The Swiss pension problem: why global volatility and low interest rates require a firmer grasp of alts data
Switzerland is famed for its financial services industry, wealth and haven status in times of global volatility. While the rest of the world has struggled with high interest rates, the Swiss National Bank has bucked the trends and solidified its long-standing reputation for maintaining low interest rates by cutting the base rate to just 0.5% in December 2024 – the biggest reduction in 10 years.
The contrast with the interest rate environments of other developed nations is stark. This is thanks to Switzerland broadly keeping inflation at bay, a stable economy and a strong Swiss Franc – cementing its economic exceptionalism. Yet, while Switzerland has an interest rate environment that many countries could only dream of, for Swiss pension funds, it has spurred a hunt for higher returns that has fuelled impressive growth in its alternatives market.
Despite the sophistication of the Swiss pension fund industry, there are technical barriers to investing in alternatives on this scale, due to the complexity of alternative portfolios increasing as allocation continues to grow. As alternatives make up a growing portion of allocators’ portfolios, manually tracking, extracting and collating data from across asset classes – essential for risk management and compliance – becomes increasingly difficult. To remain viable, allocators need to look beyond humans and legacy process. The answer? Automation.
Testing Swiss exceptionalism
Recent months have shown that we have entered a new era of volatility. Allocators and managers must be able to monitor their exposures across public and private markets in order to adapt their portfolios. While the Swiss economy has been relatively insulated from global events, allocators will be particularly cognisant of their exposures and the need to protect against potential global shocks.
The main barrier to achieving this has been the diversity of assets comprising alternative portfolios and the associated documentation – whether infrastructure, commercial property or private equity, reporting will vary significantly in format or criteria. To gain a holistic view of exposures, allocators need to not only consolidate but standardise data.
Historically, the resource required to execute this at scale would have been prohibitive. Swiss exceptionalism (sadly) has not excluded its allocators from the complexity and drudgery of executing cumbersome manual tasks when processing alternative investment data. Technology, however, is changing this – tailored AI models can extract, consolidate and standardise vast swathes of data in real-time – positioning alternative investments alongside public market exposures.
In the current environment, we can take nothing for granted. Automating these data processes end-to-end is the key to building operational resilience. It bolsters risk management processes and streamlines operations by enabling firms to rely on sophisticated technology to take care of dull but essential data extraction and allocate resource to higher-value tasks.
New tools for new challenges
Geopolitical events are likely to continue to rock public and private markets. Every time a headline moves the market, allocators need to ensure that they are hedged – not just in their public market holdings, but also in their alternative investments. Without a clear, real-time view of their exposures, allocators are flying blind.
Greater volatility and a uniquely low interest rate environment make the position of Swiss allocators exceptional. Yet, the need for greater diversification and the hunt for higher yields will likely fuel further growth in Swiss alternatives, resulting in increasingly complex exposures and enormous data sets that need to be extracted, digested and analysed.
This does not need to be a concern. AI – intelligently deployed – gives allocators the ability to monitor increasingly diverse portfolios and boost operational efficiencies. Right now, all hands need to be on deck. Allocators therefore need to deploy the technology needed to enable them to effectively monitor exposures and focus on what matters – growing and protecting their portfolios. A changing world is likely to test Swiss exceptionalism – building resilience now is therefore essential to weathering the global storm.
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About Canoe Intelligence
Canoe Intelligence redefines alternative investment intelligence through AI-driven, cloud-based software that automates and streamlines alternative investment workflows. With over $8T in assets under automation and more than 400 clients, Canoe empowers institutions, LPs, and wealth managers to transform their alternatives data operations. Learn more: www.canoeintelligence.com
MEDIA CONTACT:
Betsy Miller Daitch
Canoe Intelligence
+1 443-690-6200
bdaitch@canoeintelligence.com
