L&G Dives Into Dutch De-Risking

The €200 million transaction is hailed as a “significant milestone” as the Netherlands' market begins to open up.

UK insurer Legal & General (L&G) has entered the European pension-risk transfer market for the first time, executing a €200 million ($218 million) transaction with a Dutch insurer.

L&G Re, the firm’s reinsurance subsidiary, has taken on the liabilities from ASR Nederland. L&G established the reinsurer last year to build the group’s international de-risking business, and the Dutch transaction was its first deal.

L&G has been openly targeting the Netherlands since 2013, but the ASR Nederland deal is the first it has struck directly—although L&G America earlier this year took on roughly $450 million of US pension liabilities from Dutch company Philips.

It is also the group’s first venture into European de-risking, a move that L&G Re CEO Manfred Maske called “a significant milestone”.

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The Netherlands’ pension-risk transfer market is far smaller and less mature than in the UK and US. In August 2014, Aegon completed a buyout of two mineworkers’ pension funds worth roughly €800 million. This remains the country’s largest transaction by a significant margin.

Kerrigan Procter, managing director at Legal & General Retirement, said the ASR Nederland transaction meant pension-risk transfer “has become a global business”.

“The potential market for pension-risk transfer in the US, UK, and Europe is huge, and will play out over many decades,” he said.

L&G has been involved in deals on both sides of the Atlantic, including the ground-breaking £2.5 billion ($3.8 billion) de-risking of the TRW Pension Scheme, which covered retirees in the UK, US, and Canada.

The group also insured a £129 million international pension fund for Unilever’s overseas workers in October last year.

James Mullins, head of risk transfer at Hymans Robertson, said the ASR Nederland transaction was “confirmation of the now global market for risk transfer”.

“UK pension schemes have enjoyed a near monopoly on supply for the past 5 years, but that is set to change,” Mullins said. “With more choice of markets, reinsurers who are taking on longevity risk may look to increase pricing over the longer term, but that goes against the trend we have seen for some time now of reinsurers keeping prices low—strong competition, intense interest in the sector, and appetite for deals has kept it that way.”

Home > News > Asset Allocation > The Problem With Value Investing

Asset Allocation December 15, 2015

The Problem With Value Investing

An overvalued stock market is causing value indicators to fail, Man Group argues.

Value investing is not proving so valuable for investors, according to new research from Man Group.

The asset manager’s report examined the risk-adjusted returns of simple value indicators, including the cyclically-adjusted price to earnings ratio (CAPE), the current price to earnings ratio (P/E), dividend yield, and the replacement value to market ratio, or Tobin’s Q.

While long-term equity returns were found to be partially predictable, the results delivered by directional value investing were “mediocre,” with Sharpe ratios close to zero across all signals. Furthermore, the strategy underperformed the S&P 500.

Man Group found similar results in Japan, the UK, Germany, and France, with value indicators underperforming each country’s respective index.

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According to the report, the failure of value as an investing signal results from booming stock markets, particularly in the US. “If the stock market keeps rallying aggressively, even after it is fully valued, then value trading will fail by construction,” Man Group argued.

The asset manager blamed the last two decades of Federal Reserve policies, which have focused on the idea that rising asset prices should benefit the broader economy. This was backed by the research, which showed results worsening for value indicators after 1987, when Alan Greenspan took office as Fed chairman.

Other possible explanations for mediocre performance of value strategies were the rising popularity of value investing following the success of Warren Buffett—which made it more difficult to capture premiums—as well as a decline in risk.

But while directional value investing had underperformed, Man Group said it was not permanently doomed to failure. The research showed the US stock market to be overvalued by 57% to 102%—subsidized by “unsustainably stimulative” policies and high leverage.

Additionally, the study found investors could still find some success in relative value strategies, which outperformed directional trading and were found to have “desirable” risk-adjusted return characteristics. However, Man Group noted that a relative strategy cannot stand on its own, and should instead be a part of a wider array of investment styles.

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