Banned by social democrats and distrusted by liberal opinion leaders, the financial markets have always been forbidden territory to the Pensionskasse des Bundes (PKB), the pension fund of Swiss federal employees.
Only the success of other public pension schemes, such as the funds of the city and of the Canton of Zurich, and the overwhelming performance of stock markets, made it possible for federal politicians to rethink their long standing dogmas.
This has meant that the heavily underfunded scheme has lost out on possible gains of at least Sfr1bn (E623m) a year. “Every day without being invested is a lost day”, as the Swiss finance minister Kaspar Villiger put it in June 1998 when he pleaded with parliament for a shift in investment policies of PKB.
One year later, PKB is “state of the art” says Kuno Rohner, who was appointed six month ago as portfolio manager of PKB. Now the biggest pension fund in Switzerland will buy its first equities. Probably this will not be individual shares but will be a basket of shares, says Rohner, when asked for details of the historic moment.
To shape a portfolio of Sfr20bn is a major challenge. Referring to portfolio theories and investment standards, he dismisses any of the problems which other pension funds are grappling with desperately. To find active portfolio managers, for example, that will outperform stock indices by 1 to 2% or bonds by 1%, involves not much more than: “Simply take the best”.
“There are plenty of them,” says Rohner. The names of the appointed stars will be published this month as well as the advisers and other suppliers. Swiss and foreign bidders have had the same chances, he affirms.
He strongly believes in a rebirth of active management, and accordingly PKB will invest 70% to 80% of its assets in this way. The same proportion will be managed externally. The investment strategy is 35% in shares, of which 16% will be in Swiss equity. The PKB is targeting slightly higher ratios of equities than the newly founded schemes of Swisscom and Swiss railways. The differences derive mainly from the liability side.
Around 60% of the portfolio will consist of bonds, mainly Swiss federal bonds. They will be managed internally by Rohner’s team, which is part of the Swiss federal bond department. The portfolio managers of PKB, on the buy-side, will work next door. The market making by the “family members” will be watched carefully by other pension funds, which depend on federal funds.
For the securities portfolios, PKB can rely on established rules, but when it comes to investing 5% of assets (Sfr1bn) in real estate, both through funds and directly in properties, things might get more tricky.
After the build up period, PKB is expecting in the year 2004 a return of 6.1% and a volatility of 6.9%. Ex-pected returns are moderate because of a low interest scenario. Erich Solenthaler

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