Asset owner September insights: equity shifts, sustainability battles and pension reform

Europe’s traditional quiet month has nevertheless seen a flurry of activity in and around the world of pensions, with a major private markets tender result from France’s ERAFP, confirmation that Finnish funds are upping equities, and more fallout from the scandal in Germany’s professional pension fund sector. 

Perhaps the most eye-catching news was from Norway, now in mourning for King Harald, as oil fund chief Nikolai Tangen tempered a positive mood after the €2.1trn fund’s first-half return of 9.4%. Norwegians should prepare themselves for life without the fund, which pays for a fifth of the country’s annual budget. 

“Can the fund disappear?” Tangen asked. “The answer to that question is ‘yes’ –  and the worst part is that in the world we live in today, it is fairly likely.” 

In asset allocation, Finland’s pension insurers are in the midst of a major asset allocation shift towards public and private equity as they make use of a rule change allowing them to take greater risk – with the upper limit for equities increasing from 65% to 85%. 

In asset allocation news, France’s public-sector pension fund ERAFP has awarded nine PE and infra mandates worth a total of €1.6bn. Access Capital Partners and Ardian share a €700m brief for European private equity, while Schroders is to manage €300m in North American private equity, Amundi takes €400m for OECD infrastructure. Access was appointed for a European “ecological transition” mandate with an indicative target of €200m. 

In the Netherlands, the €1.1bn Recreatie pension fund has sacked BlackRock from a €450m equities mandate – citing various factors including ESG concerns – and appointed Cardano, now part of Mercer. And PNO Media is in the process of upping exposure to US private equity and real estate, at the expense of European holdings, after missing out on the US tech rally. 

The battle over sustainable finance regulation continued into August, with European investors pushing back against the SEC’s proposed repeal of its climate-disclosure rules, while also seeking greater clarity on EU sustainability and due diligence laws. Meanwhile, investors continued to focus on turning climate commitments into investment decisions. 

Norway’s oil fund manager NBIM, Sweden’s AP7 and Denmark’s AkademikerPension were among those urging the US Securities and Exchange Commission (SEC) not to scrap climate disclosure rules for corporations, warning that rescinding the rules could make financially material information less comparable and more expensive for investors. 

The pushback was not confined to US regulation. The European Commission consultation on practical guidance for implementing the Corporate Sustainability Due Diligence Directive (CS3D) closed on 14 August, having drawn calls from NBIM for the EU to align its sustainability and due diligence laws with international standards. 

NBIM’s Carine Smith Ihenacho, chief governance and compliance officer, and Shilpi Nanda, senior policy adviser, asked for practical, risk-based guidance on prioritisation, stakeholder engagement, remediation and conflict-affected areas. 

Alongside calls for regulatory clarity, asset owners also gained a new tool for translating climate commitments into investment decisions. The University of Cambridge and Bloomberg launched a global corporate bond index designed to address fossil-fuel expansion. Cambridge University’s Treasury plans to invest up to £200m against the index.

In Germany, ÄVWL – the fund for doctors in the region of Westfalen-Lippe – appointed Lutz Horstick as CIO at a time when the first-pillar professional fund sector is under extreme reputational pressure following scandals at Bavaria’s BVK and the fund for Berlin’s dentists, VZB.  

In a new twist, the Berlin public prosecutor is reportedly investigating 18 people, including former VZB directors and employees, accused of embezzling over €230m. 

Two countries have seen talk of greater participation in pensions in the last few weeks. In a world of changing employment patterns, finding ways of boosting coverage for groups like the self-employed is increasingly important.  

This is precisely the issue in the Netherlands, where mandatory participation in pensions is part of labour market agreements for many industry sectors, but coverage for the self-employed is patchy. Two academics have weighed in with a warning on scheme design. 

Germany’s unions have traditionally been cagey about private pensions, but now two of their number are backing greater access to workplace schemes, including the giant Ver.di public sector trade union, with around 2m members. 

In the UK, multi-employer collective defined contribution (CDC) regulations went live, marking another important milestone in the development of this new type of scheme. The news was accompanied by the regulator’s new code of practice, which expands the existing framework to allow CDC schemes to operate across multiple unconnected employers. 

This month, TPT Retirement Solutions launched a new CDC modelling capability as it prepares to launch the UK’s first multi-employer CDC scheme. The system can model potential future pension increases for members as well as provide asset-liability modelling, both of which will support the development of CDC.  
 
Shortly after the legislation went live, Aon confirmed it is looking to introduce a whole-life multi-employer CDC section alongside defined contribution (DC) benefits within the Aon master trust from 2028.