The arena for consultants looks much the same from one year to the next but it is changing, George Coats finds
The Swiss pension fund sector is changing, but slowly. And that also goes for its service providers.
“There is a growing awareness of a need for more professionalism generally among pension funds,” says Roland Guggenheim, an actuary with Mercer in Zürich. “And increasingly pension funds are working with tailor-made investments that really fit their special needs.”
Often the special requirements centre on a need to get around Swiss investment regulations. These are contained in the Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans (BVG), which outlines both the investment limits on individual asset classes and the provisions that allow for deviations from these limits.
“The BVG was passed by parliament in 1985 and revised in 2005, and states that the Federal Council, the cabinet, can pass an ordinance giving further details,” notes Theodor Keller, a pensions consultant at Hewitt in Zürich.
“The rules say that pension funds are not allowed to have more than 50% of their portfolio in equities, or more than 10% of one company, and no more than 40% investments in foreign currency, and so on,” says Guggenheim.
However, the BBV2 contains a loophole. Under Article 59 the restrictions can be waived and the investments can be adapted in line with individual requirements. The result has been that exception has become the rule among many pension funds.
“It was decided that if an experienced consultant could show that the rules could be transgressed - for example, having more than set down in foreign currency, then it is allowed,” says Guggenheim.
“So on the one hand pension funds are using consultants much more from this point of view and on the other hand they are using them to really match investments to their needs, the demographic profile of their members, for example.”
“When you look at the asset allocation of pension funds you see that shifts from one year to the next are quite small,” says Graziano Lusenti, managing partner at Nyon and Zurich-based consultancy Lusenti Partners. “However, if you compare them over 20 years or so you notice that the differences are quite significant. But when you look at who is managing the assets you see that the changes haven’t been significant either - you still will find Swiss private and universal banks. And the same applies to consultants. This is still a market where you do not have many players, and while you have a few Anglo-Saxon players - the Watson Wyatts and the Mercers - you still have domestic players like us. And there are not many. In total you probably have at most 15 investment advisers that are relevant to the market.”
But has the role of consultants changed? “I think their work has changed,” says Lusenti. “Over the last few years we see that there is no longer a clear border between the activities of consultants and asset managers and banks. There is a kind of a blurred line separating the services they offer. You see asset managers providing advisory services, you see banks proposing ALM studies, and you have a mixture of service providers that is quite new.
“The question is why did that occur? I think part of the answer is that in certain asset classes like hedge funds the advisory role is really important especially when investments are done by way of fund of funds, fund platforms or whatever, and in the end it does not matter really whether this function is fulfilled by a bank, an asset manager or a consultant.”
And is the line also blurring between foreign and local consultancies? “It’s not the same as it was a few years ago,” says Guggenheim. “There may be funds that care a little about this but not many.”
There were reports that some customers of Zurich and Nyon-based retirement and investment consultancy Pendia Associates left after Mercer bought it in 2006 because they wanted a local not a major global actuarial consultancy. Is this a problem for a foreign-based company?
“There were a few clients who left because they were used to a local provider,” concedes Guggenheim. “But mostly this business depends on personal contact. There may be some grumbling but the business depends on the quality of service.”
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