While Swiss pension funds may be good performers, the subject of costs ranks low in their list of priorities and their powerful influence as a client is rarely excercised on their service providers. These are the main findings of a Robeco survey of 239 participating funds with average assets of Sfr500m ($350m) managed on behalf of an average of 2,900 members and pensioners.

The survey found that 84% of the schemes have more assets than liabilities, of which, 40% have a surplus of between 100% to 110%, and four funds in particular displayed an outstanding surplus of 140% and more. In average, 4% of the assets are dedicated to technical reserves and10% for devaluation and volatility of assets. But there still remains 7.5% of the schemes assets which are free reserves. In total, 30% of Swiss funds' free reserves exceed 10% of their total assets.

However, 16% of the schemes remain underfunded and a high proportion of these are some of the major public schemes which have a combined deficit of SFr8bn ($5.3bn), representing 22% of their liabilities. Current political pressure to ease public spending means they will have to move fast to improve their performance. As such, it will be this group which is likely to undergo the most changes.

Almost half of the funds surveyed saw the most important factors in selecting external money managers was having an established relationship with the bank or the bank having a local presence in the Swiss market. Most funds stick with one of the three big Swiss banks because of their tight credit-relationship with the companies. Public institutions on the other hand do not depend to the same de-gree on commercial facilitiess, making them an easier market to access for in-ternational providers and newcomers.

When it comes to beauty parades only 18% of the funds view past performance as important and a minimal number of schemes feel the costs involved are important at all. Interestingly, the survey found substantial differences in the structure of costs" - 47% of funds spend less then 3% of their contributions on administration, while 20% spend more than double this amount on the same function. Compared to common bench-marks, up to 50% of schemes overpay for global custody services and brokerage or pay too high all-in fees.

In terms of asset allocation, funds invest between 23-26% of their assets in equities which is likely to increase slightly over the next five years.

Eric Solenthaler

The survey is in German and French and is available at Robeco Bank, Geneva. Tel: + 41 22 939 0160."

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