Too much self-interest in banking makes the sector dangerously fragile, exposes the public to unnecessary risks and distorts the economy, according to Anat Admati, George GC Parker professor of finance and economics at the Graduate School of Business at Stanford University in the US.Addressing the IPE Awards Seminar in Noordwijk, the Netherlands, yesterday, she said: “There are things to do about [the failing banking system], but they may not get done, unfortunately. There is a lot of politics and a lot of confusion and a lot of self-interest in this.”That is a governance problem, and it goes all the way to the politicians. Key to the observation is that banking is not a system, right now especially, where markets work. It requires firm and effective regulation, sensible regulation.”The root cause of the problem is that banks hold a lot of leverage, unborrowed funding, with the loss-absorbing equity ratio on their balance sheets being too small. “The credit crunch did happen not because they had too much equity but because they had too much debt,” she said. “Banks make bad lending decisions – too little or too much, boom and bust or too much and too little at the same time.”She added that, “even now, the continued weakness and distorted incentives of banks dampen new lending that would help economic recovery”.Instead of the small amounts of equity banks currently hold – around 5% – Admati suggested they ought to hold an equity ratio of 20-30%.Holding more equity is not expensive she said.In addition, some of the risks taken in the current banking sector, such as excessive leverage risks, benefit only the very select few – while many will suffer.And while regulators have authority, she accused them of lacking the political will to change things.Admati believes some banks may no longer be viable.In the preface for her book ‘The Bankers’ New Clothes’, published earlier this year, she writes: “A cleanup of such banks and of the financial system is important even if it means eliminating or shrinking some banks.”Hiding from reality and providing public support to banks that cannot otherwise survive or which are too big and too complex to control, as governments all over the world are doing, is dangerous and expensive.”
A large number of Dutch pension savers still trust the country’s system of solidarity and collective risk-sharing, despite those pushing for individual accounts being the most vocal, the CIO for Rabobank’s pension fund has suggested.Bernard Walschots also predicted the eventual outcome of the current pension reform debate, led by state secretary for Social Affairs Jetta Klijnsma, would nevertheless be a shift away from collectivity.“My feeling is the new pensions second pillar will meet calls for less collectivity and more individual pension accounts during the accrual stage of the entitlements,” he said while speaking at the second-annual pension funds in CEE conference in Prague.“This would eliminate some of the most heavily criticised elements of the present system – namely, the uniform contribution rate [agreed for each pension fund] and the potential conflict between the young members and those that already receive a pension.” He said any such changes would see the amount of regulation reduced, with the rules dictating the entitlements drawn from collective capital replaced with explicit, rather than implicit, benefits.Any such changes would increase the number of collective defined contribution (CDC) arrangements, an option Rabobank has recently chosen for its own provision, in turn brought about by listed companies no longer wishing to have a defined benefit system on the balance sheet.Walschots predicted the new Dutch pension system would see collectivity preserved when it came to the payout phase, with longevity and investment risk pooled across cohorts of retirees.He said there was still support for solidarity within the pension system, despite a recent call by some for greater emphasis on individual retirement accounts.“A lot of people in the Netherlands still adhere very much to our system,” he said of the collective, mandatory approach.“Some of the more vocal people are more in favour of a more individualistic system in which there is also a lot of choice.”However, Walschots dismissed the idea of choice, arguing that it increased costs. He said that, in his experience from offering members investment choice, even those employed by a financial institution such as Rabobank were less inclined to avail themselves of such choice – with only around 10% of members opting away from the default investment option.
The scheme transferred its stake in a retail centre with parking garage to Achmea’s Dutch Retail Property Fund.According to Van Vledder, the Pensioenfonds voor de Architectenbureaus will receive preference shares in the investment funds. He added that it concluded a three-year contract with the asset manager.The chairman of the investment committee said the pension fund wanted to reduce the “relatively large” proportion of direct real estate in its 8% property allocation.Previously, it placed 40% of its property holdings in the two Syntrus Achmea funds, including several retail objects.Van Vledder said the architects’ scheme planned to divest the three remaining office assets with a combined value of €20m in its discretionary property portfolio.He added, however, that the Pensioenfonds voor Architectenbureaus was still keen to increase its holdings in residential property, as the prospects for direct and indirect returns in this segment were improving.The scheme’s overall returns on real estate have been flat over the last two years.Syntrus Achmea Real Estate & Finance said its Residential Fund managed €670m in assets, its Retail Property Fund €600m. The €4bn pension fund for architects’ staff in the Netherlands has placed €95m of its discretionary property holdings in Syntrus Achmea Real Estate & Finance funds to reduce the complexity of its portfolio and increase the liquidity of its assets. Roeland van Vledder, chairman of the scheme’s investment committee, said: “Moreover, this allows us to improve control and spread our risks.”He made clear the main aim was not to increase results, “as the stake in the investment funds would generate comparable returns”.He said the pension fund placed 14 residential housing objects and a retail asset – valued at €85m in total – in Achmea’s Dutch Residential Fund.
She added that Veritas did not usually back inaugural fund launches, but that Livonia was “very well connected within the local economies.”She added: “Building regional champions instead of country-specific winners makes a lot of sense. Economic growth in the Baltic region is among the strongest in Europe and the fundamentals are in good shape.”Kristo Oidermaa, portfolio manager at LHV Pension Funds Oidermaa added that the fund commitment fit well into its existing strategy, allowing it to benefit from growth in the Baltic market.“Our investment strategy has a small home bias and we regard all three Baltic countries as our home markets,” Oidermaa said. “Over the last few years, we have considerably increased our allocation of alternative assets, with commercial real estate and timber and now private equity funds.”Kaido Veske, co-founding partner of Livonia Partners, said that the fund would focus on mature companies with a track record of up to 5 years and an annual turnover starting at €5m, but up to €40m.He added that the fund is looking for companies with an export focus and which were undercapitalized, and that while earnings volatility in the region would still be higher than elsewhere in Europe, the countries in question also boasted higher growth than Europe as a whole. Finnish pensions insurer Veritas and LHV Pension Funds, Estonia’s second largest pension fund manager, are among six investors committing €70m to a pan-Baltic private equity fund.Domiciled in Latvia, the Livonia Partners-managed fund will invest €3-15m of equity and mezzanine capital per investment in up to 12 small and medium-sized enterprises (SMEs) active largely in Estonia, Latvia and Lithuania. The first investments will be made in the next few months, with the possibility that firms in adjacent countries could also receive funding.Livonia Partners Fund I will acquire a blend of majority and minority stakes, acting as a hands-on investor and holding the stakes for around 5 years. Though it has a generalist mandate, the fund’s initial focus will be on manufacturing, business services and consumer companies, reflecting the management team’s experience.The €2.8bn Veritas has committed €5m from its private equity allocation. Ilona Karpinnen, portfolio manager, private equity, Veritas, told IPE: “Livonia fits well into our private equity portfolio, as European small and mid-market buyouts are the backbone of our private equity programme.
A Dutch court has ruled that sailors’ claims for damages against their bankrupt employer, based on its failure to maintain adequate pension arrangements for them, take precedence over a bank’s first rights of mortgage on the employer’s ships.As of 2008, the 11 claimants were employed by Avra Towage BV as masters and first officers on board various seagoing tugs registered in Curaçao.Each ship was owned by a single-ship company belonging to a group that included Avra.Dutch-based bank Rabobank had first rights of mortgage on each of the ships. Under the claimants’ service contracts, they were to be entered into the Dutch merchant navy pension scheme, Bedrijfspensioenfonds voor de Koopvaardij (BpfK).The pension scheme rules provided for each of the claimants to pay the employee’s share of the pension premium, with Avra adding the employer’s share, and paying both parts of the premium to BpfK.Avra arranged for each of the claimants to be entered into the scheme, and withheld pension premiums from their monthly wages.However, between 2010 and 2012, Avra did not pay any premiums to BpfK, making only a partial payment over the year 2013.In July 2013, BpfK informed each of the claimants that, as of 1 January 2010 (i.e. retroactively), they were no longer members of the scheme.The claimants held Avra responsible for their loss, but Avra did not settle their claim, and, on 20 May 2014, was declared bankrupt.Rabobank foreclosed on four ships, with a fifth being sold.The sailors brought an action against Rabobank in the District Court of Rotterdam to settle their claim.The court found that Avra was in breach of its obligations under the service contracts, and that the proper remedy for such a breach was to bring the claimants into the same position as if the breach had not occurred.The recoverable loss therefore amounts to a sum equalling the accrued pension over the full period, from 2010 to mid-2013, and not the amounts that had been withheld from their wages as premiums.The court then had to decide whether the claim for damages should rank over the mortgage on the ships. This issue entailed the interpretation of Article 8:211, in conjunction with Article 8:216, of the Dutch Civil Code.The court considered that – following the guidelines set out by the Dutch Supreme Court in the “Pamina” case (ECLI:NL:HR:2009:BG3588; S&S 2009/49) – these articles purport to protect a seafarer’s interest in recovering the claims which they cover.The Rotterdam court ruled that the term “claims arising out of service contracts with the master or other seafarers” in Article 8:211 is not limited to wages or other regular benefits, and includes claims for damages for breach of the service contract.Furthermore, the court found that, because Avra had been in breach of contract for a long period of time, the claim for damages took priority over the mortgage, while the period during which the seafarer had served on each of the ships was not relevant, as long as the seafarer had served on the ship concerned.The amount of damages has yet to be decided.
ESG integration varied from those excluding certain categories of companies, to and investment targeting firms that score high on ESG criteria. The form of investors’ engagement was also included in the study.Although a significant majority of investors already applied ESG criteria in their investment process, the proportion of the investment portfolio subject to the criteria was limited. The research revealed that 44% of institutional investors had less than a quarter of their assets invested in this way, with 17% indicating it applied to more than half of their investments.State Street said it expected that the average proportion of ESG-integrated investments would increase to 40% in the coming years.The asset manager noted that investors planning to extend their ESG strategies were facing obstacles, such as difficulties in finding a benchmark and a lack of uniform ESG definitions and standards.Other problems included assessing asset managers’ ESG credentials, the costs of ESG integration, and a lack of in-house expertise.The survey included investors in the Netherlands, UK, France, Germany, the Nordics, Italy, and Switzerland.In separate research published this week, consultancy firm Cambridge Associates found that unlisted impact investment funds in asset classes such as timber, real estate and infrastructure could generate returns similar to those from funds without a specific environmental tilt. However, the research noted that fund selection was key to successful allocations. The report is available here.Last month, asset manager Hermes found a link between higher credit spreads and weaker ESG scores for corporate bonds. Integrating environmental, social, and governance (ESG) factors into investment policies generates strong returns and can dampen volatility, according to an investor survey by State Street Global Advisors (SSGA).SSGA questioned 475 institutional investors from around the world, and found that eight in 10 were satisfied or very satisfied with the returns from their ESG investments.In addition, State Street found that 69% of the respondents indicated that ESG strategies had assisted in keeping volatility in check.A majority of the surveyed investors said that they planned to increase their responsible investments.
MSCI also outlined plans to include more A-shares in the future, including mid-cap stocks. This expansion would require further reforms to open up China’s equity market to foreign investors, such as the removal of trading limits and a “significant” reduction in share suspensions, Melas said.The addition of A-shares to global benchmarks was widely anticipated following the Stock Connect project, which opened up access to and improved communications between domestic Chinese exchanges. Investors responding to MSCI’s consultation said this had proven to be a more flexible path to access domestic equities than via Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) licensing regimes.Yannan Chenye, head of China equities research at Harvest Global Investments, said: “Inclusion in the MSCI index family is a strong signal of greater market openness, and it will undoubtedly help the A-Share market to attract broader attention and participation of international investors. This sharp increase in international market participants will substantially change fundamental features of the market.”Although the initial impact of the additions would be “slight”, Chenye said a “more balanced investor structure with a higher proportion of institutional investors (both domestic and overseas) will likely result in a change of investment style” in the domestic markets.In commentary issued this morning, specialist emerging markets manager East Capital urged investors to “speed up the development of their research capabilities and infrastructure operations” if they plan to properly access this market.“It will take a few years but at the end of the process, China A-shares might represent as much as 20% of the MSCI Emerging Markets index,” East Capital said.Gary Greenberg, head of emerging markets at Hermes Investment Management, was more cautious, as many of the firms due to enter MSCI indices next year had not fully grasped the requirements of being a listed company.“We continue to encounter managements of large A-share companies who have yet to appoint an investor relations officer and who see no reason for senior management to meet shareholders,” HE said. “The ability to communicate with foreign investors, even in companies with worldwide operations, tends to be less than world class. For businesses with top line revenues that can top $15bn, this should have been fixed by now.”Investors can already access Chinese domestic companies via listings on exchanges in Hong Kong, Singapore, the US, and the UK.In addition to the China A-shares decision, MSCI announced that it would consult on adding Saudi Arabia to its emerging markets universe next year.The index provider delayed decisions on the future classification of Argentina and Nigeria. Argentina, it said, would not be upgraded to emerging market status as investors had warned market reforms “needed to remain in place for a longer time period to be deemed irreversible”.For Nigeria, MSCI said it would postpone until November a ruling on whether the country should be cut from its frontier markets index to allow investors to assess a new trading window introduced by the country’s central bank. An estimated $17bn (€15.3bn) could flow into China’s domestic market as a result of MSCI’s decision to include A-shares in two of its leading index series for the first time.The index provider has approved 222 large-cap stocks listed on China’s Shanghai and Shenzhen stock exchanges for inclusion in its emerging markets and all-countries indices, effective from next year.It follows an “extensive consultation” with asset owners and asset managers, both passive and active, said Sebastien Lieblich, global head of index management research at MSCI.The new stocks will make up roughly 0.73% of the MSCI Emerging Markets index and will be added in two tranches in May and August 2018. Dimitris Melas, managing director and global head of equity research at MSCI, estimated that this could trigger inflows of roughly $17bn based on the volume of passive assets tracking this benchmark.
AlpInvest, Carlyle Group, PGGM, Tikehau, T Rowe Price, Mercer, Rothschild, Aviva Investors, Standard Life Investments, Unigestion, Allianz, Robeco, LGIM, Vesteda, Aon Tikehau Capital – The French asset manager has appointed France’s former prime minister François Fillon as a partner, starting tomorrow. The company said in a statement that Fillon’s “in-depth knowledge of French and European economic issues will bring real added value to Tikehau Capital and be of major benefit in driving… growth”.T Rowe Price – Maria Elena Drew has joined the US asset manager as director of research for responsible investing. T Rowe Price said Drew would “deepen the firm’s research on environmental, social and governance [ESG] considerations and focus on the continued incorporation of this analysis into the firm’s investment decisions”. She joins from Goldman Sachs Asset Management where she worked for nine years as an equity analyst, portfolio manager and ESG specialist.Mercer – The consultancy giant has named Gil Platteau as country head of Switzerland for its investment solutions business, a newly created role. Platteau will lead distribution of Mercer’s institutional investment services in the country. He joins from Rothschild Asset Management in Zurich, where he was also country head for Switzerland.Aviva Investors – Insurance company Aviva’s asset management arm has hired Iain Forrester in a newly created role as head of insurance investment strategy for its global investment solutions business. He will be tasked with “building outcome-oriented investment strategies for global insurance companies”, Aviva Investors said. Forrester joins from Standard Life Investments where he was an investment director in its insurance solutions team. Prior to that role he was responsible for the investment strategy of the Standard Life group’s balance sheet assets.Unigestion – The Swiss investment manager has appointed Philippe de Vandiere as senior vice president responsible for institutional clients. Based in the company’s Paris office, he will be responsible for its French distribution and client relationships. De Vandiere previously worked in the institutional sales team at Allianz Global Investors, also in Paris. Unigestion runs €3bn in France and nearly $24bn (€20bn) worldwide.Robeco – Martin Nijkamp is to start as head of strategic products and business development at asset manager Robeco tomorrow. Nijkamp joins from NN Investment Partners, where was involved in developing defined contribution products for the retail market.Meanwhile, Maureen Bal has been appointed as a member of Robeco’s executive committee, focusing on legal affairs and compliance. She was previously director of corporate affairs and legal counsel at APX Holding. Prior to this, Bal worked at ING, Fortis Bank, MeesPierson and Amsterdam Stock Exchange, the predecessor of Euronext.Legal & General Investment Management (LGIM) – Nigel Masding and Stephen Message have been hired to the asset manager’s active equity team. Masding joins from Longview Partners as lead manager of LGIM’s Real Income Builder fund, while Message was appointed as a UK fund manager. He was previously at Old Mutual Global Investors.Vesteda – Jaap Blokhuis has been named as member of the supervisory board of €4.5bn Dutch residential property investor Vesteda for a four-year term. Blokhuis has had positions at ING/Nationale Nederlanden Real Estate and has been director of retail property investment manager Redevco.Aon – Hans Taal, chief commercial officer (CCO) of Aon Risk Solutions, has left the company for a job at insurance broker Marsh. Taal has worked at Aon for 22 years, and became CCO last September. He has been succeeded by Stefan Weda, who was previously chief broking officer at Aon. Ruulke BagijnAlpInvest/Carlyle Group – Ruulke Bagijn, former CIO of private markets at Dutch pension manager PGGM, has joined private equity specialist AlpInvest. She will start as managing director and head of AlpInvest’s primaries business tomorrow. She joins from AXA Investment Managers where she was global head of real assets private equity. She joined AXA from PGGM last year.AlpInvest is owned by US private markets manager Carlyle Group, but emerged from a joint venture between PGGM and fellow Dutch pension manager APG that began in 1999. It was sold to its management and Carlyle Group in 2011 while Bagijn was a senior member of the private market assets team at PGGM.
“Despite supportive markets during the first half of the year, European asset managers were unable to grow their fee revenues,” said Marina Cremonese, vice president and senior analyst at Moody’s, who authored the report.“This reinforces our concerns regarding the secular headwinds facing active asset managers.”However, the stagnation of advisory fees in aggregate masked broad variation between individual asset managers, according to the rating agency.It noted that bank-owned managers recorded a 0.8% increase in net revenues, while net revenues at insurer-owned managers fell 1.7%.Independent asset managers’ fee revenues increased by 3.5%, although this shrank to 2% when the impact of the Henderson-Janus merger was excluded.The Henderson-Janus merger completed in May.MiFID II research cost rule to drive consolidationSeparately, Moody’s said MiFID II was likely to accelerate consolidation in the European asset management industry as a result of the requirement that managers pay cash fees for any external research they use for investment decisions. Previously this was bundled in with the cost for trading.The emerging trend is for European asset managers to absorb the cost of fees for research rather than pass on the cost to clients.Moody’s said this added to operating costs and would squeeze the profits of smaller asset managers.“Small asset managers are particularly exposed because they tend to consume more external research than their larger peers, due to their more limited in-house research capabilities,” said Cremonese.Vontobel today became the latest manager to publicly announce it was taking the costs of research onto its own books for all funds and mandates governed by MiFID II rules.It said the decision would result in additional costs “in the low-single-digit millions of Swiss francs per year”, which were already factored into the its three-year business objectives published at the end of August.Fixed income specialist Muzinich & Co has also said it would absorb research costs. In a statement, the group said: “While we remain highly focused on our own in-depth proprietary analysis, we are committed to ensuring our investment teams also continue to have access to leading third-party market research. This tried and tested approach has enabled us to deliver attractive, risk-adjusted returns in client portfolios for nearly 30 years.”*Allianz Global Investors, Amundi Group, Anima Holding, Ashmore Group, Aviva Investors, AXA Investment Managers, Azimut Group, Credit Suisse Asset Management, Deutsche Asset Management, Eurizon Capital, GAM Group, Janus Henderson Investors, Jupiter, Legal & General Investment Management, M&G, Mondrian Investment Partners, Natixis Asset Management, SAM Investment Holdings, Schroders, Standard Life, UBS Asset Management Net inflows for the group amounted to €117bn, compared with net outflows of €7.8bn in the first half of 2016.Fees were largely flat due to increased demand for low-cost multi-asset solutions and passive products, a trend Moody’s said it expected to continue.#*#*Show Fullscreen*#*# European asset managers failed to grow their total fee revenues in the first half of 2017 despite assets under management increasing, Moody’s Investors Services said today.Downward pressure on fees and changing asset allocations were the main causes, according to the rating agency.Total advisory fees were largely flat in the first six months of the year, up by just 1% compared with December, Moody’s said. When adjusted for the impact on assets under management of Henderson’s merger with Janus, fees were unchanged.Combined assets under management in the surveyed group of 21 managers* grew by 4% to €9trn in the same period; if the assets of US-based Janus are included the growth rate increased to 6%.
Techniker Krankenkasse (TK), Germany’s largest statutory health insurer, plans to set up its own external pension fund to be able to take advantage of greater investment freedom.It wants the pension fund to be ready by the beginning of 2020 at the latest, and is currently seeking external consultancy help with the project.TK has around 13,000 employees and 2,200 pensioners, and around 900 former employees with vested benefits. It currently pays pension benefits directly from its balance sheet when they fall due – the ‘Direktzusage’ route to financing pensions – but wants to transfer legacy liabilities from closed schemes to a standalone Pensionsfonds vehicle. It has already ringfenced assets to back up its pension promises via a contractual trust arrangement, ready to be transferred to the new fund. Thomas Thierhoff, Techniker KrankenkasseThomas Thierhoff, head of finance and controlling at TK, told IPE that the main motivation for wanting to transfer pension entitlements to a Pensionsfonds was to be able to invest more broadly.“As an insurer, TK’s investments are subject to rules that are very restrictive,” said Thierhoff. For example, under German law the company can only invest in equities up to a cap of 10%.“With the investment rules for Pensionsfonds we have more possibilities,” he said. Pensionsfonds are allowed to hold more equity and invest in a broader range of countries.Thierhoff said it was much too early to comment about asset allocation, but TK had run calculations based on a few scenarios that showed that higher returns would be possible.In deciding to set up a Pensionsfonds, TK was also partly influenced by the prospect of being able to pay lower contributions to the Pensionssicherungsverein (PSV), Germany’s insolvency pension protection scheme. Operating a Pensionsfonds entitles paying employers to a reduced contribution rate.TK could have opted for an external Pensionsfonds, such as the vehicles set up by consultancies Mercer and Willis Towers Watson, but for several reasons decided to set up its own funding platform.Thierhoff said it found there would be cost advantages in doing so, and the company would also have more influence on investments. TK also wanted to continue to handle pension administration itself. Thierhoff declined to give a figure for the amount of pension liabilities that would be allocated to the Pensionsfonds as this had not yet been determined.TK will not be transferring all its pension liabilities. ‘Past service’ liabilities accrued under a contribution-oriented defined benefit pension plan (beitragsorientierte Leistungszusage) will not be outsourced. Thierhoff said TK had only relatively recently agreed a new pension plan – in 2011 – and as such it was not currently entertaining any ideas about the industry-wide collective defined contribution plans that have been made possible under Germany’s occupational pension reform law. The Betriebsrentenstärkungsgesetz came into effect last month. With around 10m insured individuals and 800,000 company clients, TK is the largest statutory health insurance provider in Germany.