SWITZERLAND - The boom in alternatives has been broken by the financial crisis and Swiss investors are placing their money elsewhere, Michael Brandenberger of Swiss consultancy Complementa has suggested.
In its latest risk check-up, Complementa said it saw a further increase in allocations to alternatives, continuing a prominent trend of the Swiss pensions market over recent years.
But many fund managers have seen major outflows in the first halve of 2009 "and this is not just from retail customers", Brandenberger pointed out.
"Personally, I think pensionskassen will invest less in alternative asset classes," claimed Brandenberger.
When asked whether this was true of all alternative investment categories, Brandenberger predicted it would likely hit hedge funds.
Herbert Brändli, head of the Profond multi-employer fund, said while he thinks private equity could offer "interesting possibilities", other constructions including derivatives and hedge funds are speculative and therefore not suitable for long-term investors like pension funds.
Alfred Bühler, partner at PPCmetrics, also explained at the conference of the Swiss pension fund association ASIP in Zurich that diversification had been less effective in 2008 than during the previous crisis in 2002.
While hedge funds and commodities had performed positively in 2002, it was only directly-held Swiss real estate which had a positive effect on last year's returns.
"Maybe there should be a return to simpler asset categories, and new asset classes only be added when it is certain that they also add value," suggested Bühler.
He noted that many hedge funds, convertibles as well as high-yield bonds add equity-like risk to the portfolio, which in turn lower the diversification effect.
That said, he stressed the diversification between equities and government bonds worked just fine both in 2002 and 2008.
In contrast to earlier arguments, Peter Bänzinger, chief investment officer at Swisscanto, the asset manager, said he believes alternatives will remain a part of pension fund portfolios.
"The return necessary to fund the system cannot come from bonds alone," he explained. "It has to come from equities and alternatives as well."
He also argued that the current asset allocation of the average pension fund will not yield enough return over the long-term.
The average equity quota in the Swiss pension system declined from 30% to just over 20% in 2008, according to Swisscanto.
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