BVK, the CHF43bn (€44bn) pension fund for employees of the canton of Zurich, has defended its decision to continue awarding its global custody mandate to foreign-based banks, despite political concerns about potential exposure to US sanctions or asset freezes.
In a written response to questions raised by members of the Zurich cantonal parliament from the Social Democratic Party (SP), BVK said it considered it in the best interest of the fund and its members to maintain access to the global custody market, citing competitive pricing, service quality, and innovation.
The global custody market is shaped by international competition, BVK stated, noting that restricting the mandate to Swiss providers would reduce the competitive field to a small number of players, ultimately disadvantaging the fund.
While BVK acknowledged security concerns raised by lawmakers, it argued that key risks – such as exposure to US sanctions – are not materially affected by the nationality or headquarters of the global custodian.
All foreign securities, including US holdings, are always held via local custodians in the respective markets, the fund said. Even if a Swiss bank without a foreign parent were appointed as global custodian, US securities would still be held with a US-based sub-custodian.
The fund has relied on JP Morgan (Suisse) for custody services since 2012, currently covering CHF32bn in assets. The mandate is subject to regular monitoring against clearly defined criteria, BVK said, with performance, risk, compliance reporting, and tax reclaim capabilities among the key factors reviewed.
Like Publica, the CHF40bn federal pension fund, BVK emphasised the importance of scale in custody services. Price-performance ratios, platform technology, network coverage, and operational efficiency benefit significantly from economies of scale, the fund noted.
Although BVK did not name specific providers, it said eight global custodians dominate the market, all headquartered outside Switzerland, with local institutions gradually emerging as challengers.
The pension fund trustees will assess these factors again during the next tender process, BVK confirmed.
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