SWITZERLAND - Funding levels at Swiss Pensionskassen last year returned to where they were in 2009 following a steep drop in the second quarter, Swisscanto has calculated.

On average, the 420 pension funds - with combined assets of more than CHF400bn (€312bn) - returned 2% for the year, with little difference in the performance between public sector and private funds, according to Swisscanto.

However, the asset manager added that this return was a "conservative estimate" based on the funds' year-end 2009 asset allocation.

This might be one reason why the figures are slightly below the 2.9% average Credit Suisse recently calculated for its sample of 100 Pensionskassen.

Looking at the funding levels, Swisscanto noted that all funds, both public and private, suffered a setback in their recovery in the second quarter, which pushed funding levels below year-end 2009 levels again.

The average for all funds increased to just over 100% after the first quarter, then dropped below 98% and has since recovered to 98.5% - similar to the level at year-end 2009.

In total, 60% of public funds and 15% of private funds remain underfunded.

Public pension funds now stand at an average 91.8% funding level, whereas private funds are fully funded at 104.5% on average.

In other news, the Swiss public pension fund Publica posted a return of 5.1% for 2010, but only because it hedged all currency bets, the Pensionskasse noted.

The return for the CHF33bn (€25.7bn) fund for public entities was well above the 2% average calculated for various samples of Pensionskassen for 2010.

Publica said the full systematic hedging of all currency risks in the portfolio had added 4% to the performance because the fund did not suffer from the weakness of the US dollar, the euro and the pound.

Had the fund not hedged the currencies, the assets alone would only have yielded a 1.1% return, it added.

However, over the long term, the fund does not expect a direct performance contribution from the currency hedges, as the euro in particular might start to perform better again.

But Publica pointed out that currency hedging had been put in place to reduce non-rewarded risks in the portfolio, which in turn freed up risk budget that could be used to purchase more equities.

In 2009, the fund managed to return to full funding following a strong annual performance.