SWITZERLAND- Switzerland’s first pillar federal pension scheme Ausgleichsfonds der AHV has started a radical overhaul to its asset allocation following new legislation allowing it to invest in global equities for the first time. The CHF19.7bn (e13.4bn) fund has already appointed Credit Suisse for a passive global equity mandate and three currency overlay managers to oversee the currency risk in its global fixed income mandates. As part of the overhaul, the fund is sending out RFPs in March and June.

Six years ago it was legally bound to invest solely in Swiss franc-denominated bonds. Legislation in 1996 allowed it to branch into foreign fixed income; 1997 and the fund was allowed to buy Swiss equities and only last year was it allowed to invest in global equities.

Managing director of the fund Dominique Salamin says at present they have 70% in local fixed income, 6% in global fixed income, 13% in Swiss equities, 10% in global equities and 1% in real estate. Following the overhaul, which will take between two to three years, holdings in local fixed income are set to fall to 40%, the share of global fixed income will rise to 15% and holdings in foreign equities will more that triple to 32%. Swiss equity holdings will fall to 8% and real estate investments will rise to 5%.

Most of the fund is passively managed fixed income at the moment but it intends to invest loan and bond redemptions in global equities. Salamin says that it is inevitable more investment managers will be appointed although it is too early to tell precisely how many. March’s RFP is looking for two managers to oversee a total of CFH600m in small and mid-cap US equities and the June equivalent is looking for two managers to run a total CFH400m in small and mid cap European equities.

The appointment earlier this month of Credit Suisse to run a ChF1bn passive global equity fund takes the number of global equity managers to three. According to Salamin, this is a new mandate borne out of loan and fixed income redemptions. UBS Phillips & Drew run a global equity mandate indexed to the FTSE World and State Street does the equivalent against the Dow Jones sustainability index.

Earlier this month the fund appointed Bridgewater, Pareto and State Street global Advisors to provide currency overlay for the global bond portfolio which is run by JP Morgan and Swissca. Previously this was unhedged but, says Salamin, “we realised the currency risk is going to increase on the overall portfolio if you consider the overall currency risk from global equities and global bonds,” he says. Salamin says they appointed three managers as a means of diversifying manager risk.