UBS GAM and Mitsubishi Corporation already work together in Japan, where their joint venture MC-UBS Realty Management, established in 2000, manages two Japanese real estate investment trusts (REITs).In a statement, Mitsubishi Corporation said it had previously “focused on the domestic real estate market” but was now “intending to expand its asset management business to foreign real estate and other real assets”.Two Mitsubishi employees will join the UBS-PREMF team in London, led by UBS GAM managing director Anthony Shayle.Shayle and Lily Lan, made assistant portfolio manager in December, will be able to start making deals for the fund while capital-raising efforts continue.The new fund will provide single loans to borrowers with relatively high loan-to-values (LTVs) – up to 75% – that would typically require a combination of senior and mezzanine debt from separate lenders.There are other ‘whole loan’ strategies being employed by real estate debt funds in the UK, but the ‘participating mortgage’ model is unusual in that the lender also takes a share of the rental growth and capital appreciation of the underlying property.UBS GAM already has experience with mortgages in the US through its $2bn (€1.5bn) Trumbull Property Income Fund.Shayle said the UK fund would target borrowers looking for loans in the range of £10m to £40m, where “there is a shortage of lenders willing to take on these smaller requirements”.He added: “We are able to look at development and investment prospects across the UK and most sectors.”UBS-PREMF is targeting a total internal rate of return of 8-10% per annum and for annual income to make up approximately 75% of its total return once fully invested. UBS Global Asset Management has teamed up with Mitsubishi Corporation to launch its first UK real estate debt fund and has secured financial backing from a “major European pension fund”.UBS GAM revealed last year it was talking to investors about a proposed £350m (€421.5m) Participating Real Estate Mortgage Fund (UBS-PREMF).Today, it was announced that Japan’s Mitsubishi Corporation would act as a “co-general partner” in a fund targeting £500m.Mitsubishi Corporation has seeded the fund with £50m, while Swiss bank UBS and an unnamed European pension fund will also provide capital, giving UBS-PREMF an initial lending capacity of £114m.
The Philips Pension Fund has conducted a second buy-in almost a year after it first began insuring its pensioner members.The fund has completed a £300m (€379m) insurance buy-in for its pensioner members, with Prudential, the UK insurer, taking on the liability.In August 2013, the fund completed a similar £480m buy-in with Rothesay Life, a specialist pension insurer.The risk-transfer market has been in full-swing during 2014, with the level of insurance buyouts and buy-ins, along with longevity hedging, expected to easily exceed records. So far, the BT Pension Scheme transferred £16bn of longevity risk, and the ICI Pension Fund insured £3.6bn of liabilities with Legal & General and Prudential.The fund’s chair of trustees, David Jordan, said the scheme benefited from being well prepared and having governance processes in place. “We have sought to balance our requirement for value-for-money with the insurers’ need for timing certainty,” he said.In other news, the Pensions Regulator (TPR) has refreshed its campaign warning scheme trustees and members about the perils of pension liberation fraud, after announcing £495m of pensions savings had already been lost.The scams relate to ‘pensions liberation’, where members are duped into withdrawing their pensions from the schemes to access cash.However, the funds are often subjected to high tax charges and service charges, and the remainder often invested in “unusual investments”.Pensions minister Steve Webb said the government was looking to “stamp out” these “unethical and exploitative” schemes.Andrew Warwick-Thompson, executive director at TPR, added: “Pension scams remain prevalent and need to be stamped out. The only people who benefit financially from the arrangements are the scammers themselves.”The campaign is being led by the Department for Work & Pensions, TPR, the Pensions Advisory Service, Money Advice Service, Financial Conduct Authority, Serious Fraud Office, HMRC, Action Fraud, National Crime Agency and City of London Police.Lastly, the Pension Protection Fund (PPF) has responded to its consultation on the impact of changes to the definition of money purchase.After a legal ruling, the UK government amended the definition of money purchase to include only pure defined contribution schemes that are nothing other than investment vehicles.This has resulted in several schemes offering fringe benefits with DC schemes to be reclassified as defined benefit, thus undergoing PPF levy assessment.The lifeboat fund has said schemes that see a material impact of greater than 10% must now complete an out of cycle s179 valuation to understand updated deficit positions.
Norfolk County Council was the authority behind the national local authority pension scheme (LGPS) framework, which in November last year appointed six custodians including Northern Trust, State Street and BNY Mellon.The arrangement allows LGPS to appoint custodians from the pre-approved list without the need for the full and time-consuming public tender process, with the approach also employed to offer funds a panel of investment consultants.Penelope Biggs, head of Northern Trust’s institutional investor group for the EMEA, said the appointment came at a pivotal time for local authority funds, which were “increasingly looking to become more efficient and cost-effective”.“We are very proud to have been appointed by Westminster City Council and are delighted to extend our relationship with the London Borough of Hammersmith and Fulham,” she added.Northern Trust has already won business from neighbouring Cambridgeshire and Northamptonshire local authority funds, as well as Devon’s LGPS on the back of its place within the framework agreement.The London Borough of Hackney, meanwhile, joined Norfolk and Suffolk in appointing HSBC as custodian, another provider that is part of the framework.Read more about Norfolk Pension Fund’s motivation for pushing ahead with the national framework agreements One of London’s local authority schemes has dropped custodian BNY Mellon in favour of Northern Trust, marking further gains for the company on the back of a national procurement framework.The £964m (€1.2bn) City of Westminster Superannuation Fund appointed Northern Trust after a joint tender with the London Borough of Hammersmith and Fulham Pension Fund, which already employed the company as its global custodian.The two boroughs currently cooperate with Kensington and Chelsea in running a tri-borough treasury to reduce administration costs across the three pension schemes, although Hammersmith and Fulham recently announced a review of the arrangement.According to recent committee minutes from the £765m Hammersmith local authority scheme, the two funds appointed Northern Trust through a national custodian framework.
Chairman of trustees for the scheme, Norman Braithwaite, said the decision to move to fiduciary management had been due to the increasing difficulties around governance.“We are very pleased with our decision,” he said. “We liked the elegant simplicity with which P-Solve executes its work, and the fact their approach was easy to understand.”In other news, one of the UK’s largest insurers, Legal & General (L&G), has reinsured around £1.3bn of longevity risk from its bulk annuity book.The announcement will see US reinsurer Prudential Retirement Insurance and Annuity Company (PRIAC) take on the longevity risk from L&G’s large bulk annuity business.The insurer wrote more than £3bn in bulk annuity business in the first six months of the year, taking its total business to around £24.6bn.The re-insurance comes as the UK’s bulk annuity market is expected to break records in 2014, having seen £6.5bn of written business in the first half of 2014.L&G told IPE it had yet to see a bulk-annuity mandate for which it was not interested in quoting, with the company aiming to expand its business to account for an expected reduction in the writing of individual annuities.On the reinsurance announcement, Tom Ground, head of bulk annuities at L&G, said the deal would support the insurer’s growth in the market. The £50m (€63m) Ashridge Pension Scheme has appointed P-Solve as its fiduciary manager.P-Solve, which recently became part of the River and Mercantile Group, will be responsible for the scheme’s day-to-day investment decisions such a manager selection, tactical asset allocation, implementation and monitoring and reporting.The company will also provide investment advice and set risk tolerances.P-Solve came through an open tender, beating four rival providers to win the mandate.
APG’s 157 staff based in New York and Hong Kong received three-quarters of the €31.5m of bonuses the Dutch asset manager paid out last year.In its annual report, APG emphasised that the amount of variable pay hadn’t increased, attributing the €3m rise solely to currency effects. It said the lion’s share of bonuses was paid out in US dollars.The overseas investment staff – responsible for investing APG’s €443bn worth of assets – received €160,000 of variable pay on average.APG reiterated that bonuses were part and parcel of the remuneration culture in the US and Hong Kong, and were necessary to attract and retain staff. APG’s annual report showed that the number of staff earning more than €1m doubled to six following the currency effect.By comparison, Gerard van Olphen, APG’s chief executive, received €448,000 last year. Van Olphen and other trustees do not qualify for a bonus.Variable pay in the Netherlands is considerably lower, with no more than €7.5m of bonuses available for the 375 staff of APG Asset Management based in the country.Last year, APG achieved returns for its main clients – the €389bn civil service scheme ABP and the €54bn sector scheme for the building sector (BpfBouw) – of 9.6% and 8.2% respectively. This amounted to a net €40bn in total, excluding the effect of their interest rate hedging programme.Harmen Geers, spokesman for APG, said that the asset manager’s policy was aimed at maximising in-house management to keep overall costs down and to keep a grip on implementation.“Although qualified staff are relatively expensive, we save substantially on costs relative to external asset management,” he said.APG said that its investment process had been incorporated into a new fiduciary model last year, with a clearer separation between fiduciary management, asset management, and risk management.The group hired Hans Rademaker from Robeco earlier this year as chief fiduciary officer.The asset manager and pension provider’s turnover rose by €141m to €1.1bn in 2016, largely due to the return from Loyalis, its insurance subsidiary. It added that it had to contribute €57m to cover Loyalis’ liabilities in the wake of falling interest rates. In contrast, the insurer delivered a €129m surplus over 2015.APG said its earnings from pensions provision decreased €10m last year, due to downward pressure on prices.It added that its operational costs rose €17m to €644m following outsourcing of some activities.
Philip Shier, immediate past chair of the AAE, told IPE that the inclusion of the capital protection requirement was surprising.“It seems to have gained traction with the Commission,” he said. “Whether it will survive the parliament discussions we shall see.”The AAE gave several reasons for opposing the capital protection requirement, but Shier said the main reason for its view was that it didn’t consider it “in the best interests of the consumer”.The association said such a protection requirement would have little value for a consumer with a saving/investment period of 30-40 years.Shier said: “You wouldn’t expect in the vast majority of cases that the guarantee would ever apply, but by requiring it the provider has to hold additional reserves.”The requirement could limit the field of institutions wishing to become PEPP providers, according to the AAE.Under the Commission’s proposal a range of institutions would be allowed to provide a PEPP: insurers, occupational pension funds, investment firms, asset managers and banks.In its first response to the Commission’s proposal, InsuranceEurope said that, “at first sight”, the requirement for capital protection for the default investment option was positive.The trade body for the European investment management industry, meanwhile, said it should be up to PEPP providers to decide whether they want to offer life-cycle investment strategies or strategies with minimum return guarantees as a default option.The AAE is in favour of the life-cycle approach for long-term savers, and said the choice of default strategy should also take into account the option selected for decumulation – cash or an annuity.It said the EU regulation for a PEPP should address the design and regulation of the decumulation phase rather than leaving this to national authorities. The requirement for the default option for a pan-European personal pension product (PEPP) to offer capital protection could undermine the European Commission’s initiative, according to the Actuarial Association of Europe (AAE).In a statement, the association welcomed the Commission’s proposal for an EU regulation creating a PEPP, but said that some amendments were needed if the initiative were to be successful.In a post on Twitter, Falco Valkenburg, chairperson of the pensions committee of the AAE, said that the AAE was supportive of a “courageous” PEPP proposal, but had some suggestions. In its statement the AAE focused its comments on the requirement for a PEPP default option to protect at least the amount a saver invests.
Wouter Koolmees, the Netherlands’ social affairs minister“Current financial problems of pension funds are not to be solved through a different pensions contract,” he said.“However, a new pensions contract can provide clarity in order to reduce the gap between participants’ expectations and results, and about how to deal with investment windfalls and economic headwinds.”Life-cycle investmentsThe minister indicated that the government wanted to come up with legislation instructing pension funds to introduce life-cycle investments, with risk profiles matching the specific needs of younger and older participants, rather than the usual uniform collective investment mix.Koolmees also announced legislation for the transition from the current average pension accrual to an degressive one, indicating that the social partners were to decide on the compensation for affected older workers.Costs are expected to range between €25bn and €100bn, depending on the degree of compensation.Citing earlier studies, the minister suggested that the transition could be financed through a temporary increase of contributions, the use of financial buffers or a transition to a defined contribution (DC) plan without financial reserves.State pensionKoolmees said he would also assess whether the scheduled increase of the retirement age for the state pension (AOW) could be slowed down as the social partners had insisted. However, he reiterated that he wouldn’t address possible benefit cuts, arguing that “pensions results strongly relied on the reality of financial developments” and that measures had to be part of an overall approach. Dutch parliament buildings in the Hague, the NetherlandsThe government had already decided to raise the pensionable age to 67 in 2021, with a subsequent one-year increase for every year of additional life expectancy.In his letter, Koolmees also announced that the cabinet would look into the option of taking out a lump sum of no more than 10% of accrued rights at retirement for paying off a mortgage. The government would also investigate how transparency around accrued pension rights could be harmonised across the range of different pension contracts.The minister also made clear that the cabinet – contrary to the position of the social partners – did not support mandatory pensions accrual by self-employed workers (known as zzp’ers), but it would investigate how they could voluntarily join a pension fund.Although a large majority of zzp’ers did not save for an additional pension, they usually accrued a pension in other ways, for example through their company or paying off their mortgage, he said. The Dutch government is to push on with pension reform despite trade unions and employers failing to reach an agreement on occupational pension rules in November.Social affairs minister Wouter Koolmees said the government would press ahead with its earlier plan to facilitate the transition to a system with individual pensions accrual.The social partners had preferred collective pensions accrual – albeit without nominal guarantees – combined with a degree of risk-sharing between generations.The minister said that the government would be open to consultations with the social partners, pension providers and supervisors, as well as to the views of organisations representing youth and elderly.
Denmark’s Danica Pension has finalised the sale of its Swedish business for DKK1.9bn (€254m), generating a profit of DKK1.3bn for its parent company Danske Bank.Danske agreed a deal to sell Danske Pension Försikringsaktiebolag – also known as Danica Pension Sweden – to a group of investors in December. The consortium includes Danish labour market pension fund Sampension, Swiss asset manager Unigestion, and two private equity companies.Announcing its first-quarter investment returns, Danica reported a gain of 9.9% for its market-rate product Danica Balance Mix, based on a medium-risk profile and 20 years to retirement, up from a loss of 3.1% in the same period last year.Danica chief executive Ole Krogh Petersen said: “We are especially pleased that the positive investment returns meant that our customers more than recovered their losses from 2018. Credit: Finn Årup NielsenDanica Pension’s office in Lyngby, Denmark“At the same time, we are currently in the process of integrating Danica Pensionsforsikring and hiving off Danica Sweden, which will result in a larger, stronger and more focused Danica to the benefit of our customers.”Danica Pensionsforsikring is the new name for the SEB Pension Danmark, which Danica Pension bought last year.While it posted profit before tax for the first three months of this year of DKK381m – up 20% when compared with Q1 2018’s DKK313m – Danica said the positive effect from investment returns had been almost entirely offset by non-recurring costs related to regulatory changes, as well as one-off costs linked to the integration of Danica Pensionsforsikring.The regulatory change was a recalculation of the Danish Volatility Adjustment, which effectively lowered Denmark’s interest rate curve by more than 10 basis points.Danica Pension’s total assets increased to DKK617bn at the end of March, from DKK415bn at the same point a year before – although this included the assets of its Swedish business.
The scheme added that as a second step, there might be a request for proposal as a follow up and for an in depth due diligence the fund would contact four or five managers directly.Applications can be in either English or German. the deadline to participate is 10 January 2020, 17:00 UK time.IPE Quest Discovery is a pre-RFP service allowing institutional asset owners to carry out a preliminary search for managers.The IPE news team is unable to answer any further questions about IPE Quest, Discovery, or Innovation tender notices to protect the interests of clients conducting the search. To obtain information directly from IPE Quest, please contact Jayna Vishram on +44 (0) 20 3465 9330 or email [email protected] A swiss pension fund has put out a request for information as a first step to define its requirements and needs in terms of both possible asset region allocation and the equity management for a low volatility mandate, via IPE Quest’s Discovery service.According to search DS-2587, the pension fund is seeking to invest $500m (€448m) in global core low volatility equities, follwoing the MSCI Minimum Volatility Indices.The fund is considering passive, enhanced index or active approaches, and can eitehr be a pooled or segregated contract.Managers applying shoudl have at keast $1bn of assets under management for the asset class, and should state performance data to 30September 2019, net of fees. Brunel appoints Blackrock to provide bespoke risk management frameworkBrunel Pension Partnership has appointed BlackRock to deliver bespoke investment risk management services to the investment pool’s Local Government Pension Scheme (LGPS) clients.Brunel undertook a thorough search for the right partner to deliver the best possible solution, with a view to offering its clients the ability to manage a range of risks, including inflation, interest, equity and currency risks.David Cox, head of listed markets at Brunel, said: “Rather than limiting risk management to traditional liability driven investment (LDI), we are keen to offer our clients a comprehensive risk management framework.”He added that Brunel is “keen to empower” its member funds and this includes “equipping them to manage their strategic risks and exposures across asset classes.”The framework being offered with BlackRock ”will enable us to meet the investment risk management requirements of our clients in these uncertain times,” Cox continued.BlackRock was selected due to its technical expertise, range and scale, and its ”willingness to understand and address the particular needs of the LGPS,” he said. Their track record should be of at least five years and have at least 10 clients/mandates within low volatility equities management. Hymans Robertson advises on £800m longevity swap for FTSE100 pension schemeConsultancy Hymans Robertson has led the advice on a £800m (€945m) longevity swap transaction with Zurich for a FTSE100 sponsored pension scheme.The longevity swap protects the scheme against the risk of its pensioner and dependant members living longer than expected, the advising firm announced. Hymans Robertson acted as lead adviser on the transaction, and, together with legal transactional counsel, CMS, negotiated a new efficient structure with Zurich to meet the requirements of the scheme.The majority of the longevity risk was reinsured by Hannover Re, with the scheme benefitting from diversification of counterparties under an ‘Enhanced Pass Through’ structure.The transaction was unique in its demographics and covers a significant proportion of non-UK overseas lives, providing the scheme with valuable protection.A trustee at the scheme said: “This continues the trustees’ strategy to de-risk the scheme, with this transaction significantly reducing the key outstanding risk for the scheme.”The official added that Hymans Robertson’s specialist experience in the longevity insurance market “was invaluable”. “Through their efficiency and tailored broking approach the Scheme was able to save money at each stage of the process.”Baljit Khatra, risk transfer consultant at Hymans Robertson and lead adviser, said: “The scheme had already taken significant steps to reduce financial risks, and we identified longevity as being a material outstanding risk for the scheme.”
Industry experts are asking whether the 15% concessional tax rate applied by the government to all super savings is sustainable into the future.Actuarial firm Rice Warner said that lifting compulsory super contributions to 12% would not have much impact on the age pension for many years, and would save the budget only about 0.1% in lower age pension spending in the second half of this century.In contrast, extra super tax breaks from higher compulsory super would cost an average of 0.22% of GDP “through this century”.The Rice Warner view is contradicted by the Association of Superannuation Funds of Australia (ASFA), which estimates that spending on age pensions is A$9bn lower than it would be without compulsory super.To seek greater clarity – yet again – the Federal Government in 2019 commissioned another independent review into Australia’s retirement income system, chaired by Michael Callaghan, a former executive board member of the International Monetary Fund (IMF) and Australian treasury official.The government expects to receive the final report with recommendations in June.“Australia is in a period of low-wage growth [and] therefore an increase in the contribution rate is not realistic at this point in time”Lachlan Baird, Prime Super’s chief executive officerThe task of Callaghan’s panel is to look at the three pillars of the existing retirement income system – the age pension, compulsory superannuation and voluntary savings.The review is looking at the current state of the system and how it will perform in the future as Australians live longer and the population ages.Since last November, almost 260 submissions have been received, half of them from individuals aggrieved with what they see as serious inequity in the system, which they say feathers the nests of the wealthy and leaves the ordinary worker no better off.An extra 2.5% of wages and salaries would be more than A$23bn a year in additional contributions, based on Australia’s national wage bill of A$923bn for the year to September 2019.Australia’s rapidly-growing industry super funds sector, which managed A$747bn at the end of September 2019, argues that the increase is necessary to help Australians save for their retirement.Victoria’s Labor government stated that it should be 15%, to create an adequate retirement nest egg. But in its submission, Prime Super, a small, not-for-profit A$5bn fund for the agriculture and farming sector, breaks ranks with its industry peers.Prime Super’s chief executive officer Lachlan Baird, told the inquiry in its submission: “Although the current 9.5% compulsory rate is not enough to grow super savings for a comfortable retirement, Australia is in a period of low-wage growth (and) therefore an increase in the contribution rate is not realistic at this point in time.”CostsKevin Davis, a professor of finance at the University of Melbourne, who sat on a panel reviewing Australia’s financial system in 2014, said: “Our current tax and benefit treatment of retirement incomes is a mess.”Davis told the inquiry the cost of providing an age pension to an extra 1.4 million part-pensioners and one million current non-pensioners could cost the government A$30bn a year.This cost, he said, would be largely offset by increased budget revenue if the move to a universal pension was paired with the introduction of margin income tax rates on pension drawdowns from superannuation savings, which are currently tax free. The Australian government gave up A$41bn (€25bn) in tax revenue last year to support its universal superannuation scheme, which has accumulated some A$3trn.The government’s annual revenue loss through tax concessions to super will rise steadily as the pool grows in coming years. The impact of forgone revenue will accelerate as the next round of legislated increase in the super levy – or superannuation guarantee – kicks in from July 2021.It aims to gradually lift the employer contribution by 0.5% each year from the current 9.5% to 12% by 2025.But many are now questioning whether, in an era of low wage growth and a rising cost of living, particularly housing, workers can afford to have 12.5% of their salary locked up in super funds. Kevin Davis, a professor of finance at the University of MelbourneAustralia outlays A$50bn a year on age pensions. “Rather than fiddling at the edges, consideration of wholesale reform is warranted,” Davis said.Many Australians now retire on low super savings and/or choose to take their superannuation balance in lump sums to be spent as they wish, leaving them with insufficient funds to live out their retirement.Increasingly, welfare groups have highlighted the inequality of the current system, which has been shown to benefit the wealthy with large balances over the lowly-paid, with small balances.The inherent flaw of Australia’s super system is that it has become a legitimate tax shelter for a group of Australians, ranging from small business to the super wealthy.These individuals run self-managed super funds (SMSFs), which, critics say, in essence, should not be part of the super system as they are “tax management tools”. By channeling their money into SMSFs, they pay a 15% flat rate, and avoid having to pay the top marginal tax rate of 47%.This is one reason for the dramatic growth in self-managed super funds in Australia. Some 1.1 million SMSF members own assets totalling A$747bn – as much as the entire industry super fund sector and much more than corporate, public service or retail super sectors.