SWITZERLAND – Pension funds employing passive investment strategies should put pressure on index providers to disclose the calculations underpinning their benchmarks, the director of the Swiss Post pension fund has argued.
Speaking at the recent PPS conference in Lausanne, Françoise Bruderer said pension funds often found support among asset managers and index providers when they were launching investment strategies or looking for new benchmarks.
"However," she added, "the issue arises when a pension fund seeks to change benchmarks halfway through its asset allocation strategy."
Bruderer acknowledged that indices can play an "important role" for pension funds, but she lamented the costs schemes can incur cots when moving from one benchmark to another.
She also argued that benchmarks had a number of drawbacks, such as the weighting system, which she said was not always reliable.
Claude Schafer, director of the Caisse de Prévoyance de l'Etat de Fribourg (CPPEF), echoed her thoughts, conceding that indices were "indispensable" when it came to defining a new investment strategy.
But Schafer also argued that the CPPEF selects benchmarks on the basis of the advice received from asset managers working with the fund.
He said pension funds often lacked the necessary knowledge and internal resources to assess the risk attached to indices.
"Even though the pension fund's board of directors assumes part of the responsibility, it is mainly the responsibility of asset managers to ponder this risk," he said.
Bruno Maumené, managing director and COO of financial risk management firm Fundo, urged pension funds to exert more pressure on index providers with the view of increasing the transparency of those benchmarks.
"If you take the S&P 500, for instance, nobody knows how the 500 companies appearing on this index have been selected and on which criteria," he said.
"The challenge for pension funds is now to find good indices, which will limit costs when they want to changes indices halfway through their asset allocation strategy."
Frédéric Arthur Dodar, head of the investment solutions group at State Street Global Advisors, agreed that benchmarks currently raised a number of "fundamental" questions, and recognised the need for pension funds to understand the calculation methods used for their creation.
No comments yet