Going for full disclosure
IPE asked three pension funds in three countries – in Austria, Estonia and Portugal – the same question: ‘What factors do you have to disclose?’ Here are their answers:
Robert Kitt is fund manager at Estonia’s Hansa Investment Funds which has second pillar AUM of €155m and third pillar AUM of €19.1m
“The legal requirements are quite simple. We have to produce an annual report, which does not differ much from the common annual report that all limited liability or pubic liability companies have to produce.
“Basically, we disclose all of our investments as well as all of the books of the funds that we run, for example our forex forward contracts, and the book keeping methods.
“The annual report, which is audited and of course is a public document, also contains the management report for the period and covers several other issues.
“After reading this, people should have a clear idea about what we have in the portfolio and should be able to evaluate it correctly.
“It is also required to issue a semi-annual report that is pretty much the same as the annual one with the exception that it may not be audited. We do not have any legal requirements telling us to give this or that breakdown of particular types of investment, to explicitly say which investments could be classified as SRI, for example. We have to disclose every single instrument, so we give the full list.
“Similarly, we have had no problem with the EU directive’s requirement that pension funds give a statement of investment principles because it is something that we do already.
“But what we have decided to do at Hansa in Estonia - given that we account for more than half of the pension fund market with a second pillar market share of 52.1% and a third pillar market share of 65.9% - is to publish additional quarterly reports for our members.
“It is a process that we developed some two years ago. We realise that while on the one hand we want to maximise our profit, on the other we must also take good care of our clients. Pensions are new in Estonia and it is vital that we build up trust in the system.
“Further, we do it to educate our members. Because the whole system is so very new, they have no investment experience. Consequently, we have decided to provide transparency in order to give them confidence that their money is well managed and overseen.
“So, these reports include a short briefing on each of the individual pension funds, giving a market outlook commentary and the fund manager’s detailed comments. They also carry a portfolio report detailing performance data on the top 10 investments, a portfolio breakdown by asset type, currency and geographical regions, and other relevant data. Printed versions of the reports are sent to larger investors, approximately 10% of our members, while the rest receive the document by e-mail. And it is available to be downloaded on our website so it is a public document.
“Over a longer time horizon we would like to switch to a fully electronic media.”
Maria Isabel Semião is director at BPI Pensões, the pension fund manager of the BPI banking group and of 86 other companies (50 DB and 36 DC), which has assets under management of €3.2bn.
“Portuguese pensions funds have to give a wealth of information to the regulator for supervisory purposes, for example quarterly portfolio reports and an annual actuarial analysis including major statistical reports on participants and including data on beneficiaries. And we expect that in the future we will have to give even more information.
“However, for the sponsors this is something of a new field and consequently it is much more manageable.
“In fact, up until now, and indeed at the moment, we don’t have to make any specific kind of disclosure to sponsors, whether we do or not and the type of disclosure provided is at the discretion of the manager of the fund. But we anticipate that we will have to in future.
“Our regulator has published a requirement for the release of reports to be compulsory, but we don’t know when the details of what such a disclosure will entail will be released.
“The regulator’s notification that we will have to make annual reports followed new legislation that came into force in January that says that pension funds will have to abide by new guidelines. This is part of a reform of Portuguese pension fund regulations to bring them into line with the obligations set out in the EU pensions directive.
“We understand that under the new requirements we will have to prepare an annual report and will have to provide other information to the pension fund participants and beneficiaries. But the guidelines for this will be published in a new regulation later this year, and we expect to receive it in the first half.
“However, while at the moment we do not have to give any sort of report, we – at our own initiative – have chosen for some time now to issue a financial report every quarter as well as portfolio valuation auditing reports to our sponsors.
“The financial reports give information on the investments, with a detailed breakdown of buys and sells in the quarter; we also present the returns and information on developments in the markets. We have a standard layout for our reports that go to all of our sponsors.
“But we do not examine strategy and asset allocation decisions. That is something that we discuss personally with our sponsors in face-to-face interviews.
“We complement the financial reports with risk control analysis for all assets under management, for credit, interest rate and currency risks.
“For our sponsors with DB pension plans we also provide all the actuarial reporting, including the figures for accounting procedures under both IAS and the Portuguese reporting standard.
“We understand that the new regulations will demand that we issue an audited accounts report each year for each fund. That will be quite a different exercise and will demand a defined structure, but we hope not to have to workout extra information, as we already give a lot off details to our clients.”
Wolfgang Pinner, managing director of SRI activities and in-house managed funds at VBV-Pensionskasse AG, which has assets under management of about €4bn.
“There are elements that are very new here. There have been changes in our reporting standards. According to the new regulation that came into effect last September, we have to report to the regulator on SRI investments and a lot of details regarding data concerning risk management.
“VBV IS a pioneer in socially responsible investment in Austria and we have been actively lobbying for the introduction of SRI disclosure. SRI products account for some 15-20% of our total portfolio.
“Previously, pension funds had to report to the regulator, the FMA, rather on general data regarding asset management.
“Our fund is split into about 40 separate portfolios, which sometimes have differing and diverse structures and characteristics. As a result, we have to differentiate between the different portfolios as concerns the FMA reporting.
“Disclosure to our members involves the issuing of an annual statement. The content of these statements is set out in a regulation. For example, we have to give a forecast of what the pensioners-to-be can expect as a future pension payment.
“On the other hand, the sponsors receive information as most of them are members of the investment committee structure for each of our ‘investment & risk units’, or VRGs. In addition to that we disclose monthly calculations on the performance of the different portfolios, although we are not required to do so by the regulator.
“In general, we have to give much more information under the new regulation.
“On the risk management side, pension funds have to reveal details on their risk management systems to the regulator. The new requirements regarding risk management disclosure are a result of the new EU directive.
“The new SRI disclosure requirements arose out of the efforts of various groups in which we have been very active participants. We are part of the Austrian Society for Environment and Technology (ÖGUT), which has formed a platform of stakeholders including companies, trade unions and elements of the public administration that pushed for the introduction of a disclosure regulation for pension schemes as implemented in the UK. And we have been successful.
“As a result we now report the standards regarding asset management and SRI for our various VRGs to the FMA. In our reports we state that we are managing partly according to SRI standards and we detail our criteria for SRI investments.
“We use to get feedback from the FMA. It examines our reports and statements and tells us whether they cover what the FMA expects us to report.
“More generally, we inform the public and our members that we are using SRI criteria for part of our asset management and we inform them that our view of SRI is a combination of three factors. We use exclusionary criteria, for example we exclude tobacco and companies that use child labour; we use positive criteria where we, for example, look for good corporate governance and efficient energy use; and we use best-in-class criteria.”