Investor Profile

Switzerland’s Publica hit by equity, fixed income correlation

Hit by last year’s unusual correlation between equities and bonds, and in a bid to avoid higher long-term inflation, Switzerland’s €45.6 billion Publica kick-starts a new strategic asset allocation that will reduce the bond allocation and result in a search for new managers.

“The most difficult part of last year was the lack of diversification between fixed income and equity caused by the increase in (real) interest rates. This meant that not only the fixed income part of the portfolio suffered from a market value perspective, but also equity. This kind of equity-fixed income correction happens 2-4 times every hundred years,” said Stefan Beiner head of asset management at Switzerland’s largest pension fund, CHF44 billion (€45.6 billion) Publica.

Hit by both falls in equity and bonds, the fund has just posted a -9.6 per cent loss for the last year, although direct real estate had a positive impact on the portfolio. Bonds had the largest adverse effect in 2022, followed by equities where the six main regions Publica invests all posted losses. Pacific ex-Japan did best in the faltering equity allocation – and US equities worst.

Despite last year’s poor results, Beiner predicts that rising interest rates will support the portfolio in the long run. “Our expected return from our SAA at the end of 2021 was 2 per cent. This has now risen to around 3.5 per cent for the next ten years.” Still, he remains pessimistic regarding short-term performance.

“Although the long-term expected return has increased, it doesn’t mean we expect a strong performance in 2023. As well as our SAA, we have a tactical process that looks at the next 3-9 months. Here, personally, I am still quite pessimistic, particularly because of corporate earningrisks.” 


Beiner’s focus in 2023 is implementing a new strategic asset allocation, designed to increase exposure to real assets and support diversification. In times of high inflation and volatility, assets that are closest to the real economy do best, he says.

The new SAA will shave 14 per cent off the fixed income allocation. In turn leading to a 5 per cent increase to public equity (there will be no search process; the fund will just allocate to existing public equity managers) 9 per cent will be placed in real assets  and 3 per cent in international real estate. Here the team will begin a hunt for new managers, most likely one Asian and one Canadian-focused manager, “We will do the FRP process this year,” he says.

Publica also plans to increase exposure to Swiss real estate, but this will be internally managed. A final 1 per cent will be invested in precious metals – gold and silver.

In a new strategy, Publica will build a new allocation to private infrastructure equity. “Private infrastructure equity is a new allocation for us. As a first step, we will invest in open ended funds and finalize the RFP process to find the right partners in the next few months.”  

The new SSA will be implemented over the next four years in a bid to benefit and time from price corrections in asset prices. If prices correct faster, the process will speed up. “We decided to implement our new SAA over four years in a rules-based manner to diversify the adjustments on the time axes due to the high volatility. If there is a larger equity price correction, we will speed up the build-up process.”  

Publica is divided into a closed and open fund. The closed pension plans, which have a 10 per cent allocation to equities, recorded a performance of -8.0 per cent, while the open pension plans which includes active members and which allocate some 25 per cent of their assets to equities, posted -9.7 per cent. The consolidated funded ratio across all pension plans is estimated at 96.7 per cent.

Analysis back in 2021 showed that inflation was very likely to be higher in the next ten years than it had been in the preceding decade. Since real assets tend to outperform nominal assets in an inflationary environment, Publica’s Board of Directors decided to reduce the relatively high weighting of bonds in favour of higher weightings of real assets and listed equities, states a press release.


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