Swiss pension funds have continued to hedge foreign exchange risks across their global portfolios, a strategy that has proven effective, particularly during periods of Swiss franc strength against the US dollar.

With liabilities denominated in Swiss francs, pension funds aim to limit investment volatility by reducing exposure to currency fluctuations.

“Foreign currency bonds are usually fully hedged, while equities are partially hedged depending on risk tolerance. On average, the share of unhedged foreign currencies in the total assets of Swiss pension funds is approximately 17%”. 

Emerging market currency exposures are typically unhedged, largely due to implementation challenges. However, Staub noted that a currency risk premium – compensating for inflation risk – can be a rationale for hedging assets denominated in developing market currencies.

Migros Pensionskasse (MPK), the CHF29bn pension fund for the Swiss retailer, hedges 90-100% of its foreign currency exposure in bonds and real estate, and around 50% of its equity exposure. Overall, foreign currency exposure in its portfolio sits at approximately 11-12%.

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