the range of available assets considerably. it therefore places particular emphasis on researching new investment opportunities, whether these be equities, currencies or markets. hence, for example, the recent introduction of new currencies or the inclusion of additional countries, in order to better achieve a satisfactory degree of diversification. third challenge : investing our portfolio without influencing the markets. the rapid growth of our reserves required us to invest and reinvest large amounts. amounts of this magnitude can have an impact on the stock, bond or money markets. this is why the snb bis central bankers ’ speeches operates on the major markets and does not invest in niche markets. moreover, to ensure that our investments do not destabilise the markets, we place amounts which they can easily absorb. this implies that any diversification after a large inflow of foreign exchange reserves must be gradual. we are also engaged in active discussion with our partners, the central banks of the countries where we invest, and we are pursuing an information policy in this area that is as transparent as possible. fourth challenge : maintaining an optimal proportion of equities in our portfolio. despite the recent significant inflow of foreign exchange reserves, we have increased the proportion of equities, and it now stands at nearly 12 %. many observers of the snb ’ s activities have expressed a desire that this proportion be larger. yet such an increase is not without risk. while the inclusion of equities in a portfolio can reduce the risk profile as a result of the diversification effect, this is only true up to a certain level. we estimate this level of equities to be between zero and 5 % of the portfolio. while a higher share would naturally translate into a higher return on the portfolio, it would also mean incurring greater risk. any increase in the proportion of equities must therefore be analysed from two vantage points : return and risk. additional risk can run contrary to the criterion of security that the snb applies to its investments. let me now turn to the fifth and last challenge : managing exchange rate risk. the return on foreign exchange reserves essentially fluctuates in line with changes in local currency returns versus swiss franc returns. this exposure to exchange rate risk is the result of the snb ’ s monetary policy. it thus forms, so to speak, part the dna of a central bank ’ s activities in a small open economy such as ours. eliminating this risk would go against

bank bis central bankers ’ speeches council, which oversees the entire process. this multiplicity of players involved in foreign exchange reserve management, as well as the division of responsibilities, enable conflicts of interest to be reduced as far as possible, and allow effective control of the actual management of reserves. how do these guidelines translate into foreign exchange reserve allocation in practice? last week, we published the data on the allocation of our foreign exchange reserves for the third quarter of 2012. i would like to take you through those data, and highlight the main areas which may have given rise to discussion. this is the breakdown of foreign exchange reserves by currency ( cf. slide 3 ). as you can see, the euro is our principal investment currency, and its share in our investments has remained largely unchanged for the past number of years. if we take quarterly data as a basis, we can see that this share has fluctuated between 45 % and 65 %. these fluctuations come about because of the time it takes us to reallocate our portfolio following large inflows of new foreign exchange reserves. these amounts are then gradually diversified across other currencies in order to restore the original allocation. currently, 48 % of foreign exchange reserves are held in euro - denominated assets ; however, the asset management unit also invests in other currencies, above all the us dollar, which accounts for 28 % of assets under management, as well as the yen, the pound sterling and the canadian dollar, which together account for 20 %. the snb also invests in other, minor currencies. it generally chooses major international currencies with a liquid market. exchange rate risk is inherent in the snb ’ s investment policy. it is important to note that the snb cannot hedge against exchange rate risk without neutralising the impact of monetary policy, given that each hedging operation is, in effect, a purchase of swiss francs against other currencies. thus, the main tool in managing exchange rate risk is the most optimal diversification possible. faced with the strong growth in foreign exchange reserves, the need for diversification has therefore taken on even greater significance. since 2010, we have extended the list of investment currencies to include five new currencies. these are : the australian and singapore dollars, the swedish krona, the danish krone and the korean won. as a general rule, the snb is constantly assessing ways to improve the diversification of its investments. i would