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ECB interest rate decision 'like a tax', says Switzerland's Publica

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  • Zurich, Switzerland

Stefan Beiner, head of asset management at Publica, Switzerland’s largest pension fund, has said the European Central Bank’s (ECB) recent rate cut had been largely “expected by the markets” but was exactly what European pension funds did not need.

He pointed out that the ECB had to date been “less active” than other central banks, and said it was “understandable” that it wanted to try and ensure that, in the real economy, the amount of loans for corporations and consumers would expand.

“I do not know whether this measure will actually have a net positive effect on the real economy,” he added, “but we as pension funds are suffering from the low interest rates.”

Beiner called the rate cuts a “tax”, which “we – as savers – have to pay via low interest”.

He said a rate increase would “hurt pension funds over the short term with an accounting loss” and that, over the long term, higher interest rates would help the pension fund industry.

Currently, 10-year Swiss government bonds yield 70 basis points, while a recently placed 50-year Swiss government bond yields just 1.6%.

For Publica, which has CHF36bn (€29.5bn) in assets under management, the ECB’s decision to lower the benchmark interest rate from 0.25% to 0.15% means “risk-free(ish) assets have become even more unattractive in terms of return expectations”, and demand for riskier assets such as equities will “potentially increase”.

But Beiner warned that equities from industrialised countries, for example, were already “priced quite ambitiously”, and that “many of the underlying structural problems remain unsolved”.

At the Swiss Pension Conference, Beiner said Publica reduced its equity exposure at the beginning of the year, as he expects lower returns from the asset class in the coming years.

Instead, the fund is considering to go into private debt such as infrastructure debt and direct lending. 

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