Swiss BVK avoids CHF1bn loss with 'comprehensive' currency hedge
The pension fund for the Swiss canton of Zurich (BVK) has said its currency hedge prevented more than CHF1bn in losses after the Swiss National Bank’s recent decision to abandon the franc’s peg to the euro.
The CHF28bn scheme said it had “comprehensively hedged” its currency positions, allowing it to weather the volatile currency shifts of recent weeks “comparatively well”.
For the whole of 2014, currency hedges returned 6.1%, slightly lower than the national average but still above the BVK’s internal benchmark, which returned 6%.
The BVK acknowledged that currency hedges introduced three years ago meant it would profit less from last year’s strong US dollar, adding that, without the costs for the hedge, the overall 2014 return for the pension fund would have been 8.4%.
Similarly, Publica, Switzerland’s largest public pension fund, reported an annual return of just under 6%, attributing its underperformance – relative to the national pension-fund average of 8% – to its currency hedging policy.
The BVK said its performance for 2014 was a positive step in achieving its goal of full funding.
The scheme’s funding level now stands at 99.3%, up by more than 300 basis points year on year.
It added that one of the main performance drivers last year had been directly held property, which returned 5.6%.
The BVK also announced that all of its asset managers and consultants confirmed in writing last year that they were not withholding any bonuses they might have received, working on behalf of the pension fund, with third parties.
With respect to the corruption scandal that rocked the scheme in 2011-12, the BVK said that external experts, as well as internal councils, were still looking into questions of responsibility and liability, and would keep the public informed of any future developments.
Have a look at this article by Alfred Buehler and Lukas Riesen on what the Swiss can expect from their pension funds