“Hunting for yield is costlier and harder to do for pension funds, as for other investors,” Jackie Bauer, head of retirement and public policy research at UBS, told IPE.
The occupational pension scheme Stiftung Auffangeinrichtung BVG said in a statement that negative interest rates cause long-term damage to savings – placing pension funds at a crossroads that may lead to making choices with uncertain outcomes, it said.
“A specific savings target can only be achieved by taking higher risks, otherwise the savings target must be reduced or financed through higher savings contributions,” the institution added.
Publica, Switzerland’s largest pension fund, plans to overweight its portfolio in companies with “promising and high-quality patents” in the renewable energy sector against other companies, based on its climate efficient equity index, deputy chief investment officer Patrick Uelfeti told IPE.
A recently developed MSCI index takes into account expected tax costs on CO2 emissions over a period of 30 years against the market capitalization of a company, patents for the reduction of greenhouse gas emissions, and costs caused by climate change on business operations.
“The patents are classified and evaluated according to their relevance and their market potential,” Uelfeti added.
In its report on climate-related opportunities and risks for 2019, Publica said it excluded investing in the coal sector, preferring renewable energies, wind farms or photovoltaic systems, through a strategic asset allocation of 3.5%.
The recent decline of pension funds assets, which has been caused by the COVID-19 crisis, makes for a reform of Switzerland’s occupational pensions even more urgent, the managing director of the employers association Schweizerische Arbeitgeberverband, Roland Müller, told IPE.
The Swiss Employers’ Association expects the Federal Council to submit its message to parliament as soon as its operations resume back to normal, he said.(…)
“The extension of the deadline will not affect our position,” he said, adding that social partner compromise has broad support from the association’s members.
For Sergio Bortolin, managing director of Aska Pensionskasse, an occupational pensions reform is inevitable due to demographic developments, the ongoing low interest rate environment, and other social changes.
“The redistribution from actively insured persons to pensioners must be reduced to an acceptable level,” he added.
ATP (Denmark) was named European Pension Fund of the Year at last night’s IPE Awards dinner in Copenhagen.
The top prize was one of six awards scooped by Denmark’s biggest pension fund, including for Long-Term Investment Strategy, another gold award category.
The DKK 934bn (€105bn) investor was also recognised for its work in emerging markets and innovation.
Accepting the main award, Bo Foged (pictured far right above) said, “I didn’t expect to receive this prize, but thank you to the jury and the audience and also the team at ATP who worked really hard this year.”
Fee compression has been driven by factors including the rise of cheaper competitors, increasing transparency on costs, and expansion of the manager universe, said the research paper. Figures were based on real fees being quoted by asset managers for real mandates, and not surveys or “rack rates”, which bfinance said tend to be inflated.
According to the consultancy, for active global equity mandates fees have fallen by 7% since 2013 and 4% since 2016. Median quoted fees for a US$100m (€90m) mandate currently sit at 55 basis points (bps), with reductions particularly notable for the lower quartile, where fees have fallen from 51bps in 2013 to 46bps in 2016 and 42bps in 2019.
Larger fee reductions are seen in global emerging market equities, with fees down 13% since 2013 and 6% since 2016. The median quoted fee for a US$100m mandate is now around 74bps, with considerable scope for downward negotiation, according to bfinance.
The CHF33bn (€29.5bn) pension fund for the canton of Zurich wants to set the responsible investment benchmark for Swiss pension funds when it comes to quality of implementation and communicating measures taken.
This is according to one of 10 principles that BVK – Switzerland’s third largest pension fund by assets under management – has adopted for its approach to responsible investment, which it said was an integral part of risk management.
Also among BVK’s 10 principles was a statement that focusing on efficient processes, transparent structures and low costs had a place in responsible investment.
BVK also clearly stated that responsible investment could conflict with return goals, and that in such a situation it would prioritise long-term return optimisation.
Swiss pension funds will be also influenced by developments in the EU, such as the EU taxonomy, MIFiD regulation and reporting standards set by specialist bodies. The race among countries to lead the drive into sustainable finance has been relaunched. Swiss asset managers, service providers, academics and pension funds look set to demonstrate high quality and innovation in sustainable investment solutions. Two characteristics Switzerland is already famous for in many other sectors.
There is no shortage of new technologies that can improve retirement outcomes for pension fund members
- Blockchain and machine learning dominate the discussion
- These are complex technologies in an early stage of adoption
- Real time data analytics and common platforms are already operational and can save time and money
- The adoption of new technologies is critical to engagement
When it comes to technological innovation in pensions the two buzzwords are blockchain and artificial intelligence. Blockchain is potentially a revolutionary technology that could significantly reduce the costs associated with pension administration and custody. Artificial intelligence – or more specifically machine learning tools – also promises to optimise many areas of the industry. They could be used to improve communications with pension fund members or to deliver better investment returns.
ESG (environmental, social and governance) is still an unpopular investment strategy in Switzerland. How will it overcome this lack of enthusiasm? asks Gail Moss in IPE.
“There is still uncertainty about returns from ESG stocks,” says Peter Zanella, senior director at Willis Towers Watson Switzerland. “In my opinion there is not a clear picture that ESG returns are at least as good as returns from ‘normal’ stocks. And studies show that so-called ‘sin stocks’ are doing very well. As a company, we currently do not actively float ESG ideas.”
Thierry Bertheau, head of institutional client relations at, Robeco Switzerland, says: “It is steadily gaining awareness. But one hurdle to overcome is the lack of understanding, as well as clear definitions and standards. This could be helped by continuous education and insights. Another frequently mentioned reason is the focus on other priorities, such as funding ratios or performance.”
For those pension funds without access to sophisticated screening systems, a readily available list of possible stocks to be excluded is provided by SVVK ASIR (Swiss Association for Responsible Investments).
Many different ESG approaches are offered by asset managers, from standard benchmark-based exclusions to best-in-class or thematic investments.
But engagement is another way to tackle the issue.
Barbara Ottawa hat in IPE einen aufschlussreichen und klugen Artikel über den aktuellen Stand der 2. Säule verfasst.
The asset pool of Europe’s leading 1000 retirement funds now exceeds €7.22trn – a 2.49% increase over last year’s 4.45%.
Switzerland should link pensioner incomes to long-term market interest rates, according to the International Monetary Fund (IMF). In its latest assessment of the Swiss financial system, the IMF said the ‘guaranteed conversion rate’ – which determines how much of a retiree’s second-pillar pension savings can be paid out each year – should be more flexible to account for rising life expectancy.
“Adjustment of the pension system parameters would support the sustainability of the social safety net,” the IMF said, adding that “population aging makes pension system reform essential”.
The conversion rate should be linked to “the market yield on a long-term sovereign bond and life expectancy at retirement”, the organisation stated. However, Swiss pension professionals criticised the idea of a market-driven approach at this year’s Swiss Pensions Conference, organised by the CFA Society Switzerland.
“This would be the best method to do away with the second pillar as it would become completely unattractive for its members” “The immediate shift to a market-valued technical interest rate [technischer Zins] would lead to a conversion rate of 3.6%, the application of generation tables and an interest rate slightly below 0%,” said Stephan Wyss, founder and managing director of research consultancy Prevanto.
Gerard Fischer, independent consultant and former CEO of Swisscanto, warned: “This would be the best method to do away with the second pillar as it would become completely unattractive for its members.” He added: “For people, it is only important to know what their pension can buy once they retire.” Fischer pointed out that Switzerland still had an “implicit defined benefit system” as pension promises remained unalterable once given.
The Bernische Pensionskasse (BPK) is to recruit a new managing director with Werner Hertzog set to leave after less than two years in the role, IPE has learned. Hertzog confirmed via email that he will leave the CHF13.4bn (€11.6bn) pension fund for the Swiss canton of Berne at the end of October. He did not give any reasons, saying only that he will be “focusing on other tasks”.
Hertzog was previously managing director at Aon Switzerland between 2011 and 2014, and before that led the country’s largest pension fund, Publica, for seven years. After taking a personal sabbatical in 2015, he joined the BPK in December 2016.
No successor has been nominated for Hertzog yet. “This still has time as we are in a very quiet phase and no exceptional leadership decisions have to be made,” Hertzog said.
Switzerland’s AHV fund is shifting to physical gold for the commodity exposure in its CHF35.2bn portfolio. At the end of last week the first pillar buffer fund tendered a custodianship and storage for CHF700m in gold bars via IPE Quest.
The bars are to be stored in Switzerland either collectively or individually, the tender states. The tender marks a shift in the investment strategy for AHV/AVS, as it previously only invested in gold and silver via swaps.
“The supervisory board has decided we are to invest in physical gold bars from now on,” the fund told IPE in a statement. In 2016 the supervisory board of the buffer fund decided to raise its the commodities exposure from 1% to 2% while divesting from energy-related commodity exposure.
The fund explained last year that gold was better suited to add “diversification and hedging in certain situations (inflation or recession)” than the previously preferred energy commodities.