Investor Profile

Switzerland’s rail fund SBB takes on more risk

Pensionskasse SBB, the CHF 17 billion ($19 billion) Bern-based pension fund for employees of Switzerland’s state-owned railway company, SBB, is increasing its allocation to equities.

Convinced higher interest rates signpost higher anticipated returns ahead, SBB will increase its equity allocation including private equity a few percentage points from current levels to 28 per cent of assets under management over the next two years in step by step increments that mark a departure from its highly conservative, low risk strategy.

“We have been thinking for a while that we could take on more risk,” says Dominik Irniger, head of asset management at the fund in an interview with

“Although we lost money last year, the increase in interest rates has increased our return expectations and we are looking forward to higher returns as the financial situation gets more stable.”

The increased allocation will include bumping up the private equity allocation to 6 per cent of assets under management where strategy centres around investing in funds in the mid-market space focusing on diversified, controlled exposures.

He favours these investments because they typically don’t involve as much leverage as other private equity funds and target investments in industries and companies that need restructuring, or are in their growth phase.

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“We don’t invest in the kind of funds that just buy a company and leverage it up, making their money like that.”

He also likes co-investment and secondary fund mandates.

“There are opportunities for investors in the secondary market. Quite a few people are reallocating their private equity allocations, so the market is quite dynamic.”

The public equity allocation is a mixture of passive and quantitative strategies with climate targets aimed at reducing the carbon footprint. The overlay changes the weight of companies in the index according to emissions reductions, he explains. “Heavy emitters will see their weight reallocated.”

SBB aims to reduce emissions across the portfolio by 50 per cent (compared to 2022 levels) by 2030. The fund has already reduced emissions by 30 per cent compared to the benchmark. “Next to emission reduction, engagement is the central ESG strategy for our fund,” says Irniger.

“The rules-based allocation is not really passive anymore, but it does have a really low tracking error,” he reflects, adding that he is particularly mindful of tracking error risk. “We don’t like managers that take to many tracking error risk. “

Most of SBB’s managers running the public equity allocations are based in Europe whilst fixed income and active strategies are run by US managers.

The expansion of the equity allocation will also include building out the global public equity portfolio.

“We do plan to add some global equity managers but our main focus is breaking out with more private equity first,” he says. SBB uses external managers across the portfolio accept in the Swiss bond and mortgage allocation.

Conservative strategy

In a conservative strategy reflective of SBB’s high number of pensioners, half the fund is invested in fixed income comprising allocations to government and provincial (Swiss) government debt, mortgage-backed securities, corporate bonds, and high yield emerging market debt. Reflecting on the implications of higher interest rates on the allocation to Swiss government debt he notes, “we don’t think interest rates will go up anymore, the curve is quite flat now. Our expectation is that interest rates have peaked.”

Asset are divided between foreign equity (10.3 per cent) Swiss equities (4.9 per cent) foreign currency bonds (19.5 per cent) CHF denominated fixed income (42.8 per cent) liquidity (3.5 per cent) alternative investments (6 per cent) and real estate (13 per cent)

Infrastructure & real estate

In another strategy seam, trustees are currently discussing whether to allocate more to infrastructure via co-investments, potentially targeting a 3 per cent allocation. “In the past we’ve just invested in closed end funds,” he says.

Building out the real estate allocation is another priority. Over the last five years, the fund has gradually built-up internal expertise in its Swiss real estate allocation where a portfolio of CHF500 million ($579 million)  is expected to grow to around CHF1billion ($1.1 billion). “We have a team of 3 people doing this,” he says.

The increased equity and infrastructure allocations follow recent decisions to drop other portfolios. SBB no longer invests in insurance -linked securities following a series of poor returns.

“We had a long history of investing in insurance-linked securities but although our outperformance relative to the market was good, the market as a whole didn’t produce the returns we expected. Investments didn’t pay off so we divested a year ago.”

Nor does SBB invest in hedge funds anymore, switching is alternatives focus to private equity where he says the fees offer better value for money.

“The ratio of what you get and what you pay out in fees in alternatives is best in private equity. In hedge funds, half your performance often goes on fees, but this is not the case in private equity. Fees in private equity are high, but you also get a better performance.”


Alongside Swiss funds like PUBLICA and compenswiss, SBB is a member of Switzerland’s responsible investor association SVVK-ASIR partnering to work on climate engagement with corporates.  Although he cites real progress around corporates committing to long and medium-term carbon reduction goals, he’s concerned corporate investment in the transition remains slow.

“Corporate investment plan are still not aligned to targets.”

Looking to the future, he says SBB will increasingly seek to integrate human rights into the allocation.

“We think we could do something in the bond space around integrating human rights and democracy issues; it’s something we are analysing. There is also interest to understand what impact our existing private equity investments have on environmental and social issues.”

In contrast to Nordic countries and the Netherlands, the fund’s corporate sponsor and trustees are driving ESG integration rather any concerted action from SBB’s beneficiaries.

“The Swiss themselves are more pragmatic about ESG,” he concludes.


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