Swiss pension funds are reducing allocations to global government bonds, a cornerstone of fixed income portfolios, amid mounting concerns about sovereign debt extending from the US to the euro zone core.
Public debt is certainly an important topic for the risk management strategies of pension funds, looking at the US, but now also to France, said Andreas Rothacher, head of investment research at consultancy Complementa.
France’s surging public debt has already triggered political turmoil, as the country’s prime minister François Bayrou stepped down this week.
Boards of Swiss pension funds are debating whether government bonds can still play the role of safe haven, Rothacher said, speaking during a call presenting Complementa’s 2025 Risk Check-up study.
Asset allocation data already reflects this shift. Fixed income holdings fell to a record low of 31.1% of total assets under management last year, according to the study.
“There has been a shift away from global government bonds towards bonds denominated in Swiss francs and global corporate bonds,” said Oliver Gmünder, co-author of the report.
Equity allocations climbed to 32.5%, the highest in two decades, on the back of strong foreign equity performance. Equities are now the largest asset class in Swiss pension fund portfolios. Real estate dropped to 22.5%, while private markets held steady at 10%.
This year’s study also examined risk management approaches, finding that currency hedging and allocation bandwidths are the most widely applied measures. Other strategies, such as tail-risk hedging, temporary deployment of derivatives or new investment concepts, are harder to implement or too costly, Rothacher noted.
Concerns about further depreciation of the US dollar, which dominates global bond markets, remain central for pension funds.
“There are discussions on how much currency I need to hedge, with high costs for hedging,” Rothacher said.
The study found that pension funds’ average foreign currency hedge ratio is 18.3%. Schemes have increased hedging as the Swiss franc has strengthened against the US dollar.
Despite market volatility in the first half of the year, Swiss pension funds achieved year-to-date returns of 3% through their investment and hedging strategies, according to Complementa. Funding ratios stood at 113.8% at the end of August, up from 111.8% at the end of 2024.
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