SWITZERLAND – Roughly two-thirds of Swiss pension funds use independent investment consultants in the selection of external asset managers, according to the latest Swiss Institutional Survey.
Consultants play a “central role” in the process, said the second part of the sixth survey conducted by Swiss consultant Lusenti Partners and sponsored by Credit Suisse. The topic was ‘Added Value in Asset Management’.
According to managing director Josef Bossi of State Street Global Advisors in Switzerland: “That’s certainly something we can confirm that there is a trend of more and more pension funds using consultants for managerial valuation.”
He added that some schemes might lack the “know-how”, and prefer to rely on the knowledge, efficiency and experience of consultants, which run manager valuations on an ongoing basis.
Furthermore, Bossi told IPE: “Some of the pension funds certainly feel they don’t have the breadth or depth of knowledge to do a really good job at evaluating managers.”
According to Graziano Lusenti of Lusenti Partners, increasing diversification of pension fund investment portfolios has also increased demand for investment consultants' knowledge, support and expertise.
The online survey – which analysed responses from 162 institutions with assets worth CHF189.4bn (€120.4bn) – also showed that ALM studies are a “standard practice”.
“Investment consultants are mostly mandated for realizing such ALM studies,” said the release.
However, according to one Swiss-based financial services expert wishing to remain anonymous, there is increasing competition between consultants, asset managers, larger banks and insurance companies to perform ALM studies for pension funds.
Several insurance companies and some of the larger banks are also offering this service for free.
The expert added that banks and insurance companies regard an ALM study as “a marketing tool” with the hope of attracting more business from pension schemes.
“Now they pension_funds realise they can also get such a service from banks and insurance companies,” he said.
“It’s a kind of trade-off to get it for free from a bank or insurance company or pay for it from a consultant.”
However, according to Lusenti, "It seems there is a preference among pension funds to opt for an independent advisor."
He added that banks performed a greater number of ALM studies between five and ten years ago - a sign that banks are focusing more on their core business.
According to other findings in the six-monthly survey, participants regarded an ageing population, adequate financing and falling investment returns, and growing complexity and regulation of the 2nd pillar as main long-term risks.
Furthermore, participants expected to see no changes to the third pillar system.
They also generally found their own internal asset management skills “effective” or “highly effective”.
Cost, transparency, comprehensibility and performance were also listed as key factors in the assessment of external products and services.
“The answers by the survey participants show there is no simple, unanimous or universal recipe for the implementation of asset management among institutional investors in Switzerland,” concluded the study.
More than 95% of the survey participants were pension funds, while rest were insurance companies, Lusenti told IPE.
Earlier this month, Lusenti released the first part of its new study showing that Swiss institutional investors were unlikely to increase their exposure to equities in 2006, although they should reduce their holdings in fixed income.
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