Dutch Pension Fund ABP Loses 2.3% in 2018 After Rough Q4

ABP, the €399 billion ($454.9 billion) pension fund for government and education employees in the Netherlands, saw all of its gains for the first three quarters wiped out due to “market turmoil” in last quarter of the year. This lowered the fund’s coverage ratio to 97.0%, from 104.4% at the end of 2017.

The fund lost 4.6% in the fourth quarter and ended the year down 2.3%. Although ABP’s available capital rose in the first three quarters from €409 billion to €419 billion, it then fell €20 billion in the fourth quarter alone to end the year at €399 billion.

“2018 was a year with ups and downs,” ABP board Chairman Corien Wortmann-Kool said in a release. “In the first three quarters of 2018, the financial position improved step by step. But the stock markets, which turned deep red in the fourth quarter, threw a spanner in the food of investors. “

Wortmann-Kool attributed the poor stock performance at the end of the year to the trade war between the US and China, as well as concerns about Brexit and economic growth expectations, among other factors.

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The fund said that over the past five years, it has achieved an average return of more than 6%. However, it added that it expects returns to decrease over the next 10 to 15 years to an average of 5%.

As a result, Wortmann-Kool said, “there is a chance that the pensions will be reduced and that the pension increase will be far away in the coming years.”

The fund also said lower interest rates had an impact on its results. It said the notional interest rate fell by 0.1 percentage point in the fourth quarter, and the impact on the value of the pensions that ABP has to pay out in the future was a “substantial increase” to €411 billion at the end of the year 2018 from €396 billion.

“This increase too had a drastic effect on the funding ratio,” said Wortmann-Kool, who added that “if the interest rate falls, a fund must keep more cash in order to be able to meet all obligations.”

The fund’s top holdings have a heavy technology slant, which includes shares of Samsung Electronics, Apple, Chinese technology giant Tencent, Taiwan Semiconductor Manufacturing, and Alibaba.

Tags: ABP, Fourth Quarter, Pension, Returns, Wortmon-Kool

The California State Teachers’ Retirement System (CalSTRS) has been one of the most active US public pension systems in engaging corporations on their environmental, social, and governance (ESG) policies, and a proposed rebranding aims to reflect that message more clearly.

Chief Investment Officer Christopher Ailman is proposing that the name of the “corporate governance unit” be changed to the “sustainable investment and stewardship strategies group.”

Ailman has asked the CalSTRS investment committee to weigh in on the proposed change and the committee is slated to discuss the matter at its Jan. 30 meeting.

“A new image would incorporate the team’s broader concentration on all ESG issues that may impact long-term value and concern the membership,” Ailman said in agenda material for the Jan. 30 meeting.

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The changes at the $214.9 billion pension plan come as CalSTRS brings on a new leader for the unit. Anne Sheehan retired at the end of March 2018 from her spot directing the corporate governance unit, a position she held for 10 years as its first director.

In October, CalSTRS announced that Kirsty Jenkinson has been hired as the director of corporate governance. Jenkinson comes to CalSTRS from Wespath Benefits and Investments in Illinois.

Ailman said in the agenda material that the change in leadership presents an “ideal opportunity to rebrand and reframe the scope of the unit.”

The CIO notes that the corporate governance unit has evolved over the years to include all aspects of ESG in engaging with companies.

“A new brand image also implies a more proactive, action-orientated program focused on long-term sustainability across all of the portfolio, rather than a single topic descriptor,” he details in the agenda material.

CalSTRS is heavily invested in the stock market, and its global equity portfolio was listed at $105.5 billion as of Dec. 31. Its ownership stake in thousands of companies gives the pension plan a large license to challenge companies in its portfolio on ESG issues.

Both CalSTRS and the larger California Public Employees’ Retirement System (CalPERS) were mandated in the mid-1980s by members of the California State Legislature to develop a corporate governance program to protect shareholders’ rights.

CalPERS received worldwide publicity after it took to shaming companies publicly that had poor corporate governance or had poor financial results. In contrast, CalSTRS put its focus on talking to the corporations privately.

Both pension plans expanded their corporate governance focus over time to sustainability issues at companies in their portfolio as well as social issues, such as the pay ratio between the CEO and lower-level employees.

Ailman in the agenda material credits Sheehan with helping CalSTRS move forward.

“During her tenure, CalSTRS moved out from the shadows of the CalPERS program to gain status as a global leader in governance,” he said.

CalPERS also stopped the annual practice of shaming companies publicly, taking the CalSTRS approach of quiet engagement.

Ailman said since 2008, CalSTRS has had a comprehensive ESG policy, an outgrowth of corporate efforts that were once primarily focused on exclusions of companies from the CalSTRS portfolio or divestments.

CalSTRS is the second-largest US pension plan behind CalPERS, which has almost $350 billion in assets. CalSTRS is also the largest educators’ pension plan in the world.

Tags: CalSTRS, Chris Ailman, corporate governance, ESG, Pension