SWITZERLAND - Swiss pension funds increased their average real estate allocation by 1.48 percentage points to a new record high of 17.2% over the last quarter, despite the continuing financial crisis, the Credit Suisse Pensionskassenindex shows.

According to Credit Suisse, a few funds now have over half their portfolio invested in property.

The average equity exposure shrunk by 1.85 percentage points while bonds and alternative investments were reduced by 0.84 percentage points and 0.14 percentage points respectively.

Direct real estate holdings helped push Swiss funds' total returns up last year from a meagre 0.66% in 2006 to 2.04%. (See earlier IPE story: Swiss funds saved by direct real estate)

This was also confirmed by consultancy Lusenti Partners, which calculated there was a 2.3% return in 2007 through a stronger pension fund weighting of alternative investments.

"The asset classes which contributed to that result were direct investments in Swiss real estate (5%) and, especially, alternative investments, i.e. commodities (11% in CHF terms), private equity (over 8.3%) and hedge funds (5.6%)," Lusenti noted in its 10th institutional survey.

A similar asset allocation picture is shown for the first quarter of 2008 although Credit Suisse - which includes direct real estate holdings - calculated there was an average negative return of -5.6%.

State Street, which only looks at assets deposited with the custodian, reported a -8.04% negative return.

"The worst quarterly result since 2001 will leave its traces especially on funds which do not have any noteworthy direct real estate holdings," commented Reto Tschäppeler, vice president of State Street in Zurich.

Credit Suisse noted while pension funds of all sizes performed negatively over the last quarter, the largest funds had the worst results.

In total, Swiss pension fund assets dropped €35bn to €595bn since year-end 2007.

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