2 Executive Director s report

Transcription

1 Syngenta Pension Fund Short Report on the Year 2014

2 2 Executive Director s report The Syngenta Pension Fund achieved a return of 8.2 % in 2014 a very good result especially in comparison to other Swiss pension funds. However we cannot ignore the fact that the investment environment for pension funds further deteriorated. And the situation worsened after the decisions taken by the Swiss National Bank (SNB) at the beginning of this year. By abandoning the cap on the EUR / CHF exchange rate, pension funds which had not hedged their investments against currency risks suffered significant losses. For the past months, pension funds have been faced with negative interests on their assets. Bonds, which have so far represented the foundation for guaranteeing a pension fund s performance obligation, are now turning out to be new sources of risk. In light of an interest level close to zero, coupons fail to be paid. Assuming that the lowest level has been Development of funding ratio reached in terms of interest rates, we will not be able to benefit from valuation gains to the same extent as last year and may even be faced with losses should interests rise again. The profits necessary for securing the financial balance of a pension fund may only be generated by increasing the risk exposure. The report on the investment activity deals with this problem as part of the outlook for By reducing the technical interest rate to 2.5 % at the beginning of last year, the Board of Trustees of the Syngenta Pension Fund contributed towards reducing the so-called target return, i.e. the minimum return necessary for maintaining the funding ratio on a stable level. In light of continued low interest rates and increasingly hampered return opportunities, this decision has proved to be right. Executive Director Monika Schneider Development of investment performance

3 Trust bodies 3 Board of Trustees period of office July 1, 2014 to June 30, 2017 Members Employee representatives Aubin Olivier Leimgruber Walter Michellod Pascal Nicolin Stéphane Rouiller Evelyne, Deputy Chairwoman Schweizer Regula Substitutes Dollinger Daniel Favre Sylvain McKerrow Fiona Sneiders Luc Teige Verena Weingartner Basil Employer representatives Cherix Jacques Grüter Xaver Mäder Christoph, Chairman Pintér Stefan Riebli Peter Zürcher Nicolas Meili Tobias Sartorius Timon Sozzi Dino Wüthrich Urs Investment Committee Zürcher Nicolas (Chairman), Member of Board of Trustees Schweizer Regula, Member of Board of Trustees Teige Verena, Substitute Member of Board of Trustees Meili Tobias, Substitute Member of Board of Trustees Nistler Christian, Investment Strategist Biedermann Daniel, External Investment Consultant Scherer Hansruedi, Investment Controller, PPCmetrics AG, Zürich Schneider Monika, Executive Director Fernández Juan Carlos, Deputy Executive Director Regulatory Authority BVG- und Stiftungsaufsicht beider Basel (BSABB) Eisengasse 8, 4001 Basel Auditor PricewaterhouseCoopers AG St. Jakobs-Strasse 25, 4002 Basel Expert in Occupational Benefits Schemes (Actuary) Libera AG (Wiedmer Matthias) Stockerstrasse 34, 8022 Zurich Executive Director Schneider Monika

4 4 Investments Capital markets in the year 2014 The year 2014 was again an excellent year for most investors. Driven by the extremely expansive monetary policy of the most important central banks, shares, bonds and real estate gained appreciably in value. The zero interest rate policy caused a further rise in bond prices and a corresponding decline in future yields. Swiss bonds within the Swiss Bond Index (SBI) increased by 7 %. A similar trend can be seen in the area of currency-hedged global bonds. Growing corporate profits, lower interest rates and expansion of the valuation multiples (e.g. price /earnings ratio) caused stock prices to rise. Swiss blue chip companies listed in the SMI performed around 10 % and international shares which were currency hedged increased by about 9 %. Bonds from emerging markets again showed a slightly negative picture in terms of currency-hedged yields. In Switzerland, listed real estate funds and shares showed an average increase of approximately 14 %. Yet, the main reason for this good performance may be attributed to an increase in agios, a fact that calls for some caution for the future. Low interest rates Investment structure as at % 5 % 8 % 29 % 20 % 5 % 8 % 1 % 20 % 2 % Liquidity Bonds, CHF Bonds, foreign currencies Bonds, emerging markets Convertible Bonds Stocks, global Stocks, emerging markets Alternative investments Real estate, Switzerland Real estate, global and a scarcity of investment opportunities, however, are likely to prevent any severe corrections. Featuring a minus of 20 %, the prices of commodities represented the greatest disappointment of this investment year. Only gold retained its value. Investment strategy The investment structure remains similar to the previous year, with the exception of shares from emerging markets being increased by around 4 % at the expense of investments made in bonds. In addition, investments into global real estate have been made for the first time. In view of current trends towards economic recovery, the relatively favorable valuation of equity markets as well as the very low interest rates, the shares have been slightly overweighed and the weighting of bonds reduced according to the strategic benchmark. This tactical positioning has proved to be the right move. However, choosing shorter terms for bonds slightly hampered performance, especially in view of the fact that long-term bonds showed the greatest increase. The Syngenta Pension Fund hedges a substantial proportion of currency risks, with the unhedged currency exposure amounting to as little as 10 % to 15 %. In view of appreciating foreign currencies, this resulted in a decrease in the annual return of approximately 2 %. The decision by the Swiss National Bank to abandon the Euro cap in January 2015, however, demonstrated why this hedging makes sense. Alternative investments feature a widely diversified investment range. Especially infrastructure and

5 5 private equity investments yielded gratifying, double-digit gains. Absolute return-oriented investments are made through a diversified portfolio of single hedge funds with a strategic focus on long-short stocks, managed future funds (trend tracking systems), multi strategy and global macro strategy. These investments yielded returns of about 7 %. Insurance linked securities posted yields of about 5 %. It was only in the area of commodities that a total loss of about 10 % had to be contended with. Investment category Average weighting Performance Bonds/Liquidity 45 % 6 % Stocks 26 % 9 % Real estate 9 % 14 % Alternatives 20 % 9 % Swiss pension funds are faced with significant challenges. The problems arising from low future yields as a consequence of very low interests have been aggravated by the introduction of negative interest rates by the Swiss National Bank. Pension funds usually invest between 40 % and 50 % of their assets in bonds and liquidity. In order to achieve the yields required to fulfill their obligations, a variety of pension funds will be forced to take higher investment risks. The Syngenta Pension Fund will be equally challenged to find the right mix of investments within the scope of its capacity to sustain risk. Considerations will mainly focus on a shift from investments with negative yields that is Swiss bonds towards investments with higher expected returns and thus achieving a manageable fluctuation risk in the medium term. Such investments include global real estate and infrastructure investments, for example, but with these investments some liquidity risks may have to be accepted even in this area. The benefit of higher returns of global bonds will have to be weighed against the costs for hedging against foreign currency risks and a potential deterioration in debtor quality. Investment result The Syngenta Pension Fund achieved a return of 8.2 % in 2014 a very good result especially in comparison to other pension funds: the UBS Pension Fund Barometer, for example, showed a yield of 7.3 % for 2014, the Credit Suisse Pension Fund Index reached 7.7 %. Outlook 2015

6 6 Financial statement Assets in CHF Liquid funds Receivables Prepaid expenses Stocks Bonds Convertible Bonds Real estate Alternative Investments Currency Overlay Total assets Liabilities in CHF Liabilities Deferred income Actuarial reserves for active members Actuarial reserves for retirees Technical provisions Fluctuation reserve Trust funds 0 0 Total liabilites

7 7 Pension Fund liabilities The actuarial reserves for active insured members and recipients of pensions, together with the socalled technical reserves, represent the total pension capital and thus essentially the liabilities of the Pension Fund. The actuarial reserves for active insured members, the sum of all assets of the insured members in the retirement plan and in the capital plan, amounted to CHF billion. Of which CHF million is alloted to the retirement savings in accordance with BVG (Swiss law on occupational pensions) and is the compulsory part of the benefits. This allocation shows the scale of non-compulsory benefits provided by the Syngenta Pension Fund. To make sure that pension obligations were met, the Pension Fund had to provide actuarial reserves of CHF million at the end of Compared to the previous year this represents an increase by CHF million. Such an increase is mainly due to the reduction of the technical interest rate, which had been financed by the employers. In addition the number of current pension recipients increased by 23 persons. Active members Women Men Total Age structure on Fluctuation reserve The liabilities must be covered at all times by appropriate assets. While the liabilities are relatively stable, assets can be subject to considerable fluctuation in value. Fluctuation reserves serve to absorb asset losses on capital markets. The level of fluctuation reserves needed is determined using a financial economic method based on the current allocation of assets to the various investment categories. The target level of the fluctuation reserves is 18 % of liabilities. At CHF million, the fluctuation is slightly below this target.

8 8 Operating result Operating result in CHF Contributions of employees/employer, deposits Vested benefits, repayment of early withdrawals for home ownership and divorce Inflow from contributions and deposits Pension benefits paid out Lump-sum benefits paid out Vested benefits, early withdrawals for home ownership and for divorce Outflow for benefits and early withdrawals Formation of actuarial reserves Contributions to security fund Net result from insurance part Net result from investments Other earnings Administrative expenditure Earnings surplus before formation of fluctuation reserve Formation fluctuation reserves Expenditure/earnings surplus ( ) Expenses (+) Earnings

9 9 Interest on actuarial reserves The Board of Trustees decided that all compulsory and non-compulsory assets of active insured members in the retirement and capital plan should bear an interest rate of 4 % in The minimum interest rate as defined by the Federal Council was set at 1.75 % in In the calculation of the actuarial reserves for pension recipients, the guaranteed pensions are discounted at 2.5 % (technical interest rate). This rate has to be earned on average in the future in order to meet the obligations set forth in the regulations. The technical interest rate reflects therefore the expected longterm investment return. The lower and thus the more cautious the technical interest rate, the greater the capital that has to be provided to cover the pension payments. The technical interest rate has been reduced from 3.5 % to 2.5 % with effect from January 1, Pension recipients Retirement pensions Widow(er) s pensions Disability pensions Child pensions Total Development of lifelong pensions Funding ratio The funding ratio demonstrates the relationship between existing assets and liabilities. At the end of 2014 the funding ratio of the pension fund stood at % compared to % in the previous year. In 2014 the returns on investments earned by the Syngenta Pension Fund lead to an increase of the fluctuation reserves. This reserve is thus now just below the target level of 118 %.

10 10 Exercise of voting rights Implementation of the legal ordinance against excessive remunerations With the adoption of the People s Initiative against Rip-off Salaries (also called the Minder Initiative ), a provision was included in the Swiss Constitution that requires pension funds to exercise their voting rights in the interest of the insured members and to disclose how they voted. Based on this constitutional article, the Federal Council issued the Decree against excessive remunerations of Swiss stock corporations ( VEGüV ). In 2015, the pension funds will thus have to exercise their voting rights and disclose their voting behavior to their members for the first time. In view of the asset structure of the Syngenta Pension Fund, only very few asset management mandates feature titles of Swiss stock corporations. In spring 2015, the Syngenta Pension Fund exercised its shareholders rights in those Swiss stock corporations for which it holds voting rights in the interest of the insured members of Syngenta Pension Fund. The interest of the members is safeguarded if the motions filed by the Board of Directors are commensurate with the sustainable development of the pension fund.

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12 Contact address Do you have any questions for your Pension Fund or do you need some expert advice? Don t hesitate to contact us: pensionskasse.info@syngenta.com Phone You will find the detailed annual report on the Syngenta intranet at