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Swiss Investors Are Ditching Traditional Investments, Moving to Alts

Study concludes that portfolio managers are cutting costs due in part to low interest rates.

By Steffan Navedo Perez

Today’s low-interest-rate environment is spawning some interesting trends from Swiss pension funds, notably a move towards alternative assets in a fashion that their allocation has surpassed 10% for the first time in history, according to new study conducted by European consulting firm Complementa. However, despite continued strong funding, the firms are also trimming benefits to retirees.

While seeing a small exodus from bonds in response to their low rates, the study also found that investments in infrastructure, private debt, and insurance-linked securities are causing the rise in Swiss funds’ allocation to alternatives, according to the study. Real estate allocations reached their highest level in 20 years, the study said.

Swiss pension funds are generally relatively well-funded, with the majority of the largest pensions in the country floating about 100% funded ratios. Complementa said that in the last few months, funding levels increased to an average 109.1%. However, despite the strength, low interest rates triggered widespread benefit cuts to the pensions’ retirees.

Conversion rates used to calculate retirees’ benefits also fell to 5.63%, 50 basis points lower than in 2015. Complementa’s survey of 437 pension providers aggregating €589 billion in assets also found that they expect conversion rates to fall to roughly 5.3% by 2024.

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In the report, Complementa asserted that it is forecasting investment returns to fall, generating a 2019 average of 2.1% after a robust averaged 7.9% over the first eight months of the year.

Alternatives investors are claiming that equity markets have peaked in recent months, according to a report from financial data and information provider Preqin. Recently, the European alternatives industry hit a milestone in reaching €1.62 trillion in assets.

A recent study found that pension funds are increasingly seeking outside help with some certain alternative asset strategies, particularly private equity co-investments.

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Home > News > Alternatives > Dutch Pension Funds Look to Transform How Real Estate Investors Decarbonize
Alternatives

Dutch Pension Funds Look to Transform How Real Estate Investors Decarbonize

New initiative backed by APG and PGGM looking for pathways to help real estate investors go green.

By Steffan Navedo Perez

A new coalition backed by Dutch pension funds APG and PGGM has been formed to help real estate fund managers find avenues to decarbonize their portfolios and investment pipelines while still maintaining strong performance metrics.

The coalition’s mission is to help real estate managers identify potential strategies to meet the 1.5- and 2-degree decarbonization pathways similar to that of the Paris Agreement. The coalition intends announce its proposal by February 2020, and the initiative requested that participants in the industry provide feedback and “help develop a common language for assessing climate transition risk in real estate.”

“Decarbonization pathways based on a transparent methodology that is aligned with the Paris Agreement offer a tool for understanding and managing transition risks, enabling investors to benchmark assets and derive significant risk indicators,” said Dr. Sven Bienert, managing director at the IIÖ Institute for Real Estate Economics.

The institute is helping to carry out research endeavors for the coalition, with the support of GRESB and the ESG Benchmark for Real Assets. The initiative is essentially expanding the work of the Carbon Risk Real Estate Monitor project, which analyzes carbon risk in European commercial real estate, to expand into markets outside of the EU, as well as into the residential sector.

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The initiative is part of a larger worldwide decarbonization method as investors seek to adhere to environmental, social, and governance (ESG) concerns. Major institutions such as the New York State Common Retirement Fund, one of the largest funds in the US, recently announced plans to grow its ESG program’s investments to an aggregate $20 billion over the next decade. A recent study said that the pension should work to ensure that all its assets are sustainable by 2030.

Several groups have popped up in recent months to assist in the growing ESG movement. One such institutional investor consortium called the Group of 88 is pushing more than 700 companies to reveal metrics regarding their respective environmental impacts.

New York is also leading an institutional investor rally coined the Climate Majority Project, made of up pension plans throughout the United States, whose goal is to entice the 20 largest public traded utility companies to eliminate their carbon pollutants by 2050.

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