How collective foundations invest their capital

Collective foundations pool the pension assets of many companies to invest them on the capital market. This generates economies of scale as asset management costs go down, administration becomes more efficient and companies benefit from professional investment solutions. Companies opting for a pool solution, i.e. a standardised investment strategy, do not have to concern themselves with investment issues. The foundation handles the management and is responsible for implementation.

Long-term approach is an advantage

Pension funds are notable for their long-term investment horizon. With pension and benefits commitments extending over many decades, pension funds have to plan well ahead. This is why they can ride out temporary market fluctuations and generate stable returns over the long term. The returns are crucial, as they determine the interest that can be paid on the members’ retirement assets.

Broad diversification, wide base

Collective foundations invest in various asset classes, among them:

• Equities: for long-term sustainable returns

• Bonds: for stability within the portfolio

• Real estate: for generating regular revenue through rental income and as protection against inflation

• Alternative investments, such as infrastructure or private equity: for additional diversification, stability and return potential

• Liquidity: for the ongoing payment of pensions and maintaining flexibility

Investing in different asset classes provides broad diversification. As a result, the overall risk of the portfolio is reduced as losses in one asset class can be offset by gains in others.

Strategic asset allocation at the core

The focus of a collective foundation’s investment activities is on strategic asset allocation, which determines how retirement assets are spread across individual asset classes. Asset allocation is based on the foundation’s risk profile and on regulatory requirements. Under the BVV 2 investment guidelines, for instance, equities may account for no more than 50% of the portfolio. Asset allocation is reviewed on a regular basis as part of ALM studies and adjusted if necessary.