Swiss pension fund performance

The Swiss retirement system is based on a three pillar system. Pillar one consists of compulsory Old age and Survivors’ Insurance (AHV). Pillar two consists of a compulsory occupational pension (pension fund). Pillar two investments are managed by pension funds and investment foundations. Investment foundations are offered by banks and insurance companies. The third pillar is a voluntary private pension.

Performance studies
Ammann and Zingg (2008) examine the performance of 73 Swiss pension funds and 13 investment foundations, holding CHF 200 billion, and representing 20% - 25% of Swiss pension assets. The study examines returns over the 1996 - 2006 period. While pension asset allocations are constrained by Swiss law, pension funds can receive exemptions by subscribing to a prudent investor rule. Approximately 80% of Swiss pensions are exempted from the rule.

Costs
Swiss investment foundation costs are tabulated below:

Returns
Net returns for pension funds and investment foundations are tabulated in the tables below. Over this period pension fund and investment foundation returns did not exceed index returns.

Factor regressions
Factor regressions supply the following returns data. Domestic and international bonds returns are analyzed using a four-factor performance measurement model that includes a bond and a stock market index as well as two factors representing term and default risk. An additional exchange rate factor is added for international bonds. Stock returns are analyzed using the Fama-French three factor model. An additional exchange rate factor is added for international stocks.

The analysis shows that pension fund managers only showed evidence of skill in security selection and timing in international bond investments. Ammann and Zingg (2008) conclude: