The Swiss pension fund for the canton of Zürich, BVK, returned -11.2% at the end of 2022, mostly as a consequence of the sharp hikes in interest rates that led to a correction of the value of bonds in its portfolio, it said.
Global geopolitical tensions, the war in Ukraine and drawdown on the equity market also played a role in tuning the performance negative year-on-year, from 8% at the end of 2021, the scheme said on Friday.
The pension fund ended last year with an underfunded position at 97.6%, compared with 111.6% at the end of 2021, it added. Assets under management stood at CHF36.6bn (€36.4bn).
Thomas Schönbächler, chief executive officer of BVK, said: “2022 was a challenging year […] the returns are unpleasant, but such a year is part of the business of a pension fund, after so many successful years.”
BVK is applying an interest rate credit of 2.1% on the saved pension capital for the active members, for the first time above the technical interest rate of 1%, it said.
“With the interest [rate] credit set in 2022, active members were fairly compensated. After all, they provide the risk capital required for current pensions,” Schönbächler said.
Last year, BVK continued to increase the number of members now totalling 133,800, up 2.7% year-on-year compared with 2021, including a 63% share of women.
The pension fund cut its administrative costs per member by a further CHF4 to CHF108, compared with CHF112 in 2021.
The new direction taken by pension funds towards direct investments in renewable energy is showing a positive outcome, with wind and photovoltaic parks generating 42 gigawatt hours of electricity, corresponding to an equivalent CO2 saving of over 11,000 tonnes.
BVK plans to further expand its renewable energy investments, it said, adding that it is working on reducing the CO2 emissions of its own properties to achieve its net zero target by 2050.
The pension fund had increased allocations to equities, global real estate and infrastructure under its new Investment Strategy 2021+, exiting some alternative investments such as commodities, including crude oil, zinc and copper, to steer towards renewable energies.
BVK is expecting returns in the range of -5% to 10% in two or three years’ time, with investment risk remaining unchanged overall. The average expected annual return is now around 2.2% compared with 2.8% five years ago.
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