Swiss pension funds are gradually shifting towards a total portfolio approach, already partially applied in some areas of asset allocation, to capitalise on opportunities in fast-moving markets.
Pension funds in Switzerland are showing growing interest in the approach, with some already aligning their investment strategies accordingly, Alexandra Tischendorf, head of investments at WTW Switzerland, told IPE.
“A clear shift in thinking is evident, and some institutions are already integrating individual elements of a total portfolio approach into their investment strategy, and its implementation, not least because changing market conditions and structural frameworks are increasingly making such a shift in thinking necessary,” she said.
She added that the gradual realignment is being driven by volatile markets, geopolitical uncertainty, a strong Swiss franc and rising concentration risks, all of which are increasingly challenging classic quota-based allocation models.
Swiss pension funds are already applying a total portfolio perspective to areas such as currency exposure.
In this case, “the overall currency exposure of the portfolio is what matters”, even if hedging is executed at asset class level, said Philipp Weber, head of investment consulting at Mercer Switzerland.
“Both the underlying asset mix and its currency profile need to be taken into account in designing the hedging policy”
Philipp Weber, Mercer
“Both the underlying asset mix and its currency profile need to be taken into account in designing the hedging policy. The impact of the hedge decision on risk will differ depending on the asset classes involved,” he added.
Other pension funds are assessing the portfolio’s overall inflation sensitivity, Weber said.
Building resilience to inflation is another key factor behind the move towards a total portfolio approach.
“Inflation protection is not seen as secondary, but as an integral component of portfolio construction, designed to make long-term real returns more robust and reduce vulnerability to regime changes,” Tischendorf said.
Weber also underlined that a total portfolio approach is increasingly important in thematically and factor-driven markets, where megatrends such as AI can create so-called ‘stealth concentration risks’.
“It is therefore critical that pension funds understand the types of risk they hold in their portfolio and where they hold it. Without integrated risk oversight, investors may hold duplicated exposures across diversified buckets,” he noted.
The governance factor
Many pension funds still rely on granular strategic asset allocation, which can constrain their ability to move quickly and seize opportunities compared with a total portfolio approach.
“Adopting a total portfolio approach requires sophisticated infrastructure, continuous monitoring, and strong governance, which can be resource-intensive,” Weber said.
The approach also requires closer collaboration across teams, particularly for pension funds operating with established processes.
Without disciplined governance, portfolios risk becoming a collection of opportunistic bets rather than a coherent whole, Weber warned.
Moreover, moving to a total portfolio approach often requires specialist teams and external managers to provide oversight and risk management.
“More and more Swiss pension funds, therefore, decide to delegate this task to a fiduciary manager,” Weber said.
