SWITZERLAND - The strengthening Swiss franc dampened Swiss pension fund returns in the first half of 2011, according to figures from pension fund association ASIP, while attention switched to currency management.

While median returns in the second half of 2010 were 3.1%, high volatility caused by the sovereign debt crisis, as well as the fallout from the Japanese earthquake, led to returns of -0.2% for the first six months to June this year - with real estate offering the best performance.

"The strong Swiss franc has meant Pensionkassen must pay further attention to the issue of currency management," ASIP said in the report.

Daniel Thomann of Aon Hewitt Switzerland had previously warned that despite a lower exposure to foreign equity, the country's pension funds would suffer from the higher currency risk as a result of the strengthening Swiss franc.

Both direct and indirect Swiss real estate posted positive median returns in the first six months of the year, with 2.3% and 3.5%, respectively. Latter was also the best return posted by any asset class, compared to losses across all equity investments.

Swiss funds reported median equity returns of -1.9%, while the lowest point between January and June saw foreign equity holdings returning -7.4%, before reaching a median return of -5.4% by the end of the second quarter.

However, despite the volatility in 2011, equity and bond holdings both still saw positive returns over the past 12 months as well as the last five years.

Schemes also decided against any significant changes to asset allocation, with ASIP believing the percentage shifts were a result of portfolios decreasing in value rather than a shift in strategy.

Swiss bonds still claimed the largest percentage of all assets with 23.1%, followed by 20.1% invested in foreign equity and 18.9% in foreign bonds.

Real estate exposure reached its highest level since the end of 2008, rising to 13.1%, up by 1.6 percentage points over the end of 2010 and a 4.2 percentage point increase over the end of 2007.

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