Publica, Switzerland’s CHF36bn (€30bn) public pension fund, has switched to passive mandates for “almost all” asset classes in its portfolio in recent years and has now “looked to smart beta” and some active strategies for additional returns.
Speaking at the Swiss Leadership Pension Forum in Zurich, Alex Hinder, chairman of the investment commission at Publica, told delegates: “Possible diversifications would be insurance-linked bonds and infrastructure private debt – and this is an area for active managers because, there, you cannot follow an index.”
The main focus, he said, would be to “cash in” on independent risk premiums in the fixed income portfolio rather than merely adding equity risk.
“We are rather sceptical whether managers can systematically produce alpha, and the niches for active managers are getting smaller,” he said.
Hinder argued that many active managers in the equity space had only added small caps to their approach, which then outperformed in the bull market.
He said Publica, therefore, had turned to smart-beta approaches such as value and minimum-volatility strategies in equities, which he said were “adding value compared to pure passive strategies”.
For its fixed income portfolio, Publica began build an emerging market debt exposure in February 2013, commissioning Ashmore Investment Management and Investec Asset Management to invest via two passive, enhanced mandates.
As of the end of 2013, the emerging-market debt exposure stood at 4.7%, just short of the 5% strategic allocation.
Publica also added inflation-liked bonds but it left out high yield, Hinder said, adding that the pension fund’s aim was to “broadly diversify” the fixed income portfolio.