SWITZERLAND - Swiss institutional investors are holding fluctuation reserves of only 3% of their assets compared with 16% three years ago, according to a survey. Only 10% of institutional investors, which include pension funds and foundations, have fluctuation reserves of more than 10%.

This is one of the findings of a survey of the investment activities of Swiss institutional Investors between 2002-2003.

The survey, the fourth of its kind, was carried out by Graziano Lusenti, head of pension find advisers Lusenti Partners, and Credit Suisse Asset Management. It covered 195 institutional investors representing 40% of occupational pension assets, 30% of employers with occupational pension schemes and 40% of employees covered by the schemes.

Fluctuation reserves, which protect against market volatility, are created by crediting a rate of return to retirement accounts which is below the actual market return achieved by the pension plan’s investment. Typically, they will be 10% of a fund’s assets.

Graziano Lusenti commented: “The institutions that responded to the survey currently hold fluctuation reserves of just 3% on average, which means institutional investors are now vulnerable to new bearish phases in the equity and bond markets.”

Almost half the institutions said they were underfunded in 2002, although the average underfunding was 99%. Only 15% of the institutional investors surveyed said they had cover of less than 90%.

Of the underfunded institutional investors, 56% had taken action by dissolving their fluctuation reserves 47% had changed their asset allocation, 30% had increased employer contributions, and 28% had increase employee contributions. A substantial proportion – 74% - said they had reduced their minimum rate of return.