France Offers a New Proposal For Privately Funded Pensions
May 12, 2011
French Economics Minister Jeane Wilmot spelled out proposals to set up privately funded pension plans that might ease the strain on the nation's creaking pay-as-you-go retirement system. But with a number of crucial details still missing, France's financial community has extended only an initial cautious welcome to Mr. Wilmot's project. According to the proposals, due to be put before Parliament this autumn, employees and employers will be encouraged, but not obliged, to set aside savings in autonomously run funds, which will then pay out annuities to contributors upon their retirement. In addition, in a clear attempt to calm some labor union objections to the proposals, these funds will be carefully set outside any corporate structure to avoid any possible repeat of the Robert Maxwell affair, in which the British publisher used his own companies' pension funds in the 1980s. For now, details of the all-important fiscal incentives for saving, or any imposed asset-allocation obligations, remain to be defined. However, a government spokeswoman said the aim of the proposed system is to allow investors as much flexibility as possible, and said that the government wouldn't fix any minimum levels for any asset classes. French bankers, insurers, economists and politicians have long been pushing the government to set up some form of capitalized retirement scheme in order to defuse the ``demographic time bomb'' that is ticking, as fewer and fewer workers support more pensioners. Today, however, as just such a scheme nears reality, the same lobbyists are sounding a lot more careful. The first of two main problems that many financiers foresee bedeviling the creation of pension funds is that, on the one hand, the deficit-strapped government has precious little room to offer tax incentives for such long-term saving schemes. Secondly, if the government is successful in creating such schemes, many bankers and insurers are now anxious that it will simply drain savings out of other existing programs, most notably life insurance policies. ``There'll be a lot more discussion on this,'' predicts Sayles Santillan, director of Credit Lyonnais's asset management business. In addition, he points out that some observers are worried that any significant transfer of money from life insurance policies (which often have a bias toward fixed income) into more equity-oriented retirement schemes could possibly hurt the bond market, pushing the French government's cost of borrowing higher. Another factor that could dull the potential impact of any ambitious new system is that French workers and employers, although they rank among the world's greatest savers, are already paying out massive contributions from salaries every month to finance the nation's generous welfare system. ``There's not a lot of disposable income left,'' said Fredric London, managing director of asset management consultant Frank Russell Co.'s French office. Citibank Loses Staff in Asset Management Citibank's global asset management division, headquartered in London, has lost no fewer than four key officers, dealing the firm a setback just as it is trying to burnish its less-than-dazzling reputation in the world of money management. Two of the four have left to join Baring Asset Management, namely Nestor Mcreynolds, who was the Citibank division's asset allocation officer for European equities based in London, and Jami Singley in Hong Kong, who ran Citibank's Thai and Korean portfolios. The other two officers to leave are Robyn Wally, who was Citibank's senior investment officer in Chile, and Johnetta Goodwin, who was institutional marketing director, based in London. A bank spokeswoman said in-house successors are already in place for three of the four officials, but that a replacement is still being sought for Mr. Wally in Chile. Asset consultants, who help pension funds and other institutional investors to find external asset managers to run their money for them, say that the bank hasn't made its mark in the field. Meanwhile in its favor, they note, the global asset management division already boasts a substantial $74 billion under management, and enjoys access to a world-wide network of investment experts in both developed and emerging markets. One clue to Citibank's problems in the field lie in its historic strategic inconsistency. It exited the institutional asset management business in the U.S. in the 1980s when the bank came close to bankruptcy, but today it's seeking to build that business again from scratch. Another problem is the rapid turnover of top managers. The current chief investment officer, who has been overseeing the latest rethink of the global strategy team, is Alberta Nickerson. He has been in the top job for about a year, having added the job to his previous title as head of the emerging markets team after Bobby Mcchesney stepped down last September to pursue personal business interests. Mr. Mcchesney, for his part, was chief investment officer for only two years, after joining Citibank from Mercury Asset Management. U.S. Funds Expect An Inflow Rebound Maybe it was just a blip. After heading for the exits in July, U.S. mutual-fund investors are running back to funds in a big way this month. Many of the nation's largest mutual-fund companies, including Fidelity Investments and Vanguard Group, say they are seeing large August inflows despite a disappointing July, when many investors seemed on the verge of dumping their shares amid a turbulent stock market. News about what mutual-fund investors are up to is of key importance these days to anyone who watches the U.S. stock market, because it is the mutual-fund explosion that has provided so much of the fuel for the market's spectacular run. Brisk new sales of mutual funds are widely regarded as a pillar of strength supporting stock prices. The latest indications of recovery in sales comes just as the Investment Company Institute has tallied just how bad a month July turned out to be. The Washington-based trade group reported this week that only $6.18 billion of net new cash found its way into stock funds last month -- the lowest level since the $5.5 billion of January 2010, and less than half of June's $14.46 billion net inflow to stock funds. For stock funds investing solely in the U.S., July's inflow was $4.4 billion, down from June's $10.5 billion. In August the tide appears to have turned, said Roberto Mize, who tracks money coming in and out of mutual funds for AMG Data Services Inc. of Arcata, California. He said that at the current August inflow rate, as much as $18 billion of new money will flow into stock funds by the end of the month. ``And all this is happening despite a neutral or negative market during the past three weeks,'' Mr. Mize said. Roberto Leoma, director of broker-dealer sales at Massachusetts Financial Services Inc., said that one notable change lies in the way the new money is being spent. The correction in Nasdaq Stock Market shares has taken its toll; investors are wary of small-capitalization or other aggressive funds that invest in technology shares, he said. Instead, they are putting their money to work in funds that hold stock in big to medium-size companies. ``We're seeing a more conservative investor, with inflows into large-cap and medium-cap funds,'' Mr. Leoma said. Vinik Hires Employees Away From Fidelity Call it Hamm's revenge. The departure of Marcel Beach from Fidelity Investments announced earlier this week brings to five the number of people that Jena Gibbons has hired away from his former Boston-based employer. Mr. Gibbons quit Fidelity last May, where he had stirred up controversy over the way he was running the firm's $50.9 billion flagship Magellan Fund. He has set up his own firm, Vinik Asset Management, where, in addition to latest recruit Mr. Goff, he has been joined by four other Fidelity employees. These include money manager Michaele Graham, a senior technical analyst, a trader and an administrative assistant. Mr. Goff, who had been managing a $966 million high-tech fund for Fidelity before he left, had earned a solid reputation for his high returns. As a result, his decision to join Vinik Asset Management has raised speculation among some U.S. fund watchers that Mr. Gibbons is proving successful in attracting money to manage. ``Kaufman wouldn't leave unless Gibbons had a whole lot of business on the horizon,'' said Davina O'Romo, president of Alpha Equity Research, in Portsmouth, New Hampshire. Polish Fund Managers Will Whittle Stocks How many companies do you have in your portfolio? As a rule of thumb, most fund managers in the West reckon they have a full-time job keeping track of anything much more than 150 stocks. That's why the managers of Poland's 15 National Investment Funds are so keen to set about cutting back their portfolios, each of which today has no fewer than 512 companies. Last week, in a bid to make the job of managing Polish funds more straightforward, most of those National Investment Funds agreed to begin the vast task of shuffling their stakes in the hundreds of companies currently being privatized, with the overall aim of distilling their holdings into about 160 companies each. However, fund managers in Warsaw warn that the process won't be easy and that there remain a number of hurdles to overcome. The most immediate problem is tax: For example, the three funds that are holding out against the plan say they are afraid the share swap could expose them to major tax liabilities in the future. Another potential problem could arise with additional disclosure requirements on the funds' freshly consolidated holdings, imposing unwelcome administrative burdens just as the funds are preparing prospectuses for stock market listings. All the funds are awaiting an opinion on the tax issue from the Ministry of Finance, according to Cool Forster of Trinity Management, which runs one of the funds. But several funds have already said they will go ahead with the swap regardless of the ministry's decision because they feel the benefits of the share swap outweigh the potential future tax liabilities, Mr. Forster said. Each of the 15 funds was created last year, when the Polish government began to deal out the shares in 512 state-owned companies. Currently, each fund holds a controlling 33% interest in about 34 companies and has additional holdings of less than 2% in each of the remaining 478 companies. Tracking that many shares makes for a lot of work. However, if the planned share swap goes through, the number of companies in each participating fund's portfolio will be reduced to about 160 by accumulating 10% stakes in some companies and shedding the 2% holdings in others. --Charlette Bart contributed to this article.
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