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German and Swiss investors diverge on alternatives strategies

Swiss Pensionskasse are demonstrating an appetite for infrastructure assets as they seek to diversify their alternatives exposure.

Speaking at the Institutional Retirement and Investor Summit in Vienna last week, Roger Mohr, chief financial officer at the CHF300m (€245m) pension fund for the Swiss air rescue service Rega, said the fund was seeking further diversification for its alternatives portfolio via infrastructure debt.

“Infrastructure debt allows us to skim the illiquidity premium and for our fund it does not matter if 20% to 30% of the portfolio is less liquid,” he said.

The Pensionskasse currently invests 16% of its assets in alternatives, with an increasing share of that being out to work in infrastructure and private equity.

“Our strategic allocation is 19% but not all our capital calls have been invested yet,” Mohr said.

When Swiss government bonds turned negative, new investments were made in “alternatives in the fixed income segment”.

Mohr said: “Back then those were insurance-linked securities and catastrophe bonds, but those have become quite expensive already, especially when hedged in [Swiss francs].”

For the CHF12bn ASGA Pensionskasse in Switzerland, infrastructure was also the way forward to further diversify the alternatives portfolio, said Sergio Bortolin, CEO.

“But we are struggling to find new investments at the right time, so we are using proxy investments with higher liquidity to be able to take out the money when necessary,” he said.

After a strategic review of the alternatives segment – which makes up around 17% of the portfolio – the pension fund began reducing its exposure to hedge funds, as the performance expectations hedged to Swiss francs were no longer being fulfilled.

“We are also switching from a fund-of-funds construct to an individual fund to have more access and control over the around 300 hedge funds we are investing in,” Bortolin added.

However, for investors like Pensionskassen in Germany – which are a completely different construct compared to the pension funds of the same name in Switzerland – investing in alternatives is much more difficult.

Andreas Hilka, board member at the €7.9bn German Hoechst Pensionskasse, cited regulation as a limiting factor: “There are very strict rules for German Pensionskassen like stress tests and a requirement to be fully funded at all times. This means we cannot be invested economically correctly at all times.”

Referring to credit risks in the portfolio, such as investment grade and high yield bonds, Hilka said: “Those have generated a lot of performance over the last [few] years but now we would like to reduce the credit risk. However, based on our risk specifications there are no risk-adjusted alternatives.”

Charlotte Klinnert, CFO at the €750m Pensionskasse for the German Red Cross, said the cost of alternatives was a limiting factor.

“Complexity is an issue which renders some alternative investments unaffordable, they simply are not worth the effort,” she said.

In addition, the Pensionskasse had a low capacity for risk, Klinnert said. The core portfolio of bonds, equity and real estate was balanced to match the fund’s risk profile, meaning that “alternative investments like infrastructure are no option for us”.

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