Abstract
Summary We investigate the performance of domestic and international bond and equity portfolios of Swiss pension funds and investment foundations over the period of 1996 to 2006. Our sample consists of 73 pension funds and 13 investment foundations with total assets of more than CHF 200 billion. We find some indications for superior skills of security selection and timing by pension funds in international bond management even net of costs for asset management and fund administration. In contrast, we find a significant net underperformance for domestic bonds, domestic equities and international equities. For investment foundations, we find a significant net underperformance for domestic bonds and international equities, whereas for international bonds and domestic equities the null hypothesis of neither significant outperformance or underperformance cannot be rejected. Finally, we find no evidence of persistence in the performance of Swiss pension funds and investment foundations.
Highlights
Today, retirement provisions in the western hemisphere – be they private or publicly organized – are up against the general problem of longer periods of retirement due to a rise in average life expectancy while a declining birthrate1 is contributing to reducing the size of the labor force
For investment foundations, we find a significant annual average underperformance of –0.264% net of costs for asset management and fund administration as shown in Panel B
If the costs of pension funds for asset management and fund administration are assumed to be of comparable magnitude21, an underperformance of –0.290%, which is significant at the 1% level, is estimated for pension funds
Summary
Retirement provisions in the western hemisphere – be they private or publicly organized – are up against the general problem of longer periods of retirement due to a rise in average life expectancy while a declining birthrate is contributing to reducing the size of the labor force. Given the high return guarantees, it is crucial for the stability of the Swiss retirement provision system to have pension funds realize adequate riskadjusted investment returns. Previous research is limited to the performance of collective investments of Swiss pension funds such as investment foundations (Ammann, Haeller and von Wyss, 2002). We investigate the performance of domestic and international bond and equity portfolios of Swiss pension funds over the period of 1996 to 2006. We compare the performance and investment strategies of pension funds with Swiss investment foundations. The article is structured as follows: In Section 2, we review the previous research on the investment performance of pension funds.
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