Thus, it is also reasonable to interpret the agreement as letting occupational pensions off tightened Solvency II or holistic balance sheet (HBS) capital adequacy rules until 1 January 2020, she believes, citing the ‘level playing field’ argument.The former chairman of the stakeholders group at EIOPA told IPE the agreement to delay capital adequacy rules for the life insurance part of insurance was achieved under pressure from, for example, France.A separate source speaks of the country’s well-known position on non-compliance with the IORPs Directive.Verhaegen herself says the trilogue’s relaxation makes it clear France has been “listened to”.The trilogue consensus, which is planned to be in force for the insurance sector in 2016, sets the sector’s life insurance component to be excused from certain IORP Directive rules until 31 December 2019.It means that exclusion measures set out in Article 4 of the existing 2003 occupational pensions Directive may continue in force for another six years.The Article states that: “In such case, and only as far as their occupational retirement provision business is concerned, insurance undertakings shall not be subject to Articles 20 to 26, 31 and 36 of [the life insurance] Directive”.However, according to Verhaegen, this is a member state option, and it is restricted to occupational pensions.The deal, which is described as “provisional”, was reached after eight hours of tense negotiations in Brussels.It took until 11.30pm under the chairmanship of British liberal MEP, Sharon Bowles.Bowles says the outcome makes for “a good day” for the European insurance industry, for the European Insurance and Occupational Pensions Authority (EIOPA) and for the European Parliament.“This agreement opens the door for EIOPA to take on responsibility for the regulation of the European insurance industry as envisaged by MEPs when EIOPA was originally created,” she says.As for reaction from PensionsEurope, it is cautiously holding back on comment, at least for the time being.Its head, Matti Leppälä, told IPE he would first like to see the “consolidated” text report of the trilogue agreement.This, in fact, requires clearance by the European Parliament, in plenary session.Here, the provisional date for this sitting is not until February 2014.In other words, expect further debate, no doubt mainly behind closed doors.Omnibus II’s “progress” follows delay after delay for its Solvency II predecessor.On an optimistic note, EIOPA’s chairman, Gabriel Bernardino welcomes the trilogue agreement, saying it will contribute to the strengthening of insurance supervision.As for the Nordics, a Brussels source says there have been discussions between Sweden and the EU institutions earlier this year on gearing up compliance over occupational pensions rules.German Green MEP Sven Giegold, a financial expert held in high esteem across party lines, quips: “Years of intensive lobbying have paid off for the insurance companies of the largest member states.”He adds: “The package provides a capital relief of an incredible €267bn. For life insurance alone, the relief is €264bn. Life insurers will be allowed to hold, under Solvency II, capital of just 4.5% of their assets.” Jeremy Woolfe speaks with Brussels insiders on the significance of the Omnibus II agreementDraft agreements reached in Brussels over Solvency II issues are likely to spin off into the occupational pension field, probably by 2020, according to a key Brussels pensions figure.The agreement to the Omnibus II legislative package was achieved in a late-night session bringing together the EU national governments, the European Parliament and the European Commission.The legislation is aimed at the insurance sector, but it is logical to suppose that occupational pensions – which can be described as a parallel sector – would eventually be “infected”, according to Chris Verhaegen.
IPE and the publishers of Het Financieele Dagblad (FD), the leading Dutch financial publisher, have finalised a joint venture aimed at serving the pensions sector in the Netherlands.The new entity, FD-IPNederland will serve Dutch pension professionals’ need for independent and reliable news, background and analysis.FD-IPNederland combines the strengths of FD, the leading business newspaper of the Netherlands, and IPE’s Dutch language publication IPNederland, which is the leading news source for the Dutch pension sector.Alongside IPNederland’s daily news service, the combined portfolio consists of the weekly FD Pensioen Pro and the bimonthly IPNederland print edition. Eugenie van Wiechen, managing director of FD Mediagreop, expressed satisfaction with the agreement.“The product offering of IPNederland and the FD are highly complementary,” she said.“The creation of this joint venture gives our co-operation wings.”Tim Potter, chief executive at IPE International Publishers, said: “We are convinced this joint venture allows us to serve this important market better.”Mariska van der Westen, editor of IPNederland, has been given the task of leading IPNederland.“This is a time of great challenges for the Dutch pension sector,” she said.“A rapidly changing environment means the need for good, independent information has never been greater.“Combining the strengths of FD and IPNederland in one organisation will allow us to meet that need better than ever.”
The pension fund was pleased with Pantheon because of its “investment expertise and reach, long-standing presence in Asia and the emerging markets, and its dedication to responsible investment”, she said.In other news, Danske Capital has picked Chicago-based investment bank and asset manager William Blair to manage an emerging market equities mandate.William Blair said it would manage the mandate under its emerging leaders growth strategy, which uses a fundamental, bottom-up approach.The strategy invests in equities from high-quality large and medium-sized capitalised emerging market companies with above-average growth potential and profitability, it said.It is managed by Todd McClone and Jeff Urbina.Neither party would disclose the size of the mandate.Tom Ross, head of European distribution at the Chicago-based company, said the win reflected the “significant interest” William Blair had received from European institutional investors because of its long record on managing unconstrained equities strategies. Finnish State Pension Fund VER (Valtion Eläkerahasto) has awarded a €100m mandate to private equity firm Pantheon.The mandate is a customised private equity mandate, covering emerging markets, and is VER’s first emerging market private equity investment mandate. The strategy will be managed by Pantheon, with commitments being made over the next 3-4 years to a diversified portfolio of primary private equity buyout and growth funds across Asia and the emerging markets.Maarit Säynevirta, responsible for alternative investments at VER, said: “We launched a broad global public tender for this mandate in 2013, and this is the first time we elected to choose a manager for a separate account.”
The discount is triggered at the £50m commitment level, which has already been reached, meaning any additional LGPS investor will immediately benefit. So far, the Dorset pension fund and two other LGPSs have committed to invest in the fund, the spokeswoman said.“We’re hopeful we’ll get some more LGPSs before the fund closes in April 2015,” she said.Yesterday, IFM Investments announced that Dorset County Pension Fund awarded it a £40m infrastructure mandate.The Dorset fund, the Avon Pension Fund and the City and County of Swansea Pension Fund had put out a joint tender notice earlier in the year, looking for infrastructure managers. Dorset County Pension Fund has awarded a £40m (€50m) infrastructure investment mandate to private equity and infrastructure specialist manager Hermes Infrastructure.The money will be invested in Hermes Infrastructure’s pooled fund, which is due to close in April 2015, a spokeswoman confirmed. The fund has already raised £850m.Hermes’s spokeswoman said the manager was offering all Local Government Pension Schemes (LGPS) the opportunity to aggregate their commitments to the pooled fund, to get the benefit of a discount of up to 50% on the total fee, depending on the final size of the aggregated commitments.
Gualtieri, a member of the S&D centre-left political party, has been a member of the European Parliament since 2009.He was elected chair of ECON in July 2014.Proposals for revisions to the original IORP Directive on occupational pension funds were adopted by the European Commission in March this year.But the resultant revisions were classified as “under review” in an internal Commission document that came to light, unofficially, in late November.The document outlined the Commission’s plans for its new Work Progamme (CWP) for 2015.However, according to an informed pension insider, just because a legislative proposal has been listed as pending should not be taken as definitive. Around 100 others have been categorised similarly.The CWP is due to be unveiled by Commission president Jean-Claude Juncker on 16 December.This will be at a plenary session of the European Parliament, in Strasbourg. A ‘don’t do it’ message over the possible dropping of IORP II legislation from the new European Commission’s work programme for 2015 has been issued by a prominent MEP. The wording, as expressed in a statement from the European Parliament’s Economic and Monetary Affairs (ECON) committee, quotes its chairman Roberto Gualtieri MEP as saying: “According to information we’ve received, the Commission is considering the possibility of withdrawing proposals on structural reform of the banking system and the revision of standards for occupational retirement funds.”He adds: “Last October, the European Parliament clearly indicated to the Commission that the ECON committee would continue work on these proposals and asked the Commission to withdraw any proposal in the field of financial services.“A possible withdrawal of these texts while negotiations are underway with the Council does not represent the best incentive for EU member states to achieve an agreement on the negotiating mandate in order to start discussions with the European Parliament.”
It is true the nuclear fission reactors currently used around the world are developments of technology originally developed during World War II as part of the US Manhattan Project to build a nuclear weapon before the Nazis did. Having succeeded in building nuclear bombs too late for use against Germany, they were used against the Japanese instead, to shorten a Pacific war characterised by extremely high levels of US casualties as the Japanese defended their home islands (27,000 in Iwo Jima and 49,000 in Okinawa).Thankfully, they have never been used again, even when General MacArthur requested their use during the Korean War. That historical experience has quite naturally coloured perceptions of nuclear power ever since. But is it time now to look at nuclear power more objectively, comparing its risks and benefits to those alternatives on offer that can supply the world with the energy it needs to live lifestyles we have taken for granted?The capacity to produce weapons-grade uranium and plutonium from the existing nuclear fission industry is what alarms institutional investors. The alternative that has always been discussed has been nuclear fusion. The combining of hydrogen nuclei to produce helium, as the sun does, has been the fabled clean energy solution. Unfortunately, its future success has always been predicted to be 30 years away, and has been so for the last 50!There is another alternative, though, that the nuclear sceptics should consider. A better alternative to the uranium and plutonium nuclear fission reactors may be thorium-fuelled nuclear fission reactors. They have the advantage over uranium and plutonium reactors in that there is considerably reduced nuclear waste. In addition, thorium itself is much more abundant than uranium.The issue of nuclear proliferation still exists, although it has been argued that the US shut down their research into thorium reactors in 1973 primarily because the thorium fuel cycle did not have weapons applications. Thorium-based fuel for nuclear power would be extremely difficult to use in the secret manufacture of a nuclear bomb because the spent thorium fuel contains the isotope of uranium U-232, as well as U-233. Whilst it is possible to use U233 in a nuclear weapon, the U232 it is mixed up with decays rapidly with the production of strong gamma rays, which creates significant problems of handling and greatly boosts detectability.Currently, the thorium-cycle nuclear power is being actively researched by a number of countries, including China and India. India, for example, has limited supplies of uranium but large amounts of thorium in the beach sands of Kerala and Orissa, which have rich reserves of monazite, which is 8-10% thorium, according to the government of India. Tourists sunning themselves on some of the fabulous beaches of Kerala may not realise what lies beneath them!Whatever the merits of thorium over uranium/plutonium in the creation of safe nuclear power, if global warming through carbon dioxide build-up is an existential threat to human civilisation, then choices do have to be made on the risks and rewards of alternatives to burning fossil fuels.The total number of direct deaths arising from nuclear energy, including accidents such as Chernobyl and Fukushima, is less than 100. Including estimates of increased cancer deaths arising from the 600,000 or so people exposed to increased radiation raises the figure to perhaps around 4,000. In contrast, direct deaths from coal mining would lie in the thousands per year, whilst indirect deaths caused by pollution from the burning of coal would also be a multiple per year of the total estimated indirect deaths arising from the nuclear accidents.Perhaps nuclear energy has been dismissed too readily by countries and institutional investors alike.Joseph Mariathasan is a contributing editor at IPE Joseph Mariathasan questions the wisdom of considering all things ‘nuclear’ in a negative light‘Nuclear’ has become a dirty word – understandably when applied to weapons but less so when applied to power. Of course, there are arguments that can be made in justification. There are concerns over possible links with nuclear weapons and issues over dealing with radioactive wastes. Even countries can choose to damn the concept. Germany closed down all its nuclear power stations following the Fukushima disaster.Yet the biggest existential issue facing the world is global warming caused by the build-up of carbon dioxide, primarily from the generation of power. Alternative energy sources such as solar, wind and tidal do not appear to have the capacity to be able to supplant completely the carbon dioxide-producing fossil fuels, or even make a major dent in their usage.What can replace fossil fuels is nuclear power. A long-term, effective solution to the existential threat of global warming could be the widespread use of nuclear energy to generate electricity, combined with a shift towards electric cars that has already begun.
A deepening pension funding shortfall is generally not a concern for corporates’ creditworthiness, according to Scope, a ratings agency.In a statement, it said falling interest rates were largely to blame for the funding shortfall, although it claimed that asset levels were already too low to cover future pension payments before interest rates fell.The funding gap, according to Olaf Tölke, managing director of corporates at Scope, “is especially problematic if companies cannot cover annual pension payments with cash flow”.For companies listed on the DAX, for example, the ratings agency said a fall in the interest rate by half a percentage point would cause their aggregate pension liability of €371bn to grow by €40bn. “[I]t is increasingly important for investors to look closely at the level of dedicated pension assets – at profitability and how this relates to the pension liability,” he said.But the growing pensions funding gap is generally not a concern when it comes to a company’s creditworthiness, with Scope saying it has given companies’ ratings “the all-clear”.“Highly rated companies,” Tölke said, “can generally cover pension payments with operating cash flows without any problems.”He also noted that pension liabilities were “not as rigid as loans or bonds, which require a payment to be made at a specific point in time”.Other factors supporting Scope’s views are that company pensions are paid pro-rata and are mostly due far into the future.It also notes that whether interest rates are rising or falling has no impact on the cash payments a company makes each year.The assets set aside for pension obligations act as a cushion for highly rated companies, it said.Its views are reflected in how the rating agency treats pension debt in its analysis of a company’s creditworthiness.This, Tölke told IPE, is “one of our key differentiating factors versus the incumbent rating agencies that treat the ‘pension debt’ differently in their credit metrics.“As it is a difficult topic we thought we’d give some more detail about.”According to Scope, ratings agencies generally count the full balance of unfunded pension obligations as company debt.Scope, however, includes just two-thirds of the unfunded portion when calculating a company’s adjusted debt if dedicated pension assets can cover annual pension payments for at least the next three years.If this is possible for the next five years, the balance is halved.The unfunded pension obligation contributes much less than a company’s valuation to the rating that Scope assigns to the company, which ultimately reflects its probability of default.Founded in 2002 in Germany, Scope is a relative newcomer compared with more established rating agencies Moody’s, Fitch and Standard & Poor’s.
According to the plaintiffs, the subsequent financial statements painted a rosy picture of future growth, when in fact the company was using an obsolete business model, and its prospects were declining.On 28 February 2014, NII issued a press release revealing a larger-than-expected net loss for calendar year 2013, together with a net loss of nearly 250,000 subscribers.Investors were told the company would have to “significantly improve its operating performance and consider other options to enhance its liquidity position to meet its financial obligations and fund its business in 2015 and beyond”.As a result, NII’s share price fell by 55%, while the market price of its debt fell by more than 10%.The plaintiffs alleged that, because of false statements and concealments of adverse information by the defendants, the prices of NII’s securities had been artificially inflated during the class period, which runs from 25 February 2010 to 27 February 2014.This also applied, they said, to $1.45bn worth of debt issued by NII Capital, the company’s subsidiary, in two offerings during 2011.As a result, the plaintiffs claimed to have suffered significant losses and damages because of the decline in the market value of NII’s securities.The defendants were NII Holdings, NII Capital, several officers and a number of banks including Goldman Sachs, JP Morgan Securities, Credit Suisse Securities (USA) and Deutsche Bank Securities, which were underwriters for NII’s offerings.The case was filed in the district court for the Eastern District of Virginia before Judge Leonie Brinkema.The settlement is subject to approval by the court in September.Investors that believe they may form part of the class and wish to claim a share of the settlement should do so by 28 September 2016. Danica Pension and Industriens Pensionsforsikring have agreed a $41.5m (€37.4m) settlement in a US class action involving securities issued by telecommunications company NII.Among the other plaintiffs were the State-Boston Retirement System, the Pension Trust Fund for Operating Engineers Pension Plan and the Jacksonville Police and Fire Pension Fund.NII, based in Virginia, operates wireless voice and data networks throughout Latin America under the Nextel brand.In 2009, NII started a transition to a new 3G network, which involved building radio antenna towers, some of which would be sold off, then leased back.
The €19bn Philips Pensioenfonds has divested a significant part of its euro-denominated government bond holdings in favour of cash and equity in anticipation of rising interest rates.It has reduced its 60% matching portfolio of fixed income holdings to 50% of the Dutch scheme’s overall assets. The reduction came fully at the expense of Philips’ stake in euro-denominated bonds, which decreased from 35% to 25%.Its allocation to worldwide bonds and credits as well as mortgages – each amounting to 5% – remained unchanged. It has not changed its allocation to high yield credit or emerging market debt, both of which are in Philips’ return portfolio.As part of the portfolio adjustment, the pension fund increased its cash holdings from 1% to 7.5%. It also ramped up the allocation to equity by 1 percentage point to 30%, and increased property by 2.5 percentage points to 12.5%. A spokeswoman for the pension fund said the the re-investment focused mainly on security and less on returns.“In particular given the high valuations of equity [markets], we didn’t want to run too much additional investment risk,” she said. “Because the implementation of a property investment can take a long time, cash is an attractive alternative, as it helps to prevent a reduction of the interest risk leading to an increase of investment risk.”The Philips scheme also indicated that it had opted for cash because of the flexibility of the asset class. “Were interest rates to rise, we could simply increase the interest hedge,” said the spokeswoman.During the fourth quarter, the pension fund lost 2.8%, including 0.4 percentage points as a consequence of its interest and inflation hedge.It attributed the loss largely to the decrease of government bonds of developed countries in the wake of rising interest rates.The pension funds has hedged 29% of its liabilities in real terms, while it has covered 9% of the inflation risk.During the past year, the Philips Pensioenfonds returned 10.6% on investments. Its funding stands at 113.9%.
DNB pointed out that this impact was the consequence of pension funds’ relatively large securities holdings for indexation purposes, and also because pension funds only partly hedged interest rate risk.The regulator said it was important that pension funds explained their vulnerability in such extreme scenarios to their members. EIOPA also said communication and transparency was important. The Dutch Pensions Federation emphasised that the most recent stress test also showed that pension funds had a stabilising effect on financial markets and that there were no systemic risks.It also noted that Dutch pension funds frequently conducted asset-liability management studies.The Pensions Federation also noted that EIOPA had improved its testing method by using a cash flow analysis, which proved to be a better proxy for the Dutch financial assessment framework (FTK).However, in strong criticism, PensionsEurope seemed to state the European supervisor did not use cash flow analysis. The stress test carried out by the European Insurance and Occupational Pensions Authority (EIOPA) confirmed the Dutch pensions sector was vulnerable to shocks on the financial markets, Dutch supervisor De Nederlandsche Bank (DNB) has said. “An extremely negative but imaginable scenario would have a large impact on pension funds’ assets as a result of the combination of offered nominal certainty and an indexation target,” it said.Dutch pension funds participating in the stress test represented more than 50% of the country’s total pension assets and participants.In the ‘double shock’ scenario modelled by EIOPA – a steep drop in security prices and a fall in interest rates – funding of Dutch pension funds would drop by 24 percentage points on average. This was roughly equivalent to the size of the financial buffers that funds are required to hold.