Reto Kuhn, who runs the SFr3.5bn Sairgroup pilots’ pension fund in Zurich, has hit back at criticism of the fund’s investment in alternative investments, particularly its exposure to the private equity holding (PEH) group, managed by the Vontobel private banking group.

The fund is seen as a pioneer among Swiss fund managers for its commitment to alternative investments, both private equity and hedge funds, quoted on the Swiss stock exchange, which invests in private equity through funds and direct investments. The share price fell from a high of SFr625 in mid 2000 to a low of just over SFr260 towards the end of March.

“The press have drawn the conclusion that we have lost millions, over SFr100m, but as one of the first investors in PEH, the price we paid per share was lower than the lowest price the share reached,” says Kuhn.
He maintains that the fund has not lost any money by investing in PEH. “We invested originally in 1997 at SFr200 per share and in 1998 a further investment was made at SFr217.5, and a final investment was made at the time of the IPO in 1999 at SFr225.”

It did not buy any shares in last year’s capital raising by PEH. In addition to the market crash, PEH’s share price was hit by the departure among other management of its chief investment officer, Hans-Peter Bachmann, who was also working along with others for Vontobel, as developer of its e-banking venture Y-o-u Bank, which has since been abandoned. There were claims of conflicts of interest arising due to having people working for both organisations under one contract. A PEH directors’ statement emphasised that there “were no signs of financial irregularities in the company’s activities.”

“PEH shares are currently undervalued,” Kuhn maintains and points to the recovery they have made to SFr310 since new directors were appointed and management changes were made.
According to PEH, towards the end of April the shares had a net asset value of nearly SFr400, when the market was hovering at SFr280.
At the end of last year, PEH held investments in 87 private equity funds and had direct investments in 48 companies with a value of SFr1.6bn. The pension fund has a strategic asset allocation of 20% to alternative investments, made up of 15% in private equity and 5% in hedge funds, which is very high by Swiss standards. “This is the proportion approved by the board and there is no intention to change it,” says Kuhn. The performance of the portfolio in year 2000 has been very satisfying with returns of 11%, compared to a performance of –12% of MSCI World index. “We have no problems from our point of view about this exposure, apart from the publicity.”