Swiss pension funds cautious of 'captive' relationship with local banks
Swiss pension funds are increasingly aware they must not be seen as captive clients of the country’s largest banks, a locally active currency manager has argued.
James Wood-Collins, chief executive at Record Currency Management, attributed some of his company’s growth in Swiss hedging mandates to an increasing awareness of the counterparty risk inherent in employing the custodian bank to safeguard against currency fluctuations.
According to IPE’s annual survey of managers of Swiss institutional assets, the company has seen local institutional assets increase from €14bn to €25.4bn, while assets managed on behalf of pension clients more than doubled to €22bn in the nine months to the end of June.
“One of the many changes that has taken place throughout the financial crisis is the standing of at least some of the Swiss banks in their local community has taken quite a hit,” said Wood-Collins, noting that the institutions were no longer as well regarded as they used to be.
“As a result of that, pension funds are increasingly aware they can no longer be seen to be captive clients of any one bank relationship – and that goes both to the prices they receive for the hedging and the concentration of counterparty risk that arises if they only have one bank relationship.”
Despite such concerns, asset managers associated with two of Switzerland’s largest banks – UBS Global Asset Management and Credit Suisse Asset Management – have seen their assets under management increase in the nine months since September 2013.
The IPE survey showed that UBS Global AM had seen its share of Swiss pension assets increase from €38.6bn to €52.7bn over the period.
Assets disclosed by Credit Suisse AM were harder to compare across 2014 and 2013’s surveys, as the company did not disclose like-for-like data.
However, it said corporate and institutional Swiss clients entrusted it with €215bn at the end of June 2014.
Wood-Collins predicted his company would continue to see interest in hedging, but not only due to the requirement of Swiss funds to ensure they protected themselves against rate changes.
He questioned how long Switzerland’s central bank (SNB) would be able to maintain its “loss-making” cap to the euro, which pension funds initially welcomed, despite concerns over inflation.
“If the SNB were to change that policy, the market would immediately price it in, almost instantaneously – far more quickly, certainly, than anyone could react,” he said.
“All our clients are maintaining their hedge on the euro.”
For more on the Swiss pensions sector and the 2014 IPE survey of Swiss institutional managers, see the current issue of IPE