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Commodities taking Swiss funds’ fancy – Lusenti

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SWITZERLAND - Swiss pension funds voted commodities the winner among alternative assets when it comes to transparency, liquidity and costs, consultancy Lusenti found in this year's institutional survey.

When asked to rate hedge funds, private equity and commodities, the latter only lost out in performance expectations where private equity was rated best.

Hedge funds and private equity were rated worst on costs and liquidity, the Swiss consultancy found in its annual poll of around 146 pension funds ,including public, industrywide and company-specific vehicles.

Despite the positive rating of commodities, this asset class makes up a very small part of Swiss funds' already low alternative asset exposure.

In total, the polled funds invested CHF15.5bn (€9.4bn) or around 7% of their collective assets in alternatives. Of this total, CHF8.7bn were invested in hedge funds, CHF3.1bn in commodities and CHF 2.8bn in private equity. The rest goes to other alternatives including infrastructure funds and insurance-linked securities.

"This situation can be explained by the fact that investment in commodities has only started very recently and is still developing," the report noted.

While private equity has been in broader use by Swiss funds since 2001 and hedge funds since 2002, commodities have only become more widespread since 2005.

As with hedge funds, which quickly surpassed private equity investments once they were widely accepted, assets in commodities are also predicted to rise quite quickly.

However, the Swiss consultancy points out the funds are still "in a trial and learning phase" when it comes to alternative investments.

While 78% of all funds are invested in alternatives their average exposure is very low with 4.1% in hedge funds, 1.7% in commodities and 1.2% in private equity.

"For future development, two opposing trends are possible: A significant increase in the allocation should the results and experiences turn out positive or a decrease in the number of institutions investing in alternative assets," the consultancy pointed out.

"At the moment, it is impossible to predict which trend will prevail."

In the first part of the study, published last month, Lusenti found much of the 3.5% return by Swiss pension funds for the first half of 2007 was generated by alternative investments. (See earlier IPE article: Swiss funds return 3.5% - Lusenti)

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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