Lowering fund exposure
Asset allocation strategies for Swiss pension have always include a significant exposure to property investment. Real estate investments in Switzerland are among the highest in Europe, at an average of 16% of pension funds total asset, but this trend is increasingly loosing ground to equity and bond investments as pension funds increase their size.
Based in Zofingen, the Personalfursorgestiftung der Ringier, the Sfr680m (E447m) pension fund for media employees of publishing group Ringier, has long been investing in property.
“In Switzerland pension funds invest between 15 to 25% of total assets in property,” says Martin Aggeler, chief financial officer at the Ringier pension fund in Zofingen. “One of the reasons for this has always been the low correlation between this type of investments and other asset classes, especially equities, and also stable returns of around 5%,”he says. “However, the exposure to property has decrease in the recent past and I think it will continue going down.
“In the past pension funds in Switzerland used to invest up to 35% of their total assets, but this percentage is now significantly lower,” he says. This does not mean that Swiss pension funds have been selling their property holdings, but that, as the size of the funds has grown significantly during the last few years, the percentage of total assets directly invested in real estate is now lower than before and will continue to decrease.
Currently, the Ringier pension fund allocates around 23% of its assets in property investments. “Around 17% of the fund assets are invested directly in property and around 5-6% are indirectly invested through funds,” Aggeler says.
This is the general rule among pension funds and it doesn’t seem to be a strong tendency among Swiss trustees to increase their fund’s exposure to externally managed real estate funds in the near future.
Regarding the returns of property investments that the pension fund has had in the recent past, Aggeler notes that, as far as their own internal property investments is concerned, those have been stable, returning an average of 4.5%. “The returns of the external real estate funds have been more volatile compared to those of our own property investments,” he says. For its indirect investments in property, the pension fund uses closed-ended real estate funds domiciled in Switzerland and managed by Swiss banks.
But Aggeler could reduce holdings in these funds “I believe that in the next three to five months the price of this type of fund will be higher and we will probably reduce our exposure to these products.”
As to how this reduction will affect the asset allocation strategy of the pension fund, he comments they will probably see an increase in the fund’s exposure to foreign equity. Regarding the internally managed property holdings of the pension funds, Aggeler says they are not planning to make any significant changes in the months to come.