M
igros-Pensionskasse (MPK), the CHF29.4 billion pension fund for Switzerland's largest retailer, Migros, is in a strong financial position. With a coverage ratio of 132.8 per cent, chief investment officer Stephan Bereuter has the flexibility to take on more risk through a boosted equity allocation. Last December, MPK increased its payout to beneficiaries by CHF2,000.

    Bereuter attributes the fund's success to internal management (90 per cent of assets are managed in-house) and a dynamic top-down/bottom-up investment strategy that allows the team to react quickly to opportunities. For example, in May 2023, MPK invested in insurance-linked securities outside its strategic asset allocation, taking advantage of high spreads after many investors had exited the market.

    The fund's long-term strategy, adjusted every four years through an ALM study, is a key driver of returns. Bereuter is increasing the equity allocation to 30 per cent and boosting the gold allocation to 3 per cent. He believes equities will perform well in the long run and that the boosted allocation will provide diversification by focusing on companies with strong dividend yields and balance sheets.

    MPK's allocation to gold, held through custodian banks, offers compelling fundamental and liquidity benefits. Bereuter likes the allocation as a hedge against government debt levels and inflation, and notes that even though interest rates are higher, central banks are still in an expansive monetary policy phase.

    The fund's 9 per cent allocation to international real estate is also showing signs of recovery, with core real estate beginning to re-price and create pockets of value. Bereuter is looking to allocate money again, hoping the team's experience will pay off. He is not keen on office space but likes data centres and sees opportunities in residential and logistics, although he is mindful of an economic downturn.

    MPK's internally managed allocation to Swiss real estate accounts for 24 per cent of the portfolio and is characterized by long-term ownership in strong locations. The portfolio has returned above 3 per cent annually over the past five years, benefiting from rent increases.