Opening up Switzerland

According to VF, ASIP's new president Christoph Ryter named opening up of Switzerland for European retirement solutions as one of four main challenges that the influential Swiss association will have to live up to during his presidency.

CFA Institute's XBRL page

The CFA Centre for Financial Market Integrity now has its very own XBRL page (no RSS feed, yet!) to watch. While it's great that the Institute endorses XBRL, one wonders why it is only actively involved with XBRL in one country (where the Institute happens to be domiciled) ...

Regulatory distortion

IPE refers us to an interesting OECD study modelling the optimal asset allocation for an identical pension fund, over a 30-year period, according to the regulations of five OECD pension jurisdictions. It found an identical pension fund which was fully funded according to UK standards would appear 87% funded in the Netherlands and 69% funded under German rules. Optimal asset allocation strategies also differ between the jurisdictions. Since good regulation should at least attempt to not distort economic reality, this certainly looks like an interesting paper.

Institutional hedge funds?

Some will find this excessively dogmatic, but I still subscribe to the view that there is no conclusive evidence yet of the need for hedge funds (meaning active absolute return strategies) in the institutional asset management business. To provide such evidence, it would be necessary to demonstrate that hedge funds' risk-adjusted performance after fees is located on the efficient frontier over an entire market cycle, and that would have to hold in the present constellation with relatively huge allocations to the segment.

In my view, hedge funds are perfectly appropriate for private wealth because of individual investors' known disproportionate avoidance of loss. In the case of institutional investors whose equity is subject to volatility of assets and liabilities, absolute return strategies may be net inefficient at best, or they may even create additional asset/liability mismatch and thus be entirely counter-productive if considered from a comprehensive balance sheet risk management perspective.

That being said, the traditional distinction between hedge funds as providers of absolute return strategies on the one hand or alpha engines on the other becomes increasingly blurred. It is therefore advisable to keep a close watch on the industry, especially given the recent competitive pressure on excessive and asymmetrical fees exerted by institutional investors (epn story).

Commission addresses differential taxation of investment income

Following complaints by the EFRP, the Commission has initiated Treaty infringement proceedings against a number of member states which do not grant the same preferential tax treatment of investment income (interest, dividends) to pension funds resident abroad as domestic funds receive. Even though there is no direct reference to the Pensions Directive in the text, the relevance of this step to an efficient investment regime of cross-border pension funds is obvious. (FT)