US banks and asset managers are under parliamentary scrutiny in Switzerland but they are not at risk of losing their business relationships with Swiss pension funds which instead face investment risk from a volatile US market.
The role of US custodian banks for Swiss pension funds is worrying mainly to politicians, who are concerned that sanctions imposed by the US government could prompt a US bank to freeze pension fund assets.
The National Council, the lower house of the Swiss Parliament, has voted against a motion by the Economic Affairs and Taxation Committee of the National Council (WAK-N) to re-tender the custodian mandate held by State Street, executed through the bank’s branch in Zürich, and pick a Swiss bank for Compenswiss, which manages CHF46.1bn (€48.9bn) for the country’s first-pillar social security funds.
Compenswiss analysed the risk of US authorities freezing assets during the tender process, concluding that the risks are very low.
Publica and BVK, which have JP Morgan Suisse as a custody bank, and Compenswiss, believe that turning their back on US banks to avoid risks of sanctions represents an even bigger risk than the potential actions of the US administration.
Pension funds in Switzerland are not considering or planning to switch from US to Swiss custodian banks, or Swiss asset managers, to reduce risks arising from tense international relations.
Oliver Kunkel, head of asset manager selection and controlling at consultancy PPCmetrics, said Swiss pension funds are familiar with potential sanctions and political risks as they diversify their investment portfolios globally, and always consider legal, operational, and counter-party risks when tendering global custodian mandates.
“Political risks have been and will continue to be analysed professionally and impartially [by pension funds]. We do not see any changes currently. Swiss pension funds are paying attention to manager diversification, among other things, to reduce operational risks. This was already the case before the current political situation,” he added.
Pension funds regularly tender asset management mandates to benefit from the competitive market but without looking to find managers from a specific region, he said.
According to Andreas Rothacher, senior investment consultant at Complementa, erratic or aggressive behaviour by the US government poses primarily investment risks for Swiss pension funds dealing with increasing market volatility, rather than operational risks in terms of custody services.
“Further developments must be monitored closely. The US remains by far the deepest and broadest market in terms of both bond and equity investments,” he said.
According to Rothacher, business risks for US banks and US asset managers in Switzerland and their relationships with pension funds are caused mainly by political interference and less by the managers of the pension funds.
“US asset managers with a local presence may have an advantage over those without [a local presence] as they have a better understanding of the local market. We typically see a business risk when performance is inadequate or prices are uncompetitive,” Rothacher said.
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