The Association of Swiss Pension Funds (ASIP) has complained that its member pension funds are acquiring too much short-term risk in a bid to avoid falling into deficit.
The Association of Swiss Pension Funds (ASIP) has complained that its member pension funds are acquiring too much short-term risk in a bid to avoid falling into deficit.
An ASIP press release, announcing that Swiss pension funds' assets had flatlined at 0.0% growth in 2011, made a series of comments on funds' investment appetites.
The release noted that "due to statutory requirements (e.g. the consequences of being in deficit at the end of the financial year) short-term risk is increasingly gaining the upper hand [over long-term risk]."
This could reflect a concern for pension funds to avoid posting deficits that would force trustees into making tough decisions. If there is no injection of cash from a sponsoring company to close a deficit, a fund would need to look to more contributions from members and employers or cutting benefits.
ASIP warned though that "the investment of pension fund money surely can't follow short-term speculation. Boards need to base decisions on which investment strategy to follow based on the ability of their pension fund to absorb risk and the chance of their high-risk investments generating enhanced returns."
Going nowhere
ASIP blamed international economic turbulence and the European sovereign debt crisis for Swiss pension funds failing to generate returns in 2011.
Negative returns in equity investing were cancelled out by strong performances in bonds and the Swiss real estate market.
Domestic real estate mandates yielded 5.5% on average when invested directly and 5.8% when invested indirectly by pension funds.
Swiss bonds returned 4.8% on average and overseas bonds 2.7%.
The ASIP return survey found that 43.2% of Swiss pension fund assets were invested in bonds at the end of 2011 and 26.5% in equities. This position marked "no significant change in asset allocation" from 2010.
ASIP base their twice yearly return studies on the performance figures of 60 Swiss pension funds with a combined CHF 187 billion in assets (£129bn) – around 30% of the country's combined $693bn pension assets.
dbillingham@wilmington.co.uk
