There is no denying that mining is one of the most controversial industries on the planet, which is why responsible investors have always been in hot pursuit of the company boards of mining companies. Whether they sought engagement with mining giant Rio Tinto over environmental pollution concerns, Indian mining company Vedanta over indigenous rights issues or gold producer Barrick over corporate governance issues – for many, mining companies are top of their engagement agenda.One of the most shocking events in the mining sector occurred in August 2012 when armed police shot dead dozens of striking miners at the South African Marikana mine. In total, 46 people lost their lives, and comparisons were swiftly made with the Sharpeville Massacre of the Apartheid regime in 1960.When I attended the ‘PRI in Person’ event in Cape Town last week, it became clear that mining remains a sore point in South Africa one year on from the Marikana shootings.The session on mining in Africa was the most tense I have ever experienced, and other attendees conveyed similar feelings to me afterwards. While people can agree or disagree on how transparent the mining sector is in comparison with other industries, the claim by one of the panel’s speakers that “apartheid had nothing to do with mining” was a bold statement to say the least. I was not alone in thinking the ghosts of the past had not been completely buried after leaving the session.White South Africans seemed to be very defensive when it comes to wages in the mining sector, arguing that miners earned relatively well and that it was their personal circumstances that needed improving because the majority of the workers lived in impoverished townships on the outskirts of cities. They were seeking a social wage rather than an absolute figure. Unions had too much power, some cried, and the labour force was too uneducated and too militant.I heard little from the other side.But Martin Kuskus, chairman of the Mineworkers’ Provident Fund, who spoke on the panel, said South Africa was one of the most unequal societies, with a sharp contrast between the haves and have-nots. And while he said mining was meant to narrow this inequality, the Marikana massacre just served to highlight the persisting stark inequality.One European pension fund that is used to engaging with mining companies from around the world said to me over lunch that, while there are plenty of issues in the mining sector globally, South Africa is the only country where the wages are a controversial issue.I take my hat off to the pension funds that engage on wages in the South African mining sector because engagement must be far from easy when, other issues such as pollution and water scarcity aside, you have to tiptoe around feelings of resentment almost 20 years onwards from the country’s first democratic general elections.However, Nina Hodzic, ESG specialist at ING Investment Management International, who visited the Lonmin (Marikana) mine following the conference, came away feeling a lot more positive. She said: “Staff training, community investing such as affordable housing and education are very important for miner Lonmin, as they lead to higher productivity of employees and subsequently a higher profitability for the company. Safety is extremely important to the company. This was very clear during the mine visit, as there were posters and other educational material hanging everywhere to remind the employees of the importance of adhering to safety rules. Lonmin has received various awards for safety achievements.”Hodzic added: “Interestingly, I have spoken to people in Johannesburg who were rather critical about the government, but were actually quite positive about the mining companies, as they provide jobs and invest in local communities, practically taking over the role of the government. One person even mentioned that the government regularly takes credit for what mining companies have done for the community. The mining industry is facing many challenges, but I am positive about its commitment to transformation, community development and improved environmental and social practices. More collaboration is needed between the government, local municipalities, companies, unions and local communities, taking into account the importance of the mining industry for South Africa’s economy.”The mining sector makes up 9% of South Africa’s GDP, but it is responsible for around 50% of export earnings. In addition, it has created more than 1m jobs, both directly and indirectly. In a country where youth unemployment is still above 50%, this makes it an important sector for the economy.Therefore, while the PRI event highlighted that South Africa and the other 53 sovereign states on the continent are not just resource countries, the mining sector remains crucial, at least for now.
A leaked copy of the European Commission’s long-awaited proposal for revising the directive on Institutions for Occupational Retirement Provision (IORP) sets out to “strengthen the capacity of IORPs to invest in assets with a long-term economic profile” and falls “well within the scope of the Commission’s agenda towards a stronger sector to support growth”.It does not consider the introduction of new solvency rules.The proposal calls for fiscal consolidation and long-term sustainability to be implemented hand in hand with EU member states’ structural reforms of their respective pension systems.It is also meant to be consistent with and complementary to other initiatives in the field of financial services, such as Solvency II, MiFID II and the Alternative Investment Fund Managers Directive (AIFMD). The proposal sets out four specific objectives: (1) removing remaining prudential barriers to cross-border IORPs; (2) ensuring good governance and risk management; (3) providing clear and relevant information to members; and (4) ensuring supervisors have the necessary tools to effectively supervise IORPs.In November 2013, EU commissioner Michel Barnier, in his closing speech at EIOPA’s conference in Frankfurt, confirmed that the directive would not cover solvency rules but rather the governance and transparency of pension funds.“Along with trying to solve cross-border issues,” he said at the time, “our aim is to create a framework in which pension funds can grow – especially in member states where they hardly exist today.”He said EU member states that already had a developed pension fund sector with a high standard of transparency “should not be greatly impacted by this proposal”.True to his word, the leaked draft states that the proposal does not consider the introduction of new solvency rules.”Solvency rules are not directly relevant for DC schemes,” it says. “Moreover, the Quantitative Impact Study conducted by EIOPA indicated that more complete data on solvency aspects are necessary before a decision can be taken on those aspects.”The proposal describes itself as a “minimum harmonisation legal instrument” and states that national authorities may go further if necessary for the purposes of member and beneficiary protection.However, it states that the minimum standards within the IORP I Directive of 2003 are to be raised, with some parts of the new directive being reinforced by Commission delegated and implementing acts.Blame for a general lack of reform by EU member states also appears in the text, particularly their failure to remove obstacles to cross-border activities.Another is failure to ensure an EU-wide minimum level of consumer protection.One stated aim in the leaked draft is to “take into account positive externalities arising from scale economies, risk diversification and innovation inherent to cross-border activity”.Furthermore, it sets out to avoid regulatory arbitrage between different financial services sectors and member states.Under the heading ‘Powers of interventions and duties of the competent authorities’, the text states that competent authorities may also restrict the free disposal of an institution’s assets when it has failed to establish sufficient technical provisions.Another article states that the competent authorities may also transfer the powers of persons running an institution located in their territories, wholly or partly, to a special representative who is fit to exercise these powers.As for the expected date of the final version of IORP II, the Commission mentions March, without providing a firm date.
“Horribly risky” public markets are reducing the relative risk of private equity holdings, the UK’s largest local authority fund has argued.Neil Cooper, assistant executive director of investments at the Greater Manchester Pension Fund (GMPF), said many investors compared the risk posed by private equity with that of public market investments, but that the current state of the latter was “absolutely crazy”.Speaking at a fringe event on private equity at the annual conference of the Pensions and Lifetime Savings Association, formerly known as the National Association of Pension Funds, Cooper said recent “flash crashes” made him question how public markets were being traded.“If you say private equity is risky, that’s fine – it clearly is,” he said. “But the ready comparison in public markets is actually getting riskier, so, on a relative basis, it’s getting less risky compared with the public market equivalent.”He also spoke of the difficulty facing the GMPF in increasing exposure to the asset class, although he said the scheme was happy with its 5% strategic asset allocation.“Even in the last two years, where we’ve quite materially increased our commitment rate, the cash has come back quicker than it’s been going out,” Cooper said.“So that’s actually a trivial task to increase your exposure in an asset class, which is constantly recycling capital and sending it back.”He said the main challenge facing the fund was the difficulty in getting “large sums to work in private equity”.The GMPF, which last financial year achieved an investment return of 11.7%, has seen its assets increase to £17.6bn (€23.8bn), an increase of £4.3bn over the 12 months to March.
The German state of North Rhine-Westphalia (NRW) had agreed to create a Pensionsfonds for its civil servants and has already begun building a pensions-provision buffer for more than 147,000 retirees.Since 2006, the NRW has also been paying €500 a month into a retirement fund on behalf of each active civil servant.It will now combine these two pots to create a €10bn fund in 2017, paying an additional €200m annually from 2018.The NRW’s finance ministry is still working on a strategic asset allocation for the fund. A ministry spokeswoman, however, told IPE the scheme would be able to invest in “bonds and loans issued by the NRW, other German states, provinces and municipalities, federal authorities and states within the euro-area, as well as the banks of supranational entities”.It will also be able to invest in covered bonds, Pfandbriefe, municipal debt, equities and fund units.The NRW has endeavoured to keep its strategic asset allocation under wraps to prevent causing any “harmful market disturbances”.Its spokeswoman also said the NRW had yet to make any decision on external managers.Similar pension funds in other German states have in the past selected the national bank as asset manager.The NRW previously worked with the national bank for its active member fund. In the wake of the financial crisis, however, many states were forced to backtrack on commitments – made in 2006-07 for the most part – to set up funds for civil servants.Others suspended contributions from 2010-11 or even made withdrawals.Others, like Saxony-Anhalt, changed their minds yet again and started selecting external managers. One expert argued at the time that most of the plans were “inadequate” anyway.
Robin Ellison appearing before MPs yesterdayThis episode occurred during Carillion’s final days as a going concern. Ellison said that even then the trustees were led to believe by Carillion executives that if immediate cash could be raised, the business would survive long enough to be restructured.Contribution schedule questionedBut MPs questioned why the trustees had ever allowed the sponsor to pause contributions in August last year, given the scheme was still in deficit. They referred to a 2012 report by one of the trustees’ advisers, Gazelle, recommending that they demand more from the sponsor, including influence over new securities issued by Carillion.Gazelle said at the time: “Carillion has historically prioritised other demands on capital ahead of deficit reduction in order to grow earnings and support the share price.”Ellison emphasised that the trustees had pursued means of greater security “with inadequate results”. He added that the board had asked for more contributions after nearly every valuation. “We did not just roll over and get our tummies tickled when the company paused contributions.”Robin Ellison“You will see [from correspondence] that negotiations went on in a pretty tough fashion: for the first two valuations we didn’t come to formal agreement and we had to take what the company would pay,” Ellison explained. “The powers of pension fund trustees are limited – we can’t enforce a demand for money.”The trustee chair also emphasised that “there wasn’t much in the company that could be pledged” as security against the deferred contributions.“We did not just roll over and get our tummies tickled when the company paused contributions,” Ellison said. “There were heavy interest payments for the delay and the promise of a bullet repayment seven months later.”Asked whether he’d thought about resigning, Ellison replied that resigning would not have solved anything.TPR – which will appear before the committee at a later date – can compel greater contributions. When pressed by Frank Field MP, co-chair of the committee, Ellison said he had not asked the regulator to make this specific demand, instead asking the regulator to use its judgement as to the best course of action. TPR will have to explain why it sat in on board meetings of the Carillion trustees for years without taking further action against the sponsor.MPs pointed to the £376m paid to shareholders in dividends by Carillion between 2012 and 2016. When asked why the money didn’t go to the pension fund, Ellison pointed out that The Pensions Regulator generally accepted pension contributions worth 16%-18% of dividends. In Carillion’s case, pension contributions had been in the order of 60% of dividends.Carillion’s annual report for 2016 detailed that it had paid £393.7m to shareholders since 2012, while making deficit contributions to the DB schemes of £209.4m in total. Since last year, TPR has increased its emphasis on companies striking a balance between dividend payments and pension scheme deficit reduction payments.Members of the Work and Pensions Select Committee and the Business, Energy and Industrial Strategy Select Committee are conducting a joint inquiry into the collapse of Carillion.A number of the engineering conglomerate’s DB pension funds are now being assessed for entry into the Pension Protection Fund.Robin Ellison spoke to IPE in March 2017 about the Carillion schemes’ investment strategy. He added that The Pensions Regulator (TPR) had also stood up to potential creditors of the company who had demanded all loans go into the business rather than the pension fund. The chairman of Carillion Pension Trustees has rebutted claims by politicians that the trustee board let the failed contractor “wriggle out” of pension contributions.Carillion went into compulsory liquidation on 15 January with a pensions deficit in excess of £800m (€910m) but just £29m in cash.Robin Ellison, chair of the trustees, yesterday told a parliamentary committee investigating Carillion’s collapse that the trustee board had pushed the construction and engineering contractor as hard as it could.“We did our best with the information at our disposal,” he said, adding that it was a balancing act between getting as much money for the pension scheme as possible without driving the sponsor out of business. “I don’t think there is anything more we could have done to pursue higher contributions.”
This would in turn have a negative impact on asset managers’ credit ratings, it said.“Active managers… will have to overhaul their cost structures and product lineup or merge to offset the pressure on revenue and generate economies of scale”Moody’sThe final rules from the FCA on governance will take effect on 30 September 2019, while rules forcing managers to return profits made from trading fund units (known as box profits) will come into force on 1 April next year.“Active managers that have been experiencing an increase in operating and compliance costs following a number of local and global regulatory initiatives will have to overhaul their cost structures and product lineup or merge to offset the pressure on revenue and generate economies of scale,” Moody’s said.The additional rules on delivering value to investors would reduce the fees charged by active managers as they would have to adapt their business models and product offerings to an even more competitive pricing environment, the agency added. Asset managers that provided the best value-for-money services would probably consolidate their market share as a result of the regulatory change.“Bigger players with solid governance standards and diverse solutions in both active and passive management, such as [Fidelity] and BlackRock, will be best positioned to absorb the additional regulatory pressures,” Moody’s said.“The introduction of these rules will increase fee and cost transparency, making the pricing of active funds more competitive and accelerating the shift to passive products.” UK active asset managers will see their profit margins reduced by rules published last week by the country’s financial regulator, according to analysis by Moody’s Investors Service.The credit rating agency also said the industry’s prevailing shift towards index-based investment would hasten as a result of the Financial Conduct Authority’s (FCA) actions.The FCA set out a series of rules last Thursday for the country’s £8trn (€9.2trn) asset management sector, requesting firms to act in the best interests of the investors in their funds.Moody’s said: “Although the new rules enhance transparency and protection for investors, active asset managers’ operating and compliance costs will increase and their fees will decline, reducing profit margins and accelerating the shift toward passive investment management.”
The €70bn Dutch metal industry scheme PMT registered an overall gain of 8.4% last year, as its investment return of 4.1% was boosted by a 4.3% drop in liabilities due to rising interest rates.In its annual report for 2017, PMT said its long-term goal for additional returns was 1.5%, initially to aid its recovery and rebuild financial buffers, and later to finance inflation compensation.PMT’s 35% equity allocation, including private equity, was the best-performing asset class, returning 13.5%.High-yield bonds and property yielded 3.8% and 5.3%, respectively, contributing to an overall result of 10.2% of its return-seeking portfolio. In contrast, its matching portfolio (46% of its overall investment portfolio) lost 2.8% due to rising interest rates.PMT said it would take no more risk than was necessary to achieve its return goal. As a consequence, it had set its interest rate hedge at 50%, with a bandwidth of 5 percentage points.As the scheme’s funding – 102.1% last April – was still short of the required minimum of 104.3%, it couldn’t grant indexation.Inflation compensation in arrears had increased to more than 16% for active participants and almost 14.5% for deferred members and pensioners, PMT said.On top of this, the pension fund had to implement two rights cuts of 6.7% in total during the past few years.PMT said that, in order to reduce the chances of unconditional rights cuts at the end of next year, it had used €374m of money set aside for equalising premiums to increase its funding by 0.5 percentage points,It had established the pot in 2015 to hold surplus cash from a set of contributions that were fixed for a five-year period. At the end of last year, the money set aside amounted to €423m.The metal scheme reported administration costs of €80 per participant and said it had spent 0.49% on asset management.It added that its performance fees had increased from 0.12% to 0.14%, largely due to private equity, international direct property and infrastructure.PMT also said it planned to improved online portals for both members and employers. It also said it would actively seek contact with workers approaching retirement to alert them to the available options and to guide them with their choices.
Fees for UK and non-UK European brokers peaked in the third quarter of 2017 at 7.4bps and 7.3bps respectively.Yet Nogueira said there were other factors beyond regulation that were steering commission fees lower.“As more and more asset managers move towards using [algorithms] to handle their orders, lower commissions are inevitable,” he said.Last year, the CFA Institute reported that more than three-quarters of European investment professionals said they were less likely to tap investment banks for research after MiFID II came into effect.Just under half said they were more likely to improve access to in-house research.“You shouldn’t lose sight that this is good news for the end investor,” said Gary Baker, managing director of the CFA Institute. “If you go back to the origin of MiFID II – which was to boost transparency and the lot of the end investor – then that is what it is achieving.”There were also wider structural reasons for the gradual diminution of commission fees over the past few years, including greater use of technology and different ways of conducting research, Baker said.However, he warned that there might be more turbulence ahead over the next few quarters.“I don’t think this will be the end of it,” Baker said. “But that doesn’t mean [that fee levels will] continue to fall. We could be looking at the end of a pendulum swing and then it settles back down a bit.”Note: This article has been updated to correct figures in the second and fifth paragraph that were incorrectly expressed as percentages. Pension funds and other investors are reaping early benefits from the implementation of MiFID II earlier this year with broker commissions falling significantly in the first three months of 2018, a new report has revealed.According to financial technology group ITG, broker commission fees in the UK fell by almost 20% over the course of the first quarter of 2018 from 7 basis points to 5.8 basis points. Across Europe (excluding the UK) the report showed that fees dropped from 6.9bps to 5.2bps over the same period.MiFID II, designed to improve transparency within the financial services industry, was implemented on 3 January this year, leading many to suggest there was a direct correlation between the new rules and the commission fall.“A fall in execution rates was always likely, but not to this extent,” said Andre Nogueira, director of trading analytics at ITG. “Nearly six months in, a decline of nearly a third in UK commission rates proves that MiFID II is really starting to bite.”
Under Velzel, who succeeded Else Bos last year , PGGM has developed a new strategy for the next five years, abandoning its earlier plans to support consolidation across the entire pensions sector in the Netherlands. The Huisartsen scheme will likely remain with PGGMThe €10.6bn occupational pension fund for general practitioners (Huisartsen) was also set to stay as it was part of the healthcare sector.Velzel indicated that PGGM expected to achieve synergy benefits with Stipp, the €198m scheme for temporary workers, which has 1.3m participants in a defined contribution plan with the provider.General pension fund up for grabsPGGM’s general pension fund Volo – established in 2016 as a consolidation vehicle for smaller pension funds – no longer fitted with the provider’s new strategy, Velzel said.Currently, Volo has roughly 3,000 participants and is the second-smallest general pension fund in the market.According to Velzel, PGGM hadn’t set a clear deadline for offloading its APF.However, the chief executive said PGGM would continue to support the low-cost defined contribution vehicle (known as a PPI) that it operated in collaboration with Rabobank.Velzel said: “The PPI is an important preparation for an individual DC system with its choice options. If the mandatory participation were to move to the many employers in the care sector, it would be very useful for us to have the PPI available.”IT overhaulDuring the next five years, PGGM is to invest tens of millions of euros in IT in order to be prepared for a proposed new pensions system with more choice options for employers and participants.“Within this new system, which is to deliver tailor-made pension arrangements for large numbers of participants, we expect synergy in the long term,” Velzel said.While PGGM is to close its door to pensions provision, it wants to open it to third-party asset management clients.“If we want to be best in class, we need to scale up,” Velzel said “Therefore we are considering opening some asset classes for mandates in part.”Velzel said PGGM was assessing the options for property at the moment.Although in its annual report PGGM said it wanted to open its infrastructure fund to external players, the CEO noted that PFZW also wanted to increase its investments significantly, emphasising that the healthcare scheme would have priority.PGGM’s shift follows other providers such as the €130bn MN, which said that it would no longer take on new clients in order to focus on supporting the large metal pension funds PMT and PME.However, MN did open up its asset management services to other clients in the metal industry.APG, the provider for the €414bn civil service scheme ABP, hasn’t accepted new clients for pensions administration for several years. PGGM, the Netherlands’ second largest pensions provider, is to refocus its strategy and exits some lines of business in a major overhaul led by its new CEO.In an interview with IPE’s Dutch sister publication Pensioen Pro, Edwin Velzel said the €215bn asset manager would focus solely on catering for the healthcare sector and its largest client, PFZW.Velzel said PGGM’s general pension fund (APF) no longer fitted with this new strategy and would likely be sold.In addition, he confirmed that his company would stop taking on new customers for its pensions administration business. In July the €1bn occupational scheme for marine pilots (Loodsen) said its contract with PGGM would expire in 2020 and not be renewed. Edwin Velzel, PGGM“It has become clear that it is very difficult to achieve synergy by taking in other pension funds with very different arrangements,” Velzel said.He added that PGGM also wanted to prepare for a possible future without mandatory participation of employers in a sector scheme.Velzel explained that “retaining market share in the healthcare and wellbeing sector is one of our top priorities”, and so the provider had to collaborate more with other entities in this sector.No new admin clientsThe new strategy also meant PGGM wouldn’t take on new clients for its pensions administration business – at least in principle.“We would like the pension funds in the care sector that aren’t yet being served by us to join PFZW,” said Velzel.While Loodsen would be looking for a new provider from 2020, Velzel said PGGM wanted to keep its other non-healthcare clients – including the €19.4bn Dutch pension fund of Philips and the €7bn sector scheme for painters and decorators – “because they have been deeply integrated into PGGM’s systems”.
Asset managers and asset owners have called for UK and EU negotiators to protect the interests of savers and investors as they flesh out the detail of a Brexit agreement.UK prime minister Theresa May last night announced the draft withdrawal agreement following what she described as a “long, detailed and impassioned debate” between cabinet ministers.She also acknowledged there would be “difficult days ahead” – and this morning several ministers resigned in protest at the agreement, including Brexit minister Dominic Raab, Northern Ireland minister Shailesh Vara and work and pensions minister Esther McVey.However, Chris Cummings, chief executive of the Investment Association, the trade body for UK asset managers, said the agreement was “a significant breakthrough”. “European savers and the industries that serve them can take some comfort from the announcements today, which mitigate some of the worst feared cliff-edge effects of a ‘no deal’ Brexit and provides a clearer road ahead,” he said. Theresa May addresses reporters on 14 November“Although there are still important political hurdles to clear in the coming weeks, and firms will continue to keep their contingency plans under review, the details published today will give firms more clarity on the shape of the future relationship between the EU and the UK. There is still much to be negotiated but today’s announcement take us closer to a new relationship with the EU.“All efforts must now be focused on securing a final agreement that protects the interests of European savers and investors and which allows the asset management industry to flourish.”Speaking at an event in London today, Azad Zangana, senior European economist and strategist at Schroders, said the draft agreement marked “the end of the very beginning of Brexit” and that, if all went well, a cliff-edge “no deal” situation would be avoided.However, he warned that this was still one of several possible outcomes from a transition period, in addition to a hard, soft, or “limbo” Brexit. Pension fund trade body’s tentative welcomeNigel Peaple, director of policy and research at the Pensions and Lifetime Savings Association (PLSA), said: “Brexit negotiations have created a great deal of uncertainty and, provided the deal gets through parliament, we believe that it could help to provide economic stability which remains a key issue for our member schemes.“It’s imperative that any deal agreed takes into account the interests of the pension industry, as well as savers, in order to help those entering their retirement years do so in a comfortable manner.”The association has previously called for the government to maintain a free trade agreement for goods to support businesses and therefore pension funds.In the political agreement published jointly by the UK and EU, the negotiators stated that they had agreed to “comprehensive arrangements creating a free trade area combining deep regulatory and customs cooperation, underpinned by provisions ensuring a level playing field for open and fair competition as described below”.The agreement also stated there would be “zero tariffs, no fees, charges or quantitative restrictions across all goods sectors”.‘Nothing is agreed until everything is agreed’ Michel Barnier presents the draft agreement to the European CommissionIn a statement today, the European Union’s negotiators reiterated their mantra that “nothing is agreed until everything is agreed”.“The EU and UK negotiators will continue their work on the political declaration on the framework for the future relationship based on the outline published today,” the statement said.The European Council – made up of the government leaders of EU member states – will need to ratify the agreement, as will the UK parliament.Additional reporting by Susanna Rust