Italy’s ENPAM and the stellar returns of hybrid pension funds

The strong performance of hybrid pension funds is something that stood out in the list of the world’s largest 300 pension schemes that pensions consultancy Willis Towers Watson published on Monday. But the stellar growth in assets of nearly 14% achieved by these funds was not all it seemed. Most of them saw their assets fall. Watson’s annual report – generally called the P&I/WTW 300 Ranking – revealed that the world’s 300 largest pension funds had seen the value of their assets drop for the first time since the financial crisis. Only hybrid fund assets grew – by 13.9% – over the past year, while defined benefit (DB) fund’s lost 5%, defined contribution (DC) funds lost 2%, and reserve funds lost 0.3%. A little digging into the 13.9% asset growth figure for hybrid schemes reveals that this growth was only achieved thanks to Italy’s ENPAM’ scheme. Ranked at 211 in the 300 list, and with $18.69 billion of assets, a WTW spokesperson tells Funds Europe “WTW can confirm that the large increase in hybrids for this year is, in fact, entirely explained by the inclusion of ENPAM in the ranking for this edition of the study. If we don’t consider ENPAM, hybrid funds have actually dropped 4%”. Hybrid schemes made up just 0.9% of the total $14.8 trillion assets in the 300 ranked schemes. The ‘growth’ figure of 14% is not the endorsement it would be for hybrid schemes, which is a shame for those people who promote them. Hybrid pension funds are seen as a perfect compromise between employers and staff as they contain an element of DB and DC structures. Rather than dumping all the risk of pensions underfunding on employers (as DB would), or on the employee (as DC would), hybrid schemes share the risk between both parties. This means they represent a strong employee-retention tool for employers, and a quality pension scheme for members. Supporters of hybrids, such as David Villa, CIO of the State of Wisconsin Investment Board and a member of the 300 Club, say this risk sharing improves governance and investment outcomes. Incidentally, one interesting investment that ENPAM – which is a scheme for medical professionals – made recently, was the purchase of part of a City of London office development that will house Amazon’s headquarters. The deal, reportedly for £375 million, is notable given the uncertainty surrounding London office property after the Brexit vote. Quite a risk, some might say. But at least with a hybrid scheme neither employers nor employees shoulder all of it. ©2016 funds europe

Sponsored Profiles

SPONSORED FEATURE: Alternative thinking

Mar 16, 2017

Portfolio Manager Davide Cataldo discusses the results of the Pioneer Investments’ survey on liquid alternatives and how investors can be encouraged to increase their allocation.

SPONSORED FEATURE: Interest rate risk hedging: Swapping to other options

Mar 16, 2017

Heightened margin requirements for cleared and uncleared OTC derivatives pose a challenge for legitimate hedging activities and are driving financial institutions to explore alternative hedging...

SPONSORED FEATURE: Why blockchain could be the fund industry’s next Ford Model T

Mar 16, 2017

Blockchain aims to radically change the way investors can access funds, says Olivier Portenseigne, Managing Director and Chief Commercial Officer of Fundsquare.

SPONSORED FEATURE: Open architecture: In need of protection

Mar 16, 2017

Greater efficiency must be embraced to ensure regulatory changes do not destroy choice for fund buyers, says Bernard Tancré of Clearstream.

Executive Interviews

INTERVIEW: Finding managers that can (and do)

Apr 18, 2017

Fabrice Kremer, a fund selector at Banque de Luxembourg Investments, has berated fundamental managers for failing to beat indices, but he remains committed to active funds. He speaks to Nick...

JERSEY INTERVIEW: ‘A steady sort of place’

Mar 21, 2017

The chief executive of Jersey Finance is keen to portray the island as a stable, trustworthy jurisdiction. He talks to George Mitton.

Roundtables

ROUNDTABLE: The issue is perception

Mar 21, 2017

Our panel discuss tax transparency, the elegance of private placement and why Jersey could do more to promote itself. Chaired by Tom Cowsill in Saint Helier.

ASSET SERVICING ROUNDTABLE: Under pressure

Mar 07, 2017

Funds Europe speaks to leading Luxembourg industry figures about the growing regulatory demands on asset servicers and how to remain profitable in spite of major investments in technology.