Addressing the post-referendum challenge: Zurich PFF kicks off
This year’s InvestmentEurope Pension Fund Forum held at the Bar au Lac Hotel in Zurich attracted about 40 delegates discussing key challenges for the Swiss Pension industry following the September Altersvorsorge 2020 referendum, where key changes to the countries pension system were initially rejected.
Debates were kicked off by Swiss journalist and host Andreas Valda, who introduced keynote speaker Thomas Held. The former director at Avenir Suisse thinktank discussed the way forward for the second pillar following the failed pension reform.
He was followed up by John Malloy, portfolio manager covering Emerging Markets at RWC Partners, who presented micro-and macro approaches to investing in Vietnam. He argued that a healthy macroeconomic backdrop, encouraging demographics and government initiatives to boost tourism and stabilise the banking system offered convincing arguments to increase exposure to the Southeast Asian state.
Macquarie’s Brian McDonnell moved the debate over to the US, discussing an absolute return approach to US mortgage backed securities. He stressed the relative liquidity of the asset class and the importance of duration management whilst warning against taking negative duration. “The primary use of duration management is to protect our portfolio that’s not our source of returns, they should come from the asset class itself” he argued.
New Capital’s Urs Beck, brought the debate closer to home. The Swiss Equity fund manager discussed how it was possible to achieve outperformance in Swiss equities, a market widely considered to be challenging for active managers. He argued that the willingness to take a large active share was crucial, which in the case of Switzerland also meant a very concentrated portfolio. “If you have a portfolio of about 40 stocks, every single holding counts” he stressed.
Among the delegates, only 6-7 people had any exposure, either active or passive, in Swiss equities, highlighting the challenging nature of the market.
The first panel debate of the day featured Beat Bühlmann, founder at YourPension and Josef Bachmann, former managing director at the PwC Pension fund in Switzerland, discussing to what extent it was possible to increase the level of individualism and flexibility in the Second Pillar of the Swiss pension system.
Bühlmann argued that contributors to pension funds should be given the the opportunity to influence decisions on asset allocation strategies, stressing that there is growing demand for flexibility.
Bachmann discussed the options for indivualising the offering in pension funds, focussing on real, rather than nominal values of pension payouts. He also stressed that a sustainable reform of the pension system was only feasible if the need for a later retirement age was taken into account.
Luca Lionetti, fixed income fund manager at Azimut discussed the value of corporate hybrid bonds as a high yield complement to pension fund portfolios. He highlighted that new rules set out by the rating agencies mean that the asset class will now be rated half as equity and half as bond, leading to a neutral rating impact. Issuers would also be able to deduct the coupons paid, offering them fiscal savings. According to Lionetti, these trends are likely to lead to an increased issurance of corporate hybrid bonds. He also stressed that for regulatory reasons, 90% of the bonds were issued by European companies.
Stefan Hepp, CEO at Mercer Private Markets discussed whether pension funds should consider exposure to European private equity. He stressed that while the current martket environment drives demand for private equity, issuers have learnt their lessons from the financial crisis, offering more stable capital structures.
The afternoon sessions are set to pick up again on the challenge of the Swiss pension fund reform, focusing on how the credibility of the second pillar could be restored. They will feature a panel debate including Hanspeter Konrad, director at ASIP Pension Fund, Andri Silberschmidt, president at Jungfreisinnige Schweiz, the youth wing of the Swiss Liberal Party, and Rudolf Strahm, author and member of the Swiss Social Democratic Party.
The event will be rounded up by Eric Breval, managing director at AHV/ IV/ EO Compenswiss pension fund based in Geneva, who argues that neither transparency nor returns will be the decisive factors in restoring trust in the second pillar of the Swiss pension system.