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Regulation

Swiss Regulator Facing Criticism over Public Employee Pension Revamp

The OAK prefers a uniform interest rate for the public workers and two other retirement plans, which a lobbying group says is wrongheaded.

By Chris Butera

Oberaufsichtskommission (OAK), the regulator for the Swiss pension plan for public workers, is under fire from pension lobby group Asip regarding planned reforms.

Asip objects to several of the potential changes the regulator is looking to make, particularly the way the interest rates are calculated to determine return on capital for beneficiaries. 

Switzerland has a three-part pension system. Aside from the program for public employees, there is a separate system for elderly, orphans, and surviving spouses, and a voluntary plan for the private sector.

The OAK wants the same rate to apply to all pension programs, which Asip says will kill the flexibility for actuaries, and that the technical interest rate of a pension fund “should not deviate significantly from the risk-free market interest rate.”

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OAK also wants the initial five-year transition phase for this measure gone, deeming it “disproportionate.” The regulator instead wants to move forward with the expert group’s seven-year proposal.

Asip said the organization should wait until April 25, when other proposals from Swiss pension actuary group SKPE/CSEP, will be ready. The lobbyists say they prefer that to a hasty reform, saying it is “not the OAK’s remit to issue a decree telling the pension fund experts which recommendations to make.”

Asip also objected to an OAK risk control proposal, saying the group is “overstepping its authority.”

Last fall, the OAK was given more authority over asset allocation and governance concerns. Although Asip was fine with these changes, it warned that the regulator “does not need any further authority” for a fund’s investment decisions.

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Home > News > Newsmakers > San Diego to Pursue Managed Futures Strategies in Diversification Quest
Newsmakers

San Diego to Pursue Managed Futures Strategies in Diversification Quest

The pension is now studying the impact of a 2% to 4% allocation to managed futures on the total fund.

By Elijah Owens

The San Diego County Employees’ Retirement System (SDCERS) and its consultant, Aon, have decided to pursue a new managed futures strategy, concluding its investigation over how to best diversify its $8.3 billion portfolio.

During its past several meetings, the retirement system explored managed futures and alternative risk premia strategies for their mutual attributes inclusive of low correlations to traditional asset classes, downside protection, attractive risk/return profiles, and appealing terms relative to other liquid alternative investments.

After hosting a number of interviews, SDCERS and Aon decided to only pursue managed futures strategies, citing that alternative risk premia strategies may add unnecessary complexity and have limited track records with no history of performance during a major market downturn. Additionally, alternative risk premia strategies were predicted to expose the institutional investor to higher manager risk, since those managers interviewed had large dispersions regarding performance and returns.

As a result, the pension is now studying the impact of a 2% to 4% allocation to managed futures on the total fund.

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Aon provided SDCERS with a report on the potential implications and benefits of a managed futures strategy, highlighting its low long-term correlation and beta to global equities as a primary benefit, historically performing as a strong diversifier during stressful economic conditions. Such periods include the 2008 crash, the World Trade Center attacks, and Black Monday, where managed futures performed exceptionally well compared to other asset classes.

According to Aon, managed futures are expected to generate returns between 6-12% through their strategy of predominantly exploiting momentum in prices, implemented primarily through futures and forward contracts.

The consultant also warned that managed futures, due to their trend-following strategy, may suffer at market inflection points or in “choppy” markets, and typically have reduced return expectations in sideways markets.

SDCERS will now work cementing either a 2% or 4% allocation before bringing forth specific manager recommendations to carry out the new strategy. The pension was 71.2% funded as of June 30, 2017, according to its most recently issued comprehensive annual financial report.

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