The Great Bond Revolution? | Chief Investment Officer

(November 5, 2013) — UK pensions dropped significant amounts of corporate bonds in favour of government-backed securities in the run up to March this year, research showed today—but has that trend already reversed?

The eighth annual Purple Book, published by the UK’s Pensions Regulator and Pension Protection Fund, showed UK pensions had switched around their bond portfolios by the end of March 2013.

“The corporate fixed interest securities’ allocation decreased from 44.8% in 2012 to 40.6% in 2013,” the book reported. “Meanwhile, the proportion of government fixed interest rose from 17.7% to 18.5%.”

The Purple Book collects data from more than 6,000 mainly corporate UK pension funds and reports annually on asset allocation and risk tolerance.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

Some of this change in allocation may have been due to many more pensions moving into index-linked securities, most of which are issued by governments and other centrally-backed financial institutions.

“The balance of holdings in index-linked rose to 40.9% from 37.5% in 2012,” the book said.

However, since March 2013 bond markets have experienced shockwaves from the US Federal Reserve. After announcing the prospect of a tapering of quantitative easing in May, Fed Chairman Ben Bernanke sparked a large bond sell-off around the world.

Investors have returned to buying fixed income, but with a penchant for corporate debt.

Last week saw the seventh straight inflow to high-yield bond funds by international investors, Bank of America Merrill Lynch said in an analyst note. This compared to smaller flows to investment-grade bond funds—$3.7 billion vs £300 million—while investors withdrew $1.4 billion from government bond funds, marking that category’s seventh straight week of outflows.

Year-to-date, investors have pulled $16.2 billion from global government bond funds and allocated just over the same amount to global high yield, the bank said.

Investment grade and floating rate debt have seen the highest inflows in fixed income this year, with $20.2 billion and $51.4 billion into each sector respectively.

To read the whole Purple Book, click here.

(November 5, 2013) — Investors with minority holdings in the UK’s largest companies have seen their rights strengthened under new measures introduced by the Financial Conduct Authority (FCA).

The UK’s regulator has boosted listing rules in order to protect marginal shareholders, giving these smaller owners of premium listed companies additional voting rights and greater influence over important decisions.

The FCA took the results from 2012’s Kay Review—a consultation set up by its predecessor the Financial Services Authority and the subsequent paper written by London School of Economics professor John Kay on the state of the UK’s equity markets—and used them to create measures that strengthen the voice of minority shareholders without turning minority protection into minority control.

These measures proposed refinements to the definition of controlling shareholders, requirements for the boards of listed companies to confirm compliance with the FCA’s rules, and changes to the rules on cancelling a listing.

For more stories like this, sign up for the CIO Alert newsletter. 

Other measures included:

1) Ensuring listed companies are run independently of their controlling shareholders, including measures that give independent shareholders a veto over transactions between listed companies and a controlling shareholder when this independence is threatened.

2) Requiring separate approval of independent directors by independent shareholders, in addition to gaining approval from shareholders as a whole.

3) Enhanced voting power for minority shareholders where a company with a controlling shareholder seeks to cancel its listing or remove minority shareholders’ rights.

4) Requiring greater transparency for listed companies to ensure shareholders have the information they need to exercise their voting rights.

David Lawton, the FCA’s director of markets, said in a statement: “Active engagement by all shareholders is essential to make markets work well. By safeguarding minority interests from abuse by controlling shareholders, these changes will promote market integrity and empower minority shareholders to hold the companies they invest in to account.”

The FCA said it intends to implement the full package of measures in mid-2014.