63 Fixed and non–fixed capital reached the size of the Swiss GDP in 2000.<sup>57</sup> This position comprises present values of current annuities, contributions for income exceeding the mandatory threshold, all accruals for the risks of longevity, disability and death, some contributions that are dated before 1985, and the old-age credit balances of active contributors. (Again, due to data limitation a more complete picture will only be available in 2006.) Finally, debt capital, which more than doubled to almost CHF 17 billion over the last 15 years, mainly includes accounts payable and passive debt, as well as some passive mortgages.

**Table 21  Total Assets** **<u>and Liabilities of Swiss Pension Funds</u>**

|in M. CHF|1987|1992|1994|1996|1998|2000|2002|
|---|---|---|---|---|---|---|---|
|Direct Investments|148,667|236,129|267,759|305,676|372,141|412,092|359,335|
|Indirect Investments|9,846|18,488|25,498|38,833|52,928|74,902|77,745|
|Other Assets|9,170|2,059|2,770|3,786|3,182|3,889|3,475|
|Total Assets|167,683|256,676|296,027|348,295|428,251|490,883|440,555|
|Dept Capital|7,449|8,953|10,854|10,821|14,646|15,861|16,964|
|Funding Status||||||||
|and Provisions|2,831|5,214|7,299|19,207|37,273|51,156|17,958|
|Employer’s Reserve|0|0|6,436|6,682|8,410|8,788|8,529|
|Fixed and||||||||
|Non-Fixed Capital|157,403|242,513|271,438|311,585|367,922|415,078|397,104|
|Total Liabilities|167,683|256,680|296,027|348,295|428,251|490,883|440,555|
|Ind. Inv (% of Dir Inv.)|6.6%|7.8%|9.5%|12.7%|14.2%|18.2%|21.6%|
|Total Assets (% of GDP)|63.6%|73.2%|80.5%|93.1%|109.8%|118.1%|102.2%|
|Fixed & Non-Fixed||||||||
|Cap. (% of GDP)|59.7%|69.1%|73.8%|83.3%|94.3%|99.9%|92.1%|
|Provisions in % F&NF Cap.|1.8%|2.15%|2.69%|6.16%|10.13%|12.32%|4.52%|

Source: Bundesamt für Statistik Table 22 shows the investments in more detail. Total investments increased between 1996 and 2000, but decreased by over 10 percent to 437,080 million CHF in 2002, mainly due to the general decline in financial market returns. Investments in both Swiss and foreign shares, representing almost one fourth of total investment assets, decreased by more than 33 percent. Hence, it is not surprising that net investment income dropped by almost 22 percent to 11,947 million CHF during that period. On the other hand, investments in “other assets<sup>58</sup> ” increased each year. Especially, the allocation to alternative investments has been rising. This diversification of the portfolios with alternative assets, such as hedge funds, private equity and commodities, can raise returns while diversifying and reducing overall investment risk.

Figure 22 shows the average allocation of the investments made by pension funds. Three trends (or consequences of the decline in financial market values and returns) are apparent and worth mentioning. First, the relative investments in securities that are issued by the employer (i.e., shares or other receivables) decreased sharply. Second, the proportion of bonds held by pension funds increased after 2000. Third, the relative amounts invested in shares fell to slightly below 25 percent in 2002. The latter two trends mainly reflect the

> 57 Fixed capital includes savings, the capital used to cover pension liabilities plus sufficient reserves. Non-fixed capital thus is the amount exceeding fixed capital.

> 58Included in this position are accounts receivable, alternative investments, and mixed investments.