The CHF23.06bn (€24.68bn) Pensionskasse of the city of Zurich (PKZH) has tightened its investment strategy in response to weaker long-term bond return expectations in Switzerland’s entrenched low-interest-rate environment.
From 1 January 2026, the pension fund will raise its allocations to equities and real estate by 1.5 percentage points to 33% and 22.5%, respectively. Up to 40% of total assets can be invested in equities, including private equity, PKZH noted.
The fund said its strong funding ratio – 124.9% at the end of October – gives it room to absorb additional market risk. Fluctuation reserves have been nudged up from 21% to 22%, to a total of CHF4.83bn.
The board of trustees expects the revised strategy to support long-term financial stability and ensure “stable benefits” for members despite a challenging market backdrop.
Chief investment officer Jürg Tobler told IPE that interest rates remain highly unpredictable.
“We regularly review whether the investment strategy is still appropriate or whether changes should be considered,” he said.
Mixing it up
Swiss pension schemes have been reconsidering their asset mixes as the Swiss National Bank continues to hold its policy rate at 0%, squeezing expected bond returns. Many are turning to real estate and, to a lesser degree, private debt as alternative return drivers.
Publica, Switzerland’s largest scheme, has also shifted more capital into real assets and away from bonds, although without a full strategic overhaul.
PKZH has taken a more decisive step. It will reduce overall nominal investments to 29% – close to its 25% minimum threshold and well below its 39% maximum. The reweighting is aimed at “strengthening long-term profitability”, the fund said.
Swiss franc-denominated bond holdings remain low at 5%, while liquidity is kept near the minimum operational level at 0.5%. Unlisted nominal investments in Swiss francs – including mortgages to housing cooperatives, collective mortgage vehicles and private placements – will account for 6.5%.
The global corporate bond portfolio, excluding Swiss franc holdings, stands at 10.5% of assets, against a 13% strategic target. Private debt, via loans to sub-BBB-rated firms secured by collateral, has a 4% target allocation.
The fund acknowledged that high-yield and private debt exposures increase default risk but deliver higher expected returns than investment-grade bonds.
PKZH also targets 5% in insurance-linked securities and 3.5% in infrastructure. Across private equity, private debt, infrastructure and real estate, the fund will now hold 37% of total assets.
“We hold these investments to broadly cover available investment opportunities beyond the stock markets. This allows us to capture risk and illiquidity premium,” Tobler said.
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