UK UPDATE OCTOBER 2010
KAS BANK launches pensions dashboard
arket events since 2008 have forced a renewed focus on asset safety on the one hand and managing liabilities on the other. Indeed, many pension schemes are following strategies designed to match their liabilities as well as generate sufficient return to plug their deficits. But are they putting systems in place to monitor these strategies and the asset managers driving them? Given the time constraints on trustees, we believe it is unreasonable to expect them to continuously monitor and manage their scheme investments and the associated risks within their growing and increasingly complex remit.
UK Update October 2010
KAS BANK has a significant role to play by providing independent, transparent and neutral analysis to trustees, pensions managers and scheme sponsors. Consequently, we are launching a pensions dashboard, a web‐based interface integrating the four key building blocks of effective scheme governance:
• Fund accounting reporting – regular valuations of the assets invested (daily, monthly, quarterly or annually) • Compliance monitoring reporting – independent checks and triggers on investment guidelines and asset managers. • Performance measurement reporting – we measure the performance of the portfolios and asset managers. • Risk Management – we can help to identify the risks associated with investing the assets and enable schemes to create a robust risk monitoring framework.
Towards 21st century governance On 21 September KAS BANK’s Stephen Isgar teamed up with Marian Elliot from actuarial consultancy Atkin & Co. to deliver a joint presentation at the invitation of the Chartered Institute of
Lehman world. Between them, Stephen and Marian addressed good governance, the role of trustees in its pursuit, and how custodians can help pension schemes to enhance professionalism and efficiency in their scheme management. The presentation was very well received, and is further evidence of KAS BANK’s burgeoning relationship with both Atkin & Co. and the CISI.
Stress test confirms KAS BANK’s low risk profile KAS BANK recently undertook, on a purely voluntary basis, a comprehensive stress test in line with the scenarios, methodology and principles of the Committee of European Banking Supervisors (CEBS). This test was independent of KAS BANK’s regular risk management procedures and internal stress scenarios. The stress test was performed by KAS BANK’s Finance and Risk Management departments based on a number of common assumptions (such as a consistent balance sheet) and potential scenarios defined by CEBS.
Marian Elliot of Atkin and Co. and KAS BANK’s Stephen Isgar take questions from the floor
Securities and Investment (CISI). The talk was entitled: “Towards 21st century pensions governance – managing scheme assets and liabilities” and was delivered in front of a capacity audience of 50 at the CISI headquarters in London. The seminar aimed to provide a new perspective on the management of pension scheme assets and liabilities, and suggest a model for governance to address the challenges of the post‐ 2
UK Update October 2010
In the latter respect, Laurens Vis, Managing Director, UK and Carmen Sturm of SunGard are due to present at another CISI seminar at the end of November. ¶
In the stress test’s adverse scenario, including additional sovereign shock, KAS BANK’s Tier‐1 ratio (BIS ratio) amounted to 20.7% (year‐end 2009: 21.6%), well exceeding the minimum level of 6.0% set by CEBS. KAS BANK’s Tier‐1 capital consists purely of equity. As has been stated previously, KAS BANK does not have any exposure to countries experiencing heightened sovereign risk, with sovereign debt exposure limited to the Netherlands and Germany. Finally, 95% of KAS BANK’s investment portfolio consists of investments with a Aaa to Aa3
credit rating (Moody’s Investor Services). The test underlines KAS BANK’s solid financial position. The low risk profile corresponds with the bank’s unique position as a specialist in securities services – custody, clearing and investment administration – for professional investors and financial institutions. ¶ Client news
New client wins KAS BANK UK is holding a £62m bond portfolio for Spectris Pension Plan, managed by Aegon AM. The fund was transitioned from State Street earlier this month. The consultant is AON. Robert Martin, Deputy Company Secretary at Spectris said, “KAS BANK was selected as custodian by Spectris Pension Plan's trustees because, as part of the review process, they were shown to be the best value service provider with a focus on providing exemplary customer service.” In addition, KAS BANK has added a further 6 new clients in 2010 to date. ¶
UK Update October 2010
Client service reviews In 2010 KAS BANK initiated a comprehensive process of quarterly client reviews and to date the UK branch has received very positive feedback from all the clients surveyed.
organisation and the engagement of operational departments in commercial activities. Above all, “client value first“ is designed to ensure that staff across the bank remember to place our clients at the very heart of all our activities. ¶
This is in line with a broader KAS BANK initiative entitled “client value first” – a wide‐ reaching programme to support continuous service improvement, information sharing across the
In brief... KAS BANK UK is teaming up with Tradition, the inter‐ dealer broking arm of Compagnie Financiere Tradition to provide custody services to local authorities, banks and building societies. ¶ KAS BANK is to become a friend of the Association of Member‐nominated Trustees, an industry‐wide association recently set up to support member nominated trustees and directors, as well as representatives from public sector schemes. At the inaugural meeting earlier
this month, attended by 15 schemes including ICI, Marks & Spencer, Telent, Aegon and Coats, KAS BANK’s Stephen Isgar, himself a member‐nominated trustee of the KAS BANK UK Retirement Benefits Scheme, volunteered to sit on the founding committee. ¶ KAS BANK is also teaming up with Pitman’s Trustees Limited to provide trustee training. We’ll keep you posted on future seminars, to begin in February entitled “Cannot manage what you cannot measure”. ¶
Insufficient compliance monitoring? When it comes to investing scheme assets, there is huge pressure to make sufficient return to plug pension deficits and to guarantee future payments to scheme members. But, at what cost to stewardship and corporate responsibility? Is there a danger that investors (beneficial owners) are throwing the baby out with the bath water? (A little over two years ago some LAPFs wilfully ignored credit rating downgrades to Icelandic banks in the headlong pursuit of returns.) Just recently the Evening Standard broke a story about several local authority schemes investing in tobacco funds, while implementing and supporting anti‐smoking measures in their own boroughs. Some councils have a policy not to interfere with the day‐to‐day decision‐making of their asset managers – but where is the
governance? Who is monitoring the asset managers, who are naturally under pressure due to performance‐based fees? What about the duty of asset managers to the beneficial owners? Should there be a duty of care regarding responsible investing and, if so, who takes responsibility for this? KAS BANK provides a daily assessment of investment portfolios in accordance with investment guidelines and analyses the risk profile of each portfolio relative to the desired risk parameters. As well as compliance, legal, currency and interest rate risk, our compliance monitoring service includes asset class exposure and ESG risk screening. ¶ Opinion
Market roundup KAS BANK fully supports the recent initiative to publish guidance to help pension fund trustees better understand
For more information on any of the items included in this bulletin, please contact Stephen Isgar, UK Business Development Manager, Institutional Investors. firstname.lastname@example.org +44 (0)20 7153 3629
UK Update October 2010
the securities lending market. The LAPFF, the NAPF, the ABI and the IMA have backed a series of papers aimed at assisting trustees to comprehend this complex area. Naturally, KAS BANK offers a range of securities lending and borrowing services and, due to its stance on cash collateral, was able to fully protect its securities lending clients at the height of the financial crises in 2008. ¶ Earlier this month Professional Pensions reported that scheme liabilities soared by £50bn in August amidst growing fears that a double‐dip recession will further lower gilt yields. This bolsters the case for LDI strategies because, as the report pointed out, schemes that had hedged interest rate and inflation risk would have been protected as yields fell further, but those who had failed to do so would have felt the full impact. Of course, the EU consultation paper on central clearing for OTC derivatives may well impact on pension funds’ appetite to take up LDI whilst the possibility remains that they would have to pay margin costs for clearing OTC derivatives centrally. ¶