Swiss MM starts to motor
One particular feature of the Swiss pension fund market has been a big driver in the development of multi-manager investment. “Swiss pension funds have been in the vanguard when it comes to hedge fund investment, with some very substantial allocations. And hedge fund investment almost always uses the MM approach”, says Mike McShee, senior manager at independent consultant Pendia Associates.
“The theory of MM is to diversify away from manager risk. And hedge funds carry huge management risk”, adds McShee.
The Swiss MM market is interesting for its diversity of approaches. Pendia, though it has no ownership links with MM providers, uses Russell engineered solutions for clients wanting active management. In Mike McShee’s view the advantages are significant for pension funds which are “in desperate need to enhance returns and limit exposure to risk”, offering “an array of the world’s best managers at a very modest fee”.
He also feels that the MM approach is more effective than selection consulting, a lot of which, with one or two notable exceptions, is “not worth very much”.
Leading Swiss pension funds have also taken steps to provide a custom built MM product. Avadis, which manages SwFr5.5(e3.6bn) on behalf of sixty local institutions, was set up by pension fund ABB, which is still its biggest customer, accounting for around 50% of assets under management .
Chief investment officer Daniel Dubach emphasises the independent nature of the platform. Unlike the big banks and insurance companies which are prominent in the Swiss market, Avadis has no investment management operation of its own and no preferred providers. “We care about the interests of each pension fund on our platform. Our aims are economies of scale, low cost and high quality”, says Mr Dubach.
Avadis packages one or two managers into funds representing each asset class. Clients can buy one or two funds or several. Some use Avadis for part of their needs, some for the whole fund. Client size ranges from around SwFr10m to SwFr1bn. Larger schemes use the platform for specialist asset classes such as private equity or real estate. They are seeking to harness knowhow in structuring non-traditional assets classes, as well as low costs.
Dubach acknowledges that the Avadis product itself is not unique – the banks and specialists such as Russell offer MM on a bigger, and international, basis – but the way Avadis operates is unusual. “We were born out of a pension fund’s needs. We are for pension funds, run by pension funds. We are all pension fund professionals – and that sells the concept to other pension funds”.
Avadis is not even a profit-maximising company in the same way as a bank might be. “We live off our asset-based fee. Unlike a bank we’re not saying ‘what’s the spread we can get out of it’”, says Daniel Dubach.
SEI is just starting to get into the Swiss market, operating from its Munich office. It is “speaking to a number of institutional providers”, says Bart Heenk, MD for Benelux and Scandinavian operations. The group expects to provide funds through private banks such as HSBC.
Heenk sees these providers as being pulled in two directions: “They want something to meet their need for efficiency, standardisation and economies of scale but at the same time their investors increasingly want a product tailored to their individual needs. SEI helps with this”, concludes Mr Heenk.