Activity report 2022

Management of interest rate risk

As investments are broadly diversified across asset classes, segments and markets, risk management is carried out centrally through hedging and risk control programmes that use derivative instruments. This approach significantly reduces transaction costs and enables consolidated control and monitoring of risks. The institution has the necessary instruments and control processes as well as the experience required for this task. Approximately 10% of derivatives are listed on stock exchanges and approximately 90% are over-the-counter ("OTC") derivatives, in particular for interest rates and currencies. OTC derivatives are concluded on the basis of ISDA contracts – the international standard in this field – and most of them benefit from a daily exchange of guarantees up to the replacement value of these instruments.

Foreign currency risk management

Given that the funds must settle their payment obligations (primarily pensions) in CHF, the national currency is the benchmark for portfolio management. Foreign currency exposures are largely hedged, but to varying degrees depending on the currency. At the end of 2022, the foreign currencies exposure amounted to CHF 23 billion before hedging and CHF 8 billion after hedging.

"The foreign currency exposure amounted to CHF 23 billion before hedging and CHF 8 billion after hedging."

The currency risk is managed at two levels:

1) Hedging of the main currencies

The total currency exposure of the entire portfolio is hedged to varying degrees for each of the six major currencies (USD, EUR, GBP, JPY, KRW, CNH). As at 31 December 2022, the hedge levels ranged from 25% to 81%. The target exposure level per currency is set annually by the Board of Directors based on the strategic portfolio allocation. The target exposure for the USD has been set at 8% of the market portfolio assets, with a hedging level of 81% at the end of 2022 and represents the main currency risk.

2) Hedging of secondary currencies

For secondary currencies, the level of exposure is determined annually by the Board of Directors. For 2022, a target exposure of 7% of market portfolio assets has been set. However, the Investment Committee maintains a tactical margin of +/- 1% around this target. 

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