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Swiss pension fund attacked for hiring American custodian

05 January 2012

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A major Swiss public pension fund has been criticised by a newspaper for awarding a custodian mandate to an American bank

The Zurich BVK civil servants' fund, no stranger to negative headlines after suffering deficit problems and corruption scandals, was criticised in the Christmas Day edition of the Sonntag newspaper for appointing JPMorgan as its custodian.  

An article centred on suggestions that a new global custodian mandate award to JPMorgan had led to some considerable anger amongst the local pensions industry, seemingly due to the US firm's role in the financial crisis.

An 'involved banker' was quoted as saying "that a public institution of the Canton of Zurich should consider an American bank of all things, is more than questionable given the background of attacks from the USA on Switzerland".

The 'attacks' mentioned could be a reference to the money which flowed into the Swiss Franc at the start of 2011, harming the local export industry and forcing the Swiss National Bank to peg the Franc to the Euro.

Zurich Cantonal Bank, UBS and Credit Suisse submitted losing bids for the mandate along with previous custodians State Street.

The report provoked a detailed defence from both the pension fund and Zurich's Cantonal Finance Authority, which has a key role in supervising funds in the region.

Both pointed to errors in the Sonntag report, such as a claim in the headline that JPMorgan was managing assets for the fund, which is not something custodian banks do.

The Zurich Finance Authority also said that in a tender process "all participants, no matter where they come from, must accept losing out in an open and transparent competitive process because another offer was more convincing."

The geography behind Swiss mandates award was analysed in an October 2011 report from German consultants Funds@Work. This article contended that the Swiss pension industry could suffer from favouring too many Swiss 'local champion' asset managers, in contrast to the fears in the recent Sonntag report on awards to firms headquartered overseas.

US and British firms were argued to already be part of an "inner circle" of favoured asset managers. The report suggested that Swiss pension funds could be open to more continental European asset managers to boost competition.

dbillingham@wilmington.co.uk