As investments are broadly diversified across asset classes, segments and markets, risk management is undertaken 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 Management Office has the necessary instruments and control processes as well as the experience required for this task. Derivatives include instruments listed on stock exchanges, as well as "Over the counter" (OTC) derivatives, particularly for currencies. OTC derivatives are concluded based on 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. For this reason, foreign currency exposures are largely hedged, but to varying degrees depending on the currency. At the end of 2024, the foreign currency exposure amounted to CHF 29 billion before hedging and CHF 11 billion after hedging, or approximately 26% of assets.

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 seven major currencies (USD, EUR, GBP, JPY, KRW, CNH and AUD). The target exposure level per currency is set annually by the Board of Directors based on the strategic portfolio allocation. The target level of exposure to the USD was set at 9% of the market portfolio’s assets, corresponding to a hedging level of 70% at the end of 2024. This 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 2024, a target exposure of 7% of market portfolio assets was set. However, the Investment Committee maintains a tactical margin of +/- 1% around this target.