Swiss scheme expands credit investment to banks and infrastructure companies

Luzerner Pensionskasse (LUPK), the CHF10bn (€10.3bn), pension fund for the Swiss canton of Luzerne, has decided to expand credit investments to non-public entities, investing in banks and infrastructure companies, it said in its 2023 statement.

The pension fund has taken advantage of a norm included in the occupational pension law BVV2, allowing it to increase the allocation to certain types of investments.

The scheme’s board of directors considered expanding into “appropriate” investment options and unanimously approved the investment strategy.

LUPK’s allocation targets 20% of its assets in fixed income, 6% in mortgage loans, 30% in equities, 9% in alternatives, 1% in loans to non-public entities, 3% in infrastructure, and 31% in real estate, according to its investment strategy set out in 2023.

The scheme’s credit strategy returned 3.2% last year, pushed by both collective private market investments and high-yield bond investments. Loans to banks and infrastructure companies generated a stable return of 1.5%, the statement added. The fund returned an overall 5.1% in 2023, exceeding its target return.

LUPK invests 19.4% of its assets in fixed income, 5.4% in mortgage loans, 31.9% in equities, 10.5% in alternatives, 3.3% in infrastructure, and 29.5% in real estate, as of the end of December last year, according to the statement.

LUPK’s funding ratio rose by 3.8 percentage points year-on-year, from 105.9% in 2022 to 109.7% in 2023, including the increase of the technical interest rate, used to discount future benefits, from 1.50% to 1.75%, which led to a one-off improvement of the funding ratio by 1.3 percentage points, it added.

The decision to increase the technical interest rate led to a one-off reduction of obligations, and technical provisions for the benefits, of around CHF104m at the end of 2023.

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