Activity report 2022

Strategic asset allocation for the three social security funds

The investment policy for the compensation funds must guarantee the solvency of the three social insurance schemes (OASI, InvI, LEC) at all times. To this end, the governing and executive bodies of compenswiss have set the target of a real return, i.e. above the rate of inflation and in line with market conditions.

Management of the three Funds

compenswiss manages the assets of the compensation Funds jointly, while taking into account the specific characteristics of each fund. For each of the social insurances, the Board of Directors approves each year, at the proposal of the Executive Committee, a risk budget taking into account their respective balance sheets and development prospects, as well as the annual asset allocation (AAA) and the detailed allocation by segments (DAA).

"compenswiss jointly manages the assets of the three compensation funds, while taking into account the specificities of each Fund."

Investment portfolios

The assets are divided between two portfolios with different risk profiles and investment objectives. The purpose of the "base portfolio" is to ensure that liquidity is at all times sufficient. As such, it consists of low-risk investments, including money market instruments, which had negative average returns in 2022. The "market portfolio" invests for asset growth with an estimated higher average return potential of 1.6% for 2022. It is subject to AAA, is more diversified than the base portfolio and includes longer-term investments such as equities and bonds.

"The purpose of the base portfolio is to ensure that liquidity is at all times sufficient."

In 2021, in view of the medium-term financial outlook for the three insurances, a liquidity reserve in the core portfolio has been created exclusively for the InvI. The reserve was used to fund the 2021 and 2022 deficits by 50% and 38% respectively, by divesting the core portfolio on a quarterly basis in 2022. Given the improved outlook for the InvI, the remainder of the reserve was dissolved in December 2022.

Strategic and tactical allocation of investments

In order to define the strategic allocation, the Board of Directors, at the proposal of the Executive Committee, sets a risk budget consistent with financial and economic projections. It then uses the estimated risk premiums and the relationships between asset class returns to determine the allocation. The allocation includes minimum and maximum asset class weights as well as explicit foreign currency exposures. 

The implementation of the strategic allocation is framed by a limited risk budget, giving the allocation a relatively passive tactical nature. The risk is measured as the difference between the actual and theoretical allocations. Half of the budget allocated for 2022 has been consumed. This is mainly due to the low demand for loans in the "Loans to Municipalities" class and the delays in calls for real estate capital.  

Structure of the strategic allocation

Foreign currency bonds account for 39% of the allocations, making them the most important asset class. Equities account for 26%. They offer attractive long-term returns, but are subject to higher short-term risks. Bonds and other fixed-income instruments denominated in CHF account for 19%. It is lower than the other two asset classes due to their low return potential. Real estate, which accounts for 13% of the allocation, is mainly interesting in view of long-term growth.

To further diversify the portfolio and protect against inflation, compenswiss also invests 3% in precious metals. Since 2019, this asset class known as "commodities", has been limited to gold. After hedging, the foreign currency exposure is 24%.

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