The scheme sets a benchmark for the sub-fund structured as follows:25% JPM Gov. Bond Emu IG 1-325% JPM Gov. Bond Emu IG All maturities10% IBbox Eur Liquid Corporates 10010% BofA ML Direct Government Inflation Linked15% MSCI TR NET EMU LOCAL 15% MSCI Kokusai (World ex Japan)Fondo Arco also specifies that the equity portion will vary from a minimum of 20% to a maximum of 40% of the portfolio.The maximum investment in equity collective investment schemes will be 15%, while the maximum corporate bond exposure will be 15%.Foreign exchange risk will be actively managed and set at a maximum of 25%.Tracking error volatility will be limited to 4% per year.The scheme adds that prospective managers will have to comply with its guidelines for ESG investment approved last year. The deadline for applications is 26 May. Fondo Arco, the Italian pension funds for workers employed in the wood, furniture, forestry, brick and concrete sectors, is searching for four managers for its €403m Bilanciato Prudente sub-fund.The €484m scheme launched the tender shortly after releasing its newly approved 2013 balance sheet, which saw a 12% increase in assets under management, from around €424m at the end of 2012 to €474m at the end of last year.Fondo Arco offers five-year mandates for a mixed equity, government bond and corporate bond portfolio of assets, which it forecasts will increase by €20m during 2014, thanks to contributions from current members.The tender was launched as the previous mandates for the sub-fund, held by Credit Suisse, Unipol Assicurazioni, JP Morgan Asset Management, Eurizon Capital and Natixis Asset Management, came to the end of their term.
PGGM has boosted its investments in Japanese logistics, committing a further $100m (€74.8m) to a strategy managed by the Redwood Group.Singapore-based logistics fund manager Redwood, the Asia logistics partner of Equity International, has been given the commitment for its Japan Logistics Real Estate venture.Dutch pension fund asset manager PGGM has now committed more than $230m to the strategy.The closing follows PGGM’s $144m commitment on behalf of its Private Real Estate Fund to Redwood’s China Logistics Fund last month. Ping Ip, investment manager for Japan at PGGM, said the investment was a good fit for the fund’s long-term investment strategy.The latest $100m commitment will be co-invested with Redwood’s Japan Logistics Fund into two central Tokyo logistics projects due for completion in 2015 and 2016.Stuart Gibson and Hideaki Matsunami, chief executive and managing director, respectively, at Redwood Japan, issued a joint statement, saying demand in Japan for efficient, sustainable and safe logistics facilities was the greatest it had seen since it commenced operations in the Japanese logistics market in 1999.Limited supply during and after the crisis, they added, has led to record high occupancy in the sector.In China, PGGM’s Private Real Estate fund has invested $270m in logistics through Redwood following an initial €95m investment in 2012.
In his welcoming remarks, the dean of LBS, Sir Andrew Likierman, added: “We have done nothing with the scope, depth or magnitude of this relationship, or anything as long-lasting. “AQR is distinguished for its emphasis on ideas and research that is not necessarily characteristic of its industry. There is an underlying alignment of philosophy with the London Business School.”AQR, with $122bn (€104bn) in assets under management, makes much of its strong links with academia, and boasts more than 40 PhDs on its staff, including co-founders Cliff Asness and John Liew.It endowed the AQR Capital Management Distinguished Service Professor of Finance at the University of Chicago Booth School of Business, supports the Innovation Factory at Johns Hopkins University and makes the annual $100,000 AQR Insight Award for outstanding innovation in applied academic research.The AQR Institute has its origins early last year in discussions between Scott Richardson, a professor of accounting at LBS since he left BlackRock in 2010, who currently works as a managing director at AQR in credit and equity research, and the firm’s founders.Formal discussions with LBS, which is consistently ranked in the global Top 10 for teaching and research and celebrates its 50th anniversary this year, got underway in March 2014.AQR founding principal David Kabiller said: “The AQR Institute will bring together scholars and industry-leading practitioners to produce original research and identify best practices from a global perspective.“We are proud to partner with London Business School, which is renowned for its academic rigour, top faculty and diverse student body.”In his welcoming remarks at the launch event, he added: “We opened our London office three years ago, and we wanted to make a statement about our commitment to London, the UK and the broader EMEA region.” Investment management firm AQR and the London Business School (LBS) have launched the AQR Institute of Asset Management, a 10-year collaboration to fund and generate research across a range of disciplines.The Institute will make annual grants and awards to postgraduate researchers and sponsor conferences and events at the LBS campuses in London and Dubai that will aim to bring together academics, policymakers and practitioners. Led by professors of finance Francisco Gomes, Ralph Koijen and Narayan Naik, and professor of economics Hélène Rey, the Institute’s research agenda is expected to range from the challenges faced by CIOs in portfolio construction to regulation, economic policy and accounting issues.Tony Joyce, associate dean of marketing and communications at LBS, speaking to IPE at the launch event held in the London campus on Wednesday, said: “This goes straight in at the top of the league table of our relationships with commercial entities.”
Finland’s biggest charitable foundations are active direct shareholders, but many lack strong governance mechanisms within their own structures, according to a survey.It also showed that the €20bn-worth of assets controlled by Finnish foundations are heavily concentrated within the country itself, with little diversification of direct equity holdings.The survey, which analysed a sample of 900 Finnish foundations as investors, was commissioned by the Finnish Foundation for Share Promotion in connection with a new law for Finnish foundations, which is currently being drafted.It is the most comprehensive survey yet of Finland’s 2,850 foundations, covering the 10 years up till 31 December 2013. With assets of €1.5bn, the largest entity is the Kone Foundation, which promotes Finnish research, arts and culture.The next biggest are the Aalto University Endowment and the Finnish Cultural Foundation.The 10 largest foundations all have portfolios worth more than €1bn each, while the 50 largest control 77% of all assets by value.Typically, the biggest portfolios are made up of 62% in equities (mostly held directly), 17% in fixed income, 15% in real estate and 2% each in alternatives and cash.And more than 70% of foundations’ assets are invested in Finland – in equities, real estate and euro-denominated fixed income assets.According to the survey’s author Eeva Ahdekivi, researcher at Aalto University in Helsinki, this is because of favourable tax treatment, since foundations are exempt from paying any tax on investment income arising from domestic equities.In contrast, foreign dividends may be subject to, for instance, withholding tax.It is also a result of preference for investment items that foundations can understand and follow over the long term, she added.“The largest foundations are long-term equity investors,” Ahdekivi said.“This means they are risk-takers, but they mitigate that by investing close to home so they have local knowledge of companies. They achieve geographical diversification by choosing companies earning a large percentage of their revenue from global sales.”However, even the largest portfolios contain a maximum of only 60 different stocks, with a median of only nine stocks.Ahdekivi said this was because the Nasdaq OMX Helsinki Exchange only contained around 125 stocks, and foundations typically only held the largest and best-known companies.She said that, in contrast with equities, there was more appetite to invest in fixed income abroad, as this was seen as a less risky asset class. Meanwhile, the allocation to alternative investments was very low.Ahdekivi said one reason for this was that income from partnerships may be taxable for investors, which made private equity investments less attractive to tax-exempt foundations.Average investment returns were also calculated for around half of the Finnish foundations sampled: these were 5.4% for 2012, the latest period for which figures were available.The largest foundations told Ahdekivi they were incentivised not by dividend yields – as this could lead to value traps – but how strong a company’s value potential was.These foundations all have consultancy relationships with asset managers, on a consultative rather than discretionary basis.However, little money is spent on internal financial expertise, and it is often the foundation’s managing director who is in charge of investments.The survey highlights the absence of strong governance mechanisms within many foundations.Often, the board is the sole governing body, with no other forms of oversight, as foundations have no shareholders.Financial information is published on the websites of less than one-fifth of foundations.And in general, the non-profit sector is not subject to similar transparency requirements as pension insurers or listed companies.Ahdekivi said most potential problems arising from weak governance were likely to arise among the longer-established, richer foundations.She said: “Foundations with larger endowments are more open to moral hazard because of their financial cushion, which makes inefficiencies possible.“For example, the board may be unwilling to carry out much-needed changes, such as a merger with a similar charity, which might improve mission efficiency.”The new law on Finnish foundations is intended to update and clarify the existing law dating from the 1920s, in line with good practice.It will include provisions on transparency, including the obligation to publish annual accounts, rules on the general duties of directors and on related party transactions.There will also be specific guidance clarifying the existing legislation on investing by foundations.The proposals are currently passing through Parliament, with enactment expected in the next few weeks, and will take effect from 1 October 2015.
The speed of consolidation in the pensions sector is going to exceed the general assumptions, Ruud Hagendijk, the outgoing chief executive of the €110bn pensions provider MN has predicted.Speaking during a symposium organised by the metal scheme PME last week, he said it would not take five to 10 years before all pension funds with assets under €500m had disappeared.Hagendijk observed that schemes’ assets had increased tenfold to €3.5bn on average since 1997.“Back then, pension funds had 12,500 participants on average, whereas this number had risen to 42,600 in 2012, mainly following expansion through mergers and schemes joining,” he said. MN’s chief executive, who is to be succeeded by René van de Kieft on 1 May, not only attributed the consolidation trend to the need for costs saving, increased complexity and raised expertise requirements for board members.The increased exposure to supervisors as well as society also played a role, and was an important reason for trustees for whether to accept or decline a seat on the board, he suggested.In Hagendijk’s opinion, supervisor DNB had a big interest in consolidation, “as it has problems overseeing the whole pensions domain because of the diversity of views”.This issue is being reinforced by the lack of co-ordination within the pensions sector, resulting in the absence of a unilateral voice or proposed solutions. In such a situation, increased size helps establishing a common strategy and tactics to lobby politicians, he argued.Hagendijk further predicted a big interest from company schemes in the technical sector for joining a single large pension fund for the metal industry, if the €40bn PME and the €60bn PMT – currently MN’s main clients – were to merge.However, he underlined the importance of a sense of identity among the participants as well as limiting the distance between pension fund and target group. “If we don’t succeed in this, we have passed the right scale for providers,” he said.In the view of Olaf Sleijpen, DNB director for the supervision of pension funds, a merger between PME and PMT – with 540,000 workers in total – would generate benefits of scale. “Moreover, such a combination would not have to be the result of weakness.”During his last public presentation before Bert Boertje replaces him, Sleijpen reminded attendees that the dozens of company schemes vanishing annually represented no more than 0.5% of the total of Dutch pension fund participants.Also during the conference, Fieke van der Lecq, professor of pensions markets at Rotterdam’s Erasmus School of Economics, concluded that for consolidation “bigger seems to be better for the time being”.She was drawing on the outcome of studies by DNB researcher Jacob Bikker, which also suggested that no sooner than a scale of 10m participants, all benefits of scale for administration have been used.Van der Lecq added that as of assets under management of €200m, the benefits of scale would not necessarily increase, “as the investment process would become too complicated”.
The local authority pension funds for East Riding, Surrey and Cumbria are in talks to launch an investment partnership, pooling £9bn (€12.3bn) in assets.The three English local authority funds said the multi-asset pool could grow to as much as £20bn, as talks continue with other local government pension schemes (LGPS) ahead of a government consultation on pooling expected for later this month.The proposal follows on from eight funds in the South West of England exploring the creation of a £19bn asset pool, the launch of a collective investment vehicle backed by most of London’s local authorities, and the eight Welsh local authority funds agreeing to jointly procure a passive equity manager.Mel Worth, chairman of the £2bn Cumbria County Pension Fund, said the scheme was keen to “marshal [its] future by seeking like-minded partners to pool with” in the wake of chancellor of the Exchequer George Osborne’s announcement in July that he wanted to see pooled vehicles to cut costs “significantly”. “The speed,” Worth said, “in which we have managed to move towards developing a solution to pool assets speaks volumes about the similarities of the funds but more crucially about the desire of those involved to collaborate and make this a success.”Denise Le Gal, chair of the £3.2bn Surrey County Pension Fund, highlighted the opportunities to reduce costs through the pooling exercise and noted that it would help boost exposure to domestic infrastructure.Osborne pledged in October to focus on infrastructure when he said pooling would allow billions to be invested in regional projects.At the time, the UK Treasury said that if the LGPS asset pools were to “follow international norms”, their infrastructure exposure would need to increase – potentially by building in-house capacity.East Riding Pension Fund, the largest of the schemes publicly linked to the venture, with £3.6bn in assets, already employs in-house management staff.John Holtby, the fund’s chairman, said its in-house capacity meant it was committed to “sharing expertise, reducing costs and delivering expected returns”.For the 2013-14 financial year, East Riding managed 75% of assets internally.The £2.4bn was largely invested in equities, accounting for nearly 60% of internal assets.The team also oversaw fixed income worth £420m, UK property holdings worth £206m and a £376m alternatives portfolio, comprising distressed debt fund holdings, infrastructure and private equity.Its total management costs stood at £1.6m, or 0.06%, compared with £1.9m, or 0.23%, paid to sole external manager Schroder Investment Management.Schroders was responsible for running half of East Riding’s corporate bond portfolio, 40% of the European equity portfolio and North American, Japanese and emerging market equities.East Riding’s in-house experience leaves open the possibility of its managing assets on behalf of other members of its asset pool.Scotland’s Lothian Pension Fund already advises fellow local authority fund Falkirk on a £30m infrastructure portfolio.It has now confirmed it would like its in-house team to compete for private sector mandates once it has been authorised by the Financial Conduct Authority.
“Any regulation,” Carberry said, “which hurts employers’ financial capacity to stand by their pension promises only increases the likelihood of a scheme to enter into pension scheme welfare systems and risks a reduction in the income savers receive in retirement.”He said requiring full funding of future accrual was “wrong-headed”.“A pension is a benefit, created and guaranteed by the employer in recognition of service,” he said. “It is not an insurance policy purchased on the open market that therefore needs to be regulated like a financial product.”He said it was important to ensure pensions continued to be viewed “as the social security benefit that they are”.“Because of this, the CBI and [sister industry group] BusinessEurope are calling for full funding requirements to remain off the table,” he said. Additionally, Carberry said it was important to respect the EU’s principle of subsidiarity and allow individual regulators to decide the regulatory environment for schemes.Hayes’s draft report proposed the introduction of full funding on the sector as a whole when “a new or an additional scheme” was launched, rather than on an ongoing basis, as with cross-border IORPs.He has since rewritten his amendments to avoid accidentally including schemes changing accrual rates. Concerns have remained over the potential for new requirements to be imposed at a later date, but Hayes has sought to reduce the risk by removing the European Insurance and Occupational Pensions Authority’s ability to draft any further technical standards.ECON is set to vote on Hayes’s report on 25 January, following which a compromise draft of the Directive is set to be decided in negotiations among the Commission, Parliament and member states. European parliamentarians have been urged not to back any draft of the revised IORP Directive requiring full funding of pension fund liabilities, ahead of a crucial vote to decide the chamber’s final negotiating position.The Confederation of British Industry (CBI), the UK employer association, said it wished to see the debate around full funding “ended once and for all”, arguing it was a major concern to business as it could entail “considerable” costs.Neil Carberry, director of employment, skills and public services at the industry association, said requiring full funding would undermine sponsors’ ability to stand by their pension funds.The call comes ahead of a vote by the European Parliament’s Economic and Monetary Affairs Committee (ECON), which is set to approve the final draft of rapporteur Brian Hayes’s report on the revised Directive.
For European VC to truly flourish, private sector funding must increase, argues Joseph MariathasanWhether European venture capital is falling behind the US or Asia is of importance for more than just venture capital investors. New companies at the forefront of innovation can act as catalysts for stimulating economies way beyond the immediate returns for the investors – the rise of the internet economy is testament to that.There is an opinion that Europe is falling behind in one key area – investing in big ideas, the breakthrough innovations and highly disruptive companies most talked about in the media. I wrote about this a few months ago. Joe Schorge, founder and managing partner of Isomer Capital, has come back to me rebutting this view, and his arguments certainly deserve a hearing.Schorge says much of the analysis and negative perceptions of European venture are based on outdated data. He argues that the way innovative companies are built and financed has changed since the financial crisis, driven largely by the rise of smart phones, app stores and cloud-based computing, yet it takes years for such results to be reflected in backward-looking performance indices. Meanwhile, he sees a great investment opportunity in funding the future, today. More recent analysis by the likes of the Boston Consulting Group in a 2015 report suggests VC performance is trending upwards, driven by high US investments in Europe. What is a worry, though, is that the average fund size of the more than 800 VCs is small, and small, nationally focused funds have often underperformed. What is very positive is the development of venture hubs in Europe, with Schorge seeing London, Paris, Berlin and Stockholm leading, and a range of other cities following closely.Where Schorge differs from others is in the view that Europe is falling behind in ground-breaking innovation. As he rightly points out, in recent years, European companies have led the way in areas such as gaming, music streaming, blockchain and smart cities, among others. A good example is the British artificial intelligence company Google Deepmind, which is at the forefront of artificial intelligence. It made global headlines earlier this year when its programme beat a human professional at the game Go, which has never been done before.But perhaps the flip-side of that is that the company was acquired by Google in 2014, its biggest acquisition in Europe to date. How effective can European innovation be at the creation of unicorns (private companies valued at more than $1bn) if any potential contenders are rapidly acquired by the US mega companies? There may be some hope in that BCG does estimate that, as of August last year, 13 of the 129 global unicorns were based in Europe, including global names such as Shazam and Spotify.Other reports claim even larger numbers, with GP Bullhound identifying 40 in Europe. The UK is by far the leading creator, with Germany some distance behind. What is interesting, they find that the vast majority of new additions are consumer-focused, with all new unicorns in Germany being consumer-orientated. The mix in the UK, they find, is more diversified, with software companies dominating the new additions. The strongest sectors are e-commerce, software and marketplace, with each representing 20% of the total number of European unicorns. The fintech share is growing the fastest, with seven companies, and more than half of the fintech companies are UK-based. As GP Bullhound points out, London’s unique position in global finance is driving this growth. Schorge sees London as being on track to earn the title Fintech Capital of the World, given its strong growth as a start-up hub, wide talent pool of finance industry executives and the presence of all the large global financial intuitions. A key issue, of course, will be the potential impact of a Brexit. Proponents of Brexit will argue there will be no detrimental impact, but, the truth is, no one knows.So, should we be complacent about the strength of European venture? GP Bullhound reports that the new generation of European unicorns has raised significantly more capital than in the past but adds that now it is more important than ever to keep momentum in “winner takes all” sectors. Yet, despite the glowing reports that they, Schorge and others are reporting on European venture, the fact remains that it is difficult to get private sector funding from large institutions such as European pension funds. There are many reasons for that, including the fact small fund sizes preclude many large institutional investors from taking stakes, given the amount of due diligence required for relatively small investments. Not surprisingly, as BCG reports, the absence of private investors has led to governments becoming the largest LPs in Europe, with 35% of the market. For European venture to truly flourish, that figure has to be reduced through increased private sector funding, rather than reduced government investment. And in the UK, a possible Brexit may very well become the more important issue.Joseph Mariathasan is a contributing editor at IPE
Must we change?Can we change?Will we change?Many scientists believed the climate crisis had become an existential crisis for humanity, he said. It was also the number one threat to the global economy. The investment community can play the key role in ensuring the world can change in time to avoid a full-blown crisis as a result of climate change, former vice president Al Gore told a packed auditorium at the IPE annual conference in Prague yesterday. “Ultimately it boils down to a choice between what’s right and wrong, and when enough people see it clearly then the final no gives way to a yes.”Al GoreIt can do so “in ways that are completely and totally consistent with taking the full value spectrum into account in safeguarding the assets that you’re managing, to offset the liabilities and fulfil your fiduciary responsibilities”, he added.The environmental activist and chair of Generation Investment Management made his argument with myriad figures and examples, urging investors to answer ‘yes’ what he said were “the only three questions remaining to be addressed about the climate crisis”. Al Gore addresses the IPE Conference in Prague Al GoreAt Generation Investment Management, the view was that the world was facing a global sustainability revolution with the magnitude of the agricultural and industrial revolution, but the speed of the digital revolution.It was the single largest investment opportunity in history, and was emanating from developing and developed countries alike, he added.There were signs that “maybe we are at a point of reckoning” with respect to cutting fossil fuel subsidies and the cost of green energy technology was falling significantly.Gore warned investors against the dangers of being too narrowly focused on one part of the value chain, thereby failing to appreciate the risks of some of their economic decisions and missing out on some of the opportunities that were rapidly emerging from the unprecedented changes that were underway.He said investors needed to “look beyond the comfortable and familiar financial metrics” to take into account environmental, social and governance (ESG) factors.Gore turned to poetry to drive home his concluding remarks. He said some people still believed there was not the political will to solve the climate crisis, and then quoted from the work of the late Wallace Stevens, an American businessman and poet: “After the final no there comes a yesAnd on that yes the future world depends.”Every great movement that has transformed human civilisation, said Gore, had first met with a series of ‘nos’.“But ultimately it boils down to a choice between what’s right and wrong, and when enough people see it clearly then the final no gives way to a yes,” he said. Gore’s presentation was received with a standing ovation by many delegates.
The investors, who are all UNEP FI investment members, are: Addenda Capital, Aviva, Caisse de Dépôt et Placement du Québec, Desjardins Group, La Française Group, Nordea Investment Management, Norges Bank Investment Management, Rockefeller Asset Management, and Storebrand Asset Management.The UNEP FI project is not the only investor initiative on TCFD-aligned reporting. The City of London Green Finance Initiative, China Green Finance Committee and the Principles for Responsible Investment (PRI) have also put together a group of financial institutions, including institutional investors, to trial reporting based on the TCFD recommendations.The UNEP FI said the group would not act in isolation, citing existing investor groups and initiatives such as the Institutional Investor Group on Climate Change and the Investor Agenda.FRC: Calling all pension funds The UK’s Financial Reporting Council (FRC) wants to hear from pension funds to better understand their views on the Stewardship Code, which the public body is reviewing.Writing in a blog on the FRC’s website, its head of investor engagement Jen Sisson said the FRC wanted more asset owners to sign up to the code.“But we understand that there are competing issues that pension fund trustees need to balance, and that there is often limited time available to do so,” she added.The FRC has already outlined some of the changes it has considered making to the Stewardship Code. In the blog, Sisson said the accounting regulator wanted to know if it should provide more clarity on the expectations of those investing directly versus those investing indirectly, like many pension schemes, and if the code should more explicitly refer to environmental, social and governance factors and broader social impact.“As we move through the process of reviewing the UK Stewardship code we want to hear from you,” said Sisson.The Local Authority Pension Fund Forum (LAPFF), a £200bn (€227bn) association of UK public pension funds, has called for the FRC to be wound up and replaced with a proper statutory body.ISS takes over oekomoekom research, a Munich-based ESG research and ratings provider, has been bought by Institutional Shareholder Services (ISS), a major US provider of corporate governance and ESG products and services.oekom research will be renamed ISS-oekom and complement the work of ISS’ existing responsible investment teams, according to a statement.“As institutions across the globe continue to seek out holistic responsible investment solutions and services, ISS is pleased to respond to those demands through this transaction,” said ISS chief operating officer Stephen Harvey.The move is part of an emerging trend of consolidation among ESG/corporate governance service providers.Public pension funds turn spotlight on ‘precarious work’ The LAPFF has set out its stall on “precarious work”, publishing a report that identifies it as an investment risk and calls for changes to regulation and oversight as well as company practice.It also includes guidance for investors on how to engage with companies on issues such as zero-hours contracts, slavery, and general working conditions.Ian Greenwood and Denise Le Gal, LAPFF vice-chairs, said: “Investors can no longer turn a blind eye to precarious work. This report not only demonstrates the reputational and legal risks, it also highlights a worrying trend of companies seeing workers as a cost to be cut rather than an asset to be invested in to create long-term value.”The report can be found here.The art of manager selectionAsset owners should be clear about their expectations for the “real economy impact” of their investments when going about manager selection, according to a new guide from the PRI.Clarity on this aspect “will help to align interests for a long-term commercial relationship,” it said.The PRI has been promoting more and better integration of ESG-related issues in manager selection for some time. It said its new guide provided more detail on what ESG-related issues asset owners needed to think about when looking to select an investment manager.The PRI said: “Among others, this new document makes a fundamental point around manager selection: If there is no cultural fit and understanding of ESG factors between an asset owner and a potential manager, there is little [foundation] to establish a long-term investment relationship.”The guide can be found here. A near-$3trn (€2trn) group of investors – including Norway’s giant sovereign wealth fund – has formed to promote action on climate reporting by the investor community.Together with the UN Environment Finance Initiative (UNEP FI), nine investors will work towards providing a first set of information in line with the recommendations of the Financial Stability Board Task Force on Climate-related Financial Disclosures (TCFD).“The outputs and conclusions of the group will encourage and ease the adoption of the TCFD’s recommendations by the wider industry,” UNEP FI said in a statement.A report on the pilot project is expected to be published by the end of 2018.