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The management of pension funds must be renewed


| 08.09.2011 | 10:25 p.m.

The endless crisis is causing seasickness to markets and politicians, who are trying to react in an environment with no visibility. But also to the managers of the pension funds.

It is now more difficult to remain frozen on a roadmap that spans five to seven years. The performance statistics of the LPP indices demonstrate this (see infographic opposite) . Performance has steadily declined in ten years.

One could sum up, very roughly, the exchanges of a “think tank” organized Wednesday at the University of Lausanne, in one of the halls of the faculty HEC. Organized in collaboration with Synopsis, a wealth management company, and the Banking and Finance Institute, the debate brought together managers of cantonal French-speaking funds of public law and joint collective foundations.

“Finished the time when we could expect a comfortable return, without asking too many questions,” said one of the auditors, in charge of the pension fund of a major company.

To withdraw from the game?

“We must question the tools and the framework,” insist Jacques Raemy and Jacques-André Monnier, head of the company Cronos and organizers of the debate. During the last years, the caisses felt obliged to respect a rigid framework, solely centered on the long term. One of the tools in question, responding to the barbaric name of ALM for Asset Liability Management, is undermined by the succession of crises, say the two partners. This tool is in fact a static indicator, which is certainly necessary, but which should incorporate a dynamic component to respond to different market shocks, affecting both the assets and the liabilities of the pension fund.

“There is only an incentive to predict its revenues, its expenses and the reserves that must be constituted in case of a hard blow,” says Olivier Ferrari, CEO of Coninco Wealth Management, which also advises good number of pension professionals.

According to Synopsis executives, we need to adopt a more dynamic management of funds. “It’s not about selling or buying every day,” says Jacques-André Monnier. But to incorporate a dose of preservation of capital when circumstances dictate, which is the case today. ”

According to the two partners, it would have been wise to enter a perspective of capital preservation several months ago by withdrawing risky assets and keeping cash, from “cash” to a proportion of 30 to 50% even if he does not bring anything back. It would be better to focus on Swiss government bonds, avoid foreign currencies, and reduce the share of equities, that is to say away from hedge funds which proved to be more disappointing than anything else. Above all, consider that investment strategies need to be reassessed regularly.

“In a period such as this one, marked by high volatility in equity investments, it is certainly appropriate to reduce – temporarily – the risk profile of the portfolio, for example by increasing the proportion of liquid assets or partially covering certain positions; this is especially true since most of the caisses no longer have reserves of value fluctuations to cushion the price declines. But we must not fall into the “gloom”: in the medium and long term, good diversification by asset classes, regions, currencies and management styles remains one of the keys to success, “said his side Graziano Lusenti, another consultant.

Do not panic

“Ten years ago, a reasonable allocation policy yielded 6%. Today, the same strategy only allows to reach 3%. The source of capital returns has dried up. We must reason in terms of business management, not wealth, Olivier Ferrari analysis. It is not the stock market fluctuations that are involved. We must review the funding of the caisses. It is necessary to contribute earlier, to maintain the level of the rent, in spite of the decrease of the rate of conversion, to contribute as of the first franc gained.

Are our pensions in danger? Calm, retort in chorus the experts. “In several neighboring countries, in France, in Italy, one wonders who will pay the rent, and how; in comparison, the Swiss 3-pillar system, with a highly decentralized but highly regulated second pillar, is much more flexible and designed to adapt, “stresses Graziano Lusenti.

The performance of pension funds over 10 years
(An article also picked up by the Tribune de Genève.)