Switzerland proposes 5% venture capital allowance for pension funds
The Swiss government has proposed to make it easier for the country’s pension funds to invest in venture capital for domestic start-ups.
Earlier this month the government asked the federal internal affairs department to look into introducing a category dedicated to Swiss venture capital into the investment guidelines for occupational pension funds.
Any investments made under this category would be capped at 5% of a pension fund’s total assets and would drop out of the existing alternative assets allocation bucket, according to the government.
It also emphasised the importance of investment product transparency, calling for discussions on how to deliver this and suggesting an industry-led approach as a potential solution.
However, one Swiss pension fund CEO was dismissive of the proposal’s significance, describing it as “completely irrelevant” and a political concession. Pension funds could already invest in venture capital if they wanted to under the current framework, the CEO told IPE.
The proposed change goes back to a parliamentary motion from December 2013, which called for regulatory and legal changes to allow pension funds to make long-term “future-oriented” investments. It also proposed that the government initiate the creation of a “future fund” to invest in innovative Swiss companies. Questions were raised at the time about whether this was intended to be mandatory or voluntary for pension funds.
Hans-Peter Konrad, director of ASIP, the Swiss occupational pension fund association, welcomed the government recognising that “the extent to which individual pension funds are able and want to exploit the potential of venture capital investments also depends on their respective risk capacity”.
The government was right to underline that responsibility for investment decisions should remain exclusively with the individual pension fund, added Konrad.
“We will see if the proposed amendment has an impact on pension funds’ investment behaviour,” he said.
The government said a 5% asset allocation allowance would be big enough to fully cover any demand for venture capital in Switzerland, but small enough not to endanger the security of occupational pension provision.
However, it said that, for risk and return reasons, Swiss workplace pension providers had invested little directly in “venture capital Switzerland”, instead opting for global diversified private equity mandates.