Een duurzaam FTK. Wim Weijgertze 3 oktober 2018

Transcription

1 Een duurzaam FTK Wim Weijgertze 3 oktober 2018

2 Agenda The current environment FTK capital requirements How to make it more fun?

3 The current environment

4 The current environment Issues facing pension funds: Low interest rates and low investment returns Regulatory requirements Social responsibility / public interest Asset optimisation has been largely limited to the low hanging fruit (e.g. moving using illiquid asset to back pensions liabilities). EMEIA FSO Advisory Seminar duurzame alternatieve beleggingen 4

5 Spread over swaps Wide range of assets explored but investments dominated by a few - Infrastructure loans 5% 4% Equity release mortgage loan - Real estate backed loans - Other asset backed securities - Other unsecured assets Senior SME loan 3% High yield bond 2% EM Debt Res. Mortgage Loan UK RMBS AAA Aviation bond CRE loan Private placement loan Student loan Infrastructure Loan Student housing loan Social housing loan Ground Rent 1% Trade finance CMBS AA 0% Indicative Modified Duration EMEIA FSO Advisory Seminar duurzame alternatieve beleggingen 5

6 Spread over risk free The economic opportunity In a sustained low interest rate environment illiquid assets are becoming more and more appealing investments, providing predictable and stable cash flows over the long term. Pension funds will require a long term investment horizon. To date institutional investment in illiquid assets has been quite limited. Pension funds have traditionally tended to be holders of more liquid assets (gilts, cash and highly rated corporate bonds). Liquidity Liquidity However, the highly collateralised nature of certain illiquid assets compared with the liquid equivalent implies a lower credit risk and therefore a favorable capital treatment. Credit Credit Illiquid asset (e.g. Infrastructure bond) Liquid asset (e.g. Corporate bond) EMEIA FSO Advisory Seminar duurzame alternatieve beleggingen 6

7 FTK capital requirements

8 FTK capital requirements S1 S2 S3 In the FTK (for the purpose of required capital VEV) the following risks apply interest rate risk S4 equity risk / property risk S5 currency risk commodities risk credit risk S6 S7 S8 insurance risk illiquidity risk concentratio n risk S9 operational risk S10 risk for active management EMEIA FSO Advisory Seminar duurzame alternatieve beleggingen 8

9 FTK what is (y)our opinion? A) A The capital charges that apply in the calculations for the VEV are unreasonable B) B The required capital charges for the VEV calculations give sufficient room for investments in alternative investments C) C The capital charges for the VEV do not take into account the economic perspective of the investments and corresponding risk D) D All of the above Or maybe: Alternative investments could be attractive to invest in!!! EMEIA FSO Advisory Seminar duurzame alternatieve beleggingen 9

10 Alternative Investments - considerations Economic risk/return profile Capital requirements Alternative for the current asset portfolio Prudent Person Principle Availability First mover (dis)advantage Return over capital Risk Optimisation Product characteristics EMEIA FSO Advisory Seminar duurzame alternatieve beleggingen 10

11 How to make it for fun?

12 FTK versus Solvency II More distinction in capital charges for investments, better reflecting the actual risk, e.g.: Qualifying infrastructure investments Residential mortgages Spread risk Collateral Strategic participations Duration and credit quality Types of fixed income products EMEIA FSO Advisory Seminar duurzame alternatieve beleggingen 12

13 Time for action! EMEIA FSO Advisory Seminar duurzame alternatieve beleggingen 13

14 A lower capital charge for qualifying green investments Long-term investments Meet sustainability criteria: Clear and strong governance Government guarantee backing the project Reputational risk lower Green bonus Illiquid investment not for trading Climate change Less credit risk Sustainable infrastructure EMEIA FSO Advisory Seminar duurzame alternatieve beleggingen 14

15 Thank you Wim Weijgertze Senior Manager Advisory, Risk Direct Tel Mobile: wim.weijgertze@nl.ey.com Een duurzaam FTK Seminar Duurzame alternatieve beleggingen 3 oktober 2018 The better the question. The better the answer. The better the world works.

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