Investigation finds 'considerable shortcomings' at Swiss BVK
SWITZERLAND - A parliamentary report into mismanagement allegations at the cantonal pension fund for Zurich (BVK) has blamed lack of attention by the scheme’s finance director - currently head of the cantonal government - as well as an overly powerful head of asset management for “considerable shortcomings” in its organisational structure.
The committee (PUK) this week published its report, more than two years after the fund’s head of asset management Daniel Gloor was arrested and later charged for taking bribes and neglecting his duty of care.
According to the PUK’s 225-page report, Gloor was not solely to blame for the problems at the fund, the second-largest in Switzerland with CHF20.9bn (€17.3bn) in assets.
It noted that the fund’s governing body only examined a few issues related to the BVK’s daily running and that several “important competences that could not be delegated” were passed to its finance director - since 2007 the current regional government’s president Ursula Gut-Winterberger.
Discussing the award of mandates by the fund, the PUK report said “risky” asset allocation decisions were made without sufficient information at hand and despite knowledge of a deficit developing.
“The governing body cannot exonerate itself by saying they were not informed [of the risk] by the third party to which responsibilities were delegated,” it said.
“As the main body, its own responsibility is to ensure the appropriate organisation and correct selection of awarded mandates.”
The report went on to record “considerable shortcomings” in the fund’s organisational structure, saying the BVK failed to adapt to changes to Pensionskassen “structures” from 2000 onwards.
“This resulted in a lag in the structures of between five and 10 years when compared with similar Pensionskassen,” it noted. “These arrears led to a concentration of power with the head of asset management.”
The committee further criticised that, despite reporting a deficit since 2002, the pension fund failed to undertake any asset-liability management study - something it said had been commonplace in the pensions industry since 2000.
The parliamentary report also said this resulted in a higher-than-usual risk appetite in an attempt to close the deficit, with deficit reduction measures due since 2002 not undertaken until 2010, in the wake of an ALM.
Regarding the concentration of power with the head of asset management, it further said: “The awarding of mandates from the asset management division occurred in several instances without tender process.
“Large mandates were awarded to newly founded companies. Some of these firm’s owners compensated the mandate award with significant payments to the head of asset management.”
Addressing the supposed failings of the finance director’s department, it noted that the resources available to the asset management division were “particularly thin” when viewed in comparison with similar pension funds, and that the finance directorate was “proud” of how cost-effectively the organisation was run.
“In leading the BVK, the finance director did not opt for the correct emphasis,” the report said. “It did not agree binding criteria on the award of mandates and agreed awards to newly founded companies.”
The report also noted that the finance director did not at any time question the qualifications of Gloor, at first head of the BVK and from 2004 its head of asset management.
It said Gloor overextended himself, a fact that went unnoticed.
“His weakness of leadership blocked the organisational and structural reorganisation of the BVK,” the PUK said.
Responding to the allegations that she failed to spot problems upon assuming the role of finance director in 2007, Gut-Winterberger said her predecessors had failed to inform her of any problems.
She therefore did not begin her tenure by suspecting all BVK employees, she said in a written statement.
“A functioning and efficient administration - such as in place in the canton of Zurich - deserves as a matter of principle the trust of a new boss,” she wrote.
“The failures of the former head of asset management, as damaging as they are, cannot diminish the good work of my employees.”