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Swiss national scheme outsources

Switzerland's AHV/AVS first tier national pension system has awarded its first mandates to external managers.

However, the move is said to be too late to maintain the fund's previous solvency level, which has been damaged by a cash drain in the country's pay-as-you-go (PAYG) system.

Credit Suisse has picked up a SFr450m ($305m) passive Swiss eq-uity mandate, with UBS also receiving SFr300m in shares to be passively managed.

A whole raft of active Swiss equity funds valued between SFr100m and SFr150m were also awarded to Lombard Odier, Pictet & Cie, Julius Baer, Independent AM, ABN Amro, Daiwa Securities and Zürcher Kantonalbank.

Although designed as a PAYG scheme, AHV/AVS also possesses a fund of SFr26 bn in order to ensure its liquidity. In theory, the fund's assets should be equal to total yearly pension payments, but due to a deficit in 1997 coverage fell to 90%.

Until now, previous investment policy had been restricted to loans and government bonds with low long term returns of 5.5%. By 1996 the unsatisfactory outlook for the AHV/ AVS finally convinced politicians to allow a more ambitious asset allocation.

However, with the fund now having to compensate for the cash drain in the PAYG system to the tune of SFr12bn, hampering any long term investment, it is considered too late to retain the fund's previous solvency.

A further SFr12bn is also blocked from investment for volatility, structural reasons and to ensure short term liquidity.

As a result of this lack of solvency, only the remaining SFr2bn can be invested in financial markets and only SFr1.5bn in shares, which is around 6% of the total assets.This small amount of equities though will not be sufficient to improve the fund's financial situation it is felt.

Furthermore, the Swiss government's patriotic attempt to support Swiss companies and the economy, by not allowing foreign equity investments, will in fact make them pay through unbalanced asset allocation and high-er than necessary volatility. Erich Solenthaler

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