https://ift.tt/eTQx2US Russian Assets Heighten War Predicaments For British Pension Funds – Cryptovibes.com – Daily Cryptocurrency and FX News

Summary

• Most pension funds have written down Russian assets – the regulator
• Funds’ company backers also face economic hit from war
• Funds swerving divestments for fear of selling to oligarchs
• Some mulling ‘do not buy’ policies for firms with Russian ops

As British pension fund managers run out of options to sell billions of pounds of frozen Russian assets held by their members safely, they are writing them off, intensifying the risks to their funding positions from Russia’s invasion of Ukraine.

Last month, after the invasion – which Russia calls a “special military operation” – led to countermeasures by Russia and rounds of sanctions by Western governments, the funds have in many cases marked those assets down in value.

Assets in defined benefit, or final salary pension funds, which provide a guaranteed income in retirement for millions of workers including bank tellers, refuse collectors, and supermarket staff, total up to around two trillion pounds ($2.64 trillion).

Russian investments likely accounted for up to 0.5% of pension holdings in Britain, or 10 billion pounds, according to major pension funds and pension trade bodies contacted by reporters.

After years of ultra-low interest rates curbed gains in their investments, many pension funds were in deficit. However, as economic stimulus in response to the virus lifted asset prices, their funding levels improved during the COVID-19 pandemic.

The invasion is currently providing some shocks in this market. The executive director of regulation policy at The Pensions Regulator (TPR), David Fairs told Reuters:

“As soon as the conflict happened, actually most investment managers have written that (Russia) investment down to zero. The bigger impact is what’s happening to inflation, to the markets, what’s happening in terms of energy prices, what’s happening to supply chains.”

The war’s economic ripples could affect the financial strength of the companies backing the pension schemes, as well as the ones directly hit to threaten pension fund investments.

This month, 2,000 UK adults from the campaign group Make My Money Matter were polled and it was found that 86% of people want their pension schemes to get out of Russia.

Nevertheless, it is not easy to sell, with tit-for-tat restrictions snarling up trading and payment systems. Fairs stated:

“You can decide in principle (to sell), but you can’t trade in all likelihood at the moment.”

Strenuous due diligence is required to check who you are selling to, even if you can find a buyer. A source at one major pension fund said:

“If it’s a bargain-basement price, it’s probably an oligarch trying to buy it. It might be as bad to sell it at 1 cent in the dollar to an oligarch as holding onto it for now.”

Asset managers also appear to be struggling to exit Russia. In most cases, the asset managers are managing money on behalf of the company and local government pension schemes. Many funds with heavy Russian exposure have been frozen in the past month after the invasion that made Russia suspend its stock market.

Last week, Luxembourg – major funds center – said two-thirds of such funds are frozen.

After April 1 when non-residents will again be allowed to sell shares on the Moscow Exchange, the situation is expected to become a little easier. Although capital controls introduced by Moscow in retaliation for Western sanctions are starting to encroach on the market, it will be hard to repatriate the proceeds.

‘DO NOT BUY’ POLICIES

A total of 500 billion pounds is invested in defined contribution schemes, where members build up a pot of money to spend on retirement, in addition to defined benefit schemes.

Nearly a third of all pension schemes have less than 0.1% of their assets in Russia, the Pensions and Lifetime Savings Association says. However, according to PLSA director of policy and advocacy Nigel Peaple, the overall figure is “less than 0.5%” among funds the trade body has checked with.

Major pension funds such as the Railways Pension Scheme, BBC and NatWest (NWG.L), and local authority West Yorkshire have 0.1% or less of their investments in Russia.

Some funds, such as the HSBC Bank Pension Trust (HSBA.L), which said Russian-domiciled assets made up 0.01% of assets, have set out public positions on how they will treat Russian investments. The scheme stated that it would not make any more purchases and would look to divest existing ones when appropriate.

Asset owners such as pension funds have been asked by Britain’s finance minister Rishi Sunak to scale down Russian investments.

Some clients considering “do not buy” policies for companies with Russian operations. The managing director of pension consultancy Cardano Advisory, Richard Farr said clients were also looking at restricting indirect investments in Russia.

But, in recent guidance, TPR cautioned that pension funds have a fiduciary duty to their members – to do the best for them in all ways that they can financially.

If Russian assets held by pension funds are sold as fast as possible, it will likely be for little effect or nothing. But if they expect that the assets will rise in value on the resolution of the conflict and hold onto them, they may be breaking their ethical guidelines.

“It’s a difficult call,” said Farr.