Massive upheaval on the global financial markets depressed returns on PUBLICA’s investments. The closed pension plans, which have a 10% allocation to equities, recorded a performance of -8.0%, while the open pension plans, which allocate some 25% of their assets to equities, posted -9.7%. The closed plans contain only pension recipients, whereas the open plans contain both pension recipients and active members who are still working. This is why PUBLICA maintains a higher-risk asset allocation for the open plans compared with the closed plans. In terms of consolidated total assets and on a currency-hedged basis, net investment performance after all costs and taxes in 2022 amounted to -9.6%. As a result of this negative performance, the consolidated funded ratio across all pension plans is estimated at 96.7%. The rise in interest rates, however, means that a return to much higher performance can be expected over the long term.
Bonds and equities negative, real estate and precious metals positive
Bonds had the largest adverse effect in 2022. Returning roughly -12% overall, they made a negative contribution of -6.3 percentage points to the consolidated total return of -9.6%. Equities, meanwhile, contributed -4.1 percentage points. The six main regions all posted losses last year: Pacific ex Japan was the least worst performer with -6%, followed by Japan with -8% and Europe ex Switzerland with -11%. Realised equity returns were between -16% and -17% in Switzerland and the emerging markets and stood at -19% in North America.
Real estate generated a positive performance again in 2022, with directly held Swiss real estate returning 3.9% at year-end, while foreign real estate funds generated 14% on a currency-hedged basis. For diversification reasons, PUBLICA invests a portion of its assets in precious metals such as gold and silver. These remained just inside positive territory in 2022 with a return of 0.6%.
Performance above benchmark
PUBLICA made tactical deviations from its strategic asset allocation and took selection decisions in 2022. This resulted in its consolidated net investment performance of -9.6% being 0.45 of a percentage point above the benchmark (0.7 of a percentage point overall minus asset management expenses amounting to 0.25 of a percentage point). The benchmark performance is calculated on the basis of the strategic asset allocation.
Strategic asset allocation adjusted: bonds reduced, equities and real assets increased
An analysis back in 2021 showed that inflation was very likely to be higher in the next ten years than it had been in the preceding decade. Since real assets tend to outperform nominal assets in an inflationary environment, the Board of Directors decided to reduce the relatively high weighting of bonds in favour of higher weightings of real assets and listed equities. The expected return over the medium to long term is thus higher than with the former strategic asset allocation. The implementation of this new allocation is being deliberately staggered and will take up to four years for some of the more illiquid asset classes.
Further details of the annual results for 2022 will be published in the Annual Report in the middle of April 2023.