The CHF3.8bn Swiss pension fund Siemens Pensionskasse is set to expand into direct lending as it seeks to diversify its portfolio and enhance returns.
Chief investment officer Fausto Ciapponi told IPE that the move is intended both to broaden the fund’s investment universe and to capture the illiquidity premium relative to senior loans.
The pension fund currently invests in senior secured loans through fund structures to maintain liquidity.
Siemens Pensionskasse refined its investment strategy and improved its risk/return profile following an asset and liability management (ALM) study conducted last year.
As a result, it increased allocations to Swiss real estate, equities and infrastructure, while reducing exposure to foreign bonds, primarily government bonds, Ciapponi said.
Infrastructure in focus
Swiss pension funds regularly review allocations to alternative assets to assess their suitability within overall strategy and whether new asset classes should be introduced.
The composition of alternative investments has evolved significantly over time.
“Currently, infrastructure is the main focus, primarily as a substitute for bonds, and for portfolio diversification,” Andreas Rothacher, head of investment research at consultancy Complementa, told IPE.
In private equity, exit conditions need to improve significantly before substantial new allocations emerge, according to Rothacher.
Private equity is widely used by larger pension funds, while for smaller schemes product costs and operational requirements often remain prohibitive, he added.
He noted that current news on private debt market strains is “unhelpful and is primarily deterring pension funds that are not yet invested” from entering the asset class.
Global real estate allocations are largely stagnating, he explained.
“In other words, investors that are already invested [in global real estate] are maintaining their holdings or keeping their level of investments constant, but we are not seeing any significant new investments.
“Regarding [unlisted] Swiss real estate, we continue to see strong interest in residential properties, while there is more restraint regarding commercial properties.”
Changing perception of risks
Swiss pension funds have strengthened their expertise in alternative asset allocation and related operational considerations, supported by more robust investment processes. They have also developed a clearer understanding of illiquidity characteristics and underlying risks, including equity and economic risks in private equity.
There is now broader recognition that private equity carries equity-type risk and should be treated accordingly within portfolio risk management, Rothacher said, noting that volatility alone is no longer viewed as a sufficient measure of risk.
Private debt is sometimes grouped with high-yield bonds or senior loans within credit risk allocations, he added.
