SWITZERLAND - The CHF3.6bn (€3bn) pension fund for Swiss machinery maker Sulzer (SVE) has decided against using part of its risk budget to go into emerging market debt.

In a presentation at the recent Swiss pension fund conference 'Fachmesse 2. Säule' in Zurich, Urs Schaffner, managing director at SVE, said: "We were looking at Mexico, Brazil, Russia and the Philippines for a possible emerging market debt exposure, but, for that, we would have had to cut our equities exposure by around 2-3 percentage points."

He added that Indian and Chinese bonds were "unfortunately less interesting at the moment".

The fund has invested 65% of its assets in bonds and 35% in "equity-like risks", with an "active approach, but with very narrow bandwidths", according to Schaffner, who joined SVE in September 2010.

To minimise losses, the SVE is now thinking to increase duration in its bond portfolio despite the risk, as Schaffner believes the potential losses would be "smaller than the losses we stand to suffer in a long-term low-interest rate environment".

He told IPE that the strict risk budget ceiling introduced since the crisis had "forced the fund to make decisions on which risks to take - which is a good thing".

Another strict cap - this time on liquidity - prevented the fund from going into infrastructure, Schaffner said.

"Otherwise, the downside risk would be too high for us as a 'pensioner-heavy' Pensionskasse," he added.

All of CHF2.2bn in assets belong to pensioners, but the Pensionskasse is fully funded at 105.6%.

Schaffner explained that, at the moment SVE's pensioners were "dying earlier than expected" and that the fund "even had a surplus from this part of our members".

In a more detailed analysis, the pension fund found that only the older retired members generated a surplus while the younger ones generated losses.

"If we had simply assumed a profit, we would have run into trouble later on," Schaffner noted.

He added that this "goes to show that finding the right strategy never is a straight path - that you will always find new facts and that you have to review your strategy constantly".