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‘Weakness’ found in Swiss fund

SWITZERLAND – An investigation into the management of the Basle City council employees’ pension fund, the PKBS, has highlighted “weaknesses in organisation” and a “lack of professionalism”.

The council’s investigative committee, the PUK, said in a statement that it begun investigating the €5.8bn pension fund in August 2003 following a loss of CHF2.3bn (€1.48bn) between 2001 and 2002.

The PKBS posted “high returns” between 1997 and 1999, when its solvency ratio was 94.4% but the ratio plummeted to 72.1% as the markets were hit by crisis in 2002, the PUK said.

The PUK’s 400-page report, which followed its 18-month-inquiry, said: “There were organisation weaknesses. In addition, the PKBS pursued a high-risk strategy without sufficient risk awareness”. It added that the risks were “sometimes absurdly high.”

It also reprimanded the PKBS management, which is in the hands of the Basle city financial department for a “lack of professionalism” and for neglecting diversification in favour of equities exposure. Currently, the fund has a 30-35% exposure to equities, PUK chairman councillor Daniel Wunderlin told IPE.

However, he said that the pension fund had been cleared of “irregular dealings”.

He added that a new law regulating the pension fund’s organisation, introduced in November, would tackle “organisation deficiencies.”

Wunderlin, who is also chairman of the city’s finance committee, told IPE it was the first time the council had launched an investigation in its pension fund’s investment strategy.

“We need new regulations,” he said. “We urgently need a new law on liabilities and we need more corporate governance.”

He also stressed the need to scrutinise and review contribution rates paid by the canton and its employees. “There must be some change in the law regarding how much people will have to pay in the future,” he suggested.

“The canton pays between 35% and 45% of an employees’ annual salary into the pension fund,” he noted.

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