Among the large number of institutions offering services to Swiss pension funds, the so-called KGAST group is enjoying growing popularity.
KGAST is an acronymn for the Konferenz der Geschäftsfürher von Alhagestiftungen, an informal grouping of eight competing trusts offering services only to pension funds. They adopt common standards in investment policies and performance measurement.
Thanks to their long track record, KGAST has become almost a brand name - and an important window to watch trends in institutional investment. In 1996, assets under management by KGAST members rose by 21%. While this was then a record, last year the assets also climbed strongly, by 24.7% to Sfr33.7bn ($22.6bn).
But the three largest members obtained the lion's share. These trusts are linked to the UBS, SBC and CS groups and profit from their nationwide distribution channels.
The middle-sized IST and Prevista cannot rely on such marketing support as their relationships to regional or kantonal banks are not so close. Not surprisingly, IST and Prevista ended up last year with stagnating market shares. As a result, the gap between the smallest and biggest KGAST members is widening, with those in the middle being squeezed.
According to Kurt Brandle, managing director of market leader CSA, size will become more important, to build worldwide research teams and to develop new products. CSA is working on new avenues, such as funds with a focus on industrial sectors and funds following sustainable development. For its part, AST has had remarkable marketing success with a group of funds offering guaranteed returns.
Six of the eight trusts have close ties to banks or insurance companies, though by law they are non-profit organisations and the related companies may not derive direct benefits. But they are interested in the growth of the trusts which pay the usual market fees for transactions, custody services and securities lending.
Though it has not been decided, following the UBS and SBC merger, their trusts will in all probability also be merged. The unified operation would account for over 40% of the assets managed by KGAST. Such a doubling of market share could be a threat to smaller pension schemes, which are the main users of KGAST trusts.
As the trusts are legally independent, the merger of UBS and AST is not automatic as formally the customers - the pension funds - are the owners. This allows them to decide for or against the merger, which almost produces an oligopoly situation.
Up to now, pension funds have never opposed the actions of those running the trusts. They usually just enjoy the general meetings as social events. So will they change now? Probably not!