do most of the communication with investors, in Germany the law has traditionally been interpreted to mean that this has to be handled by the management board.This is changing, however, and the commission decided that supervisory board chairpersons should “be prepared (under appropriate conditions) to discuss topics relevant to the supervisory board with investors”.“These are issues within the sole responsibility of the supervisory board, and which it must decide upon on its own,” the commission said. “In accordance with this suggestion, the chairman of the supervisory board will have certain discretion with whom and when he/she would like to conduct a discussion.”The commission’s recommendation comes after a group of investors and other stakeholders developed guidelines for interaction between the supervisory board chair and investors in a bid to bring German corporate governance more in line with practice in other countries. Some of the members of that task force are also on the government corporate governance commission. Germany’s corporate governance code is being amended to emphasise that institutional investors have a responsibility to exercise their ownership rights.The amendments follow a six-week consultation period that generated a strong response, both positive and critical, according to the government-appointed commission responsible for the code. The commission decided on changes to the code itself and the preamble, which sets out the spirit behind the code.The preamble has been extended to argue that good corporate governance requires companies and their directors to conduct business ethically and take responsibility for their behaviour. The German word used by the commission for the latter is “Eigenverantwortung” – literally translated as “self-responsibility” or “own-responsibility”.The guiding principle of an “honourable businessperson” (“ehrbarer Kaufmann”) was introduced to the preamble to reflect this.
Van den Doel has been PMT’s main adviser regarding the various proposals tabled for a new pensions system. Inge van den Doel has been appointed as director of PMT, the €67bn pension fund for the Netherlands’ metalworking and mechanical engineering industries.As of 1 October, she is to succeed Guus Wouters, who will retire at the end of the year. The former Syntrus Achmea executive joined PMT as a director in 2010.Van den Doel has been chief investment officer at PMT since April 2012.Hartwig Liersch will take over as CIO. He has been PMT’s risk manager since 2010, when risk management became an independent task within the scheme’s organisation. Inge van den Doel, PMT“She is the person par excellence to further shape the innovation process,” said PMT in a statement.The scheme added that Van den Doel and Liersch were the architects of the pension fund’s current investment framework.Van den Doel was a director of the VBA, a representative body for Dutch investment industry professionals, between 2009 and 2012.Prior to this, she worked at supervisor De Nederlandsche Bank (DNB) where she was head of asset management, financial stability and supervision of conglomerates.Before he joined PMT, Liersch worked on balance management at ING Bank.