Investment

Active investment to finance an active retirement

by Cedric Dingens

Active investment to finance an active retirement

By actively managing their pension assets people can maintain their lifestyles and therefore ensure they have an active retirement

When we think about our retirement, we most often imagine being able to finally take advantage of the time no longer spent working to travel the world or devote more time to our interests or families. The 80s/90s dream, which allowed people to hope that the second pillar would enable them to lead the same lifestyle is now being undermined, however, by the protracted fall in yields and longer life expectancies. This could make our retirements, which we saw as well-deserved and care-free, a dreaded prospect and a source of anxiety.

More difficult markets on the horizon

The markets are admittedly hardly reassuring. Given the major geopolitical uncertainties, which are jeopardising the globalisation-based economic model that has ensured our prosperity for the last 30 years; the return of inflation, which is the mortal enemy of pensioners; the policy shift by central banks, which are announcing interest rate hikes that are bad news for bond and real estate investments; and relatively expensive equities, volatile and complex markets are to be expected in the years to come. This of course creates not insignificant risks for pensions.

The end of the 60/40 portfolio

In addition to increased volatility, we should also see a sharp fall in returns on conventional 60% equity/40% bond portfolios. The investment group AQR believes, for instance, that the real annual performance (after inflation) that might be hoped for from this type of portfolio is likely to be only 2.1% for the next 5 to 10 years, in other words half the historic average.

An investment approach more suited to negative headwinds

In such circumstances, it therefore seems vital to switch, for our pension assets, from mostly passive investing based on index-linked investments, to a more active investment style able to quickly adapt to changing conditions. The adopting of an investment strategy with a target absolute return is all the more important as it takes a long time to make back any capital lost, which is too often forgotten. Note, for example, that a 50% loss requires a 100% rise to get back to where you started, rather than a 50% rise, although this might seem more intuitive. Due to its flexibility, this “all-weather” investment approach allows investors to benefit from price exaggerations or any opportunities that may arise during periods of volatility. It also generates positive returns, even in opaque or bear markets.

Pension funds are (finally) taking an interest in alternative strategies

For a long time, alternative funds and conviction-based investing have been the preserve of high net worth private investors. This is underlined in a UBS study showing that family offices invest 43% of their assets in alternative instruments. As a result of better knowledge of the techniques used and greater transparency, institutional investors have being showing an interest over the past few years though, prompted by the successful example of the Yale University endowment funds, which allocate more than 75% of their assets to alternative strategies in general, including 23.5% allocated to hedge funds. That said, more risk-averse Swiss pension funds are limiting themselves to an average allocation of between 8% and 10%.

Active pension asset management solutions are available

Although it is difficult, at an individual level, for a person to influence the investment policy of their occupational pension fund (LPP), investment strategies that are more in keeping with their wishes can still be chosen through third pillar or vested benefits foundations. By looking beyond the lacklustre products offered by the big banks or insurance companies, people can indeed find dynamically-managed solutions that include significant allocations to alternative strategies, available from private banks and independent asset managers.

A considerable impact on your retirement

Why concern yourself with how your pension assets are managed? Quite simply because, given the particularly long time horizon for this type of investment, an apparently modest difference in annual returns will become a yawning gap over time. For example, after 10 years, an annual return that is 2% higher translates into +21.9% extra capital. After 20 years, the capital gain rises to +48.6%, and +81.1% after 30 years. This may have a very tangible impact on the capital and annuities available to you on your retirement. If you invested CHF 1 million in a vested benefits product, this would equate to CHF 810,000 after 30 years, increasing your annuities by CHF 44,000 assuming a 5.4% conversion rate.

And these thousands of extra francs each month could mean the difference between a retirement marred by financial uncertainty and care-free golden years when you can finally make the most of your free time!

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Antonio Mira
CHIEF FINANCIAL OFFICER, MEMBER OF THE EXECUTIVE COMMITTEE

Antonio Mira joined NS Partners in 2006 as Group Chief Financial Officer. He heads the corporate functions and is involved in coordinating and implementing the decisions of the Executive Committee.
An experienced bank auditor, Antonio started his career in 1995 with Arthur Andersen, where he worked for some 7 years before joining Ernst & Young in 2002 as a Senior Manager.
Antonio is a Swiss chartered accountant and a Business graduate of Lausanne University (HEC).

Sébastien Poiret
DEPUTY HEAD OF WEALTH MANAGEMENT

Sébastien Poiret joined NS Partners in 2008 and manages funds of hedge funds and private client mandates. He also oversees the development of the Group’s offices in Mauritius.

Prior to joining NS Partners, he served as a Trader, Head of Manager research and Portfolio Manager in the USA and Switzerland for a single hedge fund (1998-2004) and for Optimal (2004-2008), Grupo Santander’s fund-of-hedge funds operations.

Sébastien holds a Bachelor’s degree in Corporate Finance from the ESPEME Business School (EDHEC Group) and an MBA in Finance and Economics from the Institute of Business Administration, both in Nice.

Abir Oreibi
BOARD DIRECTOR

Abir Oreibi joined the Board of the NS Partners Group in 2018, where she brings her truly international perspective and rich experience.
Among many other ventures, Abir set up Alibaba.com’s first European office. After living and working in Shanghai, Hong Kong, Bangkok and London, she now lives in Geneva, where she is CEO of Lift Events, an organization that identifies technology trends, their business and social impact through the organization of events and open innovation programs. Issues related to the challenges and opportunities created by new technologies as well as the strategic responses from organizations are at the heart of Lift’s activities.
Abir holds a BA in Political Sciences from the University of Geneva. She is an investor, and member of advisory and innovation boards.

Romain Pidoux, CAIA

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Romain Pidoux joined NS Partners in 2011 and heads the Group’s Risk Management.
He started his financial career in 2005 as Head of Quantitative Analysis for a Swiss Family Office, selecting funds and managing portfolio allocation. In 2008, he switched to the alternative world and joined Peak Partners as hedge funds analyst.
He is a Chartered Alternative Investment Analyst (CAIA) and holds a Master’s degree in international relations from the Graduate Institute of International Studies at Geneva University.

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