Managers steady as volatility hits


Of the major European equity markets, the Swiss market suffered the most from the recent crash. By 6 October, the Swiss Market Index (SMI) had fallen 39% from its all time high in July this year.

Shocked by the dramatic slump, Swiss newspapers conducted opinion polls among pension fund managers to establish whether their fund assets still guaranteed pensions liabilities.

They do. According to Complementa Investment Controlling, a St Gallen based adviser group, on average fund assets still cover liabilities by 124% (end September).

Thanks to outstanding performance in the first semester of this year, Swiss pension schemes are exactly where they started at the beginning of 1998, when liabilities were covered by 125%. The results come from the annual AWP risk check-up, monitoring 290 Swiss pension schemes with Sfr100bn ($70bn) of assets under management.

The check-up is based on 1997 asset allocation figures and assumes, in the interim period, that pension schemes mimicked market performance.

Earlier check-ups have proved this to be a realistic assumption to work from.

Even though the crash was dramatic, fluctuation reserves proved to be sufficient and calculation methods reasonable. Everything that oc-curred was in line with the statistics," says Rudolf Hauser, head of investment controlling at Complementa.

However, there are a few pension funds with insufficient reserves, but most are public schemes with, ironically, a conservative investment strategy. Most others are in a financial position that Complimenta calls "very good" or "excellent".

Despite the crash, they have the potential to optimise their investment strategy and take on more risk.

Such is the situation at CPV, the pension scheme of Coop, a leading Swiss retailer. Thanks to its high fluctuation reserves, CPV's ratio of stocks will be lifted from 31% to 50%, as director Peter Egli stated, immediately after the crash, in Finanz und Wirtschaft, the Swiss financial newspaper. Nestlé also started to buy stocks at the same time.

"Smaller schemes are coming back to the stock market as well, preferring a balanced portfolio with the highest equity rating," says Urs Holliger of Prevista Anlagestiftung, a fund company of the Kantonalbanks.

Hollinger adds that they didn't panic at all during the crash, and praises his clients, but concedes they may now hesitate more than before.

Pre-crash, a very few funds did reduced their equity ratio. One of these exceptions was PKE, the scheme for the Swiss electricity industry, which sold Sfr1bn in stocks out of Sfr5bn total assets three weeks before the SMI topped. Such an extensive tactical bid has been criticised as inappropriate for a long term approach.

"I didn't foresee the crash, but during the summer there was obviously too much risk in the market," says Franz Winkler, responsible for the eq-uity portfolio at PKE. Three months later, exactly as the SMI bottomed out, he announced the funds reinvestment in equities and subsequently the fund has returned to a 40% holding in stocks - its strategic quota. Erich Solenthaler"

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