SWITZERLAND - Novartis' CHF14.3bn (€8.7bn) pension fund has reported a return of just 2% for 2006 - below both the 6.6% average for other Swiss schemes and its own 3% benchmark.

In its latest business report, the fund said the below-average return was a result of its conservative approach to investing last year.

"Given the stock market plunge in May 2006 and the ongoing volatility of the investment environment, the pension fund's investment strategy was aimed at maintaining value," it said.

However, the scheme for the Swiss drugs giant raised its equity exposure in 2006 to 18%, from 12% in 2005. Following the correction in May 2006, equities recovered sharply to continue the bull run that began in April 2003.

Meanwhile, the fund has cut its fixed income exposure to 60% of assets in 2006 from 63% in 2005. Exposure to real estate was 10% while the fund held 7% in cash and 2% in mortgage loans.

The fund also said in the report partly because of losses from investments, total assets declined CHF316m to the current total of CHF14.3bn. This compares with a CHF216m gain in assets during 2005.

Finally, the scheme said its funding ratio declined slightly in 2006 to total 116% of liabilities.

Novartis' pension fund is a defined benefit scheme that insures around 11,600 employees and pays a pension to almost 18,200 beneficiaries. According to the scheme, its average annual pension totals CHF38,626.