With negative interest rates prevalent in Europe, pension fund managers have been searching for yield down the credit spectrum by moving money into private markets, infrastructure and other illiquid assets. At the same time, they are embracing reforms to reduce their liabilities and avoid a situation where they are underfunded. These reforms have included raising the retirement age, and shifting workers from defined benefit to defined contribution plans.
Consider Credit Suisse Group. The Zurich-based bank offers one of the more generous retirement plans in the country with the second-largest pension system in continental Europe. But the pension fund, like most others in Switzerland, was blindsided by the Swiss National Bank’s January 2015 abandonment of its exchange rate ceiling, which sent the Swiss franc soaring and bond yields falling deeper into negative territory than anywhere in Europe. The Sf15.6 billion ($15.8 billion) fund saw its return plunge to 1.6 percent last year from 7.3 percent in 2014.