ZURICH - Daniel Gloor is mad as hell, and he's not taking any more.
The investment chief of one of Europe's largest public pension funds, Mr. Gloor lambasted money managers for their big salaries and poor performance, and signaled the 16.1 billion Swiss franc ($11 billion) Canton of Zurich Pension Fund may bring management of some 400 million Swiss francs in domestic small- and midcap stocks in-house.
Mr. Gloor launched a broadside against managers, Wall Street and Swiss bankers, emerging markets and hedge funds in an interview with Pensions & Investments. The scheme, known as BVK, covers the canton's civil servants. It lost 1.4 billion Swiss francs on its investments during 2001, the worst return since the plan started asset management services in 1986.
The performance was identical to the median money manager return of -7.1% as recorded by ASIP/Watson Wyatt, Zurich.
Mr. Gloor depicted money managers as overpaid, self-interested "idiots" concerned exclusively with enriching themselves. "These people on million-dollar salaries or more are doing nothing for us. They are doing a lot of trading, causing a lot of transaction expense for no real advantage," he said. He complained about paying 40 to 70 basis points on average in management fees without getting results. "We are not willing any more to pay these fees," he said.
"I tell the board that we should fire them and at least hire our own idiots and pay them million-dollar salaries to lose money," he said.
To hire internal managers, however, Mr. Gloor will need the approval of the Swiss Parliament to create a separate investment management entity that could pay competitive salaries. But there's a catch: to get the legislation passed, the fund will have to be fully funded. The Canton of Zurich fund now is hovering around the 90% funding mark.
Without the legislation, Mr. Gloor will remain the canton's sole investment professional - and only part time at that, since he spends most of his time as the canton's treasurer.
Rudolf Lortscher, managing director, institutional business, at UBS Global Asset Management, Zurich, disagreed with Mr. Gloor, saying while money managers' fortunes did experience ups and downs, over the long term they could add value - even after fees.
None too happy
Mr. Gloor is none too happy with his managers of U.S. equities. "The banks are hopeless in the U.S.; we are happy with just two out of four managers. We won't give any more mandates to big banks," he said.
The BVK recently terminated Montgomery Asset Management, San Francisco, a subsidiary of Commerzbank, as manager of a 105 million Swiss franc active U.S. small and midcap equities portfolio, transferring the assets to Dimensional Fund Advisors Inc., Santa Monica, Calif., to run in an enhanced passive portfolio. Ed Dunn, a spokesman for Montgomery, declined to comment.
The other managers all run small-cap or midcap U.S. stocks. They are William Blair & Co., Chicago; Barrow, Hanley, Mewhinney & Strauss, Dallas; and INVESCO, Denver. Amounts for each manager were not available.
Nor does he think hedge funds are the way to go. " am not such a fool," Mr. Gloor said. Last year, the average hedge fund in Switzerland returned 4.5%, he said, while charging a base fee of 3%. In comparison, Mr. Gloor said his cash portfolio returned 5%.
Mr. Gloor also had harsh words for analysts who have conflicts of interest with the investment banking side, whether on Wall Street or in Zurich.
"This industry has become so sick, I don't believe in them (Wall Street firms) any more. They have two concerns - making careers and making money," he said.
Mr. Gloor confirmed the fund had ditched its five-year experiment with emerging market equities, saying pension funds should not invest in "criminal states."
The scheme until recently had 218 million Swiss francs invested in total by UBS Global Asset Management; Fondvest (since acquired by UBS); State Street Global Advisors, Boston; and Barclays Global Investors, San Francisco. The first two mandates were actively managed; the latter two were passive.
"In five years, we have had a 0% return from emerging markets. No more investments in criminal states," said Mr. Gloor, singling out African, South American and Eastern European countries.
"Pension funds shouldn't be financing these states. There is no political stability, no stability of contracts, but there is corruption, poor economic conditions and poor state of law. Banks are telling you to go in, but they are only interested in selling you a product," said Mr. Gloor, whose wife is Peruvian.
Mr. Gloor does not blame bankers for all his problems. The fund's 480 million Swiss franc investment in global sector mutual funds - "the nightmare category" - has lost about half its value. Those funds are largely invested in technology, biotechnology and pharmaceutical stocks.
"We earned a lot of money. We never sold. I was a fool," he said.
Looking back, Mr. Gloor feels older but wiser. After 10 years of good performance, "the last two years have been the most difficult of my life," he said.