Compenswiss, the public institution managing Switzerland’s first pillar social security funds AHV, IV and EO, with total assets under management of CHF40bn (€39.8bn), will hold on to its asset allocation plan this year, despite negative returns in 2022, as the first pillar reform opens a path to investing in illiquid assets.
“All asset classes lost more or less the same value in 2022, so rebalancing was not necessary,” the president Manuel Leuthold told IPE, adding that Compenswiss remains committed to its asset allocation strategy in the long term and has no intention of changing much in 2023.
However, the Swiss people voted in favour of reforming the first pillar AHV in a referendum last September, a decision that brings additional liquidity to Compenswiss’ funds, extending their time horizon, and giving the possibility to invest a little more in illiquid assets, benefitting from the corresponding illiquidity premium, the president added.
Compensiwss will receive additional funds through an increase of the VAT rate by 0.4 percentage points, from 7.7% to 8.1%. The VAT increase will provide AHV with additional funds worth CHF12.4bn, that together with other saving measures of around CHF4.9bn will result in a total of around CHF17.3bn by 2032, according to figures published by the government.
Last year, Compenswiss’s portfolio returned around -12%, losing CHF4.5bn, the worst result since 2008, when it recorded a -18% performance, Leuthold said in an interview with Handelszeitung newspaper.
The negative return was the consequence of different factors in a challenging year for many pension funds in Switzerland and Europe.
“Interest rate increases in the currencies where we invest have had a major negative impact on the value of our bond portfolio, which accounts for approximately 60% of our investments. In addition, the stock markets in Switzerland and abroad have fallen sharply,” Leuthold explained.
He added: “We do not hold direct real estate in Switzerland, like some pension funds, that have lost little or nothing. Our real estate investments are always securitised and are largely exposed to fluctuations on the financial markets. As we systematically hedge the lion’s share of our investments in foreign currencies, the currency impact on our results was limited.”
According to the latest figures, Compenswiss invests CHF14.7bn in bonds denominated in foreign currency, CHF9.65bn in equities, CHF5.08bn in real estate, CHF4.71bn in bonds denominated in Swiss francs, CHF1.32bn in credit, CHF1.13bn in commodities, CHF1bn in multi-asset strategies, CHF916m in money market investments, CHF266m in hedging programmes and CHF2.59bn in cash.
Asked about expectations on returns and market developments for this year, Leuthold said that it is difficult to make predictions at the moment: “The first days of 2023 have been positive; a good start, but no guarantee for the rest of the year”.
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