Swiss pension funds investing in alternatives, including real estate, have achieved better returns but with higher asset management costs, according to a study conducted by Swisscanto.
Last year, best-performing pension funds invested 10.2% in alternatives and 29.7% in real estate, compared with 5.6% and 16.1% invested in the asset classes by the worst-performing schemes, the study added.
“Lower costs do not always bring an advantage; foregoing more expensive asset classes comes at the expense of diversification and also potentially reduces overall performance,” said Iwan Deplazes, head of asset management at Zürcher Kantonalbank.
The top 10 pension funds in terms of performance generated 3.7% returns per year between 2018 and 2022, the worst-performing 0.2% per year. During the challenging year of 2022, the top performing schemes returned -5.3%, while the worst-performing -12.3%, according to the study.
Pension funds with an annual net return of 3.5 percentage points higher than those performing worse have an average asset management cost that was 27 basis points higher, it added.
Average asset management costs of the best-performing pension funds were 0.64% per year of assets managed between 2018 and 2022, compared with 0.38% per year of the worst-performing pension schemes.
The asset management costs of Swiss pension funds stood on average in 2022 at 0.48% of the assets managed, up from 0.46% in 2020, Swisscanto’s research showed.
Over the past five years (2018-2022), asset management costs grew from 0.48% to 0.54% of assets managed, but in 2019 (0.45%) and 2020 (0.46%) they declined, it added.
Large pension funds with assets under management of over CHF500m saw asset management costs rise significantly between 2021 and 2022 from 0.48% to 0.56% of assets managed, the study added.