According to Credit Suisse, the Swiss pension fund index rose by 0.83% in the first quarter of 2011. That corresponds to an annualized return of 2.10%. CS considers these results as being extremely satisfactory.

In the first quarter, the Credit Suisse Swiss Pension Fund Index rose by 1.04 points, or 0.83%, to 126.37 points as of 31 March 2011. The annualized return of the index, which reflects the actual investment behaviour of more than 100 Swiss pension funds since 2000, was 2.10% at the end of the quarter. At the end of the fourth quarter 2010, the annualised return was 2.07%.

Smaller pension funds achieve higher returns

Pension funds with over CHF 1bn in assets realised an annualised performance of 1.93% for the period from 01.01.2000 to 31.03.2011 compared with 2.26% for pension funds with assets of CHF 0.5bn to CHF 1bn. Small pension funds with between CHF 150mn and CHF 500mn in assets even realised returns of 2.36%. The even smaller pension funds, with less than CHF 150mn were not, however, more successful: they achieved a return of 2.07%.

Reduced difference with BVG/LPP minimum rate of return

The BVG/LPP minimum rate of return, which also started with a baseline 100 points as of January 2000, climbed 0.68 points or 0.5% to reach 137.39 over the same period, reducing the difference to 11.02 points. At the end of 2010, the difference was 11.5 points. The annualized BVG/LPP minimum rate of return was 2.86%, compared with 2.88% in the fourth quarter. Since 2002, the minimum interest rate has fallen from 4% to 2% (since 2009).

Financial institutions have different views on pension fund performance

In Switzerland, a number of institutional asset managers publish figures on pension fund performance. As always with statistics, they should be taken with a pinch of salt. There are some gaping differences between the reported performances.

Individual asset managers explain that this is due, among other things, to the fact that calculations are made using different reference bases. But the fact that the banks in question are competitors no doubt also influences the reported data.

Indexes of the large Swiss banks on the upswing

According to the UBS Pension Fund Barometer, Swiss pension funds attained a return on investment of 0.72% in the first quarter of 2011. According to the Credit Suisse Swiss Pension Fund Index, however, the return for the same period was 0.83%. The Swisscanto Pension Fund Monitor, for its part, reported a weighted investment performance of 0.6% for the surveyed pension funds. That is 0.23% less than Credit Suisse. The index published by Swisscanto, a joint venture between the Swiss cantonal banks, surveys 420 pension funds with assets totalling CHF 400 bn. It covers nearly two thirds of the Swiss pension fund market.

Asset class, weighting and hedging determine investment performance

Institutional asset managers explain the difference in performance between certain groups of pension funds by the choice of asset classes and the weighting of those asset classes in the pension fund portfolios. Depending on how high a share of its portfolio is invested in any given class, a pension fund's performance may differ significantly. So if a given class of asset performs especially well one year, the pension funds with a higher share of that asset in their portfolios will realise a better performance.

Foreign currency hedging is another factor influencing performance. In 2010, when foreign exchange rates fluctuated wildly, pension funds which had hedged their foreign currency positions realised performances several percentage points higher. Hedging is expensive, however, and presupposes that short-term forecasts follow actual exchange rate trends.