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Basel pension fund to move into private equity, senior secured loans

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Pensionskasse Basel-Stadt (PKBS), the CHF11.2bn (€10.3bn) pension fund public employees of the Swiss city of Basel, is to invest in private equity and senior secured loans, one of two moves it weighed as part of a search for yield in the prevailing low interest rate environment.

The decision was taken by the pension fund’s board of directors at the end of May, and was effective 1 July.

It allows the Pensionskasse to invest up to 3% of its assets in each of the asset classes, which the pension fund said will enable it to raise its return expectations across its total portfolio without having to take on “excessive” risks.

The pension fund also considered making changes to its asset allocation without venturing into new asset classes, which would mainly have involved increasing the equity component of its investments.

It decided that expanding its investment universe was the better option, in particular from a risk and risk diversification perspective.

Private equity and senior secured loans emerged as appropriate additions to the Pensionskasse’s asset allocation, it said.

PKBS returned 1.19% in 2015, acknowledging that this fell far short of its target return of 4.6% for that year. Its target return since 1 January 2016 was reduced to 3.6%.

In the first half of this year, the pension fund has achieved a performance of 1.56% on its investments.

As at the end of 2015, some 31% of its assets were invested in equities, followed by nearly 25% in bonds and real estate.

It also invests in mortgages, loans, and commodities, and the short-term money market. 

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