Nest Sammelstiftung reconsiders private markets approach

Nest Sammelstiftung, the Swiss multi-employer pension fund for small and medium-sized companies, is rethinking its approach to private market investments.

The reason for this is that Nest is cleaning up its portfolios, for example by increasing efficiency and reducing costs within asset classes, according to the fund.

“We are currently examining how wise it is to invest in private markets since the fees are very high and the added value is questionable,” chief investment officer and member of the executive board Diego Liechti told IPE. 

He added: ”Moreover, there are problems relating to governance with private market investments that have not yet been solved,” 

The Swiss pension fund has reduced asset management costs in the past years to 0.58% of the total assets, from 0.91% in 2015. As AUM grew, the structure of the portfolios was simplified, and new mandates were tendered, the scheme said in its 2022 financial statement. 

The pension fund expects to see a further significant reduction in terms of costs for asset management this year, it said.

Nest continues to diversify allocations investing in all important asset classes, not seeing at the moment the need for new investments in equities, bonds or private markets.

It has kept its asset allocation intact, steering clear from making major changes in the past six months, and thinking long-term.

“The reason is, to put it simply, that the interest rate hikes affect all asset classes and not much has really changed with regard to how investment categories are of interest for us,” the CIO said.

So far this year, Nest has returned 3.69% on invested assets, a performance that led the technical funding ratio to improve to 105.2%, as of the end of June, from 102.5% at the end of last year, driven by returns on equity markets. 

“Currency hedging has also been useful because the Swiss franc was very strong. Compared to the benchmark, we have lost some performance due to the higher exposure to illiquid markets and the exclusion of large tech stocks due to a lack of sustainability,” the CIO explained. 

The scheme has fully recovered from last year’s negative performance of -10.2%, which was  0.33 percentage points above its own benchmark, according to its 2022 financial statement.

However, Nest’s economic funding ratio, which gives an idea of the share of liabilities covered by the assets, fell again, as interest rates in Switzerland have fallen slightly, Liechti said.

Assets under management total CHF 3.7bn. 

The scheme invests 21.5% of its total assets under management in nominal value investments in Swiss francs, 8.3% in nominal value investments in foreign currency, 26.4% in real estate, 26.5% in equities, 14.5% in alternative investments, and 2.9% in cash, according to the 2022 financial statement. 

Nest’s tactical positioning, according to its allocation across asset classes, is close to its investment targets, Nest added.

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