B+B for good pension provision

Swiss ECOFIN co-founder's views on passive investment 'naïve'

Ottawa Barbara — 2010-07-07T00-00-00Z

Swiss ECOFIN co-founder's views on passive investment 'naïve'

Impressum: Barbara Ottawa, Investment & Pensions Europe in IPE.com, 7 july 2010.

SWITZERLAND – Herbert Brändli, head of the €2.2bn Swiss pension fund Profond, has slammed a recent article written by industry expert Martin Janssen and rejected the notion that active investment in particular lends itself to criminal activity in pension funds.

Janssen – co-founder of ECOFIN and a professor of finance and economics for more than 35 years – recently reignited the active-versus-passive debate after suggesting in the Zurich daily Tages-Anzeiger that passive investment could minimise corruption in pension funds, referring specifically to the ongoing scandal involving the Canton of Zürich civil servants fund (BVK).

In his interview with Tages-Anzeiger, Janssen suggested four improvements to the Swiss pension system: “First you need good organisation. Second, mandates should only be awarded on competitive terms. Third, good inter-personal skills.

"Fourth, a head of investments should invest passively to the greatest possible extent – that means not in individual stocks, but in entire indices, such as the SMI [Swiss Markets Index].

"The job of an investment head would become deadly boring, although that would be a good thing."

Janssen also suggested a split in personnel between principal, agent and controller, and said pension fund trustees should be better remunerated, although pension fund investment staff should be paid less than investment professionals in the asset management or banking industries.

He also warned against consultants who market actively managed products, but receive a hidden fee.

"Unfortunately, this still happens, even at large funds," he said.

But Brändli questioned Janssen's logic.

He said: "It is naïve to think the problem at the BVK – where a weak personality and criminal energy led to members' funds being siphoned off – could have been solved by going into indirect or passive investments instead of direct ones.

"Passive investments deprive investors of control over their allocations – what Swiss pension funds really need is a professionalisation on the management level."

Brändli pointed out that investing passively would have made it impossible for his fund to disinvest from UBS in 2008 and thus avoid subsequent major losses.

He added that "liquidation waves" from fixed-income indices of bonds issued by the PIIGS-states were yet another problem association with passive investing.

Similarly, Swiss asset manager Swisscanto pointed out that index investments often carry extensive concentration risk, which had to be taken into account.

Gerard Fischer, chief executive, said: "Credit Suisse and UBS made up 21% of the Swiss Blue-Chip-Index SMI until mid-2007 – after the financial crisis, their share had dropped to 11% at the beginning of March 2009."

Swiss funds shying from their core business – Profond

Ottawa Barbara — 2010-05-20T00-00-00Z

Swiss funds shying from their core business – Profond

Impressum: Barbara Ottawa in IPE.com, 19 may 2010.

SWITZERLAND - Herbert Brändli, head of the multi-employer fund Profond, has criticised the growing trend for Swiss Pensionskassen to shy away from longevity risk by outsourcing pensioner liabilities, promising only capital payments at retirement and switching to defined contribution (DC) schemes.

“If I see pension payments and longevity as risks then what am I doing here? This is supposed to be the core business of a Pensionskasse," he said. "As long as people are working we will continue to get assets into the pension fund." Brändli said this was enough to keep buffers filled and pensions guaranteed.

He also predicted that equities - an asset class Profond has a greater exposure to than most Swiss pension funds - would continue to return 4% annually over the long term.

Brändli has said he believes in taking more risk than is typically borne by Pensionskassen, although Profond's strategic asset allocation of 50% equities left the fund slightly underfunded following the market downturn (see earlier IPE story: Swiss pension plans to maintain strategy for good returns).

"The only major problems Swiss pension funds were suffering over the last years were because of illegal activities – so there is an operational risk, but longevity is not the problem," he said.

But Peter Zanella, head of retirement solutions Switzerland at Towers Watson, said the trend towards removing longevity risk among Swiss Pensionskassen would be compounded, predicting the current discount rate in the Swiss mandatory second pillar of 3-3.5% to come under pressure should the deflationary scenario continue. This would see liabilities increase by up to 15%, he said, and even if inflation returns, Pensionskassen would have to face the problem of financing pension indexations.

"While earlier switches to defined contribution schemes were made to achieve more transparency, we can now see more and more switches with actual cuts in benefits," Zanella said.

Profond changes fee-structure post-crisis

Ottawa Barbara — 2009-10-01T00-00-00Z

Profond changes fee-structure post-crisis

Impressum: Barbara Ottawa in IPE.com, 30 September 2009. German version by B+B Vorsorge AG.

SWITZERLAND – The CHF2.6bn (€1.73bn) Swiss multi-employer pensionskasse Profond has changed the fee structure for its portfolio managers, in a bid to reduce costs.

“In the wake of the financial crisis we have switched the management fee from one which is calculated by basis points to a fixed fee with profit share,” explained Herbert Brändli, head of Profond.

“This way, we are saving around one-third in fees and the managers have accepted this without much struggle – I was surprised as well.”

He added a basis point fee only rewarded managers for movements in the market, and not for the actual work they do.

Brändli suggested this showed there is “a lot of leeway” in manager remuneration.

Similarly, he said the fund had found a new bank with lower transaction costs although he half-jokingly claimed it might have been easier for the fund to set up its own bank for this purpose.

“The crisis has forced us to reconsider these fee structures, so in a way it was also a chance for change,” said Brändli.

In other matters, Brändli said he is convinced that a further lowering of the conversion rate used to calculate pensions will not force funds to better manage their assets but instead would just reduce the benefit level.

In a referendum, which is most likely to take place on 7 March 2010, the Swiss people will vote on whether there should be a further cut of the pension conversion rate from the current level of 7% to 6.4% by 2015. (See earlier IPE article: Swiss pension level breaches constitution – union.)

However, other experts disagree and have criticised Brändli for making discussions on the subject more difficult.

“Lowering the conversion rate is a necessary precautionary measure and socio-political wishful thinking is ill-advised on this subject,” argued Hanspeter Konrad, head of the Swiss pension fund association, ASIP, at the organisation’s annual meeting in Zurich.

He stressed this measure does “not endanger the [pension] benefit level” as the amount of money will stay the same but be spread over a longer period of time as longevity increased.

“If it is not lowered the stability of the system is in danger,” added Konrad.

He quoted figures showing the minimum interest rate for second pillar pensions had always remained above the increase in salaries between 1985 to 2007 – in effect by as much as 1.58%.

Brändli, on the other hand, argued that since 1985 the benefit level has decreased by 30%.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602.

Madoff deals Profond only a glancing blow

PK Assets AG — 2008-12-16T00-00-00Z

Madoff deals Profond only a glancing blow

The quality and transparency of Profond’s investment portfolio are faultless. Despite the sluggish economy and hesitant stock markets, the potential to generate value is retained. Thanks to the proportion of contributions to benefits, the duration and impact of the economic slowdown pose no critical risks to Profond. For this reason, Profond can avoid expensive, risky hedging of stock market and currency fluctuations via derivative products and hedge funds, and has not suffered any definitive asset losses due to the collapse of investment instruments.

We received the following statement from the asset manager responsible for Profond, PK Assets, concerning the Madoff case.

“Madoff” is a complete and accurate description of hedge funds:

Mad in the sense of crazy, insane, ludicrous

Off in the sense of gone, departed, disappeared

This latest case of client funds that have vanished into thin air on an epic scale cannot simply be shrugged off as the result of unusually high value fluctuations on the financial markets. No – this case goes much deeper, direct into the heart of modern financial capitalism. Confidence in the guidelines for economic activity on the financial markets and in market participants has been shaken to the core. After the business model of so-called investment banks was discredited, the guild of hedge funds now stands in the line of fire. Laymen and professionals alike have expressed their astonishment at how it was possible for a company that advertised itself as subject to particularly high ethical standards to produce a snowball effect capable of cancelling out the sophisticated selection algorithms used by highly paid specialists and generating a loss estimated at three times the assets announced by the institution.

Suppliers of traditional investment solutions are rubbing their eyes in disbelief. The business model of leading alternative investment providers obviously consists of collecting money, transferring it to remote locations for a hefty fee and proceeding, based on secret calculations, to promise stable, double-figure annual returns that are backed up by “past performance” with the help of a laughable auditing apparatus. These mechanisms allowed Madoff to generate a loss amounting to more than ten times that incurred in the LTCM debacle. Nevertheless, this kind of approach is no longer deemed a hazard to the system. The public has been numbed by all the news of high writedowns, recapitalizations, nationalizations and anticyclical, astronomical salaries flying around. To top it all off, the guidelines for these investment instruments and the playgrounds of the consultants who offer them are now being blithely expanded in the case of investment of pension fund assets in Switzerland.

It is inappropriate at this juncture to delight in Madoff’s fall. Instead, it is necessary to return to tried-and-tested combinations: value is generated by activities in the real economy and the production of meaningful goods, while returns are “hard-earned” through fluctuations. In his shareholder’s letter of 2006, Warren Buffet, the oracle of Omaha, taught us how risky it can be to put one’s trust in investment consultants who try and get around these basic paradigms. However, this is no new phenomenon. It is well known that in medieval times, alchemists who were urged to transform worthless materials into precious metal were also the best-paid specialists. We must therefore assume that the Madoff case will not be the last of its kind.

Profond does not invest in hedge funds. The aims of this supposed asset class are irreconcilable with Profond’s asset management principles, which demand stakes in value-generating production components of the global economy. These grotesquely expensive financial products are not transparent enough, harbour too much risk and are subject to questionable incentive mechanisms. Using these products would contradict the avoidance of leverage and short selling as outlined in Profond’s investment regulations. Nevertheless, Profond's portfolio is suffering from the development of these financial vehicles. Deleveraging in all asset classes is also making its mark on Profond’s short-term investment result. It is foreseeable that the excesses of the financial sector combined with the misallocation of scarce resources will negatively impact economic growth in the coming year.

However, the central and decisive factor is that Profond’s assets – consisting exclusively of high-quality shares and bonds – have retained their value and should reap above-average benefits from a recovery in prices. The cumulative mistakes in the financial sector – securities from big banks, structured Lehman products, low-quality corporate bonds, yield optimization products, total return products and all types of credit derivatives – have left Profond unscathed. Nevertheless, the differences between value fluctuations and losses, and the arbitrary way in which the coverage ratio of a pension fund is assessed based on a specific key date, have been highlighted by the current situation. Profond is sticking to its guns and is therefore not in search of recovery strategies.

Profond: is recapitalization necessary?

Brändli Herbert — 2008-11-24T00-00-00Z

Profond: is recapitalization necessary?

Impressum: Herbert Brändli, Pension expert, president of foundation council of Profond Pension Fund, 8800 Thalwil

No cuts in benefits

In spite of the financial crisis, persons insured with Profond won’t lose a single cent. Pensions currently being paid will not be cut, and the accumulated retirement capital of members who are still working will be maintained until they retire, when it will generate annuities at the annual conversion rate of 7.2 %. In the next few years, however, retirement capital will not generate as high a return as it has in the recent past – if the stock markets recover as slowly as eminent economists currently expect, that is.

Pension funds are generally highly resistant to market fluctuations. In the current environment, they can and should act as a stabilizing influence. They have no debts, and their current income is usually greater than the sums they pay out in benefits, as is the case at Profond. To extract additional funds from the real economy – slack as it is – in recapitalization payments to cover shortfalls caused by ailing stock markets is economically and actuarially absurd.

Recapitalization measures

From both an economic and actuarial point of view, recapitalization measures are unnecessary. Even so, the regulator will compel individual pension funds to take these measures, as it is too fixated on a constant cover ratio of 100 %. Whether any action will be taken at Profond, and what it might be, has not yet been decided. Under certain circumstances, the rate of interest credited in 2009 may be no more than the legal minimum. This would not be a serious burden on active members, and nor – taking account of the past – would it last long. Persons who have been insured with Profond for an extended period would still enjoy average returns superior to those of most other pension funds.

A zero interest credit was ordered in 2002, for example. What happened? In subsequent years, Profond was able to credit interest as follows:
2003 4 %
2004 4 %
2005 6 %
2006 5 %
2007 4 %.

If Profond had always paid out only the legal minimum interest, fluctuation reserves would have been built up instead of benefits – and today, we would have hardly any cover shortfall. However, Profond prefers to distribute profits to members in good years, suspending credits when times are hard.

Bridging versus recapitalization payments

In the event that the regulator insists on recapitalization payments, Profond plans to arrange bridging finance to meet the cover shortfall on a temporary basis. This is what we did in 2002. The “recapitalization payments” were calculated so that their net present value would restore the balance sheet to equilibrium. The additional contributions were credited to individual insured persons and made available to them again once the stock market had recovered. This meant that younger members did not have to stump up for the stock-market collapse to support the older generation, and there was no redistribution between the generations.

In the present case, Profond will again calculate the additional contribution so that its net present value will provide the cover required for a temporary technical deficit. The additional contributions are hard to estimate. However, given the current volatility of the cover ratio, they will probably be somewhere between 0 and 2 per cent of payroll. Once again, younger members will not have to fork out for this bridging finance. The recapitalization payments would again be treated as contribution reserves. Later, once the storm had passed, they would be converted to retirement credits or used to fund normal contributions.

In long-term equilibrium

Profond prepares an actuarial balance sheet as a constant check on its security. Taking a long-term view, this compares future income (contributions and investment returns) with future outgoings (benefits and costs). There is no point in updating this balance sheet every day, or even every month. It is distorted by the currently high levels of market volatility, making it useless for its intended purpose of providing a long-term perspective. Turbulence on the stock markets resulted in Profond posting a drop in performance of 13.8 % in October, while the cumulative fall from the start of the year to 31 October was 24.2 %. It’s not difficult to work out that our cover ratio at that point was below 90%, meaning Profond suddenly finds itself substantially in deficit. Nonetheless, there is no threat to our capacity to pay benefits or to withstand risk.

Investing in production factors

Profond is in a position to meet its benefit obligations seamlessly. Any further temporary deterioration in the cover ratio will make no difference to this, because we take in much more in contributions than we pay out in benefits – and that will continue to be the case for decades to come. Profond thus has a constant flow of new funds to invest. The fact that Profond concentrates most of its investment throughout the world in production factors restores our capital holdings, which both generate our income and act as a cushion for benefit obligations in the remote future, to equilibrium. Profond’s benchmark is not the stock market. We want our investments to track the performance of the global economy (6 to 8%). Accordingly, we abandoned unproductive – allegedly “safe” – investment vehicles a long time ago, thus avoiding total losses. There are therefore excellent prospects that book losses on equities will correct themselves, and the cover ratio rise, long before there is any need to break into our growing capital.

No weakening of the “third contributor”

Occupational pensions are proving highly resistant to the financial crisis, as long as they base themselves on the real economy. The question of whether the real economy – slack as it is – will have additional funds extracted from it in recapitalization payments, which will subsequently lie idle in pension funds, is becoming a matter of survival. Profond’s answer to this question is a resounding no. We are sticking to the investment strategy we have adopted, constantly adding to our holdings in promising companies as the stock market falls. This strategy is the heart of our actuarial balance sheet. It forms the foundation of the “third contributor” – our capital – which is what justifies the very existence of pension funds. This third contributor must not be weakened without extremely good reason.

The long-term orientation of the pensions field gives us our risk capacity. The only factor that restricts it is a liquidity bottleneck, which can force investments to be realized at the wrong time. If the long-term character of investments and liabilities is compromised for no good reason, this may lead to financial difficulties on the liability side, namely on switching pension foundations. This risk cannot be effectively countered with recapitalization payments. There are grave systemic defects in the legal provisions relating to vested benefits that must be stamped out. We have the financial crisis to thank for bringing these to light. Now is the time to put an end to them once and for all.

Pension funds are easy prey

Strahm Rudolf — 2008-11-23T00-00-00Z

Pension funds are easy prey

Impressum: Article by Rudolf Strahm, former National Councillor and price watchdog, published online on the Zürcher Tagesanzeiger newspaper website on 18 November 2008, in the Kolumnen und Kommentare section. Translation by B+B Vorsorge AG

The chapter in the global financial crisis that will prove the most expensive for Switzerland is yet to come: the pension fund debacle.

By the end of 2008, Swiss BVG pension institutions are set to post losses of between 80 and 100 billion Swiss francs. Hundreds of pension funds will have to announce a substantial capital shortfall. In coming years, both employees and employers will have to cough up a higher contribution in terms of salary to cover the difference. However, many of these value corrections are simply book losses, as in the case of shares, which should correct themselves in the next few years.

Nevertheless, it is estimated that actual losses in retirement assets amount to tens of billions of Swiss francs. These losses originate primarily from investments in hedge funds and structured products (which already accounted for CHF 40 bn of pension fund assets back at the end of 2007), absolute return funds of the big banks that have suffered large losses, and collateralized debt obligations (CDO), the latter two of which are falsely labelled in terms of their names alone.

Substantial shifts

It is an ironic quirk of fate that, on 19 September 2008 – right in the middle of the financial crisis – the investment guidelines for pension funds were relaxed. In revising the BVV2 Ordinance on Occupational Retirement, Survivors' and Disability Pension Plans (with effect as of 1 January 2009, to be fully implemented by the end of 2010), the Swiss Federal Council has, of all things, increased investments in hedge funds and structured (i.e. speculative) products to 15%, while reducing investments in real estate from 55% to 30% and those in mortgage loans from 75% to 50%. In extreme cases, this means that pension funds must transfer their more secure investments in property or mortgage loans to less secure ones such as shares and structured products – an economic outrage in view of what we have seen during the financial market crisis.

This deregulation will lead to investment types with increased risks, increased speculation and less credit. After all, mortgage loans and capital investments in real estate have for more than a decade proven to be more secure and, in the long term, more profitable than shares or so-called "alternative" investments such as hedge funds.

Back-room decisions

Those set to benefit from the planned shift in investment patterns are the big banks, hedge funds and investment consultancy companies. Swiss Federal President Pascal Couchepin was the person on the Federal Council to formally request a relaxation of the regulations. The parliamentary commissions were neither consulted nor briefed beforehand. The driving force behind the change was the ominously named Ausschuss Anlagefragen (investment matters committee), composed of members of the BVG commission and external representatives of Switzerland’s marketplace.

This eleven-strong committee was responsible for concocting the new investment strategy and literally forcing it through the BVG commission. If you now question members of the commission who are not in the committee, they all claim to have had a “bad feeling” about the entire matter and to have sensed that those involved were “out of their depth”.

The Ausschuss Anlagefragen was dominated by the financial community, consisting of five representatives from banks and insurance companies (UBS, Pictet, Credit Suisse, Swiss Re, Axa Winterthur) and two representatives from investment consultancy companies (PPCmetrics, KPMG). Representatives of the Swiss government (two) and of social partners (one of each) were in the minority.

The committee was headed by Dominique Ammann from investment consultancy PPCmetrics, which has a hand in the pension fund business. Ammann and his company will profit directly from the new investment guidelines, as the changes in the investment mix and the transfer of increased responsibility to governing bodies of pension funds will, from the point of view of independent experts, entail a huge increase in the need for external consultancy services.

Banks and consultancy firms will profit

This is exactly what Ammann’s consultancy company is taking advantage of: PPCmetrics states the following in large type on its French and German websites under the heading of “Revised BVV2 investment guidelines”: “PPCmetrics will help you comply with the new BVV2 investment guidelines”. What it fails to mention is that pension fund consultancy services of this type cost CHF 400 per hour. PPCmetrics aside, consultants are not obliged to declare the commissions and kickbacks they are granted by banks.

Following this deregulation coup, what can be done? The National Council commission for social security and health (SGK-N), which only recently acknowledged this done deal, requested a report from the Federal Council at the beginning of November. The Council of States commission will soon have a similar opportunity. The strategy should be as follows: to not implement the revised BVV2 ordinance on 1 January 2009, to get Parliament involved, to carry out a broad consultation and then, if necessary, a broad-based revision.

Our 600 billion Swiss francs in pension fund assets have been scraped together through forced savings implemented by law. It is therefore a public obligation to set limitations for the pension funds with their joint and often unprofessional, rigid boards of trustees by enforcing a conservative investment strategy. Pension fund assets are the longest-term investment of all – meaning they are not compatible with structured and speculative products, unsecured investments in US dollars, and actively managed investment funds. No one except the banks and investment consultants profits from this.

Four percent interest on retirement assets – how do you manage that?

Brändli Herbert — 2008-10-27T00-00-00Z

Four percent interest on retirement assets – how do you manage that?

Impressum: An interview from the Finance section of the “Blick” daily newspaper: Silvio Bertolami talks to Herbert Brändli, Chairman of the Board of Trustees at Profond Pension Fund, an independent collective foundation for SMEs. Interview date: October 27, 2008 from page 11 of "Blick".

Mr Brändli, can you still sleep at night?

Yes, I sleep well, but not much. We are currently confronted with numerous issues and worries that are costing us time. The financial crisis has made our insured very uneasy, and is weighing on them heavily.

But aren’t they right to be worried? After all, you invested half of your pension fund assets in shares that have fallen heavily in price.

These are simply book losses, which we are not overly concerned about. In the short term, the main thing is that enough we have enough money in our coffers. And this is the case at Profond. In fact, Profond has more liquid assets today than before the financial crisis. We are recording a substantial inflow of new funds. Our solvency, and thus pensions and vested benefits, are not at risk – despite the bad situation on the stock markets.

Due to the great number of shares, your cover ratio has fallen to under 90 percent. A cover shortfall of 10 percent or more – is this really no reason to get worried?

On this very day, our cover ratio most likely stands at under 90 percent. However, the short-term position of our cover ratio is completely irrelevant. After all, the ratio fluctuates due to turbulence on the stock markets – sometimes it is better, sometimes worse.

Why do alarm bells then start to ring at most pension funds when the cover ratio slips below 100 percent?

I consider this reaction unnecessary, even absurd. The decisive factor is that our capital stock exhibits long-term growth. For this very reason, our strategy focuses primarily on shares, not bonds. In the long term, earnings from shares are at least 3 percent higher than for bonds. Through our shares, we are co-owners of productive companies. This means we benefit from the growth of the world’s economy, and will continue to do so. In the past, the world’s economy has grown at an annual rate of 6–8 percent.

Are you still buying shares yourself?

Yes – as we still have surplus liquidity in our pension fund, we can constantly acquire stakes in good companies at highly favourable prices.

Unlike Profond, most pension funds invest primarily in bonds. What are the consequences of this?

The yields from bonds are barely sufficient to cover inflation in the long term. Due to this type of investment, the minimum interest rate has to be cut, as does the conversion rate. In contrast, our conversion rate still stands at 7.2 percent.

And what interest rate do you intend to pay on retirement assets for 2008?

I want to pay 4 percent. However, the authorities may not permit it.

4 percent interest, despite a large cover shortfall – do you enjoy living dangerously?

In the early 1990s, as a result of the real estate crisis, our performance dropped 14.5 percent and we had a cover ratio of well below 100 percent. Despite this, we were still legally obliged to pay 4 percent interest. Profond’s insured did not suffer as a result. Furthermore, we also successfully overcame the shortfall in 2002 without cutting benefits, and with no additional costs to our insured.

(Adaptation française : Yve Delaquis / caralingua.com)

Newsletter October 2008

B+B Vorsorge AG — 2008-10-16T00-00-00Z

Newsletter / October 2008

B+B Vorsorge AG: new legal structure, new services, new website
Euvidea benefiting from the advantages of being based in Liechtenstein
B+B Finanzplanung: pension expertise for private individuals
B+B Investment Services: expertise for corporate clients and pension schemes
Profond: What does the financial crisis mean for pension funds?

B+B Vorsorge AG: new legal structure,
new services, new website

Numerous new developments at B+B: B+B Vorsorge AG has changed its name to B+B Holding AG with retroactive effect from January 2008. We have also expanded our range of services and completely redesigned our website, which clients are invited to visit at “bb-vorsorge.ch".

Our new legal structure enables us to place our comprehensive range of services related to all aspects of occupational pension provision on a clearer footing and give it a more distinctive profile. This will not result in any changes for our contractual partners – all contracts having been transferred to the newly established company B+B Vorsorge AG within B+B Holding AG. This means that in future too we shall be in an ideal position to continue to provide our clients and partners with comprehensive and innovative solutions to help them achieve sustainable success.

Services: three “new” areas of competence

At the same time, we have expanded our range of offerings to include financial planning services for private individuals, we have strengthened the area of investment services for pension schemes with new concepts and personnel and we have established a cross-border pension fund – Euvidea Pensionfonds AG – in Vaduz, Liechtenstein. The new fund complies with the EU Directives on occupational pension provision.

Website: competent information repackaged

The new legal structure will enable us to live up to our aspiration to guarantee maximum transparency at all times. With the new services (see article below), we offer our customers versatile solutions from a single source. And the new website enables us to present our extensive product range in a clear, modern format which provides a comprehensive overview.

Euvidea benefiting from the advantages of being based in Liechtenstein

In contrast with other EEA countries, Liechtenstein’s pension fund legislation permits temporary underfunding. B+B’s new Euvidea pension fund makes the most of the Liechtenstein advantage – and in doing so offers an attractive alternative for companies from EEA countries.

In the Euvidea pension fund, B+B offers companies in EEA countries an attractive pension solution with good returns. Whereas German pension funds, for example, are required to have positive balances at the end of each year, a pension fund established under Liechtenstein law is permitted to post a temporary funding shortfall – which is an advantage. This enables Euvidea to pursue a long-term investment strategy, which means that 3% to 4% higher returns may be expected than with insurance-type approaches (focused on year-end balances). This in turn holds out the promise of three to four times higher retirement benefits based on the same contributions.

The new international pension provider Euvidea is aimed at the following clients:

International conglomerates with cross-border pension plans, e.g. for foreign CEOs, TCNs (third country nationals), expatriates etc.
Local companies looking for new risk carriers. In other words, particularly companies – for example in Germany – which manage their pension obligations on their own balance sheet.
Local companies which are establishing a new second pillar, for example in Austria.

We are also examining solutions with various conglomerates which already form part of our Swiss client base.

B+B Finanzplanung: pension expertise for private individuals

With B+B Finanzplanung GmbH, B+B offers private individuals professional financial planning and attractive options for savings and investments.

Our financial planning experts analyse clients’ current situation, propose appropriate measures to optimize their pension position and advise them on planning their retirement. We also highlight attractive opportunities for saving and investing their financial assets. This means that private individuals can also consult B+B advisors for expert counselling on all aspects of pensions and insurance, from pension planning to retirement and any legal questions.

B+B Investment Services: expertise for corporate clients and pension schemes

With Investment Services, B+B offers first-class products and services for optimized investment solutions – from client relationship management, accounting & reporting and systematic investment management though to the full assumption of management mandates.

Pension planning can only be as good as its component parts and how they interact. We therefore award top priority – particularly in the area of investment services – to coherence and a systematic, all-round view of our clients’ individual situations. Our aim is to offer companies and pension schemes service modules tailored to their requirements. Our customers entrust us with securities accounting, reporting and investment controlling tasks. They rely on us to audit their organization, test the consistency of their contracts and regulations, and monitor and review their strategies. Companies also contact Investment Services when they are looking for efficient asset management solutions. In addition, Investment Services can provide custom-tailored business support through management mandates.

Profond: What does the financial crisis mean for pension funds?

The current financial crisis raises many uncertainties and questions. Banks and financial service providers long regarded as safe and stable are increasingly running into difficulties. Both bonds and capital-protected products are being lost. This is reason enough to take a look at the security of our own portfolio and answer some key questions.

The assessments of Profond and its asset manager PK Assets AG can be found on the websites of B+B, Profond and Allvor under the heading "Artikel" (Articles) or by clicking on the following link (articles in German):

Financial markets in turmoil
Profond: Turbulent investment markets

Profond’s assets safe?

Brändli Herbert — 2008-10-08T00-00-00Z

Financial crisis: are Profond’s assets safe?

Impressum: Herbert Brändli, Chairman of Board of Trustees, Profond Pension Fund

The entitlements of Profond scheme members are not in any way under threat despite the market turbulence.

Before we start we should remind readers that all members of BVG schemes are protected by the State Security Fund both in the event of their employer becoming insolvent vis-à-vis the pension institution and in the event of the pension institution itself becoming insolvent. If a pension fund were no longer able to provide its benefits, the Security Fund would take over its obligations in its place, at least in respect of insured salaries up to around CHF 120,000.00. Needless to say, this state safety net also applies to all members of the Profond scheme who pay annual premiums for this purpose.

The entitlements of Profond scheme members are not in any way under threat despite the market turbulence. Our current incoming deposits and contributions are considerably higher than our current outgoings. This means that Profond will always be able to meet its obligations from this continuous inflow of liquidity, while at the same time positioning itself advantageously with accumulating liquidity surpluses so that it can respond appropriately on the investment side once there is a change in market conditions.

The upheavals on the stock markets are naturally also having an impact on Profond’s assets. Price losses are resulting in falling book values and hence in a lower reserve ratio. Affiliated partners who terminate their contracts to the end of the year must therefore expect their lump-sum payment from the partial liquidation of their assets to amount to less than 100% of their retirement savings. Over the long-term, though, Profond members need not expect any loss of benefits since no Profond assets are under any acute threat.

On the contrary, our policy of steering clear of leverage and less-than-transparent structured products and of concentrating on quality in the equity segment and valuable real yields in the interest segment means that Profond’s portfolio stands to benefit more than most from the visible rediscovery of fundamentals. The current cleansing processes taking place in the financial sector also offer opportunities which Profond will exploit as and when they present themselves. It has set aside sufficient liquidity in its balance sheet for this purpose.

Profond: turbulent investment markets

Brändli Herbert — 2008-09-19T00-00-00Z

Profond in times of turbulent investment markets

Yesterday the world’s most secure bank – today, history. Banks and financial service providers are increasingly running into difficulties. As they get sucked under, bonds are lost that have adorned portfolios with their excellent ratings, despite their low coupon, likewise capital protected products acquired by the floundering institutions. This is reason enough to take a closer look at the security of one’s own portfolio.

Profond (an independent Swiss pension fund) applies an active, traceable and disciplined approach, investing in sound markets and companies with the aim of achieving attractive long-term returns of between 6 and 8 percent.

We avoid structured instruments and products, thus substantially reducing secondary risks. Our maxim, which forbids risky leverages and short selling, is not undermined by taking positions in strategies such as hedge funds.

Profond currently has a diversified portfolio of healthy, successful companies and issuers. The portfolio is convincingly simple, can be rapidly liquidated and contains no structured products or hedge funds.

Through our investment strategy, we tap sustainable value potential in the following asset classes: shares, private equity, interest rates, real estate and alternative investments. Shortterm fluctuations are consciously accepted, and are offset with sufficient fluctuation reserves. Assets that show little promise of retaining their value are phased out of the portfolio.

In the area of interest rate products, Profond focuses on managing interest rate and yield curve risks, and largely avoids liquidity, refinancing, credit and correlation risks.
In the share sector, our analysis focuses on quality. If companies do not consistently follow their corporate objectives, and instead gear incentives towards short-term optimization of their own interests, Profond does not shy from backing down from a commitment, even if the company has a key weighting on the index. For this reason, our portfolio practically contains no more bank securities.
Our investment specialists have an excellent network and extensive experience in the area of bonds. They focus on attractive real interest rates. Bonds are currently underweighted in the portfolio.
In terms of real estate, we have expanded our portfolio through promising direct investments and projects in Switzerland. Internationally, we are involved in indirect investments.

Since its inception, Profond has generated an annual return of 6.9% using the investment approach described above. This is sufficient for a medium interest rate of 5% and a 1% annual increase in current pensions. The additional income has been used to increase policy reserves in order to safeguard current pensions in view of increasing life expectancy and to finance the unchanged, attractive conversion rate of 7.2%.

B+B for good pension provision

Swiss ECOFIN co-founder's views on passive investment 'naïve'

Swiss ECOFIN co-founder's views on passive investment 'naïve'

Swiss funds shying from their core business – Profond

Swiss funds shying from their core business – Profond

Profond changes fee-structure post-crisis

Profond changes fee-structure post-crisis

Madoff deals Profond only a glancing blow

Madoff deals Profond only a glancing blow

Profond: is recapitalization necessary?

Profond: is recapitalization necessary?

No cuts in benefits

Recapitalization measures

Bridging versus recapitalization payments

In long-term equilibrium

Investing in production factors

No weakening of the “third contributor”

Pension funds are easy prey

Pension funds are easy prey

Substantial shifts

Back-room decisions

Banks and consultancy firms will profit

Four percent interest on retirement assets – how do you manage that?

Four percent interest on retirement assets – how do you manage that?

Newsletter October 2008

Newsletter / October 2008

B+B Vorsorge AG: new legal structure, new services, new website

Numerous new developments at B+B: B+B Vorsorge AG has changed its name to B+B Holding AG with retroactive effect from January 2008. We have also expanded our range of services and completely redesigned our website, which clients are invited to visit at “bb-vorsorge.ch".

Services: three “new” areas of competence

Website: competent information repackaged

Euvidea benefiting from the advantages of being based in Liechtenstein

In contrast with other EEA countries, Liechtenstein’s pension fund legislation permits temporary underfunding. B+B’s new Euvidea pension fund makes the most of the Liechtenstein advantage – and in doing so offers an attractive alternative for companies from EEA countries.

B+B Finanzplanung: pension expertise for private individuals

With B+B Finanzplanung GmbH, B+B offers private individuals professional financial planning and attractive options for savings and investments.

B+B Investment Services: expertise for corporate clients and pension schemes

With Investment Services, B+B offers first-class products and services for optimized investment solutions – from client relationship management, accounting & reporting and systematic investment management though to the full assumption of management mandates.

Profond: What does the financial crisis mean for pension funds?

Profond’s assets safe?

Financial crisis: are Profond’s assets safe?

Profond: turbulent investment markets

Profond in times of turbulent investment markets

B+B Vorsorge AG: new legal structure,
new services, new website