SWITZERLAND - Funding levels of Swiss pension funds were nearly flat in 2010 and funds are now increasing their exposures to higher returning investments to help plug the liability gap.
A new survey of pension fund managers by Swisscanto showed the funding levels for public and private pension funds were up one percentage point each to 91% and 106% in 2010 respectively. This is still below the 115% target for pension fund without a state guarantee, the firm said.
Peter Bänziger, CIO of Swisscanto said as a result, pension funds do not have the leeway to invest in more volatile markets, like the equity markets. However, anecdotal evidence shows they are still looking to other higher-returning assets like high yield fixed income and emerging market debt.
Returns of 2.95% in 2010 fell short target returns of 3.7%. The poor performance was mainly due to low interest rates and losses on investments in US dollars and euros.
Pension funds have reduced their holdings in fixed income because of the low interest rates; the average allocation is now 37%, as opposed to the 41% historical average. Instead those assets are being funnelled into more liquid investments like cash and fixed-term assets.
The funds invest 27% in equities and nearly 20% in real estate. Other alternative investments totalled 5%, up slightly from 4.7% the previous year. Bänziger believes the high-yield and emerging market debt holdings are usually dropped in the alternative bucket.
Swisscanto surveyed 361 pension fund managers with CHF426bn ($482bn) in assets.
About one-third of pension funds made changes to their asset allocation strategies in 2010. Of those, half gave "optimisation" for the reason behind their portfolio shifts, 30% said changes resulted from an asset liability management review and the rest looked at changes in their ability to take risk, the firm said.
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