Profond changes fee-structure post-crisis
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.
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