25.02.2008 – 11:25
ASIP Performance Comparison: Average annual return of 1.8% for pension funds participating in the ASIP performance comparison
- Indication: The performance of Swiss pension funds in 2007 can
be downloaded free of charge under:
The performance comparison carried out on behalf of the Swiss pension fund society (ASIP) by the consulting firm Watson Wyatt shows a median return of 1.8% on the aggregate portfolio(1) of the participating pension funds for 2007.
(1) The aggregate portfolio contains equities, bonds, indirect and direct property as well as hedge funds. Debtors and accrued income are not included. Median return means that half of the participants have achieved a higher return and the other half have achieved a lower return. The performance of individual pension funds can vary from this average value, as it depends significantly on each fund's allocation to different investment categories.)
After a very positive first half of 2007 (median performance 9.9%) the investments of the participating pension funds suffered due to the significant corrections seen primarily in the equity markets of industrialised countries. The equity markets saw very different returns in the second half of the year. For example European equities achieved a median return of -6.1%, while emerging markets equities returned +7.8%. The latter contributed very positively to the year's results with a median return of +27.4%. A positive contribution was made by bonds in general which tended to profit from reducing interest rates in the second half of the year. In spite of this, Swiss bonds were not able to completely recover from the losses suffered in the first two quarters and ended the year with a slightly negative return.
The universe of Swiss real estate showed a median return of +5.6% for 2007. In the short term, hedge funds did not significantly help to support portfolio returns, particularly as they suffered similar losses to certain equity markets in the second half of the year. However, over the year as a whole they generally made a small positive contribution to performance (median return 2007: 1.1%).
Results for the main investment categories and total portfolio for 2007
Investment category Lowest returns Median Highest returns
(5% of (5% of
achieved a achieved a
maximum of ...%) minimum of...%)
Swiss equities - 3.1% - 0.3% + 3.7%
Foreign equities - 1.2% + 3.2% + 7.7%
Swiss bonds - 1.3% - 0.4% + 1.9%
Foreign currency bonds + 0.5% + 2.3% + 4.2%
Total portfolio - 0.6% + 1.8% + 4.0%
The analysis of the results shows the significance of the asset strategy adopted by the pension fund management. The investment categories of equities and bonds together constitute the majority of the participating pension funds' investments with approximately 79% of the total assets. The equity weighting was reduced following the stock market corrections and is now approximately 38% of total assets, while bonds account for approximately 41%. During the year a number of participants integrated their real estate into the comparison, with the result that the average percentage is now almost 9%, showing that real estate is becoming more and more representative. On the whole we observe a tendency to reduce domestic investments in favour of foreign and alternative investments. The average allocation of all portfolios at the end of the year was as follows:
Investment category Average allocation
Swiss bonds 24.1%
Foreign currency bonds 16.7%
Swiss equities 12.6%
Foreign equities 25.2%
Swiss real estate 8.9%
Hedge funds 3.5%
The past year has once again shown the importance of diversification as well as a long-term investment horizon. With diversification it is not only important to take into account various investment categories with different features, but equally various geographical regions which could possibly be in different economic cycles.
If less satisfactory returns are achieved in the short term, the long-term investment horizon of a pension fund should always be considered. The average returns over 3 and 5 years amount to 6.6% and 6.9% p.a. respectively for the participating pension funds. However, this number depends significantly on the composition of the portfolio and can under no circumstances be generalised.
Diversification remains the most important issue in the asset management of a pension fund, because it creates security almost without additional costs. What must be clearly determined, however, is that the selected investment structure must always correspond to the risks the pension fund is able to cope with. The overall average performance of 1.8% is a median value. Looking at 90% of the participating pension institutions, to eliminate outliers, the total returns for 2007 were between -0.6 and 4%. This spread is not surprising given the very diverse allocations of the funds. For example at the end of the year, the allocation to CHF bonds was between under 10% and almost 45%. For foreign equities the allocation was between 15% and over 45%, depending on the pension fund.
These results show that ultimately the investment strategy agreed by the pension fund management - taking into account the risk capability - is always key. The results of the above comparison should aid the management in analysing their investment policy.
In addition it should be noted that, in the interest of the occupational pensions as a whole and in particular the insured members, the standard benchmarks for occupational pensions (e.g. minimum interest rate) should be defined in such a way, that the pension funds have the chance to realise a surplus.
The performance comparison is the largest independent comparison in Switzerland with total assets of 176 billion CHF, 74 pension funds and over 650 compiled portfolios.
ots Originaltext: ASIP - Swiss society of pension funds
ASIP - Swiss society of pension funds
Hanspeter Konrad, Director
Watson Wyatt AG (technical implementation)
P.O. Box, 8034 Zurich