SWITZERLAND - The CHF445m (€339m) Swiss pension fund for PwC is set to maintain its 40% allocation to an insurance contract and further reduce its Swiss bond holdings.
In 1999, the pension fund had first divested from foreign bonds to shift 40% of its assets into an insurance contract offered by a large Swiss insurer.
According to fund officials, this brought stability to the portfolio and decreased volatility, even in crisis years.
In 2008, the fund reported a 13.2% loss, close to the Swiss average. In 2009, the fund returned 10%, and last year 3.5%, with a funding ratio of 108%.
In 2010, the rest of the portfolio was invested in Swiss bonds (13%), equities (17.3%), real estate 10.3% and hedge funds (4.2%).
For 2011, the fund will further reduce bond holdings, bringing the Swiss bond share down to 5%, while at the same time increasing real estate to 14% and hedge funds to 5%.
It is also planning to build a commodity portfolio with a 4% allocation. Jaap van Dam, trustee, said this part of the portfolio would be designed to generate alpha, while the insurance contract was a source of stable beta.
He pointed out that, in total, two large Swiss insurers are offering this kind of investment, and three others are “open to discuss similar products”.
Van Dam said: “It is a very easy product, but only few investors are using it or even know about it.”
According to van Dam, there is no bulk risk in such an investment, as the insurance contract consists of several diversified single contracts.
Another unique feature of the fund is the flexibility of the conversion rate to introduce a bonus element to pensions and thus include retired members in recovery measures during times of crisis.
The pension is calculated at a low conversion rate, but as much as 12% can be granted as bonus payment in good times.