Its first investment took place around New Year, it said, with the completion of the purchase of a 190-hectare cattle farm in Zealand.Over the next few months, AP Pension said it expected to buy 10 more farms.In the current market, Dal Thomsen said the investment would produce an attractive return relative to risk.“We expect the price of agricultural land to follow inflation, and when everything is taken into consideration and administrative costs deducted, it will leave us with a solid return we expect to be on the right side of 7% before tax,” he said.Under acquisition terms, AP Pension will own the farm buildings and land, with the farmer signing a 10-year agreement, undertaking to run the farm, including the financing of animals, machinery and business borrowing.The farmer will pay AP Pension a rent of 5.2% of the amount invested in the land, and 6.5% of the amount invested in the buildings, and will retain business profits.It said the model allowed the farmer to build up equity to enable him or her to obtain financing for the purchase of the farm when the agreement expired.Dal Thomsen said the pension fund would safeguard returns by carrying out a thorough review of the economics of farms before investing in them.“Danish agriculture is today one of the world’s most efficient, and we see great potential in investment in agriculture,” he said. Denmark’s DKK89bn (€11.9bn) commercial pension fund AP Pension said it has set up a new fund to invest DKK600m in Danish agricultural land and buildings, targeting returns of 7%.The fund, called Dansk Farmland, aims to buy farms in Denmark and lease them back on long-term contracts to the individual farmers running them.Søren Dal Thomsen, managing director of AP Pension, said: “We expect to achieve an attractive return for our customers from the investments in Danish agriculture, at the same time as helping some of the best farmers, who have struggled in vain up to now to borrow the money to buy a farm.”The planned size of the fund is around DKK600m, the pension fund said.
Ireland’s government hopes to attract pension fund capital to its social housing market, as it pledges to treble the number of units under construction by 2020.The coalition government said its construction programme would be made possible by attracting “significant” new sources of finance, naming the European Investment Bank (EIB), the €6.9bn Ireland Strategic Investment Fund (ISIF) and the pensions sector as possible co-investors.Outlining its priorities for the remaining two years in office, the coalition also promised a roadmap and timeline for the introduction of a universal supplementary pension scheme would be published before the end of 2015.Minister for social protection Joan Burton, whose promotion to leader of the junior coalition Labour party led to the government’s outlining its priorities, in March this year said the proposed roadmap would be published in the coming months, and suggested the scheme could be christened MySaver. The 2015 publication date, therefore, seems to be an admission of significant delays, although Burton previously acknowledged that the launch of the new scheme would be linked to a number of undisclosed economic indicators unlikely to be met until Ireland’s unemployment fell below June’s 13.3%.The statement of government priorities said its proposals for the housing market were based around a recent report recommending a cost rental model, whereby social tenants’ rents would be directly linked to the debt burden imposed by the construction costs.The National Economic and Social Council, a government think tank, suggested pension funds and other retail savings schemes could be attracted to the funding of housing construction due to the low annuity rates offered by the low-yielding underlying bonds.In a speech last week, Burton said: “We will set in train a construction programme to triple the number of houses built to 25,000 a year by 2020.”The government said it would publish its proposal for the housing markets by the end of the year, indicating it would draw inspiration from the Swedish rental market’s municipal housing companies.“We will assist approved housing bodies to avail of these sources of funding through new aggregators and financial instruments,” the policy document added.“We will examine the possibilities for new and innovative roles for local authorities in housing provision, via means such as Municipal Housing Companies and arm’s-length management organisations.”Jerry Moriarty, chief executive of the Irish Association of Pension Funds, said that how the resulting issuance interacted with the 10% risk reserve requirements for defined benefit funds – which can currently only be offset with cash or certain government or semi-government bonds – would be a factor in his sector’s interest in social housing.Mention of the ISIF, which will draw its capital from the discretionary portfolio of the National Pensions Reserve Fund once legislation passes through Parliament, could also indicate hopes that the sovereign development fund will act as a cornerstone investor in a housing vehicle, similar to its approach to domestic infrastructure and SME loan funds.Moriarty added that the potential for ISIF as a cornerstone investor could be a way of attracting pension investors, as a direct investment approach would require a significant workload for a comparatively small commitment, due to the size of the country’s social housing market.He said there would be questions over whether time involved could “outweigh the benefits”.The EIB, meanwhile, recently committed to part-fund a new SME bank, the Strategic Banking Corporation Ireland, also backed by Germany’s Kreditanstalt für Wiederaufbau.,WebsitesWe are not responsible for the content of external sitesLink to Irish government’s statement of priorities 2014-16Link to NESC’s ‘Social Housing at the Crossroads’ report
IPE contributing editor Joseph Mariathasan asks whether, when it comes to human rights, institutional investors should have to worryNext month marks the second anniversary of a tragedy in Bangladesh that has implications for institutional investors in Europe. On 23 April 2013, the eight-storey Rana Plaza in Dhaka, Bangladesh, housing five factories, collapsed, killing more than 1,100 people and injuring more than 2,500. At one level, the tragedy was a reflection of the very low levels of workplace safety tolerated in many emerging markets that would be completely unacceptable in the developed economies. But at another level, it was an indication of the lack of effort on the part of well-known brand names to ensure human rights are being supported in the supply chain for their goods.Garment factories are producing goods for well-known brand names that constantly scour the globe to obtain the cheapest labour – garment manufacturing is one of the key industries any emerging country seeks to attract first, as it requires little investment beyond buildings, power supplies and sewing machines, together with a large supply of cheap labour. The pressure to reduce costs is immense to remain competitive against other, newer emerging countries, whether Cambodia or perhaps Myanmar in the future. As the Bangladesh experience showed, cutting corners to maximise production can be tragic. But how can shareholders respond to human rights issues, such as labour conditions, in the supply chain of companies they are supporting through their investments? For institutional investors, the issue may not be purely academic. The OECD produces guidelines for multinational enterprises that serve to emphasise that human rights need to be respected by corporations. But does that mean institutional investors can leave it to the companies they invest in to take the lead? The answer appears to be no. In 2013, an international coalition of NGOs filed an OECD complaint against APG and the Norwegian Bank Investment Management, managers of Norway’s sovereign wealth fund, for having minority investments in the South Korean company Pohang Iron and Steel Company (POSCO). POSCO was planning to develop a large steel plant, mining operations and a port in the Indian state of Odisha, including roads and railroads. However, this had attracted controversy because of a range of alleged human rights violations including forced evictions. Whatever the rights or wrongs of POSCO’s actions, the issue institutional investors face is that of being publicly criticised for making ‘irresponsible’ investments.Institutions cannot be expected to undertake due diligence on every activity by companies they invest in. Yet, at the same time, they can be understandably criticised if they appear to be doing nothing with respect to ensuring human rights are being taken into consideration. For institutions, the answer to this problem may lie in the new UN Guiding Principles for Business and Human Rights Reporting Framework, launched in February. It has already been adopted by companies including Unilever – the first adopter – Ericsson, H&M, Nestlé and Newmont. Boston Common Asset Management is one of the lead investor signatories to a statement of support for the Framework, alongside many well-known European asset management firms including Robeco, BNP Paribas Investment Partners, MN Services and Aviva Investors.Lauren Compere, managing director at Boston Common, was very excited when I spoke to her about the impact the Framework is likely to have on the way human rights can be taken account of by institutional investors. As she points out, it is part of a broader push to encourage companies to take human rights into consideration. The EU’s own new non‐financial reporting Directive will require around 6,000 companies to report on their management of human rights risks. What the new UN Framework provides is a set of ‘smart’ questions that enable companies to begin reporting on their human rights performance, regardless of size or how far they have progressed in implementing their responsibility.If institutions apply pressure on companies to take this seriously, it will incentivise them to improve over time. Institutional pressure on companies is unlikely to eliminate all future calamities such as the Rana collapse. But it may at least help to prevent some.Joseph Mariathasan is a contributing editor at IPE
She said the website would provide participants with “layered” information, as well as pension rights in net amounts.She added that the interactive website was currently in the testing phase.ABP’s new policy – described by Wortmann-Kool as “engagement” – aims to give participants greater insight into their own position at ABP, and how this relates to their combined financial prospects.The pension fund is now running trials using the details of five fictitious participants, to help it fine-tune processes, products, campaigns and messages, Wortmann-Kool said.While she acknowledged that offering more individually tailored pensions would be impossible without increased freedom of choice on pensions accrual, she stressed the importance of limiting options.She advocated simplicity as a means of avoiding “choice stress” and said proper default options had to be developed for participants who did not want – or who were unable – to choose. ABP, the pension fund for Dutch civil servants, is to revamp its €356bn investment portfolio to better reflect socially responsible investment (SRI) principles.Speaking at the IIR Pensioenforum in the Netherlands, Corien Wortmann-Kool, the scheme’s chair, said the overhaul would be part of a “fundamental modernisation”, focusing on regaining the trust of its participants.She declined, however, to provide any further detail on the pension fund’s “ambitious” SRI plans.Separately, Wortmann-Kool announced that ABP would soon launch an online personal-communication portal dubbed MyABP.
To do this, she added, it is important for regulation of charges and governance of the new savings product to be comparable with those on pensions, “which have been reviewed to make sure they offer savers good value”.By introducing the Lifetime ISA, the government has “extended the way in which people will be able to save for their retirement”, said Segars.It should use this “as an opportunity to agree a new consensus for pensions that focuses on the long term, builds confidence and gives savers and employers clarity and stability”.More specifically, the chancellor should create “a new independent retirement savings commission to tackle that challenge”, she said.The PLSA, and others, have called for such a body before.It last made the call in a report published in April last year, when the PLSA was still called the National Association of Pension Funds (NAPF).The report was backed by a wide range of organisations, including the Association of British Insurers (ABI) and the Trades Union Congress (TUC).Then, too, the motivation for such a commission, to be permanent, was based on a desire for a “long-term view” of the retirement savings system.The auto-enrolment policy being rolled out in the UK was first suggested by an independent commission, the Turner Commission.More recently, a wide-ranging report by David Blake of the Pensions Institute, written at the behest of the opposition Labour party, called for a “Pensions, Care and Savings” commission to provide independent scrutiny of pensions freedoms unveiled in the UK in 2014.A Trojan Horse?On the topic of tax, the PLSA’s Segars welcomed the chancellor’s decision not to make changes to pensions tax relief.However, to the extent that the Lifetime ISA is seen as being equivalent to a Pensions ISA, some have noted that it involves a new type of taxation.Paul Sweeting, head of research at Legal & General Investment Management, said the Lifetime ISA was “essentially a pensions ISA by another name” and that the tax treatment was very generous.“[I]f pensions are EET (exempt-exempt-taxed) and ISAs are TEE (taxed-exempt-exempt), then these are essentially EEE – at least for a basic-rate taxpayer under the age of 40, thanks to the 25% bonus the government will put in up to the £4k limit,” he said. Meanwhile, Lynda Whitney, partner at Aon Hewitt, said decisions on some key issues raised in the chancellor’s pension tax consultation have been deferred, and that the new Lifetime ISA “could well be the Trojan Horse that kills off pensions at a later stage”.“[W]e fear the mixing of shorter-term saving for house purchase, with longer-term saving for pensions,” she said.“Will individuals invest in low-risk assets, focusing on protecting the capital value, and so ignore the need to take enough risk to generate returns for a long-term investment like pensions?”Others noted that private sector employers would welcome the confirmation of pension salary sacrifice.Kevin Wesbroom, senior partner at Aon Hewitt, said employers were likely to have a range of responses.Some might want to extend their benefits package to contribute to Lifetime ISAs, while others might want to offer a savings allowance that could be diverted to pensions or Lifetime ISA.“Other employers will withdraw from pensions and just contribute the auto-enrolment minimum,” he said. “They will welcome wholesale opting out of pensions to fund Lifetime ISAs instead.” The announcement of a Lifetime ISA by the UK chancellor yesterday has led the country’s pension fund association to reiterate a call for an independent retirement savings commission.The Lifetime ISA (Individual Savings Account) was announced by George Osborne as part of the UK Budget, which did not, as widely trailed, include major direct changes to pensions taxation.However, several in the pensions industry see the chancellor’s move as tax changes “via the back door” and also raised the question of whether the Lifetime ISA will detract from auto-enrolment into workplace pensions schemes. (Click here for more on the UK Budget changes.)Joanne Segars, chief executive at the Pensions and Lifetime Savings Association (PLSA), said the introduction of a Lifetime ISA is an “interesting” initiative to encourage younger people to add to their retirement savings.
Bonnet will replace Thibaud Sybillin, who is leaving ERAFP after nearly five years of service at the pension fund.A spokesperson told IPE the personnel change did not represent a strategic shift but acknowledged that having a former head of SRI in charge of asset-management selection would be beneficial in terms of the latter’s alignment with ERAFP’s SRI policy. The head of socially responsible investment (SRI) at ERAFP, France’s €25.3bn additional civil service pension scheme, is moving internally to become head of asset-manager selection from the beginning of May.Olivier Bonnet (pictured) will have been head of SRI at the pension fund for seven years when he makes the switch.Before that, he was at Vigeo Group, a French ESG research firm, for five years.Vigeo merged with EIRIS, its UK counterpart, in December last year. Source: ERAFPAt ERAFP, Pauline Lejay will become head of SRI, stepping up from her role as SRI officer. She will report to Catherine Vialonga, CIO, as Bonnet will continue to do in his new role.Lejay joined ERAFP in April last year, having worked in SRI in Canada for several years, most recently for Caisse de dépôt et placement du Québec.ERAFP is looking to hire an SRI officer to fill Lejay’s place.ERAFP won the top ESG prize at the 2015 IPE Awards in Barcelona last year.
Germany’s pension insolvency vehicle, the Pensions-Sicherungs-Verein (PSVaG), has for the first time since its inception in 1975 set the contribution rate for companies to 0 per thousand.Because so few insolvencies were reported this year, the PSVaG will not have to take on pension liabilities from companies in financial trouble.The PSVaG also waived its right to set advance payments for 2017 but added that it would review this decision early next year.The PSVaG said there were other factors that led to its decision to set the rate at 0 per thousand, down from the 2.4 per thousand (0.24%) the companies had to pay from their on-book pension reserves last year. It pointed out that it had received surplus payments from the life insurance group that is paying out the pensions taken on by the PSVaG on behalf of insolvent companies.Further, some funds had come in from insolvency claims, and there is still €782m in the fund from last year’s contributions.According to German law, all companies with on-book pension reserves and DBOs have to pay a part of their pension assets into the PSVaG.Currently about 94,400 companies are members of the PSVaG, with pension assets amounting to around €333bn.Companies with Pensionskassen are exempt, as they are insurance-based.For setting up or joining a Pensionsfonds, companies get a discount of 20% on their PSVaG contributions.The long-term average contribution rate stands at 2.8 per thousand (0.28%).
“Thus pension funds operating schemes that are subject to VAT – eg defined benefit schemes – may expect a reduction in fees.”Northern Ireland scheme begins shift out of equitiesNorthern Ireland’s local government pension scheme (LGPS) posted a 21.7% investment return in the 12 months to 30 March, according to its annual report.The Northern Ireland Local Government Officers’ Superannuation Committee (NILGOSC) reported that the pension fund grew to more than £7bn by the end of March.During the year, NILGOSC appointed Unigestion to a £327m global equity mandate and allocated £100m to the M&G UK Residential Property fund.“This latter commitment forms part of NILGOSC’s medium-term strategy to reduce reliance on global equity markets and diversify its returns by investing in assets that provide longer term, stable and inflation-linked cashflows,” the pension fund said.As part of the move to reduce equity exposure, NILGOSC initiated the sale of £175m of UK equities, crystallising gains. It also put in place a 50% hedge of its US dollar exposure.The fund increased its exposure to infrastructure to 1% of the portfolio during the 2016-17 period. The investment was made through a collaborative venture with the Lothian Pension Fund in Scotland, and included a £10m co-investment.NILGOSC said: “The underlying principle behind this collaboration on alternative investments is to identify assets that are in the mutual interest of investors and their stakeholders, specifically through the benefits of scale and improved commercial terms.“It is intended that this co-investment strategy will sit alongside the core primary infrastructure funds to help NILGOSC build a diversified portfolio of assets in line with its strategic allocation to the asset class.”Isle of Man public sector liabilities rocket by 28%The Isle of Man’s public sector pension liabilities increased by more than a quarter in the 2016-17 financial year, according to an actuarial report.The report by Hymans Robertson said that combined liabilities for five local government schemes grew from just under £3bn to £3.8bn, an increase of 27.8%.The schemes are largely unfunded, with benefits being paid from government accounts and a small reserve fund, worth £82.4m at the end of March.Earlier this year, unions approved a plan to increase contributions to the largest of the island’s public sector funds, the Government Unified Pension Scheme. In March this year contributions rose by 2.5 percentage points to 7.5%, while benefits were reduced by 6%.The five schemes cater for more than 20,000 active, deferred and pensioner members. UK-based asset managers face a £40m (€44.7m) annual tax bill as a result of investment research cost unbundling, according to the Office for Budget Responsibility (OBR).The OBR – set up in 2010 to provide an independent review of the government’s fiscal policies – said the effect of MiFID II rules would cause investment research to be subject to VAT.Last month, EY senior manager Jochum Zutt said defined benefit schemes could make a saving on investment costs due to the tax change.He said: “The costs incurred throughout the supply chain would reduce as a result of the research being taxable. This is because the broker providing research to this investment manager would be slightly better off compared to the current position, as it would be entitled to recover VAT associated with the research.
“The LGPS Advisory Board continues to be fully supportive of investment cost transparency initiatives as demonstrated by the introduction of its own Code of Transparency which now covers some £180bn of scheme assets.“The board is delighted to be part of taking the work forward to the wider institutional space which will enable trustees to make fully informed, value led investment decisions and further trust in the sector by embedding clarity and openness in a previously opaque market.” A collaboration of investor organisations has finalised a series of cost disclosure templates for UK institutional investors.The Cost Transparency Initiative was launched today by the UK trade bodies for asset managers (Investment Association) and pension funds (PLSA), along with the Local Government Pension Scheme (LGPS) Advisory Board.It follows more than a year of work by industry representatives in the Institutional Disclosure Working Group (IDWG), set up by the UK financial regulator as part of its work to improve competition in and investor outcomes from the asset management industry.Mel Duffield, pensions strategy executive at the Universities Superannuation Scheme, has been appointed the first chair of the Cost Transparency Initiative. She said: “It hasn’t always been possible for trustees to compare costs between different services because of a lack of clarity and consistency. “By introducing a robust way to define and measure the full cost of investing, we have a golden opportunity to make a real difference across the institutional investment market.The group has published a series of example templates designed to help asset managers report the many layers of costs and charges incurred during the investment process, including those related to transactions, brokerage, custody, legal services and performance fees.The templates published today cover listed equity, private equity, and real assets. They are the result of the IDWG’s work and build on templates already in use by the LGPS.After recruiting more members to its board, the Cost Transparency Initiative will launch a series of trials with UK pension schemes and asset managers to test the models.Christopher Woolard, executive director of strategy and competition at the Financial Conduct Authority (FCA), said: “We welcome the launch of the Cost Transparency Initiative and have passed on the IDWG’s report and draft templates in full.“The initiative has the right experience, resources and market coverage, and will represent a broad and balanced range of suppliers and clients of the institutional asset management industry to deliver results in the market and continue to build on the momentum created by the IDWG.”Woolard added that the FCA had been invited to join the Cost Transparency Initiative as an observer.A spokesperson for The Pensions Regulator reiterated its support for the initiative, saying: “We look forward to working with the Cost Transparency Initiative to raise awareness of the cost transparency templates with pension schemes. This will enable trustees to scrutinise and challenge costs, and to assist them with ensuring that their members have a clear understanding of the costs they face.”Reaction from Cost Transparency Initiative supporters Julian Mund, chief executive, PLSA:“The PLSA is committed to taking forward the work of the IDWG and is pleased to be playing a key role in support of its successor body.“This is a step forward for cost transparency where both schemes and providers benefit from one common, standardised way of assessing and providing costs.”Chris Cummings, chief executive, Investment Association:“We welcome the launch of the Cost Transparency Initiative. Our industry is fully committed to transparency of costs and charges for all investors.“We look forward to working closely with the PLSA and LGPS Advisory Board to build on the progress of the IDWG, to deliver a template which will enable costs and charges to be reported in a clear and comparable manner for institutional investors.”Cllr Roger Philips, chair, LGPS Advisory Board:
Three major fund managers have opened offices in Germany in an effort to tap into the country’s institutional investment market.Swiss investment house Unigestion has moved into an office in Düsseldorf, with staff serving institutions and intermediaries.Florian Rehm, head of institutional clients for Germany and Austria and head of the new base, said: “Germany has a well-established investment market and the office opening reinforces our commitment to serving German investors.“A local presence will allow us to strengthen existing relationships, broaden our investor base and work more closely with investors looking for unique investment solutions.” Credit: Michael Gaida The Rhine in Düsseldorf, Germany, where Unigestion has opened an officeMeanwhile, Hermes Investment Management has opened an office in Frankfurt to be led by Antonis Maggoutas, director of business development for Austria and Germany.Along with another new office in Copenhagen, the move is the company’s first in continental Europe. It follows the establishment of a base in Dublin as part of its Brexit contingency planning.Harriet Steel, head of business development at Hermes, said: “Because we have built a strong institutional and wholesale client base in Europe, the establishment of our Frankfurt and Copenhagen offices is the next logical step for Hermes.“By building a presence on the ground in continental Europe, we will be able to extend the reach of our product offering, client service and stewardship and engagement services.”Hermes’ Copenhagen office will be led by Magnus Kristensen, director of business development for the Nordic region.Nikko Asset Management, the $201.8bn (€178.4bn) Japanese investment group, has also chosen Frankfurt as its German home in the “latest stop in our international growth story”, according to the firm’s EMEA chief executive John Howland-Jackson.He added that the company had experienced “a great deal of interest” in its Asian and global investment strategies for equities and fixed income.According to IPE’s latest Top 1000 Pension Funds survey, German pension funds had investable assets totalling more than €224bn in 2018. Unigestion offers strategies focused on equities, multi-asset, alternative risk premia and private equity. It ran €15.5bn in European institutional assets at the end 2017, according IPE’s Top 400 Asset Managers report.