New regulations and changing asset allocations are raising the bar for Swiss pension fund boards, questioning how effective current investment governance approaches are on taking complex and long-term decisions in uncertain times.

Topics relating to investment governance are covered by regulations, internal guidelines or reports, or are followed automatically when working with external providers – for example, investment controllers helping pension funds integrate certain rules, said Françoise Bruderer Thom, chief executive officer of Pensionskasse Post.

“The big elephant in the room on governance is not the definition of governance, but compliance with its rules,” she added.

Pension funds have started to implement ESG reporting standards laid out by industry association ASIP. The shift from public to private markets has led to a boost in the allocation of alternative asset classes over the years.

It is challenging for pension fund boards to keep up with the complexity of new asset classes and regulations, said Patrick Uelfeti, deputy head of asset management at Publica, and member of the pensions advocacy committee of CFA Society Switzerland.

Like decisions on sustainable investing, allocations to private equity, infrastructure, and private debt have a long-term horizon and long-term impact on pension funds, usually longer than the tenure of the board, which is four to eight years on average, he said.

“[Moreover] the structure of alternative asset classes is different. They are difficult to understand and there are governance issues linked to them,” he added.

Swiss multi-employer pension fund Nest Sammelstiftung, for example, won’t expand its private markets allocation until it clears issues on transparency, governance and costs.

Uelfeti recently co-authored a position paper published by CFA Society Switzerland with recommendations to fine-tune the investment governance of Swiss pension funds.

“The paper is meant as a best-practice guidance for the board members of pension funds. The responsibility to come up with their own bespoke solutions relating to investment governance lies with the pension funds, and there isn’t a one-size-fits-all,” said Mirjana Wojtal, CEO of CFA Society Switzerland.

CFA has sent the paper to pension schemes and has so far received feedback on resources, particularly on separating tasks between parties to avoid conflicts of interest.

Without the necessary resources, pension funds, mainly smaller ones, have to rely on effective internal control mechanisms to mitigate conflicts of interest, Wojtal added.

The paper also recommends pension funds holding several asset managers as backups for more complex or important mandates in the event that managers fail to meet certain standards.

“It takes time to find a new manager. Meanwhile, the assets have to be managed. It would be helpful to have a pool of reserve asset managers so that pension funds can switch fast,” said Edouard Stucki, member of the pensions advocacy committee of CFA Society Switzerland, and co-author of the position paper.

The latest digital edition of IPE’s magazine is now available