SWITZERLAND – Swiss institutional investors are not likely to increase their exposure to equities in 2006, though they should reduce their holdings in fixed income, according to a new study by Swiss consultant Lusenti Partners.

The study said higher exposure to equities was not on the cards since following the bull run of the last three years, “equity holdings at numerous institutions are already near the strategic level for this asset class”.

Another damper was the institutions’ expectation that the performance of equities in 2006 would be “just above 5%”.

“Instead, one can expect that tactical positions in this asset class will remain at their current levels and that at most, profit-taking will take place among those equities which have performed the best,” the study added.

For its study, sponsored by Credit Suisse, Lusenti interviewed 162 institutional investors, most of whom were pension funds. Total assets of these investors was put at CHF189.4bn (€120bn).

Regarding fixed income, the study predicted that the institutions would reduce their holdings in 2006. “Returns on fixed income denominated in major currencies seem threatened. As a result, one can expect that the institutions will either maintain their exposure to this asset class or reduce it,” the study said.

It added that the institutions would likely turn more to alternative asset classes and structured products to enhance returns.

According to the study, the institutions interviewed had 29.5% of their assets allocated to equities, 17.3% of which were foreign and the rest domestic. The institutions’ bond exposure was 38.6%, 26.8% of which was domestic and the rest foreign.

The institutions had another 19.1% invested in real estate, including direct holdings equalling 10.2%. Among alternatives, 2.9% was allocated to hedge funds, 0.8% to private equity and 0.6% to commodities.

With this portfolio, the institutions interviewed finished 2005 with an average return of 11%. “It’s surprising and unusual that many asset classes, not just equities, performed well during the year,” the study said.

Finally, the study said the coverage ratio – the extent to which liabilities are funded – at Swiss private pension funds was 107.6% at the end of 2005. With a coverage ratio of 97.5%, Swiss public schemes remained slightly underfunded.

However, reserves at Swiss public pension funds (10.8% of assets) were slightly higher than at private schemes (7.4%).