The global custody portfolio of Switzerland’s AHV fund, which services national pension and social payments, is due to be awarded to Swiss Bank Corporation because it has the most competitive rates.

At the time of going to press, the contract had not been signed, but both Joseph Hofstetter, manager of the AHV fund and SBC itself had confirmed that SBC would win the contract. SBC beat a field that included, among others, Swiss giants Credit Suisse and UBS and an American bank.

A change in the AHV law - meaning literally Old People’s Funds - allows the fund to have holdings in foreign bonds and in Swiss equity. The law came into force in January, allowing AHV to begin to award contracts although the asset management mandates are still to be determined.

The fund is valued at Sfr27bn ($19bn) although only a small proportion of that will be invested, with the rest having to service the short and medium-term payment commitments of the three Swiss national insurance schemes.

Joseph Hofstetter, manager of the AHV fund, said foreign institutions have proved much more expensive than the domestic ones. He added: The reason is simple. We asked for some offers and SBC was the best. The quotes we asked for from the states were much more expensive.”

Between 10 and a maximum of 20 banks should be asked to put forward more detailed proposals for asset management by March this year, although once more, the winners will be the Swiss with AHV deciding that at least for the first year, the award should go to Swiss institutions only. US, Japanese and UK institutions were believed to be among the 50 institutions competing for the mandates. Hofstetter defended this decision bluntly. “Why shouldn’t we go with Swiss institutions?” he said.

Between five and 10 time-limited mandates are expected to be awarded. The final decision will be taken by the executive committee of AHV, whose president Paul Hasenfratz is chairman of the Cantonal Bank in Zurich, in liaison with Zurich-based financial services consultant Ecofin, headed by Professor Martin Janssen. Ecofin has been brought in as external consultant to the AHV equalisation fund.

The fund plans the gradual investment of about Sfr500m in foreign bonds denominated in Swiss francs and some other currencies and the same amount in Swiss shares this year, plus some investment in Swiss domestic property fund shares with, according to Hofstetter, “maybe the same amount of a rise next year.” However, this year is viewed as a pilot and the results will be closely scrutinised before a decision is taken on further investments.

Hofstetter, in the long term hopes for increases in the amounts allocated to shares and foreign bonds, but there are no plans to invest in foreign equity. As for the hoped-for yield he says: “I hope that we have 1% more from foreign bonds, and for 2% more from shares over the long term.”