Performance Analysis Of Swiss Pension Fund Benchmark Indices

Two groups of pension fund benchmark indices are sometimes shown alongside here. One is the original group of Pictet pension fund performance benchmarks of the ‘2000’ family. The other group are contiguous indices calculated by Agathos, based on various benchmark index families calculated by Banque Pictet & Cie in response to changes in investment regulations. These contiguous indices (marked with the letter ‘C’ ) should not be confused with Pictet’s indices. For the rationale behind Agathos’ contiguous benchmark indices, and a description of how and why they are being calculated, click here.

The performance analysis of benchmark indices serves two main purposes:

  • Firstly, such benchmarks give a fair, if very simplified description of the investment environment from which pension funds need to find an optimum blend of risk and reward. An analysis of this environment gives insight into the specific challenges pension funds need to face, which may be comparatively easy during one cycle, but exceedingly difficult during another.
  • Secondly, and only in view of the known and extraordinarily high correlation between actual pension fund performance data and such benchmark indices, the monitoring of relevant data with monthly frequency gives ‘live’ insights into the dynamics impacting the asset side of pension fund’s balance sheets. Monthly data, available with little or no delay and put into long-term context, generates an altogether different dimension of understanding, not possible with the annual data available from pension funds themselves, and after months of delay.

Exhibit-01 (above)

In Chart 01, both groups of risk tier benchmarks are shown, rebased to their values 18 months ago. The contiguous benchmarks calculated by Agathos are plotted in grey. Their composition reflects changes to investment restrictions over time. The original Pictet benchmark indices of the ‚2000’ family are plotted in red. Underneath each graph, cumulative monthly gains and losses are shown, giving more detail on differences between indices of the same risk tier, and across risk tiers.

Exhibit-02 (below)

Chart-02 (below) shows year-to-date performance in the context of five preceding calendar years. While Chart-01 did emphasise recent volatility, this chart describes the general atmosphere of each year.

Exhibit-03 (above)

Going back to the most recent 120 months, Chart-03 (above) plots actual index values. All three benchmarks have an identical base value at the end of 1999.

Exhibit-04 (below)

In Table-01 (below), the latest120 months of benchmark history is examined. It shows annualised return and risk but also gives data relating to the distribution of monthly rates of change in this time.

Exhibit-05 (above)

Chart-04 plots the ratio of LPP-C60 over LPP-C25. This is an indicator of the relative performance of higher risk over lower risk.

Exhibit-06 (below)

Chart-05 depicts trailing 3-year normalised return for the recent 120 months of history.

Exhibit-07 (above)

Directly corresponding to Chart-05 in Exhibit-06, this chart plots 3-year normalised observed risk. Unlike the popular risk-proxy volatility, observed risk, a metric developed by Agathos, is directional. Here it is shown with its naturally negative value, placing low risk readings at the top of the chart.

Exhibit-08 (below)

Chart-07 shows risk-adjusted returns, obtained by deducting normalised risk (Chart-06) from normalised returns (Chart-05).

Exhibit-09 (above)

Table-02 shows index values at fixed points in time since the end of 1999. The right part of the table calculates corresponding rates of return. In addition, a ratio between latest 12 months and 5 years is calculated showing how recent performance impacts the medium term.

Exhibit-10 (below)

Table-03 compares the original Pictet benchmarks of the ‚2000’ series with their contiguous cousins, all the way back to the end of 1999. Similar to the table in Exhibit-04,  Table-03 combines information on annualised rates of return and risk with salient data from the distribution of monthly rates of change.

Exhibit-11 (above)

Here, both groups of benchmark indices are shown in a grid of normalised risk (horizontal) and return (vertical). The dashed diagonal indicates risk/reward equilibrium. Current values are plotted in the scatter on the left. The scatter on the right gives values from one year earlier.

Exhibit-12 (below)

Table-04 is identical to Table-03 but reflects the full history back to the end of 1984. Please note that prior to 31.12.1999, the Pictet-2000 benchmarks were not yet investable. Their calculation for 1984-1999 is pro forma only.

Data Sources

Raw data for the calculation of contiguous benchmark indices was sourced from:

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