SWITZERLAND – A small pension fund tied to a co-operative bank in the city of Thun has failed in court to get an exemption from government rules requiring schemes to diversify their holdings.

The fund had sought the exemption as it was almost completely invested in real estate assets held by the bank. According to a Swiss newspaper, the scheme had 92% of its €25m invested in the bank’s property assets at the end of 2000.

Before a federal court, the fund essentially argued that the exemption was appropriate because the investments were completely secure.

The court rejected this argument, agreeing with the pension fund’s regulator that government rules requiring diversification applied. It noted that even if the type of investment was itself secure, the fund was exposed to “non-diversified risk” by tying up virtually all its money in real estate.

The court also said the fact that the pension fund in question had relied on an asset-liability study did not exempt it from the rules pertaining to adequate diversification.

Werner Nussbaum, the solicitor who represented the scheme, said that following the ruling he would “soon discuss the various solutions with his client”.

Since a judgment was handed down from a Swiss federal court, the fund probably has little legal recourse left and will have to comply. The ruling also could have implications for all Swiss pension funds.

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