Sunday 30th August 2015
NEWS: Friday, August 28TH: The Hong Kong Monetary Authority says it has granted a restricted banking licence to Goldman Sachs Asia Pacific Company Limited (GSAPCL) under the Banking Ordinance. GSAPCL, incorporated in Hong Kong, is a wholly-owned banking subsidiary of the Goldman Sachs Group, Inc. The number of restricted licence banks in Hong Kong is now 24 - Apple launched its first Australian dollar corporate bond issue, raising $1.2bn within two hours this morning. Strong demand for the US tech giant’s fixed and floating, four and seven year Kangaroo bonds saw the firm outstrip predictions it would raise between $500m and $1bn. Apple bonds are popular because the AA+ rated company is considered an ultra-safe investment, although yields are correspondingly low — about 3% on four-year bonds and about 3.8% on seven-year bonds - The European Securities and Markets Authority (ESMA) has published the responses received to the Joint Committee Discussion Paper on Key Information Document for PRIIPS. The responses can be downloaded from the regulator's website - Romania’s MV Petrom reportedly is planning a secondary listing on the London Stock Exchange. According to Romanian press reports, the local investment fund Fondul Proprietatea may sell a significant stake in the company via public offering on the Bucharest Stock Exchange and London Stock Exchange. OMV Petrom, with a current market capitalisation of €4.85bn has announced that it will ask its shareholders’ approval for a secondary listing in London. The general shareholders meeting is scheduled for September 22nd. Austrian group OMV, holds 51% of the company’s shares; other shareholders include the Romanian state, via the Energy Ministry, with a 20.6% stake, and investment fund Fondul Proprietatea, which holds 19%. The remaining 9.4% is free-float - Morgan Stanley (NYSE/MS) today announced the launch of a new fund, the IPM Systematic Macro UCITS Fund, under its FundLogic Alternatives plc umbrella. The fund provides exposure to IPM’s Systematic Macro strategy, which is based on IPM’s proprietary investment models that provide unique insights into how fundamental drivers interact with the dynamics of asset price returns. The FundLogic Alternatives Platform currently has more than $2.6bn in assets under management (as of 31 July 2015) and this latest addition expands Morgan Stanley’s offering of global macro strategies - Equities sold off hard this morning as continued pressure on Chinese stocks rippled throughout world markets. Chinese government intervention brought the Shanghai Composite back a positive close; but the question is now, has confidence eroded so much that the market will continue to depend on the government to prop it up? The other key element to consider today is the outcome of the debate in the German parliament on the Greek bailout. Last month, a record 65 lawmakers from the conservative camp broke ranks and refused to back negotiations on the bailout. The daily Bild estimated that up to 120 CDU and CSU members out of 311 might refuse to back the now-agreed deal. However, Chancellor Merkel is looking to secure support from the Social Democrats (SPD), Merkel's junior coalition partner, and the opposition Greens which will likely swing the final decision Greece’s way. However, a rebellion by a large number of her allies would be a blow to the highly popular Chancellor.

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Is trustee confidence in managing DB risks waning?

Monday, 23 July 2012
Is trustee confidence in managing DB risks waning? As Defined Benefit (DB) scheme sponsors and trustees in the UK work to put their schemes on a more stable footing amid continued market volatility trustees' confidence in their ability to successfully manage the DB risks facing their plans may be waning, according to MetLife Assurance Limited’s 2012 UK Pension Risk Behaviour IndexSM (UK PRBI).   http://www.ftseglobalmarkets.com/

As Defined Benefit (DB) scheme sponsors and trustees in the UK work to put their schemes on a more stable footing amid continued market volatility trustees' confidence in their ability to successfully manage the DB risks facing their plans may be waning, according to MetLife Assurance Limited’s 2012 UK Pension Risk Behaviour IndexSM (UK PRBI).  

As Defined Benefit (DB) scheme sponsors and trustees in the UK work to put their schemes on a more stable footing amid continued market volatility, scheme trustees’ confidence in their ability to successfully manage the DB risks facing their plans may be waning, according to MetLife Assurance Limited’s 2012 UK Pension Risk Behaviour IndexSM (UK PRBI).   The study of 89 sponsors and trustees analysed how each group viewed 18 investment, liability and business risks that affect their pension schemes, and assessed how well they believed they were managing those risks.

The overall index value of the 2012 UK PRBI,which measures the importance that sponsors and trustees ascribe to each risk, their perceived success at managing each risk and the consistency between the two,remained consistent from 2011 to 2012 at 79 out of 100. However, the Index value for trustees fell another two points year-on-year to 78 in 2012 from 80 in 2011 and 82 in 2012. Conversely, the Index value for scheme sponsors is steadily rising, increasing by two points to 80, from 78 in 2011 and 75 in 2010. These movements, taken together, account for the overall 2012 Index value remaining level.



The drop in self-reported success at managing several key DB-related risks, including Scheme Governance and Inflation Risk, helps to partially explain the inverse relationship of the Index values between sponsors and trustees over the past three years.  In 2012, trustees rated their overall success at managing risks a 4 or 5 (out of a scale of 1-5, with 5 indicating success) 77% of the time, down from 80% in 2011 and 83% in 2010.

“Constant regulatory changes appear to undermine trustees’ confidence, as evidenced by the fall in the reported success of Scheme Governance and Inflation Risk.  Increasing levels of uncertainty being generated by issues such as Guaranteed Minimum Pension (GMP) Equalisation and Solvency II for pension schemes are impacting trustees’ confidence in managing some of the critical risks facing their schemes. Where once there was a degree of certainty, the revisiting of GMP Equalisation by the Department for Work and Pensions now requires that trustees again reconsider and tackle this issue,” holds Wayne Daniel, chief executive officer of MetLife Assurance Limited. 

Funding deficits is the most important risk facing scheme sponsors and trustees for the second year in a row, according to the 2012 UK PRBI. The ranking of Funding Deficits as the most important risk for the second year in a row reflects significant fluctuations in scheme assets and liabilities, mainly as a result of the volatility in equities and rising bond prices. At the same time, schemes may have also seen their liabilities grow due, in at least part, due to corporate bond and gilt yields, and continued uncertainty around the Eurozone.

Scheme sponsors and trustees continue to face unprecedented challenges on the economic and regulatory front. Volatile markets, driven in part by the Eurozone crisis, have demonstrated how quickly and significantly pension liabilities (and funding deficits) can change. "As a result, we expect sponsors and trustees to pay even greater attention to the connection between investment strategies and the risks that impact a scheme’s funding status. Additionally, scheme sponsors and trustees should consider incorporating triggers for de-risking the scheme in order to protect it.,” adds Daniel.

To ensure the viability of their schemes and safeguard members’ benefits, sponsors and trustees, says the report, are continuing to closely monitor the Employer Covenant. This risk ranked second among trustees for the second year in a row, and third among scheme sponsors.  Interestingly, the Importance Selection Rating, or the number of times the risk was selected by respondents when presented alongside other risk factors, for Employer Covenant is rising considerably among scheme sponsors: from 41% in 2011 to 49% in 2012. This may reflect the increased focus among scheme trustees on the Employer Covenant following The Pensions Regulator (TPR) guidance issued in November 2010.

The results of the 2012 UK PRBI demonstrate that scheme sponsors and trustees are continuing, and strengthening, their focus on a handful of key risks.  The overall Importance Rankings for the top four risks remained consistent from 2011 to 2012.

2012 vs. 2011 UK PRBI Overall Importance Ranking

RISK FACTOR                   

2012 RANKING

2011 RANKING

Funding Deficits

1

1

Employer Covenant

2

2

Asset and Liability Mismatch

3

3

Meeting Investment Return Targets

4

4

Measurement of Technical Provisions/Liabilities

5

7

In addition, the range between the Importance Selection Rates for the most important risk and least important risks this year is 66 percentage points, compared to 57 percentage points in 2011. This continues the trend established in the inaugural UK PRBI in 2010. 

Scheme sponsors and trustees continue to move toward a co-ordinated holistic approach to pension risk prioritisation, according to the 2012 UK PRBI. The importance rankings between trustees and sponsors are aligned within one or two ranking spots for all but one risk factor:  Asset Diversification. Trustees rank this fifth in importance whilst sponsors rank it 10th.

More details on the 2012 UK PRBI can be found at: www.metlifeassurance.co.uk/knowledge-centre/research

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