So far stock markets have done well in 2023, generating solid returns for the pension funds’ overall performance. However, economists expect the markets to be volatile until the end of the year. The reasons are rising interest rates, geopolitical uncertainties caused by the Ukraine war and uncertain planning conditions for companies for the coming year. Some central banks are expected to raise interest rates further to combat inflation. 

Sit back and relax despite rising interest rates 

“Equities are exposed to fluctuations all the time, reflecting the state of the economy. And the economy grows both in real terms and through inflation,” says Bruno Marroni, Managing Director of the GEMINI Collective Foundation. He is convinced that strategies have to work over the long term and that it is important not to lose sight of the chosen path. GEMINI’s investment strategy can absorb short-term changes on the capital market. This generates stable long-term income that benefits the employee benefits units and their staff through interest. “Our four investment pools have different levels of equities exposures. If the market changes, the Investment Committee advises the Foundation Board on any measures that should be taken – our clients can just sit back and relax.” GEMINI is currently not considering any adjustments. 

Bonds are back on the agenda 

If employee benefits units still want to react to market conditions in the short term, the law allows them to pursue their own investment strategy and engage their own FINMA-licensed asset manager provided they have assets of CHF 10 million or more. Investing in bonds is getting more attractive again. Comments Bruno Marroni: “When interest rates rise and book values fall, the expected return on fixed income assets goes up and bonds are redeemed at par when they mature. Rising interest rates have a positive long-term effect, as portfolio managers can replace the redeemed bonds with higher-yielding bonds. In this way, higher interest rates also have advantages for pension funds.”  

If interest rates are stable or rise, the BVG minimum interest rate is likely to be raised, speculates Bruno Marroni. If this is the case, members will benefit. “However, in the short term, the employee benefits units have less capital to allocate to the fluctuation reserves, which will have to be topped up again in the long term. The Federal Council has left the minimum interest rate at 1% for 2023, with the next meeting scheduled for this autumn. As always, only time will tell”.