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Swiss engagement law should apply to direct holdings only, experts say

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  • Swiss engagement law should apply to direct holdings only, experts say

SWITZERLAND – Industry experts have said Switzerland's new mandatory shareholder-engagement law should be applied only at a certain threshold, and that indirect fund holdings should be exempt.  

In early March, the majority of Swiss voters welcomed an initiative launched by an MP against "rip offs" by listed companies.

A referendum led to the creation of a mandatory shareholder-engagement law for institutional investors, including pension funds.

Two legal experts, David Oser and Andreas Müller, have now published a draft recommendation on how best to implement the new framework.

In their opinion, shareholders such as pension funds should have to execute their shareholder rights only for direct holdings of companies listed and headquartered in Switzerland.

They also argue that shareholders should be allowed to abstain from voting if it is "in the interest of their members" – i.e. for cost reasons.

Commenting on the draft, Simon Heim, legal expert at Towers Watson Switzerland, said the suggestions were "reasonable".

However, he said it remained unclear which pension providers would fall under the regulation. Oser and Müller recommended they apply only to Pensionskassen.

This would exclude the AHV first-pillar fund – which has just published a report on its shareholder-engagement activities – or collective investment vehicles such as Anlagestiftungen, which many pension funds use to invest.

Heim pointed out that, should the government agree with the legal experts in allowing Pensionskassen to abstain from voting, the new legal framework would "not be that different from the existing one", apart from the mandatory report on shareholder-engagement activities.

He added that many "responsibly acting" pension funds were already using their rights as shareholders and reporting to members about their activities.

Meanwhile, Switzerland's top supervisor, the Oberaufsichtskommission, has clarified which external providers Pensionskassen can use as asset managers.

It also extended the prudent person principle to board members and "anyone with decision-making powers" regarding asset management in a pension fund.

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