SWITZERLAND - Risk taking is a good source of return if you can afford it, representatives of various Swiss Pensionskassen agreed at the Swiss Pension Conference.
Peter Blum, head of tactical asset allocation and research at the CHF40bn (€23.2bn) SUVA fund of the state insurance scheme, said: "There is no such thing as risk-free return, just return-free risk."
He said he would rather "take a bit more risk than have insufficient returns", but he added that the SUVA enjoyed a high funding ratio, so it was easier to take risks.
Yvan Lengwiler, deputy head of the asset management commission at the pension fund for Basel city, said: "If you have enough reserves, then a higher exposure to equities is a good option - unfortunately, we do not have enough reserves." Swiss city to plug pension hole by New Year
Christoph Ryter, managing director at the Migros Pensionskasse, agreed: "You can take risk if you can afford it."
And Markus Hübscher, head of the IPE-award winning SBB Pensionskasse, added that "risk is not bad per se" and that higher returns "only come from higher risk, not from stability".
The panel at the conference organised by the Swiss CFA society agreed that risk had to be rewarded, but panellists disagreed on which risks were sufficiently rewarded.
For his fund, Blum is looking into local currency emerging market sovereign debt after having been exposed to hard currency EM debt via the high-yield portfolio for several years now.
Hübscher also confirmed his fund was investing in EM market debt and that those holdings had performed well.
But Marco Bagutti, head of asset management at the Swiss default fund AEIS, remained unconvinced.
"Everyone is talking about EM debt," he said, "but when there is too much money flowing into one asset class, the question is whether it is sustainable."
Bagutti also rejected the notion that holding foreign currencies offers a risk premium for Swiss franc investors, as the currency is considered a safe haven by euro and US dollar investors.
Lengwiler said he was hedging his fund's equity exposure "opportunistically", but had excluded all bonds not denominated in Swiss francs from the fixed-income portfolio.
"We believe in interest rate parity, so there is no reason to go into other markets apart from more liquidity," he said. "But pension funds can deal with a little less liquidity."
He also described the issuance of so-called 'co-co bonds', or contingent convertibles, by Swiss banks UBS and Credit Suisse - part of the government's banking stabilisation scheme - as "extremely unattractive".
Investors can convert these bonds only after the bank's share price has fallen beyond a certain threshold.
Lengwiler said: "It is a bond holding, but when the bank is doing badly, you get shares, and then you have holdings in a company that is not doing well."