Aargaurische Pensionskasse (APK), the Swiss pension fund for the employees of the Aargau canton, has made changes to its investment strategy covering divestment from commodities including oil and natural gas, holding a small strategic position in gold, and increasing its equity quota over the next two years.

Under the new strategy, adopted by the pension fund at the end of last year, APK will increase investment in equities by 4% while cutting, or restructuring, allocations in alternative asset classes, it said.

APK is thus taking another step towards implementing its climate strategy by selling oil and gas holdings.

It had already picked the MSCI low carbon target indexes for its equity portfolio as a first step to implement its climate strategy and assess the risks linked with the transition to a low carbon economy, looking at the same time at the performance on equity markets.

The companies’ CO2 emissions are also taken into account when weighting the individual stocks for equity investments.

“We are taking a closer look at bonds as a next asset class to continue to put in place the climate strategy in our portfolio”, chief investment officer David Engel told IPE.

The Swiss pension fund invests the assets of its members responsibly, it said, adding that it regularly carries out extensive studies in order to adapt its investment strategy to changing conditions.

APK had designed a climate strategy at the end 2020 based on four core elements including pursuing dialogue (engagement) with investee companies, a significant reduction of climate risks with a focus primarily on the asset class equity, reducing risks generated by a deviation from capital market indices, and conducting an annual assessment of the impact of the climate strategy on investments.

The pension fund recorded a 6.60% performance in 2021 ending in October, above the 6.26% benchmark. Its portfolio returned 1.10% against a 0.80% benchmark in the fourth quarter last year.

It has CHF12.11bn (€11.7bn) in assets under management investing in foreign equities (18.3%), Swiss equities (10%), Swiss bonds (9.1%), bonds denominated in foreign currency (12.3%), mortgages/loans (13.6%), direct investments in Swiss real estate (12.8%), indirect investments in Swiss real estate (4.6%), indirect investments in foreign real estate (hedged) (3.9%), commodities (hedged) (3.3%), infrastructure projects (hedged) (4%), other alternative investments (hedged) (4.9%), and liquidity (3.2%), according to the pension fund.

The positive development of equity markets and a funding ratio “well above 100%” at the end of 2021 have led APK’s board to set an interest rate on the pension capital saved by members of 1.5% for 2022, above the 1% minimum interest rate set by the Federal Council, it said.

This would provide a further buffer to the gradual reduction of the conversion rate used to calculate pension pay-outs to 5%, from 5.3%, over the period 2022-23.

The pension fund is financing an increase of the capital in members’ savings accounts by 1.25% over two years as a further measure to cushion the cut of the conversion rate. APK will not adjust pensions to inflation this year.

Small-cap equity mandate

APK has used IPE Quest to search for two small-cap active equity asset managers that have a strong focus on sustainable alpha creation. Each appointed manager will be awarded $200m (€176.8m).

According to search QN-2743, the fund is seeking to invest in a segregated account within a single investor fund, following the MSCI World Small Cap Net Total Return USD as benchmark.

Interested participants need to state performance as of 31 December 2021 gross of fees and should have at least $2bn of assets under management for the stated asset class, with a minimum of $10bn in total assets under management.

APK is also requiring a minimum of five years of absolute track record.

The deadline to participate in the search has been set for 14 January at 5pm UK time. Interested participants should contact the IPE Quest team directly via email.

The IPE news team is unable to answer any further questions about IPE Quest, Discovery, or Innovation tender notices to protect the interests of clients conducting the search. To obtain information directly from IPE Quest, please contact Jayna Vishram on +44 (0) 20 3465 9330 or email jayna.vishram@ipe-quest.com.

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