SWITZERLAND - The pension fund for the Swiss Federal Railways (SBB) is planning to tender a CHF300m (€250m) emerging markets equity mandate.

The money for SBB's first foray into the asset class is to come from a CHF1.1bn state subsidy earmarked for the fund.

Markus Hübscher, managing director of the CHF12.8bn scheme, told IPE the money should arrive in the fourth quarter.

He added that the fund wanted to start its investment in emerging market equities in 2012 and that it would tender the mandate most likely using IPE Quest.

He said no decision had yet been made on whether SBB would increase its exposure to emerging market equities once it had awarded the initial mandate.

At a Swiss pensions conference earlier this year, Hübscher had noted that "higher returns only come from higher risk" and that risk in and of itself was not bad if sufficiently rewarded.

The move was announced after SBB reported a 0.6% return for the first half of 2011, an outperformance compared with the benchmark's loss of 0.2%.

But it will be a struggle for the fund to achieve the annually required minimum return of 2%, especially as the year-to-date performance turned negative in mid-August.

The scheme's funding level had dropped to less than 90% in August, from 91.7% at the beginning of the year.

However, the fund pointed out that this figure did not yet include the state subsidy. 

Nevertheless, measures to increase funding are "being discussed", Hübscher said.