Switzerland's BLVK dumps hedge funds, hedges euro
SWITZERLAND - The CHF5bn (€3.7bn) BLVK Pensionskasse for the teachers in the Swiss capital of Bern has been "unconvinced" by the performance of hedge funds and is therefore liquidating the mandate as part of a revision to its strategic asset allocation (SAA).
The CHF136m diversified hedge fund mandate held by UBS since 2004 lost 0.09% last year, after losing 21.8% the year previous.
In its annual report, the fund said: "The performance was unconvincing again in 2009, and the administration board decided to abandon hedge funds completely for the new strategic asset allocation from January 2010."
The new SAA still has a 2% exposure to alternatives, but with a tactical minimum of 0%.
Theodor Tillmann, CIO at the BLVK, said: "As it takes time to get out of a hedge fund mandate, we wanted to keep a certain strategic exposure so we do not have to keep explaining why we are still invested in hedge funds."
At year-end 2009, the hedge fund portfolio still held CHF46.3m.
But Tillmann also added that this strategic exposure might be an opportunity for the fund to look into other alternative investments over the next few years to check "what might make sense".
Other alternative investments like private equity and venture capital shares had been sold around 2005.
Apart from minor shifts between cash and bonds, as well as a reduction of the domestic equity bias by 2 percentage points, the fund had to introduce one major change last year.
"In our passive currency hedge, we had to include the euro again from January this year," Tillmann said.
The BLVK is also reducing its exposure to structured products, which had been removed from the bond portfolio and shifted into the alternatives portfolio.
UBS was named new manager for a CHF537m passive domestic bond mandate, replacing the regional banking group Zürcher Kantonalbank.
In 2009, the fund returned 14.6%, well above the Swiss average. (see earlier IPE story: Swiss pension returns average 11% in 2009)
This brought the funding level to 82.1%, but a necessary change in the discount rate in January 2010 from 4% to 3.5% reduced it to 77.4% again. (see earlier IPE story: Cantons reject mandatory full funding)