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IPE special report May 2018

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Swiss supreme court: Provitas trustee board took too much risk

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The Swiss supreme court has ruled that BVG-Sammelstiftung Provitas, a collective pensions foundation, took inappropriate risks with its investment strategy before it went into liquidation and was closed in 2003.

In late 2016 the court partially approved a complaint from the Swiss second pillar guarantee fund, the Sicherheitsfonds, which had to step in to pay legally promised benefits between November 2003 and August 2004.

The rescue fund paid around CHF50m (€32m*) to the foundation over that period, although a spokesman at the guarantee fund said this amount has been reduced to around CHF40m due to repayments.

In October 2012 the Sicherheitsfonds filed a suit with the social security court in the canton of Zurich to seek CHF8.3m, plus interest, in payment from the foundation’s board of trustees, the spokesman confirmed.

The cantonal court dismissed the suit in September 2015, with the guarantee fund then filing a complaint with the supreme court.

This has since ruled that, over the course of 2000, the Provitas trustee board violated the basic principle of ensuring the security of its assets by “significantly” expanding its equity investment without having built up adequate reserves beforehand.

According to the supreme court ruling document, Provitas increased its equity holdings from CHF8.4m as at the end of 2009 to around CHF21.7m at the end of 2000. This represented a 10 percentage point increase in the share of total asset allocation, from 23.2% to 33.9%.

The ruling said Provitas did not increase reserves accordingly before ramping up its equity exposure, meaning that, as at the end of 2000, reserves of only 2.6% were set aside for Provitas’ equity allocation (33.9%) – a “clearly insufficient” amount, according to the supreme court.

The Provitas foundation had around 2,000 members in early 2003 before it went into liquidation.

The supreme court’s ruling annuls the September 2015 decision from the Zurich cantonal court, which has to revisit the matter.

Hans-Peter Konrad, director of ASIP, the Swiss pension fund association, said the supreme court ruling showed how important it was for the bodies governing pension funds to operate professionally.

The management and monitoring of Pensionskassen must be responsible, transparent, and geared towards securing the long-term trust of members and other stakeholders, he said. 

*Based on an exchange rate as at 31 December 2003

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