At the end of 1999, Swiss multinational, Kuoni Travel Holding, had more than 6,500 employees working all around the world. As much as possible, the policy of the company is to maintain the independence of its subsidiaries – an approach reflected when it comes to employee benefits and compensation plans.
Outside Switzerland, the company has different pension plans according to national laws. Establishing a group-wide plan is not part of their short-term projects. “We are not planning to implement an overall strategy at the moment,” says Alex Tüscher, head treasurer at Kuoni’s head office in Zurich. “Our subsidiaries are very independent and most of them have been recently acquired.” He adds: “When you start up a company you can easily implement everything as you like it, but when you take over something you also take over existing plans, and this is what we’ve been doing.”
Retirement benefit plans are organised on a country by country basis. Kuoni runs defined contribution (DC) plans for some of its subsidiaries in the UK, Germany, Italy, France, Denmark, the Netherlands, America, Japan and Switzerland. The main Swiss scheme, however, is run under a defined benefit (DB) system. DB schemes are also used in the UK and Germany.
Tüscher is in charge of the portfolio management of two pension funds covering almost all Swiss employees. “We cover almost all of the group’s employees working in Switzerland, although some of our small subsidiaries have not been integrated in the pension fund as yet,” says Tüscher. He reports to the two boards of trustees who have to approve the asset allocation of the scheme. “The board’s are small and the collaboration is very efficient,” Tüscher says.
The main pension fund, with assets of SFr254m (E164m) is under Swiss law and follows a DB model. The fund has 1,785 active members, and 128 retirees.
“The other fund, called provident fund, has assets of SFr79m, and is used for employees under special circumstances like going into early retirement or needing additional help,” he says.
The asset management strategy is divided in three areas using internal and external managers. “Thirty one percent of our asset allocation is invested in what we call an ‘internally active’ way,” he says. Internal managers are in charge of this percentage of the portfolio which is actively invested in Swiss bonds, foreign currency bonds and real estate funds.” He adds: “Another 17% is also managed internally, but mainly through funds. From this year on we are also allowed to invest in private equity and hedge funds.”
The remaining 52% is managed by external managers who are in charge of other parts of foreign currency bonds, Swiss equities and foreign equities.
The pension fund’s approach to manager selection changed a few years ago. “Before 1996, we had a lot of balanced mandates with many different portfolio managers. Most of them were good clients of Kuoni in the travel business,” says Tüscher. “We thought that that was not the way to go forward and decided to choose a global custodian and transfer all these balanced mandates into specialist mandates.”
On the equity side, the fund has now seven external managers. “Four of them have had a very good track record outperforming the benchmark during the last three years and we are very pleased with their work,” says Tüscher. Two managers have not done so well and their mandates are at risk. “If things don’t change by the end of the year, they will loose their mandates,” he says. The last one took over some weeks ago. Another external manager has recently lost two mandates, one in foreign equities and one in Swiss equities, because the board was not at all satisfied with their work.
“We are happy with what we have done in-house,” Tüscher says. “During the last three years, we have outperformed the Pictet index for Swiss Franc bonds and we hope things carry on going well.”
The pension fund uses the help of consultants in ALM studies, but it is not planning to extend this relation to the investment side.
In 2000, further changes were made in terms of foreign exposure. “We decided we should invest more outside in Switzerland, both in bonds and in equities,” he says. “We are also seeing a slow shift to sector allocation instead
of the traditional regional approach. On the equity side, we now have one sector-related mandate.”
Another change has been taking into consideration private equity and hedge funds investments. “We know that alternative investment will never represent a large percentage of the pension fund’s asset allocation, but we thought that these products should be part of our investment portfolio,” Tüscher says. The fund expects to have 5% of its assets invested in private equity in the next three years. “For this first year we only intend to invest one third of this 5%, and increase our exposure during the next two years,” he says. “In terms of hedge funds, we haven’t started as yet, but it is part of our short-term plans.”
Employees working in Switzerland who are transferred to any of Kuoni’s subsidiaries outside the country stay in the Swiss pension fund, even if they are sent abroad for a long period. “We treat them as expatriates, but we don’t have general rules in terms of the benefits they get,” says Tüscher. “When it is possible we try to find individual solutions, taking into account salaries and cost of living in Switzerland and the country where they are sent to,” he says.
“Regarding people coming from abroad to work in Switzerland, in general they become members of our pension fund as soon as they start their contract, as is given by law,” says Tüscher. “But we don’t have that many people coming from other subsidiaries to work here.”
“This has a lot to do with the structure of the group,” he says. “Our subsidiaries are very independent. They operate almost like independent business.” He adds: “Probably, things will be more centralised in the future but for the time being we don’t expect many changes in terms of moving towards a greater harmonisation within the group.”
“We are quite happy with the way the Swiss pension fund is being run, but there is still room for improvement ,” Tüscher says. IPE

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