The share of alternative assets in some Swiss pension fund portfolios surged last year following a new definition of the category.
Investment regulation BVV2 for Pensionskassen 鈥� revised last summer 鈥� widened the definition of 鈥榓lternative assets鈥� to include 鈥榥on-traditional鈥� bonds, including asset-backed securities, debt issued by non-listed companies and real estate investments with more than 50% leverage and infrastructure.
Following the change, the CHF21bn (鈧�20bn) Migros Pensionskasse (MPK) saw its share of alternative assets increase from 3.5% to just over 11% year on year 鈥� almost solely because of the new regulations.
Managing director Christoph Ryter noted this was 鈥渟till well below鈥� the 15% cap for alternatives set down in the BVV2 regulations.
At the MPK, this category mainly includes loans granted to non-listed companies, infrastructure and some real estate investments with leverage beyond the 50% mark.
Ryter said the new definition increased not only the size of alternative allocations in some portfolios but also their costs.
The Swiss government, introducing full transparency on asset management costs and mandatory total expense ratio reports for all Pensionskassen investments, is now considering whether to cap the share of costs for alternative assets.
Meanwhile, the CHF10bn Vita Sammelstiftung has already exceeded the 15% limit 鈥� permitted as long as the fund provides an explanation of its risk strategy to the regulator.
On a panel at this year鈥檚 Swiss Pensions Conference, the multi-employer plan鈥檚 managing director, Samuel Lisse, said: 鈥淏ecause we do not have a say in target returns like the legal minimum interest rate (Mindestzins), we must allocate a higher percentage of our portfolio to alternative asset classes to achieve a better diversification and ultimately a better performance.鈥�
Vita鈥檚 alternatives exposure is mainly to senior secured loans and hedge funds, while the fund has almost completely divested from commodities.
According to some pension fund experts, Swiss Pensionskassen are currently 鈥渘ot using all the freedom they are given鈥� under the investment guidelines.
In an ad hoc survey among the delegates at the conference, the vast majority indicated they believed alternative assets would be the best-performing asset class over the next three years on a risk-adjusted basis 鈥� Swiss bonds were expected to be the worst performers.
But Roman Denkinger, head of asset management at Swisscom鈥檚 CHF9.5bn pension fund comPlan, stressed that alternatives had to be viewed as 鈥渁 heterogeneous asset class with very different investment possibilities鈥�.
One of his pension fund鈥檚 alternative strategies is financing small and medium-sized enterprises directly, which, according to Denkinger, 鈥渞equires a lot of in-depth due diligence and time鈥�.
