The Swiss pension fund for Lucerne is expanding its impact investment allocations in private markets, all while impact investing remains relatively unusual among the country’s pension funds.
According to its sustainability report, Luzerner Pensionskasse (LUPK) plans to increase capital commitments to private equity impact investments from 15% currently to 25% by 2028.
Private equity accounts for 2% of LUPK’s CHF11.4bn (€12.5bn) total portfolio and forms part of the scheme’s 9% allocation to alternatives.
The pension fund said capital commitments to its private equity impact investment programme have so far reached CHF100m.
Through the programme, LUPK takes stakes in companies operating in healthcare, education and climate solutions, among other sectors.
The pension fund also plans to increase the share of renewable energy and climate solution investments within its infrastructure portfolio from 60% currently to more than two-thirds by 2028.
LUPK’s strategy foresees a 4% allocation to infrastructure across total assets under management, while allocations to micro-finance loans are set to rise to around 0.5% of total assets.
The pension fund said impact investments in alternatives are carried out in line with the United Nations Sustainable Development Goals.
Still niche
LUPK’s expansion of its private markets impact investment programme contrasts with broader trends among Swiss pension funds.
Consultancy Complementa said it is not seeing growing interest in impact investing, which is typically used to build satellite positions or diversify allocations.
“Some pension funds maintain a targeted focus on renewable energies. In private debt, a few pension funds invest in micro-finance, a space where the concept of impact investing plays a significant role, alongside diversification and new sources of return,” said Andreas Rothacher, head of investment research at Complementa.
Swiss pension funds generally remain cautious towards impact investing, according to Stephan Skaanes, chief executive officer at consultancy PPCmetrics.
Pension funds are required to generate market-rate returns to secure members’ benefits over the long term.
“For them, generating returns stands clearly in the foreground. The deliberate creation of social or environmental impact is not a statutory objective for a Swiss pension fund,” Skaanes added.
Pension funds typically only consider impact investments offering risk and return characteristics comparable to traditional asset classes, he said.
“Overall, impact investing represents an exciting space for non-profit foundations, whereas pension funds continue to act with great caution, assessing the possibility of impact investments only in exceptional cases, and subject to strict return requirements,” Skaanes said.
