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Swiss schemes return up to 12% - consultant

SWITZERLAND – Thanks largely to a strong performance by equity markets, Swiss pension funds finished 2005 with a return of between 9% and 12%, according to Complementa, a Swiss investment consultant.

Complementa’s estimate is more or less in line with the expectations of ASIP, the Swiss pension fund industry association.

Following an average return on assets of 6.2% for Swiss pension funds in the first half, ASIP predicted a return of around 12% for all of 2005. All told, Swiss pension funds have €320bn in assets.

But Michael Brandenberger, chief operating officer at Complementa in St Gallen, told IPE: “The performance of various pension schemes should always be compared taking into account the schemes’ strategic asset allocation and funding ratio”.

To illustrate his point, Brandenberger cited a recent study by his firm.

This showed that while Swiss schemes provided an annual rate of interest of 3.6% for paid-in savings between 1999 and 2004, annual performance of the schemes was only 2.1%. Bearish equity markets were mostly to blame for the underperformance of the schemes relative to their rate of interest.

The study added that while positive equity markets in 2005 had somewhat closed the gap between the interest rate pension funds provide and the performance they generate, many schemes had coverage ratios below that of the late 1990s.

ASIP itself has said that amid chronic underfunding at the schemes, the Swiss government should allow them to cut the annual rate of interest they must guarantee to 2% from 2.5% currently.

Separately, Brandenberger said a main motivation in Complementa’s acquisition of FondsConsult’s investment consulting business was the ability to offer ‘investment controlling’ to German institutional investors, including pension funds and insurers.

Far more heavily demanded by Swiss clients than German ones, investment controlling involves constant supervision of asset manager performance and frequent evaluations of the investment strategy.

Brandenberger said he was confident that the service would do well among German institutional investors. “We’ve already won mandates in this area and our discussions with German institutional investors reflect that there is great interest for it.”

“We also believe that demand for controlling will increase due to the growing importance of corporate governance for pension funds,” he added.

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