At the beginning of the year, a new law on taxation approved by the Swiss government set alarm bells off in the largely developed Swiss pension fund market. Both Swiss banks and funds are at present exempt from paying stamp duty on foreign investments but the new legislation looks like changing this. Early in January, the Swiss association of retirement institutes (ASIP), said it would lobby the government to overturn this decision on the grounds that abolishing the exemption would impose an additional tax burden, not to mention extra administration.
Later in the spring, the Swiss government announced it would be reviewing an anomaly in retirement ages between the country’s first and second pillar, which had been pushing women into retirement with inadequate benefits to live on. Legislation for the progressive increase in retirement ages for women under the first pillar AVS system - from 62 to 63 as of January this year and then to 64 by January 2005 - has put AVS out of sync with the second pillar LPP system where the nominal retirement age for woman is still 62. The country’s social security commission proposed that working women should be able to prolong payments into the LPP system up until the retirement limit of the AVS system.
Responding to the increasing interest among institutional investors in Switzerland in corporate governance and socially responsible investment (SRI), Geneva-based sustainable development investment foundation Ethos, launched a shareholder voting platform on its website, to give pension fund, for which it owns shares, guidelines on how to use their voting rights, providing a summary of the main codes of best practice in corporate governance and offering examples of recent shareholders’ resolutions on matters of social and environmental concern.
Proving how SRI is becoming mainstream among Swiss pension funds the Swiss Federal Social Security Fund awarded a SFr 500m (e326m) passive SRI mandate to State Street Global Advisors, that will track the Dow Jones Sustainability Group index (DJSGI) which consist of more than 200 companies in 64 industry groups located in 33 different countries. This appointment was part of the fund’s plans towards the implementation of new investment policies. The fund also chose UBS Asset Management to manage another passive mandate of SFr1bn , benchmarked against the FTSE World Index
Alternative investments, another of the investment strategies growing fast among Swiss pension funds, were also present in this year’s headlines. The SFr3.5bn Sairgroup pilots fund in Zurich hit back at criticisms of the fund’s investments in alternative classes, particularly its exposure to private equity holding (PEH) group managed by the Vontobel private banking group. Press coverage warned that the fund had lost over SFr100, when PEH share price fell for a high of SFr625 in mid 2000 to a low of just over SFr 260 at the end of March. The pension fund said they hadn’t lost any money with the holding, declaring that being among the first investors in PEH the price they paid was lower than the lowest price the share reached.The fund, which has an strategic asset allocation of 20% to alternative investments, made up of 15% in private equity and 5% in hedge funds - very high for Swiss standards- said that it had no intentantion to make any changes since that proportion had been approved by the board.
In terms of performance, the ASIP/Watson Wyatt released in the spring, that Swiss pension funds managed to outperform two of their three performance benchmarks in 2000. The report, which covers that covers 50 pension funds with SFr80bn assets, showed that for the first time since 1994, conservative investment strategies, performed better than more dynamic strategies.
At the same time, the newly created SFr 10bn pension foundation for the Swiss post office announced the election of a new president and to begin outsourcing. The fund, which was created at the end of February after 96% of the workforce voted for an autonomous scheme outside the traditional federal pension plan, will have its assets transferred in January 2002.
Another important development was the announcement by the SFr12bn city of Zurich pension fund for municipal employees, of its intentions of gaining independent status from the Zurich City Council, in a move to get more freedom in its investment strategies.
The decision will have to be taken by the parliament and the electorate of the city, and the fund could be independent some time next year.The fund also appointed Phillips & Drew to manage a SFr300m passive global equity mandate.
Another fund in search of independence is the SFr19.2bn Canton of Zurich Civil Service Insurance fund. The fund, that has already started the process of separating itself legally from the Canton of Zurich, had an overall performance of 0.8% last year, having been able to evade the worst of the falling market trends.
These will be two interesting cases to follow up during the next coming months, as both pension funds see their future independent status as the best way to benefit from their more flexible investment and administrative regime.