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

Executive Interviews

INTERVIEW: ‘It is what it is’

Dec 22, 2016

Jeff Conway, regional chief executive for State Street, talks to David Stevenson about regulation and how the firm will handle the challenge of tech disruption.

MASHREQ CAPITAL INTERVIEW: A new direction

Dec 22, 2016

The new chief executive of Mashreq Capital talks to George Mitton about fund launches, management style and why he is the right person for the job.

Roundtables

SEC LENDING ROUNDTABLE: Both a borrower and a lender be

Jan 11, 2017

Industry heavyweights, including agent lenders, discuss issues affecting the securities lending sector such as regulation and the types of collateral being used.

EMERGING MARKETS ROUNDTABLE: The re-emergence

Jan 03, 2017

2016 was the year emerging markets returned to the spotlight, as they regained ground since the 2012 sell-off. Funds Europe asked our panel if this appetite will persist in 2017.