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Swiss institutions still vulnerable – Lusenti

SWITZERLAND - Swiss Institutional investors “remain vulnerable” as returns in 2004 did not leave room for improvement, according to a report by Lusenti Partners.

The survey, sponsored by Credit Suisse Asset Management and based on a sample of 163 institutional investors with total assets of CHF169.2bn (€109.2bn), speaks of a “subdued year” for Swiss institutional investors.

Average returns at the end of the third quarter of 2004 have been between three and four percent with bigger institutions, especially in the public sector, doing marginally better than their medium and small counterparts.

Indirect real estate investments have yielded 3.2%, Swiss equities 2.9%, while alternative investments, like private equity and hedge funds, have failed to fulfil expectations with 1.2% average returns.

Swiss institutional investors are coping implementing “stabilising measures” like reviewing asset allocation eyeing real estate investments, “the determining” factor for better performance of big and medium institutional investors.

In 75% of cases, the adjustments have consisted of a reduction in equities of up to five percent with occasional reductions of more than 10%.

Extra measures, including re-view of the investment strategy and higher controls, are currently under way and “are set to continue or even increase”.

Two-thirds of participants modified their strategic allocation between 2001 and 2004, reducing exposure to Swiss and foreign equities in favour of indirect real estate investments.

The average recovery ratio has also been “slightly eroded” in the first nine months of 2004, to 108.6%, compared with 101.6% on June 2004. With the fourth quarter’s returns, however, it is poised to align itself with 2003 levels or get “even very slightly higher”.

But the report also invites not too draw bleak conclusions: “The proportion of institutions with severe problems should not be overestimated.”

“It would be wrong to overestimate the number and proportion of institutions that are in severe difficulties and are forced to take corrective measures,” the report continues, stressing that 52% of participants did not implement stabilizing measures.

Polled institutional investors set the expected return for 2005 between 4.07% and 4.16%.

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