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Report "The 3rd contributor: A question of investment strategy"

The report ‘The 3rd Contributor: A Question of Investment Strategy’ uses data and results from the BVG occupational pension scheme for 2024 to demonstrate that the second pillar is fundamental to the Swiss pension system thanks to the long-term effect of capital market contributions and the services provided by the asset management industry. The report also highlights developments in the alternative investments asset class, which achieved the second-best investment return after global equities in 2024. It also questions whether the investment categories under BVV2 are still appropriate in today's environment.

Strong returns: The 3rd contributor delivers 90 billion

In 2024, the 1,360 Swiss pension funds achieved an average return of 7.6% on their assets. This means that the pension funds generated capital market income of around CHF 90 billion on total assets of CHF 1,278 billion. Since 2004, CHF 600 billion from capital market contributions has flowed into pension fund assets, underscoring the high relevance of the third contributor.

Individual portfolio returns are influenced by a variety of decisions (currency hedging, implementation of strategy, bond duration, etc.). However, the most important factor in the long term is the chosen investment strategy. A higher allocation to equities leads to better returns in the long term. In recent years, alternative investments have emerged as another driver of returns.

Asset management costs for 2024 are 41 basis points – a new low. While reducing asset management costs is an important priority, this should not be at the expense of net returns: low asset management costs do not necessarily guarantee better returns. Available data shows that investing in more expensive asset classes can be worthwhile: a five-year comparison between pension funds with the best and lowest net returns shows that although the costs of the top 10 per cent are around 27 basis points higher than those of the bottom 10 per cent, their returns are also more than twice as high.

In view of the data available and the structural problems in pension provision, it is appropriate to strengthen the role of the third contributor – through a combination of responsibility, competence and modern regulation:

• Make better use of risk capacity: Many pension funds remain below their potential and miss out on opportunities for returns.
• Modernise BVV2: The investment guidelines currently in force disadvantage modern, high-growth forms of investment such as private equity.
• Support foundation boards: Professional, well-supported investment strategies not only reduce liability risk, but also increase long-term returns.