The most striking example of this was the introduction in the UK of a binding vote on executive pay policy, it said.The vote gives shareholders a right of veto, rather than just a right to advise, on boardroom pay, the firm explained.The annual review included details of companies where it had been influential in bringing about changes.Examples included RSA Insurance Group and Lazard, SLI said.Last year’s AGM season in the US had been particularly interesting, it added, with attention focusing on JP Morgan’s meeting, where a shareholder resolution sought to separate the roles of chairman and chief executive. In the UK, the issue of executive pay continued to dominate.SLI said that, after the experience of the Shareholder Spring in 2012, boards had been anxious to make sure their company was not the victim of investors’ ire.“As a consequence, we witnessed a high level of consultation between remuneration committees and investors designed to ensure that interests and views were appropriately aligned,” SLI said. A number of pay policies were improved and a number of controversial new schemes never saw the light of day, it added. Shareholder activism is increasing, and regulators are becoming more assertive in policing standards of corporate governance, according to UK asset manager Standard Life Investments (SLI).In its 2013 annual review of governance and stewardship – focusing on its own work with companies on behalf of investors – SLI said last year was characterised by “responsibilities and regulations” following 2012’s so-called Shareholder Spring.It said the emerging longer-term picture described in its report was one of increased shareholder activism. The firm said: “Regulators around the world introduced new laws and regulations designed to strengthen corporate governance, especially as it relates to executive pay and audit issues, giving shareholders new rights to hold boards of companies to account.”
Dutch port workers and insurer Aegon have reached a settlement following a seven-year dispute about reserved assets of the former pensions provider and commercial life insurer Optas Pensioenen.In 2007, Optas Pensioenen was acquired by Aegon from Optas Foundation in a €1.5bn transaction.Although the reserved assets – €770m at the time, and included in the deal – were earmarked for pensions, there was no legal obligation to spend the assets.For the past six years, employers and workers have jointly worked to reclaim the pension assets from Aegon. Under the motto “Put the money back”, and with the support of local unions, they staged demonstrations in the UK, the US and Australia.Following the settlement, Aegon said it and the lobbying foundation for pensioners in the transport and port sector (SBPVH) would jointly request the court to free up the reserved assets.Aegon will contribute €80m in a one-off payment to improve the pensions of 8,000 port workers, whose pensions are still insured with Aegon.In addition, the insurer will offer an attractive rate for pension contribution and also contribute €20m as a compensation for decreased pensions accrual as a result of possible changes caused by the new financial assessment framework (FTK), said Aegon. According to the SBPVH, the attractive rate consists of an additional 6.5% accrual on the purchase of annuities. It added that the €20m would be available as a contribution in a new net pension savings product, for which the employer would pay tax in advance.Niek Stam, chairman of SBPVH, said he was satisfied with the result. “Combined with the €500m from the settlement with the Optas Foundation in 2010, the agreed amount comes close to the initial value of the reserved assets,” he commented.He added that both the participants council of Optas Pensioenen as well as employers and workers in the port sector must approve the deal first, but was confident the stakeholders would agree.The remaining €1bn of the initial purchase amount stayed with the Optas Foundation, since renamed as the Ammodo Foundation.On its website, the Ammodo Foundation says its aim is to support international art and science projects.
CataCap invests in SMEs characterised by significant development potential and an innovative business model with long-term sustainability (10-15 years).Vilhelm Hahn-Petersen – a partner at CataCap and one of the three entrepreneurs setting up the fund – said: “We are sceptical of fashion products but more enthusiastic about, for example, new and enabling IT concepts that can help productivity.” Preferred sectors are business-to-business services, technology, telecommunications and media (TTM), transport and general outsourcing.The maximum size of investee companies is €100m enterprise value – i.e. the value of a company on a debt and cash-free basis.When fully invested, the fund will hold 7-9 portfolios with an average equity injection from the fund of approximately €15m.So far, three direct investments have been made, including the mobile phone service provider Telecare, which has more than tripled in size within a year by acquiring its two largest Nordic competitors in one go.This was also the first time a bond issue was used in the Danish small-cap market to carry through outright acquisition financing, securing attractive terms compared with the usual funding sources.CataCap will invest alongside the investee business owners, acquiring a stake of 60-80%.It will always have board representation and the opportunity to offer expertise on a regular basis.Hahn-Petersen said: “There is a large population of attractive SMEs in Denmark, with high potential for value creation.“At the same time, the competition among local private equity funds in small cap is lower that for the mid cap and large-cap segments, giving an attractive supply and demand balance.”He added: “We also felt there is a need for hands-on investment in companies that don’t have the resources of the larger companies, allowing them to operate beyond Danish borders.”Returns will be largely from capital growth, with the fund aiming to deliver a minimum of three times the money paid in.Stakes in SMEs will be kept for 3-7 years, with an average of 4-5 years.Hahn-Petersen said: “This fund will give pension fund investors exposure to a market segment that offers diversification into high-yield assets but where it is very difficult to invest directly.“We aim to deliver above-average returns based on our investment strategy and the profile of the companies we invest in.” The fund will typically exit from an investment via an industrial sale or a secondary sale to another private equity fund, although a sale to a mid-cap fund or even an initial public offering may be possible, if the SME has grown substantially. Danish pension funds Danica Pensions and Lægernes Pensionskasse are among investors that have committed to CataCap, a private equity fund that invests in small and medium-sized enterprises (SMEs) in Denmark, and which has raised DKK1.1bn (€150m) at final close.CataCap said it was the first time in several years a Danish private equity fund had been established from scratch without backing from captive investors.The first closing in December 2012 raised DKK500m. Other investors include a Danish foundation, CL Davids Fond og Samling, and an unnamed German pension fund.
It published a green paper on the CMU earlier this year with the view that a single market for capital would increase lending to SMEs, boost capital for infrastructure and bridge the gap between investors and investable opportunities.Speaking with IPE, Hill said now that legislation had helped restore stability, creating jobs and growth in the EU was the new challenge, with a single capital market assisting this.“This challenge may require a completely different set of tools,” Hill said.“Although some legislation will no doubt be needed, it will not always be the most effective and proportionate approach, and, in many cases, the onus will be on the market to deliver solutions.“The Commission will therefore support market-driven solutions when they are likely to be effective, and regulatory changes only where they are necessary.”The commissioner also denied plans for an overhaul of EIOPA, despite rumours swirling in Brussels and the European Parliament over changes to funding and stakeholder engagement structure.An industry levy is expected to replace EU budget funding for EIOPA and its fellow supervisory authorities, after it was backed by the Commission and MEPs.The Commission also alluded to plans to merge EIOPA’s two stakeholder engagement groups – for insurance and occupational pensions – leading to concerns the former would dominate agendas.Hill said the issue of stakeholder groups needed further consultation before a decision could be made.This is despite EIOPA chairman Gabriel Bernardino giving full support to the separation of the two groups.Hill said the Commission review demonstrated EIOPA and partner advisory authorities were working well and that no overhaul was foreseen.However, he added: “We think it should be possible to achieve [private funding] in a simple way, although it is a bit too early to speculate on any concrete proposal at this stage.”Hill also gave backing to European Long-term Investment Funds (ELTIFs), despite minimal growth in the amount of institutional investment into long-term and infrastructure assets thus far.The Commission created a €315bn programme to channel capital into infrastructure projects, dubbed the ‘Junker Plan’, but this drew criticism from large institutional investors who viewed the regulatory framework as inappropriate.Hill said ELTIFs would open the door for smaller insurers, local government and corporate pension funds to access long-term opportunities.“All these investor groups need a well-regulated investment fund vehicle to manage the inherent risks,” Hill said.“ELTIFs replicate the UCITS approach – we will open them up to a much larger population of potential investors.” The European Commission’s Capital Markets Union (CMU) will not be created through legislation but with the market’s help to deliver solutions, Jonathan Hill says.The commissioner for Financial Stability, Financial Services and the CMU said that, while the EU introduced wide-ranging reforms to repair damage from the financial crisis, new challenges may require alternative approaches.Hill also said the future of a dedicated pensions stakeholder group for the European Insurance and Occupational Pensions Authority (EIOPA) needed further consultation, and that a simple private funding structure for the regulator should be feasible.The new Commission put the creation of a single market for capital in the EU at the core of its policies, alongside boosting investment in infrastructure.
The UK government should amend existing rules to allow CDC provision, the committee said, rather than pushing for secondary legislation. It also recommended that the UK draw on the experience of the Netherlands to address concerns about intergenerational unfairness from the outset. Frank Field, chair of the Work and Pensions Select Committee“The initial impetus has come from a major employer and trade union seeking an alternative to traditional defined benefit and defined contribution arrangements respectively,” the committee said.“But establishing CDC schemes in the UK opens the possibility of more diverse and ambitious provision of collective pensions. These could include industry or profession-wide schemes.“CDC may also be an opportunity to provide more attractive pension options to self-employed people and gig economy workers. The government should seek to encourage such innovation, and its great potential gains, in establishing a framework for a new wave of collective pensions.”The committee launched its enquiry into CDC provision late last year, and heard evidence from a range of industry experts from the UK and the Netherlands, as well as Royal Mail and the CWU.Stringent requirements for trustees and the regulatorDespite its enthusiasm for the CDC concept, the committee warned that any new regime would place “additional demands” on the Pensions Regulator (TPR). Committee chairman Frank Field has previously criticised the regulator over its handling of recent high-profile cases such as Carillion and British Steel.“Regulatory coherence demands that [TPR’s existing] responsibilities should extend to CDC schemes. This will, however, place additional demands on an organisation which has underperformed in its defined benefit responsibilities,” the committee stated.The government should assess TPR’s suitability and readiness to oversee CDC schemes, the committee said, and promised to monitor its future performance closely.In addition, CDC scheme trustees should be required to hold higher levels of qualifications than was currently the case, the MPs argued, a specific new qualification for CDC trustees should be introduced. It also called for the best trustees in this area to be appointed to a trouble-shooting group of “super-trustees”.Among the Work and Pensions Select Committee’s other recommendations were a call for consultation regarding the best valuation methodology for CDC schemes, whether members should be allowed to transfer out after retirement, and whether those transferring out should be required to take financial advice.The cross-party committee also highlighted “clear and effective communication” as “vital” to the success of CDC.“Members need to understand that CDC schemes offer a pension target, not a pension promise,” it said. “We recommend that all CDC schemes be required to publish their rules for calculating and distributing member benefits in a standardised format, provide data for the pensions dashboard… and to report publicly their funding position and strategy at least annually.”Reactions An influential UK parliamentary committee has thrown its weight behind the introduction of collective defined contribution (CDC) pension schemes in the country.In a report published this morning, the Work and Pensions Select Committee praised the agreement struck between Royal Mail and the Communication Workers Union (CWU) earlier this year. The two parties agreed a ‘cash balance’ pension scheme to replace the defined benefit (DB) fund, and pledged to lobby for the introduction of CDC legislation.The committee praised the “ground-breaking” agreement between Royal Mail and the CWU, which it said demonstrated a “remarkable unity of purpose”.“As well as being a model of constructive industrial relations, it opens the door for CDC to move from abstract idea to practical reality,” the committee said in its report. “This could transform the UK private pensions landscape.” “Our scheme will be the first of its kind in this country and will provide an exciting and important innovation in pension provision that offers an alternative and not a replacement for DC and DB provision. It is certainly the solution for our members and we will continue to work with all concerned to secure its introduction as soon as possible.”- Terry Pullinger, deputy general secretary at the CWU “As the provider of around one in every 190 jobs in the UK, Royal Mail is committed to delivering the best possible pension arrangements for our people… Given the support from this influential committee, and the progress we have made with government in recent months, we hope the government will introduce the legislation required to enable CDC pensions at the earliest opportunity. We want to be able to offer a CDC scheme to our 141,000-strong workforce as soon as possible.”- Jon Millidge, chief risk and governance officer at Royal Mail “We have a great opportunity to introduce better pensions for many workers. Collective pensions would reduce the risk of a pensions lottery. At the moment a stock market dip just before retirement can decimate a member’s savings.“The government must move quickly to put rules in place allowing collective pensions not just at Royal Mail but any workplace where members and employers want them.”- Tim Sharp, pensions officer at the Trades Union Congress
The €71bn metal industry scheme PMT and BpfBouw, the €56.6bn pension fund for the building sector, posted positive results for 2018: PMT gained 0.2%, while BpfBouw added 0.3%.“Our members are about to pay the price for the lack of a pensions agreement”Eric Uijen, executive chairman, PMEThe annual reports of the five largest pension funds in the Netherlands showed that the volatility of financial markets, combined with falling interest rates in the last quarter, had largely undone the schemes’ slow recovery during the first three quarters.Funding ratios take major hit in 2018As a result of disappointing returns, the coverage ratio of the pension funds took a significant hit, increasing the underfunded position of PFZW, PME and PMT and taking ABP’s funding back to below the minimum required level of 104.2%.With a coverage ratio of 118.3%, BpfBouw was the only scheme that remained at a safe distance from the danger zone of pension cuts.Several schemes urged the cabinet and social partners to take action to address the worsening situation in order to avoid cuts to benefit payments in the coming years.“Our members are about to pay the price for the lack of a pensions agreement,” warned Eric Uijen, PME’s executive chairman.Peter Borgdorff, director of PFZW, said that looming cuts in 2021 increased the need for new agreements about the Dutch pensions system. The latest discussions between government, employers and unions collapsed in November.The coverage ratio of both PFZW and PME stood at 101.3% at December-end.However, PME faced a more immediate threat as it must already raise its funding ratio to the required level of 104.3% by the end of this year in order to avoid cuts in 2020.ABPABP, with its coverage dropping to 103.8%, also concluded that the chance of pension discounts in 2021 remained undiminished.The civil service scheme saw its equity holdings losing almost 11% in the fourth quarter and 4% over the entire year.As a result of plummeting oil prices, the pension fund lost 19.9% in the last quarter on this exposure, while gaining 1% on property.ABP’s holdings in infrastructure and hedge funds produced 4.5% and 2%, respectively, since September, and returned 12.4% and 8.5%, respectively, over the entire year.The pension fund made quarterly and annual profits of 0.9% of 0.4%, respectively, on its large fixed income portfolio. It said its combined interest and inflation hedge generated a positive annual result of 0.4%.However, its currency hedge lost 2.3% as a consequence of the euro declining relative to the dollar.PFZWPFZW announced a quarterly loss of 3.9% and an annual loss of 0.4%.It posted a negative quarterly result for its commodities allocation (-34.4%), equity allocation (-11.5%), and its insurance portfolio (-3.6%). The asset classes all lost money over the year, with commodities down 17.8%, equities down 8.8% and insurance losing 3.1%.The healthcare scheme attributed a 16.4% loss for the year from its inflation-linked bond portfolio to a significant drop in expectations for inflation.PMT, BpfBouwMetal scheme PMT lost 1.8% in the fourth quarter, but achieved a modest annual return of 0.2% for the year.At December-end, its funding stood at 102.3%. PMT’s funding ratio must also hit 104.3% by the end of the year to avoid benefit cuts in 2020.BpfBouw reported a quarterly loss of 2.7%, but returned 0.3% over the entire year.Its property holdings – managed by Bouwinvest – generated 12.3%, while alternatives and fixed income gained 4% and 0.9% last year. The building scheme said it lost 5.6% on its equity allocation. The Netherlands’ largest pension fund has cut its investment return assumptions for the next 10-15 years to 5% a year on average.The €399bn Dutch civil service scheme ABP said this compared to the 6% average annual return it had achieved during the past five years.Its announcement came as part of its fourth-quarter report, which showed it lost 4.6% – equivalent to roughly €20bn – since September, contributing to an annual loss of 2.3% in 2018.The €199bn healthcare scheme PFZW and the €46.5bn metal industry pension fund PME also reported quarterly losses, of 2.7% and 3.9%, respectively. These resulted in annual losses of 0.4% for PFZW and 0.9% for PMT.
The investment chief of the UK’s largest pension scheme is to retire after a decade overseeing its multi-billion pound investment portfolio, IPE has learned. Roger Gray, chief executive at the investment management arm of UK’s Universities Superannuation Scheme (USS), is to step down in September, a spokeswoman for the scheme confirmed.He was appointed chief investment officer of the now-£64.5bn (€73.9bn) scheme in 2009, having joined from Hermes Fund Managers where he held a similar role. Gray was made chief executive of USS Investment Management when it was established as a separate entity in 2012.Bill Galvin, chief executive of the USS Group, said: “Knowing of Roger’s intentions so far in advance has allowed us to take a structured approach to succession planning, which will include opportunities for growth for the existing team.“The search for Roger’s successor is already well under way and is focused on achieving a seamless transition when he eventually hands over his responsibilities.”A decade of asset growthDuring Gray’s tenure at USS, its investment portfolio grew from £26bn to more than £60bn. This included the scheme’s first ventures into direct private equity investments, and the rollout of its defined contribution (DC) section in 2016, known as USS Investment Builder.Since 2015, USS has been shifting from a pooled fund approach to private equity to direct investments. It bought UK motorway service station chain Moto in 2015, and has stakes in several UK infrastructure assets including Thames Water and Heathrow Airport.Prior to joining Hermes in 2006, Gray was global head of asset allocation and currency for UBS Global Asset Management, and CEO and CIO for UBS Asset Management in Switzerland. He also worked as chief investment officer at Rothschild Asset Management – now Insight Investment – during a 14-year spell at the firm.In an interview published on USS’ website in 2016, Gray said of his tenure: “USS is a work in creation. I am proud about the transformation and results achieved and how everyone has come together to make that possible.“My goal is to build a strong track record and a thriving organisation that will survive and flourish beyond my term here, resilient and ready to deal with the future.”USS has been at the centre of heated debates about the valuation of its liabilities for much of the past decade.A year ago, USS’ joint negotiating committee – made up of representatives from employer organisation Universities UK (UUK) and the University and College Union (UCU) – proposed shifting the scheme completely to DC from 1 April 2019. The plan prompted nationwide strike action by university staff.A joint expert panel was appointed last year to scrutinise the valuation of the scheme’s assets and liabilities, as well as its assessment of employers’ risk appetite, in a bid to break the deadlock between UUK and the UCU.USS’ trustee board launched a consultation on a new scheme valuation at the start of January.