Swiss pensions could allocate more to ILS, as infrastructure split from alts

Swiss pension funds, or Pensionskassen as they are known, could now allocate a greater percentage of their capital to insurance-linked securities (ILS), if they wanted to, as infrastructure investments have been carved out of the alternatives bucket.

In the past, Swiss pensions were only allowed to allocate up to 15% of their assets into an alternatives bucket defined by their regulator, with that bucket including infrastructure, hedge funds, ILS, private equities and commodities.

Now, reported first by Investment & Pensions Europe, under new rules approved by the Swiss Federal Council and set to come into force in October, infrastructure investments have been split out into their own bucket, leaving the other alternatives still grouped together.

Swiss pensions can now allocate up to 10% of their assets into a dedicated category of infrastructure related investments, since it was split out under the new rules.

The hope is to stimulate greater investment into green infrastructure projects, capitalising on the wave of interest in ESG investing among pension funds around the world.

But a side effect may be an ability for Swiss pensions to allocate a greater proportion of their alternatives bucket to insurance-linked securities (ILS), such as catastrophe bonds, ILS funds and other reinsurance linked assets.

With a number of the most established ILS fund managers located in and around Zurich, the Swiss Pensionskassen sector is already very familiar with the ILS asset class.

But before any ILS managers get too excited about the prospect of pensions looking to upsize on their ILS allocations, it’s important to consider that the average Swiss pension only allocates around 2% to 3% of its assets to all alternatives and that included infrastructure.

The investment limit for alternatives, including ILS, now stands at 15% (minus the infrastructure allocations) which does leave room for further growth of assets flowing from Swiss pensions to the ILS market, should they choose to.