ResearchSeptember 17, 2019

Swiss Investors Are Ditching Traditional Investments, Moving to Alts

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

Reported 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.

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.