A link to the full report is found below.
Statistical analyses suggest a very close correlation between Swiss pension fund portfolios and their benchmark indices. On the basis of this correlation, the report illustrates the investment environment across 34 years (from 1985 to 2018) as seen from the perspective of Swiss pension funds. Pictet LPP40 (a popular benchmark) is used as proxy. From this analysis, plausible deductions are made with regard to the behaviour and performance of actual pension funds and/or their investment managers. Special emphasis is placed on the very different dynamic of risk and reward during the 15 years from 1985 to 1999, compared to the 19 years from 2000 to 2018. Data displayed in seven graphical and two numerical exhibits show that the Swiss pension fund crisis was not caused by any unforeseeable changes in financial markets. More likely, the true reason is found in ill-advised basic assumptions made about what constitutes ‘normality’ in financial markets. These assumptions will have contributed to the misperception of perfectly rational, thus foreseeable, shifts in financial markets, as and when they began to manifest. That misperception will also have caused the subsequent failure to act upon visible changes. The analysis clearly illustrates, that during the recent 19 years, higher returns were achieved with lower risk and that risk, regardless of magnitude, should always be managed. The de-facto dogma of passive investment strategies among pension funds is identified as a systemic weakness. This culture prevents a pro-active assessment of risk and opportunities alike, with significant negative impact on the rate of return achieved. The report also raises the question if the evidently popular index replication is indeed a deliberate choice made by pension funds, or perhaps the result of outright deception on the part of supposedly ‚active’ investment managers. A more appropriate handling of the assets would mitigate a meaningful portion of the pressures arising from pension funds’ liabilities. The analysis concludes that passive investment management -tantamount to the neglect of all investment risk- is not compatible with the legal and moral requirements placed on pension funds. It strongly argues in favour of a pro-active assessment of risk and reward, as significant dynamic changes of the these two variables over time are the true normality in financial markets.