Switzerland: BVK rises from the ashes
The head of asset management is new, the CEO remains in place for stability and a package of recovery measures should take care of the deficit. Barbara Ottawa asks whether all is really well at the Zurich canton pension fund
The news hit the Swiss pension world like an earthquake in early June this year and its tremors were felt far beyond the borders. Daniel Gloor, who had been head of asset management at the pension fund for civil servants in the canton of Zurich (BVK) for over a decade, was arrested on charges of alleged corruption.
Within a few days the regional government decided to sack Gloor and he also gave up his seat at the Swiss Foundation for International Real Estate Investments (AFIAA), of which the BVK is a member.
Thomas Liebi, former head of investment research at the CHF20.5bn (€15bn) fund, was named as interim head of asset management and remains in this position to date. Thomas Schönbächler, CEO of the BVK since 2009, took Gloor's seat on the AFIAA board.
One the media storm on the alleged corruption scandal had abated a little, the BVK was again in the headlines. This time it was because of planned recovery measures.
As of end-September, the BVK's funding level stood at 85.9%, which meant the funding situation had deteriorated since year-end 2009 (87.3%) but remained well above that of year-end 2008 (81.03%). Overall, the funding ratio has not recovered beyond the 90% mark in the decade following the dot com bubble collapse - and members are blaming the contribution policy.
In 1998, the canton of Zurich decided to lower contributions to the BVK to take pressure off both employers and employees. But when the markets tumbled the fund was left with insufficient buffers.
According to the BVK, the decision to cut the contributions was a consensus between employer and employee representatives, and the latter had even complained that the step had not been taken sooner. But employee representatives insist they do not want to have to pay for the canton's past mistakes.
They have until the end of the year to comment on the following proposals for recovery measures made by the regional government.
The discount rate will be lowered from 4% to 3.25%. Contributions will be raised to pre-2000 levels, amounting to an increase of two percentage points, 60% of which will be covered by the employer.
As long as the funding level remains between 80% and 90%, the employer will have to pay extra contributions of 3.75% and employees an additional 1.5% while the interest paid on assets is cut by 0.5%. These measures will be revoked once the fund has reached a full funding level.
The measures are expected to be passed next year and take effect from 2012.
In the meantime, the BVK has announced that it will stick to its current strategic asset allocation set up in 2008 which Swiss ALM adviser C-ALM had found to be "rather aggressive", but within "justifiable limits" in an ALM report for the fund compiled last year.
"We are aware of the fact that less risk would put more pressure on the recovery measures and have decided to keep the existing SAA unchanged," the fund noted in its annual report 2009, published this summer.
For the first nine months of 2010, the BVK reported a 0.9% return, slightly below its benchmark, which made 1.2%, and brings the annualised performance over the last five years to 1.4%.
As per end-September the fund was slightly overweight in real estate having allocated 21.8% to this asset class compared with an SAA benchmark of 20%. Foreign equities were underweight at 15.6% (SAA: 17%), while domestic equities were only 0.5 percentage points above the SAA-mark of 12%.
Alternative investments, comprising hedge funds, commodities and private equity, only made up 7.4% of the portfolio, considerably less than the 11% set in the strategy. Both domestic and foreign bonds were slightly overweight at 12.2% (11%) and 8.8% (7%) respectively. Other investments were made in mortgages, cash and convertibles.
Real estate and domestic bonds contributed most to the 9-month performance with more than 4% each, while the alternatives portfolio was the worst performer with -1.9%.