Swiss multi-employer pension fund Nest Sammelstiftung, with CHF4bn (€4.2bn) in total assets, has shelved its plans to expand its private markets allocation until it clears issues on transparency, governance and costs, chief investment officer and board member Diego Liechti told IPE.
“We want greater transparency regarding fees and performance, and also better governance so that control is improved,” he added.
The pension fund has halved its asset management costs over the past 10 years, from 0.91% in 2015 to 0.39% last year, according to its latest finance statement for 2023.
A higher allocation to alternative investments, including private equity, infrastructure, insurance-linked securities (ILS), and private debt, lead to higher fees, it added.
The total expense ratio (TER) fell sharply to 0.39% last year, compared to 0.58% in the previous year, for a number of reasons, including the liquidation of provisions for performance-related fees on private equity investments, renegotiations and tenders, a more appropriate portfolio structure, and due to a weak performance for private market investments.
“The performance was not good compared to listed stock markets due to illiquidity, but that is the nature of the investment. Private markets investments also depreciated [too] little in 2022, so the upward potential in 2023 was limited,” Liechti said.
Nest expects costs to rise slightly again this year, it said in the statement.
Transparency on investment costs is achieved for 99.38% of the portfolio, with non-transparent investments in eight private equity funds, and in one ILS investment, according to the statement.
The scheme has kept allocations to private markets, including private equity, infrastructure and private debt, at around 10% for a long time now.
“We invest in a broadly diversified manner, across all segments, all sustainable industries, brownfield and greenfield. However, we are more active in the middle market and not with large funds,” the CIO said, adding that the scheme is in the process of further expanding its approach to sustainability.
It allocates 31.4% of its total assets to nominal value investments, 28% in equities, 24.1% in real estate, 13.4% in private markets (including also ILS), and 3.1% in cash, the statement added.
Last year, Nest’s investments returned 6.2%, with currency hedging, ILS, and a more conservative approach to global real estate having had a positive impact on the fund’s performance, the scheme said.
“We don’t have any particular expectations for this year but over the long term, private markets need to outperform public markets by at least 2 percentage points in order for them to achieve a similar return on a risk-adjusted basis,” the CIO said.
