​Swiss pension funds profit from equities, bonds, currency hedging strategies

Swiss pension funds that opted for strategies geared towards a higher share of investments in equities, bonds and currency hedging profited from better returns last year.

“Strategies with a higher share of Swiss bonds, especially with longer maturities, achieved better returns [in 2023]. Also strategies with currency hedging had better returns due to the appreciation of the Swiss franc against all key currencies, despite the high interest rate difference,” Oliver Kunkel, head of asset manager section and controlling at consultancy at PPCmetrics, told IPE.

Pension funds with a higher risk capacity, for example with a lower amount of pensioners on their books, can invest a large share of assets in equities.

Schemes’ strategies with a high allocation to equities also generated better performances last year, with high returns especially on assets invested in developed countries’ equities, Kunkel added.

Swiss institutional investors recorded returns of between 5.9% and 7.3% last year, depending on the investment strategy, according to a research paper – Investment strategies in 2023 – published by PPCMetrics.

Better returns were achieved by institutional investors by increasing allocations to emerging market (EM) bonds, too, as well as through developed market equities and Swiss bonds with longer maturities, according to the paper.

A mix of EM equities and small-cap equities did not lead to additional returns for pension funds, Kunkel said.

“Alternative investments added diversification [to portfolios] but delivered mixed results in 2023,” he added.

Within the alternatives space, investments in insurance-linked securities (ILS) in particular, but also in high-yield bonds and senior loans, led to higher performance, according to the paper.

Listed real estate funds reacted immediately to the market environment, while the rise in interest rates from 2022 was taken into account only in 2023 for unlisted investments, meaning that corrections were assessed with a delay, it added.

The return of the KGAST Immo index, measuring the performance of direct investments in real estate in Switzerland, was 2%, but lower than ever before in the last almost 25 years, the paper showed.

With returns of -0.02% in December, the KGAST Immo index recorded a negative monthly return for the first time since July 2004, it said.

This pattern is also evident for other investment categories, including real estate abroad or private equity, private debt and mortgages, according to the paper. 

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