SWITZERLAND – A government committee has found that a misguided investment strategy was behind a worsening in the financial health at the BVK, a CHF19.4bn (€12.3bn) pension fund for civil servants in 2002.

Like many other public Swiss pension funds, the BVK was overexposed to equities in 2001 at the time of the market crash.

The overexposure caused the fund’s coverage ratio – or ability to fund liabilities – to drop to as low as 88% at the end of 2002.

But in a new report, the committee said that a year before the drop, the BVK underestimated both the length and the intensity of the equity crash.

Ill-fated investments by the BVK – which insures 63,800 civil servants employed in and around Zurich - in a Swiss tour operator and in BT&T, a Swiss investment company, added to the woes, the committee said. These investments caused CHF320m in losses.

However, the committee absolved the pension fund for responsibility for those investments – blaming instead two former finance directors at the canton.

And, the committee said a decision to switch to defined contribution from defined benefit as well as a mix of benefit hikes and reductions in contributions also contributed to the BVK’s underfunding.

“Barring these measures, BVK’s coverage ratio would today be as high as 109%,” it said.

Commenting on the committee’s findings, BVK chief executive Rolf Huber said he completely agreed with them.

“It’s definitely true that we were overexposed to equities in 2001. If we knew about the degree of the market crash, we naturally would have removed the risk from our portfolio,” Huber told IPE from Zurich.

Huber has previously insisted that the BVK, a government-backed scheme, aims to be fully funded over the next few years. The BVK’s coverage ratio has since rebounded, to 98% at the end of 2005.

“In this way, we will ensure that neither taxpayers nor the members will be burdened with the cost of restructuring the scheme. This sets us apart from other funds in Swiss cantons,” he was quoted as saying in the BVK’s report for 2005.