Switzerland’s CHF33bn (€27bn) first-pillar fund AHV has decided against investing in agricultural commodities in future, according to its 2014 annual report.

It said it based its “new concept” for commodity investments on “political sensitivity” to investments in food, agriculture and livestock.

In 2014, commodity holdings were the only part of AHV’s portfolio to register a loss, returning -8.2%.

For the year previous, the asset class returned -9.85%.

The AHV manages its commodity exposure in-house, tracking the Bloomberg Commodity Index via swaps.

Under the new strategy, which allows commodity investments in energy and precious metals only, “the index will have to be changed”, the scheme said.

The fund has also decided to manage government bonds in US dollars in-house to cut asset-management costs.

The AHV said it expected to save “more than half a million Swiss francs” with the measure.

Further, the pension fund decided to define a separate allocation for less liquid investments “to increase transparency in reporting”.

Strategic investment in real estate was increased from 6% to 7%, while the AHV said it would start to build indirect exposure to foreign real estate via funds “step by step”.

To date, the fund has invested 26% of its real estate portfolio in foreign real estate, mainly Asia and North America, using listed vehicles; the remainder comprises domestic direct and indirect investments.

A similar step to invest in foreign property had been considered more than a year ago, when the AHV looked into a Europe-only real estate fund. 

To make the portfolio “more resilient” to market corrections, hedging tools were expanded to include a tail-risk hedging vehicle, which the fund developed internally and will be implemented in the coming months.

Further, it introduced an operational risk report to provide the managing board with additional information beyond the existing compliance report.

Last year, the AHV’s portfolio would have returned 10.36%, but equity overlays, as well as interest rate and foreign currency hedges, lowered the reported return to 7.1%.

However, after the Swiss National Bank cut the peg of the Swiss franc to the euro on 15 January this year, the AHV noted its foreign-currency hedging prevented a CHF1bn loss. 

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