International

By Natalie Cogan
Thu 01 Apr 2010

Canadian pension fund buys UK lottery; Enhanced annuities on the rise; Japan's public pension cuts passive investing; Illinois tackles pension reform

Canada pension fund to buy UK lottery
The Ontario Teachers' Pension Plan has United Kingdom National Lottery operator Camelot in its sights for an estimated £389 million ($642.12 million). 

Camelot's five shareholders, Cadbury, Royal Mail, De La Rue, Fujitsu Services and Thales Electronics, have all agreed to sell their shares to the Canadian pension fund, which is awaiting approval from the National Lottery Commission.

The pension fund is buying the lottery operator through its long-term equities division, run by vice president Lee Sienna, and not its private equity arm, Teachers Private Capital. While private equity funds typically invested for a two-to-five-year period, Camelot was an "excellent example of a first-class business with long-term potential", Sienna said.

Senior vice president Wayne Kozun said the fund would manage Camelot for its remaining licence term and beyond. "The fund has a long-term horizon, as it can be 70 years or more from the time a teacher's career begins until the last survivor pension payment is made. We're known as a patient investor," Kozun said.

Camelot has operated the UK lottery since its inception in 1994 and beat out bids by Richard Branson in 2000 to renew its operator licence for seven years and subsequently India's Sugal & Damani Lottery Agency in 2007 to win its current 10-year licence.

Sales of enhanced annuities on rise in UK
The sale of enhanced annuities is increasing in the United Kingdom, according to research consultant Towers Watson, with £1.79 billion ($2.95 billion) sold in 2009 - an increase of 28 per cent over the previous year.

Sales for the fourth quarter of 2009 reached a record £478.8 million ($790.35 million).

The survey covered 11 providers of enhanced annuities, including Prudential, Aviva, Axa and Scottish Widows.

Enhanced or impaired life annuities, which were introduced in the UK in 1995, provide bigger pensions for those with serious medical conditions or negative lifestyle factors, such as smoking and obesity, which may lower life expectancy. Since Towers Watson started conducting the survey in 2001, market share as a percentage of total annuities has doubled. 

At the bleak end of the retirement investment spectrum, it may be an odd area to trumpet growth, but Towers Watson senior consultant Andy Sanders said enhanced annuity sales meant more consumers would benefit from higher pension incomes.

Japan's public pension cuts passive investing
Takahiro Kawase, the outgoing president of Japan's Government Pension Investment Fund (GPIF), has said the fund will reduce money managers in passive investments and adopt new benchmark indices.

The 122 trillion yen ($1.46 trillion) fund is the world's largest public pension fund and has used BlackRock, Morgan Stanley and State Street among others as passive fund managers. As of March 2009 some 80 per cent of its stock and bond allocations were in passive investments and any changes to allocation will be closely watched by other Japanese pension funds.

Kawase last month told Bloomberg the fund would switch from the Topix index for Japanese stocks, where some thinly-traded stocks had made it difficult to trade, and would focus on large-cap stocks with more liquidity and the Nomura-BPI index for bonds. However, he did not divulge the new benchmarks.

Illinois tackles pension reform
In the same week United States President Barack Obama signed the historic US healthcare bill, senators in his home state of Illinois were tackling pension reform.

The state has a US$76 billion ($84.2 billion) shortfall in contributions to five public-employee pension funds, one of the worst in the US.

Measures include increasing the retirement age of state employees to 67 from 65 and capping the maximum salary for pension calculation to US$106,800 ($118,377). Changes will only apply to new employees.

Caixa to issue first Brazilian bank bonds
Government-owned Caixa Economica Federal will be the first Brazilian bank to issue longer-term debt - two years maturity or more - in the local market.

Previously banks were only allowed to issue longer-term bonds in the international market, but the government has revised the rules to boost access to credit for the smaller banks.

Bloomberg reported that the bank planned to sell around US$27.5 million ($30.5 million) of bonds in May to pension funds, institutional investors and insurance companies.

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