Swiss pension Nest Sammelstiftung notes diversifying contribution of ILS to returns

Switzerland based pension fund Nest Sammelstiftung, or the Nest Collective Foundation, has highlighted the diversifying benefit of its insurance-linked securities (ILS) allocation, pointing to ILS market returns as a bright spot from 2023.

Nest Sammelstiftung considers itself an ecological-ethical pension investor, following sustainable investment strategies, one of which is the inclusion of natural disaster risk via some insurance-linked securities (ILS) fund strategies.

Nest allocates to two natural catastrophe focused ILS fund strategies, one a reinsurance focused fund from Swiss Re, the other a pure catastrophe bond offering from Twelve Capital.

Nest makes its investment decisions based on ecological and ethical criteria, but of course returns are still important.

The Swiss pension investor said that, “Nest was still able to close 2023 with a very pleasing return of 6.2%. This is significantly higher than other pension funds, which achieved an average performance of 5.0%.”

Nest then highlighted one area it feels it is differentiated to other collective pensions, saying, “Alternative asset classes such as ILS (Insurance Linked Securities) also ended the year very positively.”

The pension went on to explain, “Nest’s higher return compared to other pension funds can be attributed to various factors. On the one hand, Nest hedges a large part of its currency risks. Since most currencies have lost value against the Swiss franc, currency hedging had a positive effect on performance.

“Furthermore, unlike many other pension funds, Nest invests in ILS, which had a very successful year in 2023 because there were no major natural disasters.”

“Together with an efficient and disciplined implementation of the investment strategy, these factors contributed significantly to the successful year,” the pension said.

The pension noted that, given the alternative asset nature of ILS, it does come with higher manager costs than many other asset classes, but it said that, “When comparing Nest with pension funds with a similar investment structure, the costs perform very well.”

ILS investments contributed 6.9% of Nest’s total asset management costs in 2023.

The ILS portfolio made up 3.3% of Nest’s overall assets and ILS investment gains lifted the allocation to a valuation of almost CHF 130m (around US $155m) at December 31st 2023, up from CHF 119.8m at the end of the previous year.

The ILS allocation remains very close to the target of 3% of assets, but Nest has set an upper limit for it of making up 5% of its overall assets, so does have room to expand it.

Also, being a collective pension that provides services and manages assets for multiple employers, Nest has also been growing as more Swiss companies look to outsource their own pension to a dedicated platform.

One of the ILS allocations Nest has, is to the Swiss Re Insurance-Linked Investment Management Ltd. (SRILIM) managed Core Nat Cat Fund strategy, that enables institutional and designated professional investors to proportionally participate in Swiss Re’s core natural catastrophe (nat cat) book.

That Swiss Re Core Nat Cat Fund allocation was valued at CHF 59 million at the end of 2023.

The other main ILS allocation is to Twelve Capital’s Cat Bond Fund, which was a CHF 54.2 million investment at the end of the year.

In addition, Nest has a small allocation to the Leadenhall Capital Partners Life ILS Fund, of CHF 12 million. We also understand it has a small allocation to an AXA Liabilities Managers strategy that may be run-off focused, although we cannot be certain.

It’s good to see institutional investors explaining the benefits of allocating to an alternative asset class like ILS and cat bonds, as it helps to promote the asset class to their pension peers.

The Nest pension from Switzerland is just one of the numerous pension fund and major ILS investors we track in our directories here.