Swiss power and automation company ABB has taken further steps to better understand pension-plan risk from the global, group level while keeping individual country schemes decentralised.
The group hired BNY Mellon as global custodian and “record keeper” in order to be “better able to track assets”, Elisabeth Bourqui, head of group pensions at ABB, told delegates at the Swiss Pension Conference in Geneva organised by the Swiss CFA Society.
Further, the company has used tools provided by Ortec to introduce a risk-management system in order to have a “consistent ALM over all pension funds while delivering an optimiser for the individual country-specific portfolios”, she said.
Ortec has now constructed for ABB a “pioneer consolidation module” that “allows us to project funding levels into the future at the group-consolidating level over all plans and all liabilities”, Bourqui said.
She added: “It looks at the diversification between various plans, the concentration risk, for example – the fact there is a lot of equity investments in some plans but not in others, in some countries the FX risk is higher, etcetera.”
With this information, the group can then assess “how a decision on the country level will impact the group level and where it makes sense to make additional contributions or take other measures”.
But Bourqui stressed that the pension boards in the countries still made the final strategic decisions, adding that “each of the pension funds is managed locally – the money is not pooled”.
She and her team function as “a centre of excellence, as internal consultants in the group to reinforce governance and expertise in the countries”.
Bourqui added it had been “a lot of work” over the last five years talking to ABB pension boards in the countries about the ALM vision, which is now being implemented within the various boards and investment committees.
She also pointed out that the company was “trying to build a pool of managers we can trust to be able to then mandate in different countries”.
In total, ABB has around 100 DB plans in 25 countries with $12.1bn (€8.9bn) in liabilities in total, as per year-end 2013.
Pension assets stood at $10.9bn, with the lion’s share in Switzerland, Sweden, Finland, Germany, the US and the UK.
Additionally, there are 40 DC plans in around 25 countries, including several emerging markets.
Bourqui said that, even before she joined the group two years ago, ABB had taken de-risking measures, as pension liabilities were recognised as a “major risk”, including closing down defined benefit plans wherever possible to replace them with defined contribution or hybrid schemes.