SWITZERLAND - PKZH, the CHF14.2bn (€8.6bn) pension fund for the city of Zurich, has reported some of the best performance figures for 2006, including a return well above the industry average and one of the highest funding ratios among Swiss schemes.
According to its latest business report, PKZH finished 2006 with a return on assets of 8.9% - or two percentage points above the average for Swiss schemes, known as Pensionskassen.
The scheme also reported a funding ratio relative to liabilities of 137% - one of the highest figures known for Pensionskassen.
Because it is greatly overfunded, PKZH said paid-in savings from its insured were credited with an interest rate of 7.5% for 2006. The rate is a full five percentage points above the legal minimum.
The fund also increased benefits for pensioners by 1%. PKZH provides a pension to 27,000 public sector workers in Zurich who are employed at 166 firms while its pensioners number approximately 14,800.
In the report, PKZH said its strong performance for 2006 was the result of its high exposure to equities during last year's bull run, albeit PKZH takes a passive approach to equity investing.
At the end of 2006, the fund's equity holdings totalled 40.3%, including 32.3% foreign and 8% Swiss.
The fund also said the performance for 2006 was as a result of a well-diversified portfolio included alternatives as PKZH had 6.6% of assets in hedge funds, 3.1% in private equity and 2.3% in commodities to December 31 2006. Its private equity exposure has since reached 5%.
PKZH's other allocations were 37.3% to fixed income - including 12.1% denominated in currency other than Swiss francs - and 10.5% to real estate.
"In order to minimise currency risks related to our foreign investments, the fund has hedged itself. In 2006, this effort contributed an additional 0.5% to our total return (of 8.9%)," remarked PKZH.
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