SWITZERLAND - Swiss pension funds posted a negative return of -5.6% for the first quarter according to calculations by Credit Suisse at the same time as researchers have discovered structural problems with the funds.

Preliminary results in the Credit Suisse Pensionskassenindex reveal there was three consecutive months of negative performancein the first quarter of 2008.

January was worst for the funds with -3.3%, followed by -0.5% in February and -1.8% in March.

This leaves the funds 6.3% below the minimum return rate of 0.68% required for the first quarter under the pension law.

Calculations include all asset classes including those not held by a custodian such as direct real estate which considerably improved the funds' performance for 2007. (See earlier IPE story: Swiss funds saved by direct real estate)

Details on Credit Suisse's calculations will be published at the end of the month.

Meanwhile, a new study by scholars from the University of St. Gallen has found a more fundamental problem within Swiss Pensionskassen. 

Looking at the performance of 73 Swiss pension funds over 10 years between 1996 and 2006, Manuel Ammann and Andreas Zingg found "pension fund trustees seem not to be able to select asset managers that consistently outperform the benchmark".

Only in the international bond section of portfolios did the researchers find a significant outperformance while other asset classes lagged behind the risk-adjusted benchmark returns - especially when it comes to equities.

"The underperformance of equities is significant even before deduction of any costs for asset management and fund administration," the study found.

Ammann and Zingg also noted the pension funds' approach to more active mandates seems to have a negative impact on performance.

"Except for international bonds, the risk-adjusted performance of the more passively-positioned investment foundations tends to be higher than the performance of pension funds," the authors noted.

"The contribution of active asset management should be more criticially reviewed. Most important, the performance net of costs needs to be thoroughly assessed and consequences taken, if necessary, on a regular basis."

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