One in 10 of Switzerland’s 2,100 occupational pension schemes are underfunded according to government advisers and the urgent need to reallocate assets could benefit foreign fund managers.
An easing of asset allocations restrictions in Switzerland in response to the pensions crisis could encourage schemes to increase their exposure to foreign equity and debt says Cerulli Associates, the Boston-based research and consulting firm.
Since many Swiss mid-sized banks that hold pensions mandates lack asset management operations that can cope with foreign investments, the door will open up to foreign specialist managers.
According to Cerulli many foreign fund managers have already benefited from the reallocation of pension funds. Indexers have taken advantage of the increasing demand for passive portfolios – representing around 15% of Swiss pension assets – and global bond managers have exploited the permitted higher allocation to foreign-denominated debt.
From 1997 to 2001 foreign fund managers’ market share of assets under management grew from 2% to 6%. Yet the average Swiss pension plan still only uses about half of its permitted allocation to foreign bonds, and around a third of its legal limit in foreign equities, indicating significant room for growth.
Cerulli bases its prediction of growth in foreign fund management in Switzerland on comparisons drawn with Japan. Like Japan, Switzerland’s interest rates were slashed during the 1990s causing bond yields to fall.