Recognising that different asset allocation portfolios are suitable for investors with different needs, Jason Hsu and Omid Shakernia think it is probably too ambitious to establish a unifying structure for determining benchmark asset allocation portfolios. Instead, they propose a framework for thinking about asset allocation alpha, assuming that investors have suitably determined their asset allocation policy portfolio. And the framework is:

Total Portfolio Alpha = Asset Allocation Alpha + Manager Selection Alpha

Read the report to find out more.

Solving short-termism is being held up by the institutional investment industry as some sort of performance saviour. There have been many attempts at uncovering the problems of, and offering solutions to, short-termism with numerous reviews, conferences and papers discussing the need for long-term investing. These include the incentives and behaviour of asset owners, asset managers and companies.

Columbia University’s Committee on Global Thought held an event on long-term investing with presentations from many of the best investment thinkers including Robert Eccles (Harvard), Jeremy Grantham (GMO) and Joseph Stiglitz (Columbia).

“David Dodd said if you don’t like the management of the company sell the stock, but importantly Benjamin Graham added the provision that you can get a good price, and if you can’t then do something about it,” Patrick Bolton, member of the Committee On Global Thought, said.

In their paper Loyalty Shares: How to reward long-term investors, Bolton and Frederic Samama, head of the steering the committee at the Sovereign Wealth Fund Research Institute, suggest that loyalty shares reward shareholders for long-term investing

In practice this would mean that a company would grant a loyalty warrant to every shareholder then, after a specific loyalty period, a warrant would kick in and vests after another time frame of holding the stock.

Robust thinking

Much of the thinking at the conference, and in other papers and seminars, is robust. But for institutional investors, solutions such as loyalty shares are also kind of Band-Aid solutions.

If instead the asset owners focus on their expectations, then behaviour will change down the chain of service.

If fiduciaries have been acting in the best interest of their beneficiaries, often with 30-plus-year time frames, then they should be setting long-term asset allocation and managing to that anyway.

The real question then becomes what the long-term return expectations of institutional investors are and whether they are realistic.

To some extent the answer rests in reluctance by investors, and their stakeholders and service providers, to adjust their expectations, particularly around the size and predictability of the equity risk premium.

In a response to the recent Kay Review, Gordon Clark has written a paper to be published in the spring issue of the Rotman International Journal of Pension Management. “In many cases, unfortunately, asset holders and their sponsors hold fast to optimistic scenarios regarding the returns to be had in the equity markets of advanced economies. Expectations about the size and predictability of the equity premium are justified by reference to a bygone era,” he says.

The expectation around the equity risk premium, or the expected return for equities, is important because it affects savings and spending behaviour as well as the allocation of assets between risky and defensive poles.

Rethinking the equity risk premium

The CFA Institute research project, Rethinking the equity risk premium, is a collection of papers that revisits 10-year-old research. Edited by managing director and chief investment strategist at TIAA-CREF, Brett Hammond, managing director of research at Morgan Stanley, Martin Leibowitz, and CFA Institute Research Foundation director of research, Laurence Siegel, it presents some new ideas about the equity risk premium.

In 2001 a number of academics set estimates of the equity risk premium, with the estimates averaging 3.5 per cent but coming in as low as 0 per cent (including Arnott and Bernstein, and Campbell and Shiller). The differences varied according to demand and supply considerations, and the supply of cash flows that companies could inject into the market.

The current CFA project is the 10-year anniversary of that initial one, and started with leading academics and practitioners gathering for a day-long discussion on new developments.

The paper defines the equity risk premium also as an equilibrium concept that looks beyond any given period’s specific circumstances to develop a fundamental, long-term estimate of return trends. It is a forward-looking, expectations-driven estimate of stock returns and is critical to fundamental activities in investing, especially strategic asset allocation but also in portfolio management and hedging.

There are many different and new views in the collection of papers. Roger Ibbotson, shows that investors often fail to differentiate a short-term tactical view of the equity risk premium from the more fundamental long-term, supply-driven equilibrium equity premium.

Robert Arnott supports a view that the equity risk premium is cyclical, smaller and more dynamic than prevailing theory of a more stable and robust premium would suggest. He shows that bonds have outperformed stocks over a significant period, excess return has often been lower than the forward-looking ERP, net stock buybacks are lower than is often assumed, lower earnings yields are empirically associated with lower subsequent stock returns and premiums, real earnings and stock prices grow with per capita GDP rather than total GDP, and dividend yields are lower now than ever before.

“When taking this more sobering evidence into account, he finds that the probability of future stock returns matching the 7-per-cent real historical average is slight. Arnott’s estimate of the future ERP ranges from negative to slightly positive,” the paper says.

While there are varied views, most of the authors agree it will be around 4 per cent in the next few years.

On average, US pension funds have a return expectation of 7.5 per cent, and much of this expectation, needed to meet their liabilities, is based on the expectation of returns from the equity market. From where I sit, that is set up to fail.

 

The DKK200-billion ($35-billion) Danish medical professionals pension fund grouping, PKA, wants its government to help satisfy its appetite for investing in major infrastructure projects.

Frank Jensen, an analyst on its asset strategy team, says PKA “is eager to get started” on sealing public-private partnerships with the Danish government, but its plans “have not come as far as expected.”

Jensen says that “we are at the starting line with other funds ready to move on, but the government is waiting to see if it fully supports the idea”. Fears that the Copenhagen government might seek cheaper sources of private finance than the country’s pension capital are a cause of frustration.

Government backing would make direct investment in the complex realm of infrastructure “much easier”, according to Jensen.

Banding together

Despite the apparent obstacles in PKA’s public-private-partnership drive, the issue has at least fostered a real spirit of cooperation among Denmark’s pension funds. PKA has teamed up with ATP, Sampension, PensionDanmark and PFA to form a working group on the potential for public-private deals. “We don’t really have to compete with the other funds as our membership pool is defined by professional groupings,” Jensen says. “Collaborating can help access projects that are too large in themselves for us and make marketing and lobbying more cost-efficient.”

Another Danish pension fund, Industriens Pension, recently joined PKA in taking a $130-million stake in a planned offshore wind farm in the German North Sea.

The deal extends PKA’s involvement in offshore wind – a new form of infrastructure that Danish firms have helped to pioneer. In 2011 a larger investment of $450 million was made in a 25-per-cent share of a Danish wind farm planned to be one of the world’s largest.

The fund’s social responsibility in nurturing Denmark’s energy future was cited at the time as a reason for investing, but Jensen explains that attractive return prospects were also very much a consideration. Although the investment made a loss in 2011 as the tricky task of erecting giant turbines in the sea began, Jensen says PKA expects the Scandinavian winds to deliver a return of around 7 per cent for the 20 years of the project’s operation.

Relying on familiar vehicles

With those kind of figures promised, it is little wonder that Jensen feels infrastructure is a “perfect match” for PKA as an alternative to fixed income under Denmark’s strict pension solvency regulations.

In 2012 PKA made a signal of its intent to pursue the infrastructure alternative by setting up a subsidiary focused on investing $2.1 billion. While government backing will help its domestic infrastructure drive, PKA has relied on the more familiar vehicles such as fund of funds and private equity structures for its overseas infrastructure investments.

Needing to keep a close eye on infrastructure ventures means PKA does not expect to make direct overseas infrastructure investments, but Jensen says it is contemplating investing in mines in Greenland, an autonomous and distant part of Denmark.

Private equity is a more established alternative in PKA’s holdings, at the end of 2011 occupying close to 10 per cent of the portfolio of the group’s biggest pension fund, the State Registered Nurses’ Pension Fund. The newly established alternatives subsidiary has allowed PKA to “move quicker to act on what we see in the market”, in Jensen’s view.

Timber and agriculture are new additions to the group’s alternatives holdings, although its experience in these asset classes has been mixed. Jensen says PKA has found it difficult to locate suitable agriculture funds, while timber investments have not worked as well as expected. “Timber works as an inflation hedge and diversification factor,” he says, “but we need some return along the way, and we have not been satisfied – this year at least.”

From Denmark to Deutschland

However, distinct satisfaction is being felt at PKA over the performance of its bond portfolio, which forms the core of its five pension funds, taking a fraction over half of the space in the State Registered Nurses’ fund at the end of 2011.

Nominal bonds returned some 10.4 per cent for PKA in 2012. Jensen explains that a desire to look beyond Denmark’s borders helped.

“The outlook for Danish bonds really wasn’t that good, so we have very few left. If we need safe bonds, we felt we might as well go for German government bonds as they look like they will return better,” Jensen says.

A hunt for high-yielding debt seems to have paid off for PKA. At the end of 2011 it had a portfolio of global mortgage credit bonds almost half the size of its government bond holdings – this returned 16 per cent in 2012.

Even better returns were recorded by a substantial holding of peripheral European government debt – issued by the likes of Ireland, Portugal and Italy.

Jensen says PKA’s exposure to higher yielding bonds of all forms is about half that to core government bonds, which is about 26 per cent of its overall portfolio. “I think other pension funds have more than that in ‘safe bonds’”, says Jensen, who reckons underweighting Europe’s core “is the best thing PKA did in 2012”.

Jensen concedes that the impact of the recent election in Italy shows that “the euro crisis could rebound on Italy. It is not as huge as the US though, so everyone is still looking across the Atlantic to see what is going on over there.”

Jensen says that the persistence of current low interest rates for a number of years is PKA’s greatest fear.

The Danish investor has been doing its best, however, to use the post-crisis investing environment to its advantage. For instance, it has bought more than $520 million worth of real estate in recent years as prices have dropped.

As for equity holdings, cost efficiency has been the mantra recently, with passive investment favoured for US and European equities. It has also been seeking to implement its own absolute return strategy to compliment its equity portfolio, with return and dividend swaps acquired to reduce exposure to equity market volatility.

On March 8 when Yngve Slyngstad announced the annual results of Norway’s sovereign wealth fund, he did more than unveil a routine set of numbers. The chief executive of The Norges Bank Investment Management (NBIM), which manages the Government Pension Fund Global (GPFG), was also revealing the first results following what he called a “substantial” change in the $680-billion oil fund’s investment strategy last year. “While in 2011 the fund invested NOK 150 billion ($27 billion) of the year’s capital transfers in European equities, in 2012 the fund invested nearly an equivalent amount in emerging bond markets”, Slyngstad observed.

Olsen_Oysten-EDMØystein Olsen (pictured left), governor of Norway’s central Norges Bank, which via NBIM supervises the GPFG on behalf of the government, explained the reason for this shift towards emerging markets in his introduction to the annual report. “On the whole, emerging markets are characterised by factors that, in isolation, contribute to higher risk – in the short term,” said Olsen. “Nevertheless, we believe that over time, the changes that have been implemented are firmly in keeping with the objective of Norges Bank’s management of the fund: safeguarding financial wealth for future generations.” In his own introductory remarks to the report, Slyngstad added that the GPFG’s management seeks “to secure the international purchasing power of future generations by broadening the fund’s exposure to growth in the global economy.” As he also noted when presenting the 2012 results, a significant incentive for reducing the fund’s exposure to Europe is to reduce exchange rate risk; since the start of 2009, Norway’s currency, perceived as a safe haven from Europe’s sovereign debt crisis, has risen more than 20 per cent against the euro.

Still a long way to go?

Based on the 2012 numbers, Slyngstad believes the new strategy is on track, although he cautioned when presenting the results that there is still a long way to go. Last year the GPFG fund delivered a return of 13.4 per cent, or about $80.5 billion, well above the fund’s annual average real return target of 4 per cent, and a sharp recovery from 2011, when the portfolio’s value fell 2.5 per cent. As Slyngstad stressed, “the performance last year was driven by equity investments”, especially in Europe. By contrast, fixed-income investments returned 6.7 per cent, and the fund’s new real estate portfolio – focused on commercial properties in the UK, France and Switzerland – rose 5.8 per cent in value.

Slyngstad also noted when presenting the results that the fund is remains well short of its eventual goal to reduce Europe’s share of the total portfolio to 40 per cent. In 2012, 48 per cent of all assets were held in Europe, down from about 53 per cent in 2011. North America accounted for a further 32 per cent, with Asia (including China) claiming 13 per cent. The United States remained by far the most important focus for the Norwegians, delivering 28.6 per cent of the fund’s overall value in 2012, of which 17.4 per cent came from equities, and 11.2 per cent from bonds. The UK came second, representing about 13 per cent of the fund, split between 9.6 per cent for equities and 3.4 per cent in fixed income.

The Norwegians’ commitment to shift the geographic weight of the portfolio is clear, however, aided by a change last year in the allocation of fixed income investments. Under its revised mandate, the GPFG is now weighting government bonds – which account for 73 per cent of the fixed income portfolio – based on the size of a country’s economy instead of the size of its debt. Furthermore, the mandate authorises the fund to buy bonds in nine emerging market currencies. The outcome in 2012 was an immediate move into emerging market bonds, which altered the profile of the GPFG’s fixed income portfolio. At the end of 2011, emerging-market government debt represented just 0.4 per cent of the bond portfolio; a year later, that had risen to about 10 per cent.

China, the world’s second-largest economy, was the key example. At current exchange rates, the GPFG’s government bond investments soared from about $34 million on December 31, 2011 to about $889 million a year later, based on the global list of fixed income holdings published on Norges Bank’s website at the same time as the annual results. To provide some perspective, NBIM finished 2012 owning $18.54 billion in Japanese sovereign debt, more than twenty times its equivalent China exposure. But the trend by Norway towards selected higher yield emerging-market government bonds is plain.

After China, Mexico offers one of the most striking illustrations of the GPFG’s active presence in developing countries’ debt markets. Last year, the GPFG’s exposure to Mexican sovereign debt shot up from about $500 million at the end of 2011 to more than $4 billion. The GPFG was also an active buyer of Indian government bonds, with about $13 billion in holdings at the end of 2012. It also moved into Russian sovereign debt, with about a $3-billion exposure, and increased its investment in South Korean government bonds to $3.73 billion. Meanwhile, Norway reduced its sovereign exposure to weak eurozone economies, particularly France and Italy, where the GPFG’s government bond holdings dropped sharply.

Emerging market equities and China

While Slyngstad drew attention to the bond portfolio, the fund also aims to increase its equity exposure in developing markets from about 9 per cent in 2012 to 12 per cent. Thanks to Norway’s unrivalled transparency, it is possible to follow the fund’s progress towards this goal through its list of stock holdings, with China again the major test case. In 2012 China accounted for about 1.6 per cent of all the fund’s equity assets, spread across 303 holdings, which overall returned 13 per cent for the year. At the same time, the GPFG consolidated its mainland stock portfolio, which at the end of 2011 contained stakes in about 1000 Chinese companies. Almost all the divestments in 2012 were small caps – names like the Da An Gene Co Ltd, the Shenzhen Wu’er Heat Shrinkable Material Co Ltd and the Wuxi Huaguang Boiler Co Ltd.

The portfolio is now centred around larger national and provincial-level state enterprises, such as China Eastern Airlines, where the GPFG owns 0.03 per cent, and the China Yangtze Power Company (0.04 per cent). As a member of China’s Qualified Foreign Institutional Investor (QFII) program, the fund is allowed to invest up to $1 billion on the Shanghai or Shenzhen stock exchanges. Slyngstad has confirmed that the GPFG has applied for an increase in the quota now that Beijing has removed the upper limit for state-owned funds. He says he expects equity investments in China to be notably higher by the end of 2013.

Real estate, the smallest component of the GPFG’s global investment portfolio, also seems set for rapid growth, as top1000funds.com reported last October. The fund began buying commercial property in the UK and France in 2011, and has since added Switzerland to its European real estate holdings. In 2012, the market value of the GPFG’s expanding property assets reached about $3.96 billion. And in February 2013, the fund bought just under 50 per cent of an office real-estate portfolio valued at $1.2 billion in New York City, Washington DC and Boston from asset management firm, TIAA-CREF, which remains the majority partner.

This is not, in sum, a fund for investment managers accustomed to passive index tracking – either internally or across 55 external mandates. As Slyngstad concluded in his notes for the 2012 annual report, “risk management and active ownership were strengthened”. In the coming years, his pledge to make the fund’s strategy still more transparent means other investors will be able to chart Norway’s progress towards a more globally balanced portfolio.

One year on and the job of trustees gathered at the United Kingdom’s National Association of Pension Funds, NAPF, annual investment conference in Edinburgh hasn’t got any easier. As the search for optimism in a low-return world endures, the conference seems to be caught in a time loop. Compared to last year, deciding on the best allocations is just as tricky, liabilities have got worse, the impact of longevity on investment strategies is still worrying and inconclusive, and complex and costly regulation threatens just as tight a stranglehold. Trustees say they face the same old problems. The grim outlook suggests the time has come to start doing things differently, and some funds have responded with an encouraging sense of adventure.

Anyone for an equity ride?

However, any glimmer of hope that the resurgence in equity markets could signal better long-term returns, or the beginnings of a great rotation from bonds to equities, was snuffed out early on by the London Business School’s Professor Paul Marsh. Based on stock-market data gathered over the last 100 years, Marsh and his colleagues don’t expect equities to generate any more than 3-per-cent returns for the next 30 years. He predicts a structural shift in the pension landscape as schemes merge, managers are paid less and contribution rates rise. “You shouldn’t live in denial that equities can bail you out,” he said. “Those managers that are saying they can produce 7-to-10 per cent a year should shade them down. Pension schemes in the US forecasting equity returns of 10 per cent are plain crazy.”

Even without the gloomy historical context, managers trying to drum up enthusiasm among trustees for a bumpy ride with equities have their work cut out. Apart from the biggest pension funds, like the £34-billion ($50.68-billion) University Superannuation Scheme, which has a higher than average 54-per-cent equity allocation, most UK schemes now hold more bonds than equities. A decade ago they owned 20 per cent of the FTSE. Of course schemes that rely on defined contribution by individuals still like equity assets, but defined-benefit schemes will continue to shun stocks, match liabilities and hedge against inflation with UK inflation-linked gilts, says Martin Mannion, chairman of NAPF and director of pensions finance and risk for pharmaceutical group GlaxoSmithKline’s UK pension scheme. In a vicious circle, de-risking defined-benefit schemes’ steady flock from equities to fixed income will have an increasingly profound impact on growth and economic activity for the UK’s biggest companies.

No gilt lily

But gilts aren’t necessarily the answer either. In the words of one delegate, trustees are crossing their fingers and hoping, rather than grasping the nettle. Everyone knows how the price of gilts has been driven up by funds’ searches for safe havens and successive rounds of quantitative easing. It has exacerbated the pressure on prices and yields, with many pension funds seeing their deficits increase as yields plummet. To add to the problem, anticipated rises in UK interest rates – at historic lows for years now – means the bond outlook is growing darker with a forecast fall in prices and the worry for funds of losing money.

The alternative long-term adventure

Alternative investments for closing and maturing defined-benefit schemes after long-dated and illiquid assets could be corporate bonds, real estate and infrastructure with inflation-protection characteristics. The answer for other schemes has to be bigger global allocations and more investment in non-traditional asset classes. Funds should revisit their risk appetite in search of returns and adopt a more flexible approach to their asset allocation. Tilt portfolios towards emerging markets or give up liquidity and invest longer for bigger rewards.

Encouragingly, schemes are getting more adventurous. Non-traditional assets now account for 15 per cent of a typical defined-benefit scheme’s asset allocation and more schemes are investing in new diversified growth funds. Assets managed by diversified growth funds in the UK and Ireland rose form $45 billion to $75 billion last year, according to consultancy Aon Hewitt. Funds are also adapting to changed times, such as the planned merger of London’s local authority schemes into one giant fund to create an economy of scale and pack more investment clout.

In the grand scheme of NAPF’s 90-year life, the current poor returns are just a snapshot on a long roll of film. For all today’s angst, pension funds have been investing and paying pensions through world wars, recessions, tumult and innovation and that’s not going to change. But pension funds, cautious and ponderous by nature, must not be gripped by paralysis. As long as the outlook is unsettled, funds should diversify their risks and spread their bets or we’ll all be back in the same place again next year.

When the European Commission announced plans on February 14 to introduce a Financial Transaction Tax (FTT) by the start of 2014, it planted a bomb under Europe’s pension funds. That is not, of course, the view of Algirdas Šemeta (pictured below right), the EU’s commissioner for taxation. He says the proposed tax is “unquestionably fair and technically sound” and will “temper irresponsible trading”, by imposing a levy of 0.1% of the value of share and bond transactions, and 0.01% for derivatives trades.Semeta,-Algirdas-EDM

Yet the Commission’s opinion has been universally rejected by pension funds across Europe, which argue that the FTT will ultimately punish their members. “If pension schemes’ costs are higher because of the FTT, then sooner or later those costs will be passed on to their members,” says James Walsh, senior policy adviser on EU and international affairs at Britain’s National Association of Pension Funds. “For company schemes, it could be that employees and employers will have to make higher contributions and members will have to accept higher retirement ages.”

That may seem unduly alarmist, given that the FTT under the present proposal is a rather smaller beast than the Commission originally intended. The principle of an EU-wide FTT has only been adopted by 11 member states; they include France and Germany, the euro region’s two largest economies, but not the UK, which has consistently opposed the tax. Another conspicuous member state outside the 11-member FTT zone is Sweden, which in 1991 repealed the last of its various financial transaction taxes.

Objections raised

The first alarm bell for Europe’s pension funds and other institutional investors outside the FTT zone is that the tax will very likely still hit them. This is because the Commission, backed by Germany and France, proposes that “the tax will be due if any party to the transaction is established in a participating member state, regardless of where the transaction takes place.” In other words, if a British-based pension fund buys a share, a bond or a derivative inside the FTT zone, the transaction will automatically incur the tax, even though the UK is not a signatory state.

Under this regime, it is almost impossible to imagine any institutional investor with significant euro exposure escaping the impact of the tax, given that Italy and Spain, as well as Germany and France, are inside the FTT zone. The Commission has also closed the door on transactions being defined as outside the zone if one of the parties is in, say, London or Zurich, by envisaging a so-called “issuance principle” where the tax is levied at source as soon as a company issues a tradeable bond or share or writes a derivatives contract.

Impact on funds

Why, though, are pension funds in particular so exercised about the impact of the proposed FTT? The answer starts with last year’s position paper on the FTT by Pensions Europe, the umbrella organisation for the region’s pension funds. It stated that “pension funds and institutions for occupational retirement provision generally fulfil a social function” as not-for-profit entities with the “sole purpose” of providing workplace pensions for their members. On those grounds, Pensions Europe argued that pension funds should be exempt from the FTT, whose justification is to claw back from banks and other financial investors the costs of bailing them out during the 2008-9 crisis.

So far, the Commission has dismissed this argument, describing pension funds as “important actors on financial markets… in direct competition with other investment funds, such as index funds shadowing stock exchanges or bond markets.” Gert Kloosterboer (pictured below right), a spokesman for the Netherlands’ Pensioen Federatie, says this refusal by the Commission to exempt pension funds justifies the Dutch government’s decision to stay outside the FTT zone “as long as Dutch pension funds are not excluded from the tax”.Kloosterboer-Gert

The Commission goes on to note that in any case the impact of the FTT could be” extremely limited” for “conservative fully funded pension funds”, of which it clearly approves. According to Brussels, such funds “typically follow low-risk investment strategies that are mainly reflected in buying bonds or shares when they are issued and holding them until maturity”. This glosses over the fact that many conservative pension funds since the 2008-9 financial crisis have adopted more active investment strategies, with a higher volume of transactions, in order to meet mandated return targets.

Disincentivising derivatives?

Pension funds across Europe are also infuriated by the way the Commission has lumped them in the same box as high-frequency traders and hedge funds to justify the proposed FTT on derivatives transactions. The view from Brussels, supported by France and Germany, is that the FTT will discourage speculative trading on Europe’s derivatives exchanges that increases market volatility. Yet as Pensions Europe stated in its 2012 position paper on the FTT, “pension funds use derivatives for risk-mitigating purposes. The FTT will lead to a disincentive to use derivatives, which may imply higher risk for pension funds, IORPs [institutions for occupational retirement provision] and their beneficiaries.” Walsh suggests reluctance by pension funds to use derivatives as insurance against currency risk and other investment hazards may be particularly strong because of the perceived danger of an FTT chain reaction. As Walsh points out, the sheer volume of transactions in futures, swaps and other options is because they are so often hedged by further trades.

Harmonisation an elusive goal

It seems from the EU taxation commissioner’s confident statements about the FTT that pension funds have lost their case for full or partial exemption. On the bleakest outlook, they are now faced with a countdown to next January, when the tax will be introduced. The hope in the pension industry, as with other investors, comes from the curious fact that while only death and taxes are supposed to be certain in life, Brussels sometimes fails to deliver on its tax proposals.

Šemeta’s announcement on February 14 was meant to kick-start a process in which the 11 signatory states would finalise the small print of the FTT so that the new tax could be implemented. But in the EU, where tax harmonisation is an elusive goal, that is easier said than done. “There is not much evidence so far of a collective political will among the 11 member states that want the FTT to develop a coherent tax,” says Peter Sime, head of risk at the International Swaps and Derivatives Association in London.

If the FTT’s introduction is delayed, Šemeta faces another problem. The Commission’s term, including his own, expires in October 2014. Given the snail-like pace of EU processes, that leaves the EU’s tax commissioner with little time to adjust the FTT timetable if he encounters further obstacles. In principle, there is nothing to stop a new Commission taking over the task of pushing through the FTT where its predecessor left off. Yet a host of political uncertainties, from this September’s German federal election to the EU parliament elections in June 2014, could sap the will in Brussels and across the 11 FTT member states to introduce the tax. Pension funds, like all financial investors, thus have a strong motive to carry on lobbying against the tax – if not to win the argument, then at least to drag out the arguing till the Commission runs out of time. For as any EU lobbyist will confirm, once a proposal is kicked into the long grass in Brussels, it very rarely returns.