Irish pension funds diversify amid uncertain outlook

Irish pension funds diversify amid uncertain outlook

Pension funds here have lowered their exposure and diversified into property, infrastructure and hedge funds according to a new report from Mercer.

The survey of 876 institutional investors across 12 countries managing assets of around €1 trillion found average equity allocations for Irish defined benefit schemes have fallen and now stand at just 28% compared to 34% in 2018

The Mercer’s 2019 European Asset Allocation survey also found that bond allocations remain broadly at 50%, while allocations to alternative assets like property, infrastructure and hedge funds have continued to increase from 15% up to 22%.

“While 2019 has so far been marked by cautious optimism, investors need to remain vigilant in an ever-evolving macro-economic and political backdrop,” said Olivier Santamaria, Head of Investment Consulting, for Mercer (Ireland) Limited.

“In the past year, Irish pension funds have reduced their exposure to equities, diversifying into other asset classes including property, infrastructure and hedge funds.”

The heightened global awareness of the sustainability agenda also appears to have had an impact, with just over half of schemes now considering environmental, sustainable and governance (ESG) risks as part of their investment decision-making, up from 40% last year.

Regulatory pressure seems to be the main driving force behind this behaviour the survey found, with just 14% of respondents indicating decisions are being driven by the challenges posed by climate change.

“Mounting evidence of overextension of credit means investors should continue to position their portfolios to weather possible market volatility, in the face of political uncertainty and diminished liquidity as Central Banks reign in their market involvement,” Mr Santamaria said.

“We expect the increasing focus on sustainability to continue and anticipate ESG factors will become an integral part of investment strategy setting and risk management.”

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Crude oil prices fall 1% on fears for global economy

Crude oil prices fall 1% on fears for global economy

Brent oil ticked higher today, supported by tensions over Iran and the decision by OPEC and its allies to extend a supply cut deal until next year, while US benchmark crude prices fell on weak economic indicators.

Brent was up 53 cents at $63.83 per barrel this afternoon, while US West Texas Intermediate (WTI) slipped 18 cents to $57.16. The US market was closed yesterday for a holiday.

Both benchmarks were set for their biggest weekly falls in five weeks.

A trade war between the US and China has dampened prospects of global economic growth and oil demand, but talks between the two nations resume next week in a bid to resolve the deadlock.

“The truce between the US and China is not translating into anything in the real economy in the short term.

German industrial orders fell far more than expected in May, and the Economy Ministry said this sector of Europe’s largest economy was likely to remain weak in the coming months.

In the US, new orders for factory goods fell for a second month in May in a row, government data showed, stoking the economic concerns.

The U.S. Energy Information Administration reported this week a weekly decline of 1.1 million barrels in crude stocks, smaller than the 5 million barrel draw reported by the American Petroleum Institute and less than analyst expectations.

The Organization of the Petroleum Exporting Countries and other producers such as Russia, a grouping known as OPEC+, supported prices by extending their deal on supply cuts.

Tension in the Middle East also offered some support.

Iran, already embroiled in a row with the US, threatened today to capture a British ship after British forces seized an Iranian tanker in Gibraltar over accusations the ship was violating EU sanctions on Syria.

A Reuters survey found OPEC oil output sank to a new five-year low in June, as a rise in Saudi supply did not offset losses in Iran and Venezuela due to U.S. sanctions and other outages elsewhere in the group.

Oil production by Saudi Atabia, the world’s top crude exporter, was 9.782 million barrels per day (bpd) in June, an OPEC source said, slightly up from 9.67 million bpd in May.

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Bills going up for nearly 100,000 non-domestic Irish Water customers

Bills going up for nearly 100,000 non-domestic Irish Water customers

Almost 100,000 non-domestic customers of Irish Water are set to see their fresh water and waste water bills rise.

The move follows a decision by the Commission for the Regulation of Utilities (CRU) on new tariffs following a restructuring of the charging regime.

The increases have been criticised by organisations that support businesses here.

The CRU says the new charging structure will create a more equitable, simple, stable and transparent charging method of the 183,479 non-domestic customers here.

But according to figures the regulator has released, for many – but not all – such customers it will also bring considerably bigger bills.

85,088 or 46% of Irish Water non-domestic customers will see decreases to their bills.

They will move right away to the new charging plan.

A further 67,088, or nearly 37%, will also move to the new tarrrifs and see their bill increase by less than €250.

19,268 or almost 11% will pay between €250 and €750 more. They will also be eligible for a transition tariff over three years, the regulator says.

While the remaining 12,035 or nearly 7% will face bill increases of €750 or greater.

They will also be eligible for a transition tariff as well as a 10% cap on their annual bill increase.

“The CRU welcomes the introduction of national tariffs for non-domestic customers,” said Laura Brien, Director, Water and Compliance at the CRU.

“This is a significant step in the transformation of Irish Water into a single public utility. These cost reflective tariffs will play an important role in encouraging water conservation.”

According to the CRU, there is currently over 500 non-domestic tariff levels, as well as multiple categories, methodologies, applications, billing arrangements and billing cycles as a result of the old local authority water system.

The new non-domestic charges were decided after a consultation period and take effect on 1 May 2020, in order to give customers time to plan.

However, Dublin Chamber has criticised the increases, saying they will lead to businesses in the city paying significantly more for water.

This will heap further costs pressure on businesses in the Dublin region and hurt the region’s competitiveness, it warned.

“The Dublin region will be disproportionately affected by the new water tariff structure, potentially undermining the region’s economic competitiveness,” said Aebhric McGibney, Director of Policy and International Affairs with the organisation.

“Dublin Chamber consistently warned the CRU about the unfair impact that the proposed tariff changes would have on Dublin businesses. It is disappointing to see that this information has not been provided.”

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France issues first 10-year bond at negative interest rate

France issues first 10-year bond at negative interest rate

France issued its first-ever 10-year bond at a negative borrowing rate today, meaning investors pay, rather than receive, interest for the privilege of owning French sovereign debt, the state debt management agency AFT said.

AFT said that it issued €9.996 billion in long-term bonds, with just under half – or €4.972 billion – in the form of 10-year bonds at a rate of -0.13%.

The agency also issued €2.05 billion in 15-year debt with a coupon of +0.23% and €2.974 billion in 30-year debt at +0.8%.

It is the first time that France, the euro zone’s second-biggest economy, has issued sovereign debt at a negative rate with a number of other countries in the currency area – notably Austria, Germany and the Netherlands – already charging investors to buy their bonds.

Official rates in the euro zone as a whole have been negative since 2014 when the European Central Bank lowered its key deposit rate to -0.1%.

The ECB has since cut the deposit rate further, to -0.4%.

But with more easing looking likely after ECB chief Mario Draghi hinted as much last month, the so-called yields, or investors’ return, on Europe’s safest bonds are falling.

On the secondary markets, where already issued debt changes hands, the yield on 10-year French government bonds already drifted into negative territory in mid-June.

Outside the euro zone, EU members Sweden and Denmark also have negative interest rates, as does non-member Switzerland.

Financially weaker euro zone members Greece and Italy still have to pay more than 2% of interest to find buyers for their government bonds.

Analysts predict yields in Europe will keep falling as Draghi’s successor at the helm of the ECB, IMF chief Christine Lagarde, is expected to increase economic stimulus either through rate cuts or quantitative easing.

But the move to more deeply negative yields raises concerns that Europe may be following in the footsteps of Japan, which has been having trouble to revive inflation and growth.

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Injury awards driving up insurance prices – insurers

Injury awards driving up insurance prices – insurers

Insurance premiums will fall if the cost of claims in Ireland falls, insurance companies have been telling the Oireachtas Finance committee.

The Chief Executive of Allianz, Sean McGrath, said the single biggest issue facing the cost of claims is getting the high level of injury awards under control.

Mr McGrath said that awards in the Republic of Ireland are 4.4 times those in the UK, excluding special damages and legal costs.

A number of representatives of Ireland’s largest insurance companies have been appearing before the committee.

Philip Bradley of AXA rejected suggestions of excessive profitability by insurance companies and said that the Irish market is relatively small.

“It has also proven to be a difficult market in which to develop a sustainable and profitable business with high and volatile claims costs,” he said.

“We are all aware of the high-profile companies who launched in to this market only to withdraw or fail as times got tougher.”

He said the motor and liability insurance between 2013 and 2017 was not profitable.

Mr Bradley said that the introduction of the Personal Injuries Assessment Board (PIAB) had directly led to a fall in insurance premiums of around 40%.

However, he said the legal profession in particular has found ways to work around PIAB and the system encourages lawyers to do just this.

“Its effectiveness has been hugely undermined as a result,” Mr Bradley said.

Fiona Muldoon, chief executive of FBD, said the high cost of bodily injury claims remains the biggest factor.

“If we take the example of the play-centres, the average public liability award at PIAB is €27,000,” she told the committee.

“If the premium for a business is €2,500, then if there is even one claim in ten years, the ten year premium will not exceed one single average PIAB award, never mind a claim that goes to court.”

She said structural reforms are necessary to moderate the cost of claims.

“The current one way bet in the courts system must change,” she added.

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US threatens tariffs on EU cheese, pork and whiskey

US threatens tariffs on EU cheese, pork and whiskey

The US is threatening tariffs on $4bn worth of additional EU goods – including Irish whiskey – in a long-running dispute over aircraft subsidies.

This is in addition to tariffs placed on European Union goods in April.

The list also includes sausages, hams, pasta, olives and cheeses, including parmesan-reggiano, provolone, edam and gouda.

“Today, the Office of the US Trade Representative is issuing for public comment a supplemental list of products that could potentially be subject to additional duties,” it said in a statement.

The potential tariffs are due to “EU subsidies on large civil aircraft”, the statement said.

“This supplemental list adds 89 tariff subheadings with an approximate trade value of $4bn to the initial list published on April 12, which included tariff subheadings with an approximate trade value of $21bn,” it added.

For more than 14 years, the US and the EU have accused each other of unfairly subsidising aviation giants Boeing and Airbus, respectively, in a tit-for-tat dispute that long predates US President Donald Trump’s time in office.

The Boeing-Airbus spat is the longest and most complicated dispute dealt with by the World Trade Organization, which aims to create a level playing field in global trade.

Mr Trump has made taking aim at what he views as unfair trade practices that disadvantage the US a key goal of his presidency, and tariffs are his favoured tool for doing so.

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Services sector makes up for weak manufacturing activity – PMI

Services sector makes up for weak manufacturing activity – PMI

The country’s services sector continued to grow sharply in June, according to a new survey.

The growth more than made up for weak manufacturing activity, which shrank for the first time in six years over the same time.

The AIB Services Purchasing Managers’ Index stood at 56.9 in June compared to 57 in May.

That is far above the 50 mark that separates growth from contraction, as it has been since 2012, when a rapid recovery in the economy began to take hold.

While the corresponding survey for manufacturers showed that activity fell marginally below 50 due to the slowdown in global trade and uncertainty over Brexit, output in the sectors taken together was unchanged at a solid 54.4.

The growth in services, which was driven by stronger demand from customers, was also well above the flash PMI readings recorded in the US and the euro zone as a whole, AIB’s chief economist Oliver Mangan noted.

“It suggests the Irish economy is continuing to expand at a good pace, driven by strong growth in the large services sector. Furthermore, firms in the sector remain very optimistic on the outlook for their businesses,” Mr Mangan said.

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19 new Rent Pressure Zones across 11 counties

19 new Rent Pressure Zones across 11 counties

There are 19 new locations designated as Rent Pressure Zones following a change in the criteria.

The announcement of the additional RPZs takes effect from today, following reforms to the Residential Tenancies Act.

The areas are located across 11 counties and include all of Meath and Louth, as well as Limerick’s metropolitan area.

It means rent increases are limited to a maximum of 4% each year, with around two-thirds of renters now covered by RPZs.

The data shows that between the start of January and the end of March, the average rent stood at €1,169 per month.

The move comes as new figures from the Residential Tenancies Board show that nationally rents were over 8% higher during the first three months of the year, compared with the same time in 2018.

The figure represents an increase of €90 or 8.3% on the same period a year earlier.

When compared with the previous quarter, rents rose by 2.1%, reversing the fall recorded between the start of October and the end of December.

It was also the highest rate of annual price inflation in the rental market since the second quarter of 2016.

The RTB has said there was “continued growth in rental inflation and affordability issues in the sector”.

The report shows the average rent for new tenancies is €1,245 per month, compared to €984 for renewed tenancies.

The highest average rent is in Dublin at €1,662, while Leitrim is the county with the lowest average rent at €537.

Meanwhile, rents in Waterford city recorded the biggest annual increase between January and March, up by 13.7% to €826, compared to the same time the previous year.

The Residential Tenancies Board has also been given new powers to address improper conduct by landlords under the Residential Tenancies Act.

The RTB can now directly investigate and sanction in cases where there are specific breaches of Residential Tenancy Law in relation to Rent Pressure Zones, false or misleading notices of termination and the non-registration of a tenancy.

Anyone found in breach of the legislation could face sanctions that range from a warning to a fine of up to €15,000.

The new legislation also requires that all notices of termination where the tenancy has been ended are required to be notified and copied to the RTB within 28 days of the tenancy ending.

Director of the Residential Tenancies Board Rosalind Carroll welcomed the new powers for her organisation, saying it finally gives the RTB “a regulatory toolkit” to deal with some cases that they have not been able to deal with until now.

She told RTÉ’s Morning Ireland that the RTB will have strong investigatory powers and its objective is to achieve compliance.

“We have a full range of powers under this where we can ask people to provide us with their bank statements, tenancy agreements,” she said.

“We can even go in and search a property if we need to. So quite extensive powers that, I think, will give us what we need to get into that regulatory area.”

Ms Carroll urged tenants who think there has been a breach to contact the RTB.

The Chief Executive of Threshold also welcomed the move, saying it gives reassurance to renters.

Speaking on RTÉ’s Today with Sean O’Rourke, John-Mark McCafferty added that new powers given to the RTB meant that the rent pressure zone area of legislation will now have more teeth.

Mr McCafferty said a delicate balance between protection for landlords and protection for tenants needed to be struck.

However, speaking on the same programme, a spokesperson for the Irish Property Owners Association described the extension of rent property zones as “a mistake”.

Margaret McCormack said that rent control in Ireland was a very blunt instrument that did not take a number of factors into account, including the level of indebtedness of the landlord or the cost of provision of accommodation.

She said the problem with the homelessness crisis was supply, adding that the private rented sector was not responsible for the social housing issue.

During Leaders’ Questions in the Dáil, Labour leader Brendan Howlin said the Government policy of increasing Rent Pressure Zones is not working as the 4% cap on rent increases has given a signal to landlords to increase rents by 4% each year.

Mr Howlin said that wages are not growing at 4% and affordability should be the benchmark on what is affordable to people.

Minister Richard Bruton disagreed and said the record of the Rent Pressure Zones is that they have helped to contain the growth of rents.

He said the key to the problem is increasing supply.

He added that there is evidence that year on year social homes, supported homes and private homes are increasing year on year.

Mr Howlin agreed that supply is the issue but he said that we cannot allow people be thrown out of their homes because of increases in rents.

He said that there needs to be an interim proposal of having a cap on rents and link it to wages across the State.

Meanwhile Solidarity/People Before Profit TD Richard Boyd Barrett has said that the

extension of Rent Pressure Zones to a number of new areas indicates that the housing and rental crisis is spreading around the country.

Speaking on RTÉ’s Drivetime, Richard Boyd Barrett said the RPZ measures do little to deal with the unaffordability of housing.

Mr Boyd Barrett said that a 4% increase in rent, as allowed under the RPZ legislation, makes a property 4% more unaffordable.

He also said that the continual increase in rents means that people are left in “limbo” as they cannot get affordable housing, rents are through the roof and those rents are now going up by 4% a year.

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New rules to require banks to open up their systems

New rules to require banks to open up their systems

Your bank account is set to get more secure – and more open – once new European regulations come into force in September.

The second Payments Services Directive aims to reduce fraud around online transactions. This will likely see consumers having to take more steps to verify their identity online.

But the rules will also require banks to open up their systems, so that other finance and technology firms can offer services to customers.

“Opening banking is a safe and secure technology that will allow customers and small businesses to get more value out of their banking data and their banking payments,” said Imran Gulamhuseinwala, head of the UK’s Open Banking Implementation Entity.

“Banks have historically made it really quite hard for consumers and small businesses to access their data, and also to make payments from their bank accounts,” Mr Gulamhuseinwala said.

“What this regulation really recognises is that there is tremendous value in people’s banking data – and crucially that that data belongs to them and not to their financial institution,” he added.

In practice this means that, by mid-September, Europe banks will need to offer a route through which other companies can offer their services.

This could mean, for example, that a user will be able to use an app to get an overview of multiple accounts.

It could also allow budgeting software to pull in information directly from a user’s accounts, rather than having to rely on that being done manually.

In reality, though, open banking is about creating a framework for new types of services – which means its actual benefits may not become apparent for some time.

“It’s a seismic change for the banking industry but it will take time for consumers to really realise the benefits of it,” Mr Gulamhuseinwala said.

“The reason for that is that open banking is an enabling technology that allows other new entrants into the sector – they’re often known as FinTechs – to build really exciting new propositions and products for customers.”

However some banks may be struggling to get to grips with the change – and that September deadline may prove difficult. For others, however, the shift should come a little easier.

Whether banks are actually keen on the new rules is another matter, however. “Part of the reason that the regulators are pushing on opening banking is precisely because they want to bring additional competition to the market, and of course additional competition doesn’t always serve incumbents well,” he said.

“The kinds of products we’re really expecting customers to benefit from, on one level, are enabling them to get better rates on mortgages, credit cards, overdrafts, better rates on savings… but of course that is something of an economic threat to the incumbent banks.”

But Mr Gulamhuseinwala is confident that it will improve competition, opening the door to new firms while also forcing traditional players to improve their offering.

A lack of competition is often cited as a major problem within the Irish consumer finance sector – as is the matter of culture within banks.

That is something that the industry is hoping to address through the Irish Banking Culture Board.

Headed by retired Court of Appeal judge, Mr Justice John Hedigan, the board is industry-funded but independently operated. It also has no regulatory powers, which is a different approach to the one taken by the UK.

“I think it’s really interesting, the initiative that is happening in the Irish market, and I’m very supportive of it,” said Mr Gulamhuseinwala.

“In the UK… we’ve separated out regulation. Conduct regulation sits with the FCA and then prudential regulation, which sits with the Bank of England.

“That separation really does allow the regulators to look very differently at those two elements. Sometimes they can actually be in conflict and I think it’s very important that the culture in the industry recognises some of the inherent conflicts,” he added.

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First-time buyers feel ‘pushed out’ by bulk investors

First-time buyers feel ‘pushed out’ by bulk investors

Fianna Fáil is calling on the Government to restrict tax incentives for institutional investors in the Irish property market.

The party said so-called “cuckoo funds” have given rise to entire housing developments being snapped up, locking out first-time buyers.

A review by the Department of Finance into the amount of tax paid by these investors is due to be completed next month.

However, the department said institutional investors make up a very small proportion of the residential market.

Figures from Savills Estate Agents show that almost 3,000 properties were block-purchased by investors last year.

The agency said 234 properties were sold in bulk to investors in the first quarter of this year.

However, some prospective home buyers argue that large investment funds, which purchase properties in bulk, could be making it harder for families to get a house or apartment.

Nicola McCann, from Donabate in Dublin, and her partner are first-time buyers and are struggling to get onto the property ladder.

The couple and their young son moved in with Ms McCann’s partner’s family two years ago in order to save a deposit.

“It has been pull your hair out stressful, like our eight-year-old son is sleeping on a bean bag in his Nana’s room at the end of her bed.

“In Donabate there are so many new houses and then you go and look online and they’re all after being sold to private investors,” she said.

Ms McCann said they are saving nearly €2,000 every month to try to secure a deposit.

“It’s people like us and our friends that are now stuck and are being pushed out of where they want to live because we can’t afford it.”

New regulations being proposed by Fianna Fáil would give local authorities the power to restrict the number of properties being sold for rent.

The party is also calling for a full review of the tax treatment for institutional investors.

Fianna Fáil’s Housing spokesperson Darragh O’Brien said the 2013 Finance Act brought in by the Fine Gael and Labour government makes Ireland an attractive country for funds to do business in.

He said: “They don’t pay capital gains tax, they don’t pay tax on their profits and they don’t pay tax on their rents so why wouldn’t you invest”.

In a statement, the Department of Finance said many collective investment structures are designed so that the tax is payable by the investor or shareholder, rather than within the collective investment vehicle itself.

It said this is the case with Real Estate Investment Trust companies and with funds invested in real estate assets.

The department said that in both cases a withholding tax is applied to ensure tax is collected.
Chief Economist with the Sherry Fitzgerald Group Marian Finnegan said investment funds are an essential ingredient to the property market.

“I think they are a great new addition to the property market.

“We have seen over the last five or six years an emerging trend of Private Residential Investment funds coming into the marketplace.

“They are a very small percentage of the market and represent a very tiny percentage of overall transactions, but they are beginning to provide much needed rental accommodation and that is good news”.

Asked if there was a risk the funds would push first time buyers out of the market, she said: “Absolutely not if you look at the figures for the first quarter they bought in the hundreds and not the thousands in terms of property numbers.

“They are really just a very small proportion of the market overall. ”

Mr O’Brien said the State is also buying properties in bulk, which he said is having an impact on first-time buyers.

“It’s impossible for a potential first time buyer right now to compete against large pension funds on one side and the State on the other because the State is also buying up about 3,000 properties a year where first time buyers would want to buy.

Figures show the Government bought an estimated 2,600 properties from the open market last year.

474 properties were bought by the State in the first quarter of this year.

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