The German automotive group also owns MAN, a rival truck manufacturer to Scania, and has steadily increased its holding in the Swedish firm looking to complete a merger of the two.After its final move to acquire complete control, Scania’s independent committee provided its verdict which rejected any takeover offer valued at SEK200.This led fellow institutional shareholders, Swedish pension provider AMF, which owns around 0.8% of Scania, and asset manager Skandia, to turn down the offer.In a statement, AP4 said it fully backed the committee’s findings.“AP4 is fully aware that there is a risk that the Scania share price may fall in the short term if the offer is withdrawn by Volkswagen.“Our belief is however that the Swedish senior citizens who are the main principals of AP4, in the long term will benefit if Scania remains as an independent listed company.”When it rejected the offer, AMF said that VW’s lack of focus on long-term potential was counter to its mission as a long-term investor.“Our conclusion is based on both external and internal analysis. Particular emphasis has been placed on the independent committee’s recommendation because of their deeper insight in Scania and the company’s business plan,” said Anders Oscarsson, AMF’s head of corporate governance.“We are well aware of the risk of a short-term stock market reaction if the bid as a whole is not accepted, but our view is that the offer of SEK200 do not meet the company’s long-term value.”Skandia echoed these sentiments, suggesting the committee’s conclusion was in line with its own house view.The rejection is an issue in a long line of clashes between VW and Scania’s smaller shareholders.In February, the trio of institutional investors and Swedbank Robur took steps against the German manufacturer after it shut out minority shareholders.The group claimed the VW was using its influence, and 88% voting right, to reduce shareholder rights and take control of the board. Swedish buffer fund AP4 has joined a list of institutional investors rejecting Volkswagen’s offer for truck manufacturer Scania.AP4 said it was following the recommendation of the independent board committee at Scania, which advised investors to reject the SEK200 (€22.30) per share offer, as it did not reflect the long-term fundamental value of the firm.The fund currently owns around 0.65% of the firm, compared to VW’s 62.6% holding.Scania has been embroiled in a controversial battle between VW and its remaining shareholders for some time.
The National Association of Pension Funds (NAPF) has repeated its call for the UK government to issue more index-linked Gilts and allow defined benefit (DB) schemes to provide a smoother run-off for members.In a report, ‘DB run off: The demand for inflation-linked assets’, the industry group said UK DB schemes needed higher levels of index-linked issuance to effectively manage risk and the shift to liability-driven investment (LDI) strategies.It said while derivatives, infrastructure and real estate all provided other options for inflation exposure, they were not suitable for all schemes.The paper said, citing data from Towers Watson, that 50% of DB liabilities are hedged currently. However, the NAPF expected demand of additional inflation-linked assets to reach £1trn (€1.2trn).Some 40% of NAPF members said the appetite for index-linked assets was growing.However, increasing demand for index-linked Gilts has pushed up costs for schemes, and lowered real yields.Selected index-linked Gilts, with maturities ranging from eight to 31 years, all provided negative real yields for investors.“Yields on index-linked Gilts have been on a declining trend for the past 20 years, making it more expensive for schemes to purchase them as part of a de-risking strategy,” the NAPF said.“There has been increasing frustration from schemes that, in order to reduce their interest rate and inflation risks, they are effectively ‘forced’ buyers of Gilts with low or negative real yields.”Extra issuance from the government was the only solution to aiding schemes hedge inflation risk in an appropriate manner, it said.Alternative options, such as real estate and infrastructure, are less developed markets and have accessibility issues, with poor liquidity and volatility, making schemes reluctant to invest. However, the Debt Management Office (DMO), the department responsible for the issuance of UK government debt, issued £32.6bn of index-linked Gilts by the first quarter of 2014.Overall, the bonds accounted for 22.9% of the Treasury portfolio, with £326bn issued.Chief executive of the DMO, Robert Stheeman, told IPE that inflation-linked Gilts was a core part of its remit and that, in percentage terms, no other sovereign government issued as much.“This time 10 years ago, we issued less than £10bn in linkers,” he said.“Our supply of inflation-linked Gilts has dramatically increased, as have long-dated ones. We are very happy to issue, as we think it is very good value for money. But we cannot do this exclusively.”The NAPF, alongside its call for greater issuance, said the government and investment industry must also ensure that inflation-linked opportunities outside of Gilts reach their potential.“This will involve packaging these assets in a way that offers an attractive inflation match, improving levels of supply and offering pricing and valuation that is transparent and reliable,” it said.Director of external affairs for the lobby group, Graham Vidler, added: “Unless the supply of assets is addressed, and quickly, the costs of providing member benefits could continue to rise and place even greater pressure on scheme sponsors.“There is no quick-fix solution to the problem.”
Sovereign wealth funds are stepping up their investment in alternatives as well as in emerging markets, according to a new survey.Invesco’s latest annual Global Sovereign Asset Management study showed that, in 2013, alternative investments were still the asset classes receiving the highest new asset allocations from sovereign investor portfolios, continuing the trend from the year before.It said 51% of sovereign investors raised their new exposure to real estate in 2013, and 28% lifted their new investment to private equity, relative to their whole portfolio.Invesco said it found that all sovereign investors expected to increase new allocations across all major alternative asset classes – property, private equity, infrastructure, hedge funds and commodities – in 2014 compared with their 2013 asset placements. Nick Tolchard, co-chair of Invesco’s global sovereign group and head of Invesco Middle East, said: “Given alternatives underperformed during the period in which their allocations increased, it is clear a strategic asset allocation strategy is driving sovereign investors to alternatives, rather than tactical allocation.”He said the expected net increase in new funding this year was another key factor explaining the preference for alternatives, driven by increasing country surpluses and strong support from governments for their sovereign funds. Also, many sovereign investors are still underweight alternatives compared with their strategic asset allocation targets, having increased their target allocations to these asset classes in the last five years, Invesco said. It said the study indicated sovereign investors’ new allocations to Latin America, Africa, China, India and emerging Asia all increased in 2013, and were expected to rise again in 2014.However, political instability was behind decreased weightings to Central Eastern Europe and Russia last year, it said, and exposure to these areas was expected to remain flat this year.The survey was carried out among more than 50 individual sovereign investors around the world representing $5.7trn (€4.2trn) of assets.
Last month, it emerged that South Korea’s NPS was selling the HSBC tower at Canary Wharf for around £1.1bn – having paid £772m in late 2009.The London office market is close to its peak, delegates at this week’s Expo Real conference heard. Mike Sales, managing director for Europe at TIAA Henderson Real Estate, said investors should “have a big eye on the exit” as the weight of capital pushed yields to unnatural levels.Sales said there was a “cautionary sign in the market”, with the influx of foreign capital driving yields down to “what might be abnormal levels in six months’ time”.Restricted supply of new office stock – along with heightened demand for commercial space – will see vacancy rates fall in key cities by 2019 and average 6.3% in the top 10 global cities, according to Knight Frank.In Tokyo and London, vacancy is tipped by the advisory firm to drop to 3.9% and 4.4%, respectively.In the US, Norges recently agreed to buy 45% stakes in three US office properties from US REIT Boston Properties.Interests in 601 Lexington Avenue and Atlantic Wharf, in New York City, and 100 Federal Street in Boston are being sold to Norges for $1.5bn (€1.2bn).The sovereign wealth fund is forming a joint venture with Boston Properties to manage the assets.Meanwhile in the Netherlands, Norges has bought a 50% interest in a logistics property in joint venture with Prologis for €12.4m. The 42,000sqm building in Born will be asset-managed by Prologis. Norges Bank Investment Management has bought a London office asset from GIC, the Singapore-based sovereign wealth fund.The Bank of America Merrill Lynch complex in the City district of the London capital was sold for around £582.5m (€738m), according to media reports.The sale of the 585,000sqft London asset is another example of the appreciation in value of London commercial real estate.GIC paid £480m for the property in 2007.
An undisclosed European insurance company has tendered a €200m emerging market hard currency mandate using IPE-Quest.According to search QN-2065, the investment process should combine top-down country/sector selection with bottom-up duration/issue selection. The client is also looking for “large and experienced” teams that have not experienced major personnel changes in recent years.Fund managers should have at least €2bn in assets under management (AUM) as a company and €1bn in AUM for the asset class itself. They must also have a minimum track record of five years.Tracking error for the core, active mandate should range between 1% and 5%, employing the JP Morgan EMBI Global Diversified index as a benchmark.Interested parties should state performance – gross of fees and in US dollars – to the end of May.The closing date for applications is 24 June, 5pm GMT.The IPE news team is unable to answer any further questions about IPE-Quest tender notices to protect the interests of clients conducting the search. To obtain information directly from IPE-Quest, please contact Jayna Vishram on +44 (0) 20 7261 4630 or email [email protected]
However, four OFEs (Aviva, ING, Nordea and PZU), and two DFEs (ING and Nordea), which collectively own 26.6% of GCH’s shares, argued that it did not value the company fairly and banded together to push for better terms.Andrzej Sołdek, chairman of the board at PTE PZU, explained that, based on a valuation of GCH’s assets – Cineworld (listed on the London Stock Exchange), its cash holdings, the stock value of GCH itself in Warsaw and other assets – the company was worth more than PLN40.“To protect the interests of our clients, we couldn’t accept this,” he told IPE.On 9 June, the pension coalition notified GCH that it would “subscribe for the sale of all of the shares held by it in the Company, in the tender offer announced by the Company, at a price of not less than PLN 47.70 without undue delay”.The new price even exceeds the share’s peak close, prior to the recent announcement, of PLN45.1.Since the announcement, the share price has shot up by around 12%.The company’s move follows on from the WSE management board’s resolution at the end of May to allow GCH to delist provided that the majority shareholder(s) announces a tender offer for the sale of the company’s shares by all the remaining shareholders.The GCH’s governing body would also have to adopt a delisting resolution with a majority of four-fifths of the votes cast in the presence of shareholders representing at least half the share capital.The Dutch company has its sole listing in Warsaw.While Polish public trading law specifies a four-fifths shareholder delisting approval only for domestic listings and foreign companies with dual listings, the WSE in this case applied a communiqué it issued in March that extended this shareholder approval to all its listings.The exchange, which argued that delisting could only proceed if the rights of shareholders, particularly minority shareholders, were protected, gave GCH six months to comply with the two conditions.For the pension funds, the case is an important precedent.While they have united before on matters such as rights issues and takeovers, this is the first time they have formed a coalition over a single-listed company seeking to leave the WSE.“Any foreign company that wants to delist will now have to do so on the same terms as a Polish company,” said Sołdek. Poland’s open pension funds (OFEs) and voluntary pensions funds (DFEs) have scored a significant corporate governance victory in their battle to secure an improved share price offer from Dutch-registered Global City Holdings (GCH) as the entertainment and real estate company moves to delist from the Warsaw Stock Exchange.On 9 June, GCH announced a tender offer for the outstanding 42.5% of its shares at a purchase price of PLN47.7 (€11.5), well above the PLN40 first recommended in February by the company’s board and its majority shareholder, Israel-based IT International Theatres.The subscription period for the tender offer lasts from 29 June to 22 July.The PLN40 price was based on the previous six months’ trading.
The £48bn (€64bn) Universities Superannuation Scheme (USS) is suing Brazil’s Petrobras, alleging large-scale bribery at the energy company.The UK’s largest pension fund said the Southern District of New York had certified its suit as a class action on 2 February.The court named USS lead plaintiff, allowing investors that had acquired Petrobras shares between 2010 and July 2015 to sue for damages.It also ruled that investors that acquired debt issued by the company for the 10 months following May 2013 were entitled to seek redress. In a statement, USS cited alleged securities violations “stemming from a large-scale bribery and money-laundering scheme”, which it said had caused losses worth billions of US dollars.Concerns over the management of Petrobras recently saw Norges Bank Investment Management (NBIM) place the company under observation, a step that could lead to its eventual exclusion from the investment universe of the Norwegian Government Pension Fund Global.At the time, NBIM cited the recommendation of the Council on Ethics, which raised concerns of “gross corruption”.The Council’s recommendation added: “Senior executives of the company and its most important suppliers have apparently for a decade organised a system of paying large bribes to top politicians, political parties and civil servants.”The recommendation also noted several convictions over “kickbacks”.Petrobras admitted last year it had lost an estimated BRL6.2bn (€1.4bn) due to corruption, relating to alleged bribes paid to win contracts.Jeremy Hill, group general counsel at USS, added: “The fraudulent actions of Petrobras executives have caused significant losses to investors worldwide, many of whom are responsible for the pensions or long-term savings of large numbers of individuals.“As lead plaintiff, we therefore welcome the court’s decision, which will allow these claims to continue as a class action.”Jeremy Liebermann, lead counsel for the class action and partner at New York law firm Pomerantz, claimed that the alleged fraud conducted by Petrobras had “eviscerated billions of dollars in shareholder value” while damaging Brazil’s economy.He said the court’s decision to allow the case to proceed was a “significant milestone” for investors seeking to reclaim losses.
Denmark’s largest commercial pensions provider, PFA, reported a 0.8% market-value-adjusted return on its with-profits, or average-rate, pension product but praised the risk-reduction investment strategy it has put in place.The return on with-profits (gennemsnitsrente) pensions had fallen from 4% in the same quarter a year ago, according to PFA’s interim figures. Without adjustment for market value, PFA said its first-quarter 2016 with-profits return was 4.8%.Meanwhile, market-rate pensions made a 0.3% loss, down from an 8.9% return in the same period last year. Allan Polack, chief executive at PFA, said: “We are delivering, in spite of the turbulence on financial markets, a solid investment result of DKK10.5bn (€1.4bn), which safeguards our customers against a big loss of value.”At the same time, contributions have grown significantly, he said.The investment result in absolute terms compares with DKK28.3bn generated for the first quarter of 2015 but is not far below the DKK13.6bn the provider ended up producing for the whole of 2015.Polack said that, as part of the company’s ‘Strategy 2020’ work, and because of the turmoil in financial markets, PFA had adjusted its investment strategy at the end of 2015.He said the effect of this adjustment was apparent in first-quarter results.“We have reduced our risk and our proportion of equity,” he said. “At the same time, we have taken on more property and stabilising asset classes.”This, Polack said, had a good effect at the beginning of the year.Contributions between January and March rose to DKK7.64bn from DKK6.49bn in the first quarter of 2015.As part of its new business strategy, Polack said PFA planned to continue developing its position as the leading commercial pension company.“We are ahead of our goals in this area, and the growth shows it is not only our existing customers that want to continue with PFA but that we are also continuing to see an increasing number of new customers,” Polack said.Costs fell in the quarter to DKK187 per member from DKK198 per member at the same point last year.Total assets fell to DKK599bn at the end of March from DKK626bn at the same point last year but were higher than the DKK545bn they amounted to at the end of December.
The €34bn Swiss public pension fund Publica is reviewing the investment strategy for the closed pension plans it manages to determine whether it is fit for purpose in light of the UK’s voting to leave the European Union.The pension fund is a “Sammelstiftung”, an independent collective institution that manages the assets of 20 Swiss public pension schemes, seven of which are closed to new entrants.Stefan Beiner, head of asset management at Publica, told IPE there were two main dimensions to Brexit for the pension fund – a tactical one and a strategic one.At the tactical level, he said, Publica took a neutral position in the lead-up to the referendum, given the relatively highly probability – around 40% – of a leave vote. This means the pension fund did not diverge from its strategic risk “budget” – by increasing equity or gold investments, for example.“With binary events like this,” Beiner said, “either you have additional information you are really convinced by, or you take a neutral position.”State Street’s most recent ‘Investor Confidence Index’ showed that European institutional investors’ confidence increased in June ahead of the UK referendum on membership in the EU. Michael Metcalfe, senior managing director and head of global macro strategy at State Street Global Markets, said: “This helps to explain why markets have moved so wildly following the vote to Leave. Investors were not reducing risk sufficiently ahead of the vote.” The index rose by 3.5 points to 100.3 (a reading of 100 is neutral).The June reading had a cut-off of 22 June, so it did not account for the result of the referendum.As to the strategic considerations relating to Brexit, Publica’s Beiner said the pension fund regularly carried out asset-liability management (ALM) processes and that it was currently considering its investment strategy for the seven closed pension plans whose assets it manages.“We had a lengthy discussion about how to deal with a potential Brexit and defined various scenarios for interest rate curves, forward curves, etc,” he said. “We debated for a long time if we should define a Brexit scenario but decided against this because, if it came to this, we would need to recalculate everything anyway.”The pension fund is therefore now re-running its ALM study using new estimates for post-Brexit markets to see if its existing investment strategy “has to be adapted, or if it is robust”, said Beiner. As concerns the 13 open pension schemes run by Publica, Beiner said it would carry out an extraordinary ALM study for these in the event that its risk/return assumptions for individual asset classes change significantly.
The strike by academic staff at UK universities over changes to the Universities Superannuation Scheme (USS) is clearly damaging for students and it is a sad state of affairs that other means of discussion were not able to resolve the issues.USS is the UK’s largest pension scheme and the issues it faces are reflective of the issues faced by any still open defined benefit pension schemes. In the case of the USS, there is another factor to bear in mind, which is that universities are public entities and indeed, staff at newer universities are on a different scheme.One of the key issues in the debate is how much risk the fund should take and indeed, how that risk should be measured. Liabilities are priced off the back of Gilt yields that are themselves artificially depressed through quantitative easing, while the risk management approach of liability-driven investment (LDI) forces the purchase of Gilts irrespective of price.Assuming such low yields will persist forever and that pension funds need to be able to fund liabilities on that basis is the reason why defined benefit transfers have become so attractive for some individuals. Some schemes have been offering transferees multiples in the region of 40 times projected annual pension income. For those willing to take capital risk – which clearly may not suit everyone – the income yield on a diversified portfolio including equities would easily beat yields of 2% available on 30-year Gilts. But what may be suitable for some individuals seems impossible for a fund, even though the fund has a much longer time horizon. But should open defined benefit pension schemes be so concerned about mark-to-market capital fluctuations if there is no intention to close the scheme down?Some would argue that LDI-driven fixation on purchasing sovereign debt irrespective of the price is a form of financial repression. The driving forces have been a mixture of accounting changes, regulatory issues and the underlying movement towards treating LDI as a purely risk management problem. These have set in stone the present values of pension liabilities based on government bond yields that we know will change each year.The net result is that matching pension liabilities is seen as a risk management issue rather than an investment issue, so pricing of debt has become irrelevant. Pension funds are therefore unable to invest in long-term risky assets, whether in the UK or overseas, despite having long-term liabilities.But the ultimate risk taker in a country is the state itself. There is a case to be made for setting up a UK sovereign wealth fund financed by issuing Gilts sold to UK pension funds. This would, in effect, be acting as an intermediary guaranteeing pension funds the ability to meet their liabilities whilst generating much higher cashflows from elsewhere.The House of Commons debated the idea in December 2016. One of the briefing papers for the debate was an article I wrote in 2012 for IPE. In the article, I had suggested that given an aging population, the UK should set up a sovereign wealth fund to add to tier one pension provisions. As MPs pointed out in the debate, there is an issue of inter-generational justice when it comes to allocating resources within a country. An increasing aging population cannot expect to solely rely on the Ponzi-type economics of taxing a declining younger population for future pensions.Investing a sovereign wealth fund in emerging market equities, for example, with many funds currently offering yields well in excess of 4% and even 5% in some cases, would easily cover the cost of the Gilt coupons while receiving dividends produced by younger populations outside the UK.A sovereign wealth fund may have some benefits for the USS. More issuance of Gilts will push yields up a bit, thereby reducing liabilities and the deficit. But perhaps the real issue is a political decision on whether LDI valuations are appropriate for a public sector entity.