Publica, Switzerland’s largest pension fund, is working on three timeframes depicting different scenarios to navigate the COVID-19 crisis, its head of asset management, Stefan Beiner, told IPE.

“For us as an investor, one of the questions is how long the recession will last: will it be short [lasting] two to three quarters (a V correction); will it be medium (for) four or six quarters (a U correction); or will it be a long recession (of) six plus quarters (an L recession), meaning that sectors and supply chains look completely different compared to today,” he said.

The coronavirus outbreak has had an unprecedented impact on economies, with firms forced to close and supply chains that are simultaneously affected.

The Swiss government and the Swiss National Bank (SNB) have responded quickly to the crisis. The Federal Council has decided to support small and mid-sized companies with an aid package worth CHF40bn (€37.5bn).

The SNB has introduced an unlimited SNB-COVID-19 refinancing facility (CRF) to reinforce liquidity for the banking system.

“These are important measures for the real economy and for the stressed liquidity situation of many companies,” Beiner said.

Publica is closely monitoring the current situation and its potential impacts, too, but it has deemed too early to focus on just one of the three scenarios, he added. Each scenario would have implications at a strategic, tactical and operational level.

Publica does not tend to adjust its strategic asset allocation in the event of a U correction, but regularly undertakes a review of the risk-return-assumptions per asset class, a process called strategic risk monitoring. The next review will take place in the third quarter.

“If we realize that the expected risk-return-assumptions per asset class have changed significantly, we would start an asset-liability management study and potentially adjust our strategic asset allocation,” Beiner explained.

Publica has a “tactical bandwidth” for equities, which is approximately 20% of the strategic weight. With a strategic equity allocation of 27%, it can reduce it to 21.6%.

“We review our tactical position regularly, during crises more often than in normal times,” Beiner said, adding that the pension fund has carried out three adjustments in the second half of March.

“We have bought equities to reduce our underweight compared to the strategic weight.”

Pandemic crises also have a significant impact on business operations. For this reason, a few years ago Publica developed guidelines specifically for this type of setting, and now strongly follows the recommendations of the Swiss government.

“We have a crisis management team that meets every two days, if necessary more often, to assess the situation,” Beiner said.

The asset management teams are equipped with notebooks and can remotely access the relevant systems in order to be able to work from home.

Topics