Category: Blog Articles

Reading Time: 7 minutes

Actively Managed Certificates, or AMCs for short, present themselves as an exciting innovation that combines flexibility and efficiency. Compared to investment funds, portfolios can be put together much more flexibly and cost-effectively. AMCs are not new to the market for structured products. However, active certificates have now become accessible to a wider range of investors.

FinTechs are now enabling the launch of AMCs, which are no longer primarily reserved for banks. Innovative asset managers ensure that private investors with assets of CHF 50,000 or more have access to lucrative investments.

The most important facts in brief

• AMCs are classified as structured products
• The portfolio is actively managed
• Wide range of possible underlying assets
• The certificates can be issued and managed cost-effectively
• AMCs are debt securities to the issuer – not special assets
• Digitalization makes Actively Managed Certificates accessible to a wide range of investors

What is an Actively Managed Certificate (AMC)?

AMCs are structured products and pursue an active investment strategy. This means that the underlying assets are continuously adjusted in line with market developments. With passive investment strategies, on the other hand, once the portfolio composition has been selected, it is no longer changed. For example, a selected equity allocation of 70 percent is consistently maintained regardless of what happens on the stock market – in other words, there is no active management.

With active certificates, investors invest in a wide range of assets, for example

• Equities
• Bonds
• Commodities
• Real estate
• digital currencies
• Collectibles

The performance follows the underlying assets. An investment manager selects the assets according to defined rules and dynamically adjusts them to market developments.

Depending on the focus and investment strategy, actively managed certificates are also offered under the following names:

• Exchange Traded Note (ETN)
• Dynamic Equity Notes
• Exchange Traded Instruments
• Strategy Notes
• Strategy Index Certificates
• Actively Managed Trackers

Notes – exchange-traded or over-the-counter

Issuers of actively managed certificates are banks, securities dealers and other special purpose vehicles (SPVs). The issuers therefore issue these as their own bonds. This can be done on or off balance sheet.

As the certificates are given an ISIN number, they are transferable securities and can therefore be held in custody accounts at various banks. Some AMCs are traded on the stock exchange; some are also placed privately.

Reading tip: Fees when investing

Actively Managed Certificate: issuing process and how it works

To understand how AMCs work, here are the individual processes in chronological order:

• Initialization: issuer outlines with asset managers the assets that will make up the AMC.
• Guideline: The issuer draws up a guideline according to which the certificate is to be managed.
• Pricing: The pricing is determined depending on the volume and the strategy (management fee).
• ISIN: An application is made for a securities identification number and, if necessary, listing on stock exchanges. After the approval process, the debt instruments are recognized and transferable.
• Active management: In accordance with the defined strategy, the portfolio is monitored by professional portfolio managers and rebalanced or optimized according to the performance of the financial markets.
• Liquidity: AMCs are either traded on the stock exchange or returned to the issuer.
• Payouts: Depending on the returns of the underlying assets and the agreements made, income is paid out on an ongoing basis.

Investors benefit from these advantages

Actively managed certificates offer the following advantages, particularly in comparison to traditional investment funds:

• Flexibility: the active certificates can be quickly adjusted or restructured as required.
• Wide range of investments: The investment horizon goes beyond traditional investments. Alternative or non-bankable investments such as works of art are also conceivable.
• Active investment management: In challenging market environments, professional, active investment management pays off particularly well.
• Cost efficiency: Since the issue and management of an AMC is comparatively inexpensive today, a wide range of investors receive professional asset management at manageable costs.

Broadening the investment horizon – investing in alternative assets

AMCs allow banks and other issuers a high degree of flexibility in the acquisition of assets. They therefore go far beyond the replication of funds or indices.

In addition to equities and bonds, alternative investments such as real estate, works of art or cryptocurrencies are also included in the certificates. On the one hand, this allows investors’ investment objectives to be mapped very specifically. At the same time, market opportunities that arise can be exploited immediately.

Reading tip: Private equity: a good investment for private investors?

Security and risks: regulation and differences to funds

Asset managers with lucrative investment ideas do not wait for the lengthy process of setting up a fund. They set up an AMC for their investors. This raises the question of the distinction between a structured product and a collective investment scheme.

Important: An Actively Managed Certificate is not a collective investment scheme under the Collective Investment Schemes Act.

In contrast to a fund, there is no separate liability substrate available. Instead, the capital is debt capital from the issuer’s point of view. There are therefore no specially protected fund assets. Legally, an AMC is a bond issued by the issuer. Investors should therefore pay particular attention to the trustworthiness of the iss uer.

According to the guidelines of the SIX Swiss Exchange and the Swiss Bankers Association (SBA), AMCs are financial products whose underlying assets relate to a basket managed on a discretionary basis (portfolio managers make investment decisions based on their expertise and experience). Indirect reference is also described in this context. This means that the underlying refers to an index.

FINMA expects a high level of transparency

The supervisory authority FINMA (Swiss Financial Market Supervisory Authority) has imposed increased due diligence obligations on AMCs. For example, risk management must be organized independently of profit-oriented activities. This means that issuers must adequately mitigate the risks associated with AMCs. Furthermore, the cost transparency of structured products generally plays an exceptional role for FINMA. The supervisory authority also has high transparency requirements for AMCs. With regard to obligations under money laundering law, a distinction is also made as to whether a financial intermediary is involved and whether it is domiciled abroad.

AMCs: further development of technology and accessibility meet increasing demand

In recent years, actively managed certificates (AMCs) have become an increasingly important tool for investors looking for new ways to diversify their portfolio and increase potential returns. With the advancement of technology and the increasing accessibility of these investment tools, they are meeting with growing demand.

FinTechs have digitized issuance and management. This enables issuers to have an automated and standardized workflow. The result is greater efficiency, lower operating costs and faster processes. This makes the offering scalable for providers.

The advancement of technology has significantly changed the way AMCs work and how accessible they are. Today, investors access real-time information about their investments, execute transactions and manage their AMC portfolios easily and flexibly via online platforms.

Investment themes follow short-term economic changes

As with other structured products, changes in economic conditions lead to portfolio adjustments. With AMCs, however, these realignments can be implemented more quickly and flexibly.

The following investment themes currently stand out:

• Technology and innovation: this includes areas such as artificial intelligence, cloud computing and FinTech. The constant development of new technologies and their influence on various sectors make this theme attractive.
• Sustainable and ESG-oriented investments: With a growing awareness of environmental, social and governance (ESG) issues, AMCs that focus on sustainable companies or industries are showing increasing demand. Investors are increasingly looking for opportunities to achieve a positive social and environmental impact through their investments.
• Healthcare and biotechnology: The healthcare sector remains a key theme, particularly in the field of biotechnology. AMCs investing in companies developing innovative healthcare solutions can benefit from developments such as new drugs, therapeutic approaches and medical technologies.
• Alternative energy and climate protection: With the growing pressure on companies to adopt environmentally friendly practices, AMCs investing in renewable energy and climate protection are gaining importance. This includes companies in the solar energy, wind energy, e-mobility and sustainable infrastructure sectors.

Target groups for Actively Managed Certificates (AMCs)

The suitability of AMCs for certain target groups is heavily dependent on individual financial goals, risk tolerance and personal investment strategy. Investors should carefully consider their personal requirements and, where appropriate, seek professional advice to ensure that AMCs are suitable for their financial situation.

• Investors focused on optimizing returns: AMCs offer an attractive option for investors looking for lucrative returns. With active portfolio management by experienced investment professionals and low costs, market opportunities are exploited and positive returns can be achieved.
• Investors with specific investment preferences: AMCs cover a wide range of asset classes and themes. They are therefore attractive to investors with specific preferences, be it in technology, renewable energy, healthcare, ESG or alternative investments.
• Investors who want to actively manage risk: Active management makes it possible to react to market fluctuations and manage risk. This makes AMCs interesting for investors who want more active risk control in their portfolio.
• Investors seeking diversification: With the ability to invest in different asset classes and themes, AMCs offer broad diversification. This is attractive to investors looking to diversify their portfolios to minimize risk.

In addition to these points, investors should also consider the counterparty risk that exists in comparison to investment funds when making their investment decision.

Reading tip: Saving taxes in Switzerland – optimizing investments

Conclusion

Actively Managed Certificates (AMCs) are an innovative form of investment that combines flexibility and efficiency. Compared to investment funds, AMCs allow portfolios to be put together more flexibly and cost-effectively. The underlying assets can be drawn from a wide range, including alternative investments. The portfolio is actively managed and thus continuously adapts to market developments.

Digitalization has made AMCs accessible to a broader range of investors at low cost. AMCs are suitable for investors seeking to optimize returns, specific investment preferences, active risk management or diversification.

However, investors must be aware that the certificates are debt securities to the issuer and therefore carry a counterparty risk. The trustworthiness of the iss uer is therefore vital. Furthermore, depending on the strategy and volume, liquidity may be limited, especially in the case of non-exchange-traded AMCs. Compared to funds, AMCs can react more quickly to rapid technological change and rapidly changing market conditions. These two factors are likely to continue to make Actively Managed Certificates an exciting investment instrument for investors in the future.

Reading Time: 9 minutes

In the highly complex world of financial markets, investors are looking for clear and reliable information for initial and independent orientation. The Swiss equity indices are of central importance for investors who wish to place their capital on Swiss equity markets. This applies both to long-term investment strategies and to investors who want to take advantage of short-term opportunities with equity securities on the stock exchange.

The Swiss stock exchange has several share indices, which in their entirety serve as a barometer for the country’s overall economic performance. If you understand the structure, composition and functioning of a stock index, you will already have a sound understanding of the markets. Furthermore, a Swiss equity index will give you valuable insights into the opportunities and risks associated with trading Swiss equities.

This beginner’s guide will give you a detailed overview of the most important Swiss equity indices. Each of these indices offers insights into different aspects of the Swiss economy.

The most important facts in brief

• A stock index shows the development of a defined part of the stock market.
• The selection of shares in an index serves to reflect the stock market of a country, a region, a sector or other sub-sectors.
• The stocks included in the index are weighted according to market capitalization or another defined method.
• An equity index enables investors to compare the performance of their portfolio with the comparable overall market.
• Equity indices are not tradable securities, but statistical tools.
• With ETFs, which track indices, investors invest indirectly in indices.

Share index: definition, explanation and examples

A stock index, also known as a stock market index, is a statistical measure developed to represent the performance of a specific part of the stock market or the entire stock market of a country or region. It serves as a benchmark for measuring general market performance and not for measuring the performance of individual companies.

A stock index usually has the following characteristics:

• Composition: A stock index consists of a fixed group of selected stocks that are typically chosen according to certain criteria. These criteria may include market capitalization, sector, liquidity or other factors. The selection of shares is representative of the overall market or a specific market sector.
• Weighting: Each share in the index is weighted according to its market capitalization or another defined method. This means that larger companies with higher market capitalization have a greater influence on the index than smaller ones.
• Calculation: An equity index is usually calculated by adding up the current prices of the shares included, taking into account the weighting. Changes in share prices lead to changes in the index level.
• Benchmark: Share indices often serve as benchmarks against which the performance of investment funds, portfolios or individual shares is measured. Investors use these benchmarks to assess how well their investments are performing compared to the broader market or a specific market segment.
• Historical data: Stock indices provide historical data that allows investors to analyze the performance of the market over time and identify trends. The closing levels of stocks are usually used for this purpose.

The reference point for calculating a share index is always a fixed point in time. The subsequent changes in the share index reflect the performance of the shares contained in the index. The respective level is expressed in index points.

Well-known global examples of share indices are the S&P 500 in the USA, the DAX in Germany, the Nikkei 225 in Japan and the Swiss Market Index (SMI) in Switzerland.

Swiss Market Index (SMI)

The blue-chip SMI index, the most prominent share index in Switzerland, contains the 20 largest companies from the SPI. It represents around 80 percent of the total market capitalization of the Swiss stock market. The SMI is free-float-adjusted: Only the tradable shares in the index are taken into account.

By limiting the share weightings, it is guaranteed that no single company has more than 20 percent influence on the index. The SMI therefore complies with the ESMA UCITS guidelines. It can therefore be used within the EU as a benchmark for the Swiss equity market.

The SMI is published as a price index (price index) and is listed under the name SMIC as a so-called performance index. As the SMI tracks a large part of the Swiss equity market, it serves as an underlying for a large number of financial instruments such as options, futures and ETFs.

The SMI was launched on June 30, 1988 with 1,500 points. The composition of the index is reviewed annually. The SMI is calculated in real time. This means that every trade by a company included in the SMI triggers a recalculation of the index.

The largest individual stocks in the SMI by weighting (as at 30.10.2023) are

Company	Sector	Weighting in the index
Nestlé	Nestlé Food	22.96 percent
Novartis	Pharmaceuticals	15.91 percent
Roche	Pharmacy	14.05 percent
UBS	Finance	5.83 percent
Zurich	Finance/Insurance	5.34 percent
Richemont	Luxury goods	4.54 percent
ABB	Electrical engineering	4.81 percent

Historical development of the SMI (performance)

The Swiss Market Index (SMI) was launched on June 30, 1988. Here is a summary of the historical performance of the SMI since its launch in 1988:

• Early years (1988-1990s): The SMI started at a base value of 1,500 points. It experienced moderate fluctuations in the early years, but showed an overall upward trend.
• Rise and dotcom bubble (late 1990s): In the late 1990s, the SMI experienced a significant rise, driven by a general enthusiasm for technology stocks. The index reached over 8,000 points for the first time in July 1998. This period was characterized by the so-called dotcom bubble, which eventually burst.
• Decline and recovery (early 2000s): After the dotcom bubble burst, the SMI experienced a decline and entered a consolidation phase in the following years. In the early 2000s, however, the index recovered and approached its previous highs.
• Financial crisis (2008-2009): The SMI, like many other equity indices worldwide, was hit hard during the global financial crisis. It recorded significant losses, but recovered in the years that followed.
• Developments since 2010: Since around 2010, the SMI has shown a general upward trend, with occasional corrections and fluctuations. The SMI reached its highest level to date at 12,573 points on August 18, 2021. As at 30.10.2023, the SMI stands at around 10,400 points. The SMI has performed 17.4% over the past 5 years (as at 30.10.2023).

Overall, the SMI has shown a stable performance in the past, with some fluctuations due to global and local economic events. Its history is therefore a reflection of the economic dynamism and growth of the Swiss economy.

Swiss Performance Index (SPI)

The Swiss Performance Index (SPI) includes almost all shares listed on the SIX Swiss Exchange. It is therefore also regarded as the overall market index of the Swiss equity market.

The SPI is a total return index, which means that all dividend and interest payments are included in the index and not just price gains.

The SPI was introduced in 1987 and has been on an upward trend ever since, despite some dips during the economic crises. It offers investors broad coverage of the Swiss stock market and includes a large number of companies from various sectors. The largest individual stocks include Nestlé, Roche and Novartis.

Performance over the past 5 years (as at 30.10.2023): 30.1 percent

Swiss Mid Index (SMIM)

The Swiss Mid Index (SMIM) comprises the 30 largest companies on the Swiss stock market that are not yet listed in the blue-chip SMI index. The Swiss Mid Index enables investors to track the performance of companies that are not large enough to be included in the SMI but still play a significant role in the Swiss equity market.

As with the SMI, the weighting is based on the market capitalization and turnover of the individual stocks. The SMIM was introduced in 2004 and since then has shown a mixed development, depending on the specific conditions in the respective sectors of the companies included in the index.

Performance over the past 5 years (as at 30.10.2023): – 0.6 percent

Swiss Leader Index (SLI)

The SLI Swiss Leader Index consists of the shares of the SMI and the ten largest stocks of the SMIM and thus comprises the 30 most liquid and largest stocks on the Swiss equity market. The SLI has been calculated for publication in real time since July 2, 2007.

The index was calculated back to the end of 1999 and standardized as at 30.12.1999 with an initial value of 1,000 index points. This allows it to be compared with other indices.

In contrast to other indices, the SLI limits the weightings: The four largest stocks are each limited to 9 percent. In addition, the index weighting of all other stocks is limited to 4.5 percent if required.

The SLI is an alternative to the blue-chip SMI index. The idea is that the five largest stocks in the SMI already account for a combined weighting of around 70 percent. Therefore, strong price fluctuations in these stocks have an excessively strong influence on the index value. By limiting the weighting in the SLI, the weighting of smaller stocks is increased, which better diversifies the price risk.

In addition, this limitation enables the SLI to meet regulatory requirements in Switzerland, the EU and the USA, thereby opening up new investor groups and markets. As the weighting is constantly changing, the limitation factor required for the index calculation is recalculated and adjusted every three months by the SIX Swiss Exchange.

Performance over the past 5 years (as at 30.10.2023): 16.4 percent

MSCI Switzerland

The MSCI Switzerland is an international equity index created by MSCI. It comprises a broad range of Swiss companies and is often used by international investors for investment decisions to measure the performance of the Swiss market.

The index contains the 39 largest stocks in the SPI index. This means that around 85% of Switzerland’s market capitalization (freely tradable shares) is represented. The most important stocks are Nestlé, Roche and Novartis.

The MSCI Switzerland has shown an overall positive performance in the past, even if it is influenced by global economic events, as many of the companies included in the index are heavily involved in international trade.

Performance over the past 5 years (as at 30.10.2023): 25.98 percent

Swiss All Share

The Swiss All Share Index is a comprehensive benchmark index that includes all shares in Switzerland and the Principality of Liechtenstein . Upon application, companies that are primarily listed on the SIX Swiss Exchange can also be included in the index. Furthermore, the Swiss All Share also includes stocks that cannot be included in the SPI due to the free-float limit of 20 percent.

This index thus offers investors an overall view of the Swiss equity market, irrespective of the size of the company or the sector in which it operates. The launch of the index in July 1998 was triggered by the exclusion of investment companies from the SPI. The index level of the SPI as at 30.06.1998 was adopted. The performance index was standardized at 1,000 index points.

Performance over the past 5 years (as at 30.10.2023): 30.2 percent

BX Swiss TOP 30 (BX)

The BX Swiss TOP 30 (BX) was launched by the Zurich stock exchange BX Swiss. It contains the 30 largest shares in Switzerland. The prerequisite for inclusion in the index is an average trading volume of at least CHF 7,500. In addition, at least 20 percent of the shares must be in free float and the company must be listed in Switzerland. The index is recompiled every quarter.

Performance over the past 5 years (as at 30.10.2023): 15.0 percent

Frequently asked questions (FAQ)

Are equity indices and ETFs the same thing?

An equity index and an ETF are two different things. An equity index is a measure that represents the performance of a group of shares, such as the Swiss All Share Index. An ETF, on the other hand, is an exchange-traded fund that tracks a specific index, such as a stock index.

How does an equity index work?

A share index measures the performance of a specific group of shares and summarizes the values in a group. It provides a snapshot of general market trends and allows investors to compare the performance of their portfolio with the market as a whole.

What are the advantages of investing in an equity index?

The advantage of investing in an equity index (via an ETF) is that it provides broad diversification and reduces the risk associated with investing in individual stocks. It also requires less time compared to buying individual shares directly.

What are the disadvantages of investing in a share index?

Equity indices are limited to the stocks included in the index (for example, the SMI is dominated by Nestlé, Novartis and Roche). If you are a fan of a particular sector or company, index investing could mean you miss out on the opportunity to invest specifically in these companies. Equity indices are susceptible to the general volatility of the market. Index funds and ETFs follow passive strategies and do not offer active management or adjustment of your investments in response to changing market conditions. This may mean that you do not take advantage of market opportunities or protect your portfolio in times of high volatility.

Reading Time: 8 minutes

In the private markets, private equity is a fascinating area that offers lucrative opportunities for investors. Based on historical data, private equity investments typically have higher expected returns compared to global equity portfolios, for example.

As a financial center known for its stability and innovation, Switzerland offers a thriving landscape for private equity investment. While this has traditionally been considered an area of activity for institutional investors, there is growing curiosity from private investors looking to benefit from this powerful asset class.

But is this asset class really a viable option for the discerning private investor? Today, innovative asset managers allow private investors to enter with manageable minimum investment amounts, enabling them to further diversify their portfolios.

The most important facts in brief

• Private equity: A growing market.
• Private equity means private equity capital.
• The investment is not tradable on public trading venues.
• Private equity enables above-average returns.
• Pension funds also invest successfully in private equity.
• Access was previously restricted to institutional investors – investments are now also possible for private investors.

Private equity: A brief explanation

The two words private and equity already describe in their translation what it is all about: private equity. Private equity specifically means investments in companies that are not currently listed on the stock exchange. The trading places are therefore private markets. These are investments in which investors invest directly in companies in order to generate long-term profits. In contrast to listed equity investments, private equity investors usually have a significant influence on the management and business strategy of the companies.

How private equity works

Specialized private equity funds have emerged as the most attractive way to access these investments. These funds are also often referred to by the term private equity.

An investment in private equity takes place in several phases:

First phase: Fundraising

The private equity company collects capital from investors in order to use it to invest in companies.

Second phase: Investment

The private equity fund uses the collected capital to acquire stakes in companies.

Third phase: Investment management

The private equity company implements strategies to increase the value of the company.

Fourth phase: Exit

The investments are sold and the profits are distributed to the investors.

Differentiation from other forms of investment

Compared to other forms of investment such as stocks or bonds, private equity investments aim to achieve long-term business success. Investors often have direct influence on the management. In contrast, shareholders have only indirect influence on management.

Another important difference is that private equity investments are made outside the public market. This means that the investment cannot be liquidated on a public market in the form of a sale.

You can find out more about the background to this in our article “Private equity: background to off-market equity capital”.

Private equity: The market reaches Switzerland

In Switzerland, listed companies represent only a small percentage of the entire economy. The larger part of the economy consists of small as well as medium-sized companies, which are not listed on the stock exchange. These companies can raise capital through private equity and thus expand their business activities. At the same time, this opens up interesting investment opportunities for investors with an affinity for risk.

In Switzerland, the private equity market has grown strongly in recent years. According to the research firm Preqin, private equity managers domiciled in Switzerland have increased their assets under management more than sixfold since 2008. This shows the potential of this market for private individuals as well.

According to the Private Equity Trend Report 2023 by PwC Switzerland, digitalization and sustainability are the key value drivers for the industry. Digitization is emerging as a central lever for value creation.

Switzerland represented in the market with competent players

Large private equity firms in Switzerland include:

• Ufenau Capital Partner: the provider has been successful in business with SME investments in Europe since 2011. More than one billion Swiss francs are now managed for investors in Pfäffikon.
• Partners Group: The group is one of the pioneers of the Swiss private equity industry. 25 years after its foundation, its assets have grown to 127 billion dollars. Today, 1,500 employees work for Partners Group in 20 offices.
• Capvis: The experts from Baar develop small and medium-sized companies into global champions. Capvis has invested over 3.5 billion euros in more than 61 investments over the past 30 years. Started as the PE division of Swiss Bank Corporation, the company broke away from UBS in 2003.
• LGT Capital Partners: some 650 employees manage over $85 billion in assets at twelve locations. The provider is a leader in alternative investments and does about 90 percent of its business outside Switzerland.
• EQT: The private equity firm was founded in 1994 in Sweden, where its head office is still located today. EQT has grown into a huge private equity firm within three decades. It currently holds about 70 investments.

Legal framework in Switzerland

The legal and regulatory framework for private equity in Switzerland comprises various laws, ordinances and supervisory authorities.

In particular, Swiss financial market law contains regulations applicable to the activities of private equity firms. For example, the Swiss Federal Act on Collective Investment Schemes (CISA) regulates investment funds, including private equity funds. The CISA is subject to supervision by the Swiss Financial Market Supervisory Authority (FINMA).

Swiss pension funds successfully use private equity

Swiss pension funds manage assets of around 1.3 trillion Swiss francs, making them very successful compared to their European neighbors. Over the past ten years, pension assets in Switzerland have grown by an average of 6.7 percent per year, while in Germany, for example, they have increased by only 1.9 percent. One reason for the success of Swiss pension funds is their greater willingness to take risks when investing capital, especially in alternative asset classes such as private equity.

To a large extent, the investment advantages recognized by pension funds are also beneficial for private investors:

• Higher returns: Private equity can generate higher returns compared to traditional investments such as stocks or bonds. This is partly due to the active role that private equity fund managers play in increasing the value of their portfolio companies.
• Diversification: By investing in private equity, pension funds can diversify their investments more broadly and thus reduce risk.
• Inflation protection: Private equity investments can offer a degree of protection against inflation, as they generally invest in real assets and benefit from economic developments.

Private equity: How investors invest

For a long time, private equity was only accessible to institutional investors due to the high entry threshold of several million francs. However, there are now also opportunities for private investors in Switzerland to invest in this asset class.

• Fund of funds: Semi-professional investors can diversify into private equity by means of a fund of funds, which invests in several private equity funds. The minimum investment amounts are between CHF 200,000 and CHF 250,000.
• Closed-end private equity retail funds or mutual funds: The minimum investment amounts for these funds admitted to public trading are usually around 10,000 Swiss francs.
• Digital investment advisors: Everon, for example, enables private investors to start investing from 10,000 francs, depending on the financial product, as part of its private banking offering.
• Exchange Traded Funds (ETFs): ETFs offer retail investors a cost-effective and transparent way to invest in private equity without directly entering a closed-end fund. However, these ETFs tend to track an index of private equity exchange-traded companies such as KKR and Blackstone, and thus have a relatively high correlation to the broad stock market.

When selecting an appropriate private equity fund, there are many issues to consider that require a high level of expertise. Investment objectives and risk tolerance play a significant role. Funds pursue different investment strategies and together with the track record (reference list of investments) of the fund managers, this can be decisive for the success of the investments. There are also fee structures to consider.

All of this usually means the private investor is best served by a professional investment advisor to identify the appropriate fund and manage the investment.

Private equity for private investors: What to consider

Private investors considering private equity should keep two points in particular in mind:

• Appropriate proportion of the portfolio
• Illiquidity of the asset class

The optimal allocation of private equity in a portfolio depends on individual investment objectives, risk tolerance and investment horizon. Some experts recommend that private investors should invest a maximum of around five to ten percent of their total portfolio in private equity.

The asset class involves higher risks and requires a long investment horizon. A balanced portfolio should have appropriate diversification and consider private equity as a complement to other asset classes.

An important aspect that private investors should consider when investing in private equity is the lower liquidity compared to other asset classes such as equities or bonds. Private equity funds often have restrictions on the redemption of shares to ensure the long-term capital commitment required for this type of investment. Also, often even in the most liquid funds, shares can be sold, often only once per quarter.

In this context, redemptions are often referred to as “redemption” in the terms and conditions. The regulations in this regard are referred to as “gates”. Gates limit the proportion of the net asset value (NAV) that can be redeemed per quarter. In some cases, the maximum redemption amount may be limited to five percent of the NAV per quarter. Investors should be aware of these limitations and ensure they plan for the liquidity needs of their overall portfolio accordingly.

Reading Tip: Private Markets: New opportunities in the asset class for exclusive investments

Private equity: Under these conditions an investment makes sense

The private equity asset class requires specific conditions under which an investment in private equity makes sense for private clients.

Private individuals should therefore consider the following points before making an investment:

• Long-term investment horizon: private equity investments are designed for the long term and generally have a holding period of several years. Private clients looking to invest in private equity should therefore have a long-term investment horizon and be prepared to commit their capital for an extended period of time. The long-term nature of private equity investing allows companies to realize growth potential and create value, which can offer attractive long-term returns.
• Portfolio diversification: an investment in private equity should always be considered as a complement to a diversified portfolio. For private clients, this means having different asset classes such as equities, bonds or real estate before investing funds in private equity. Diversification can offset potential risks and reduce overall portfolio risk.
• Risk Tolerance: Private equity investments involve certain risks, including the risk of loss of principal. The performance of private equity funds can be volatile and is subject to various factors such as market fluctuations, economic conditions and the performance of the companies in the portfolio. Therefore, appropriate risk tolerance is among the most important requirements.
• Understanding of complex investment structures: Private equity investments are more complex than traditional investments such as stocks or bonds. Specific expertise is therefore required to understand and consider the various aspects of the asset class.

Access to qualified funds and expertise: private equity investing requires access to qualified funds and professional expertise. As a private client, it can be difficult to gain direct access to high-quality private equity funds. It is therefore often advisable to consult a financial advisor or professional asset manager who has expertise in this area.

Reading Time: 8 minutes

Private markets offer promising investment alternatives to traditional financial markets. However, for a long time, access to these markets was severely restricted for private investors, as no direct trading takes place on the stock exchange. Furthermore, high minimum investment amounts of several million Swiss francs blocked access for many investors.

But the world of private markets is changing: new start-ups and digital asset managers make it possible to enter this exclusive investment area with significantly lower minimum investment amounts. This makes these attractive investment opportunities accessible to a broader investor base. It is therefore worthwhile to find out more about the opportunities. This article helps to enter the world of these exclusive investments.

The most important facts in brief

• Private markets are non-publicly traded investments in which investors provide capital.
• Investments are made in private companies, real estate or infrastructure projects.
• Early entry into growth projects enables high performance of the investments.
• Historically, only institutional investors with high minimum investments had access to this type of investment.
• Innovative providers are opening up the market to private investors with manageable minimum investment amounts as well.

Private Markets: definition and explanation of the asset class

Private Markets translates as private market investments. These are investments in equity and debt capital of companies and projects that are not listed on a stock exchange. The “private” in the name comes from the fact that they are not publicly listed and traded. This asset class allows investors to receive a type of risk premium for the illiquidity of their investment.

Compared to the public market, which is characterized by stock exchange listings, private markets generally exhibit less volatility. In the past, they have been able to generate above-average returns of over 14 percent in some cases.

A key difference between these private and public markets is liquidity. Investing in private markets requires longer investment horizons, as they cannot be traded as easily as listed equities. However, this provides opportunities, including giving investors access to younger and smaller companies that have higher growth potential than established listed companies.

Private markets investments are often only offered to a small circle of investors. These usually enter with several million Swiss francs. By investing, investors benefit from the potential growth of promising companies and diversify their portfolios at the same time. Shares can also be bought or sold on the secondary market via specialized asset managers or investment banks. This involves existing investor commitments to corresponding funds.

Reading tip: Family office: definition, services & for whom it is worthwhile

These types of investments are offered by private markets

Private capital has a significant impact in today’s global economy. Private investment funds have more than $12 trillion in assets. The volume has doubled in the period from 2005 to 2021 alone.

The asset class is very diverse, with different opportunities and risks in each segment. Private markets include:

• Private Equity
• Private Real Estate
• Private Debt
• Private Infrastructure

Private Equity

Accounting for around two-thirds of the market volume, private equity is the largest segment of the private markets. It is divided into the categories buyout and venture capital. In a buyout, existing companies are bought from their owners and developed further. These are long-established companies. With venture capital, capital flows into newly founded companies or start-ups in order to finance research, development and marketing. In between, there is also so-called late-stage venture capital or growth equity, which focuses on companies that are between VC and buyouts in their development.

Private Equity Real Estate

This area includes the new construction and conversion of real estate in the residential, industrial and commercial segments. The following strategies are distinguished:

• Core: Purchase of existing real estate with the aim of generating stable rental income. The purchase is made exclusively with equity.
• Core Plus: This also involves the purchase of existing properties, but debt capital is also used for financing.
• Value Added: Existing properties are upgraded through renovation measures and then resold.
• Opportunistic: This strategy covers project planning, development and marketing of new buildings in all segments.

Private Debt

Compared to private equity, this strategy does not involve acquisitions, but rather the provision of debt capital to companies. The funds are often used to finance expansion plans. This growth financing is also known as mezzanine (an intermediate form of equity and debt). The terms of the loans are usually six to ten years, and the interest rate is usually variable.

Private Infrastructure

Private Markets covers the financing of infrastructure assets. This includes, for example, airports, electricity companies, water supply, waste disposal, schools and hospitals. Existing infrastructure facilities are characterized by stable earnings, as the use of a water treatment plant, for example, is quite constant.

Reading tip: Investing money in Switzerland: investment strategies and the 1×1 of investing

Private markets: exceptional opportunities

Private markets offer investors extraordinary opportunities and possibilities to diversify their portfolio and to profit from growth companies and interesting sectors. In doing so, they invest in companies and sectors that are otherwise difficult to access. The asset class is particularly attractive compared to public markets due to its historically high returns and lower volatility.

Through innovative asset managers, investors with comparatively lower minimum investments can also invest in private markets and benefit from their advantages.

The main opportunities can be summarized in three points:

• Opportunities for investors: Private markets allow investors to invest in young, high-growth companies that are not listed on the stock exchange. By investing in such companies, investors benefit from their growth and thus achieve above-average returns. Due to their low volatility and correlation to traditional asset classes, private markets serve well as diversification tools.
• Investment in attractive sectors: Private markets provide access to investments in infrastructure projects, growth sectors and other areas not usually accessible to private investors. Investments can be made in promising companies at an early stage. Lucrative acquisitions take place in the private equity sector, especially before the initial public offering (IPO).
• Opportunities for returns depending on risk appetite: Investors have the prospect of returns of up to around 15 percent, depending on their risk appetite. This shows that private markets are an attractive investment option for investors who are prepared to take a higher risk in order to achieve potentially higher returns. Above all, the risk of low liquidity must be taken into account here.

Reading tip: Investment strategy in focus: The power of income strategy

Private Markets: the risks

When it comes to the risks associated with investing in Private Markets, the question arises especially when compared to other financial products that are publicly traded.

Lack of regulation and transparency

A key difference between private and public markets is that Private Markets are less regulated. While publicly traded financial instruments are subject to numerous regulations and disclosure requirements, private markets are subject to less stringent rules. This can lead to a lack of transparency, making it difficult for investors to make informed decisions and assess investment quality. In addition, private market investments are often valued only on a monthly basis, which also makes performance measurement more difficult.

Investment expertise and valuation

It is often difficult for private consumers to assess the risk of investing in private markets. Valuing investments in this segment requires in-depth expertise, as many factors need to be considered, such as the business model, management, and competitive landscape. In contrast, equities and other financial products are generally easier to value because they are traded on public markets and easily accessible information is available.

Higher risks

As with any form of investment, there is a risk of loss with private markets. The performance of private companies can be affected by a variety of factors, including the economic environment, the industry, and general market sentiment. Often, investments are made in a future prospect for which no concrete company figures are yet available, as in the case of venture capital. This is a significant difference from, for example, investing in traditional large companies with substance, as is the case with buyouts. Therefore, it is important to have a diversified portfolio to minimize risk.

Liquidity risk

Another risk associated with investing in private markets is the typically low liquidity. Since the shares are not traded on public exchanges, it can be difficult to sell them. This can be particularly problematic when liquidity is needed in the short term. In contrast, stocks and other publicly traded financial products are usually easy to trade and offer investors greater flexibility.

Long investment horizons

Investments in private markets are often associated with an investment horizon of 10 to 15 years.

Accessibility more difficult

Since there is no single marketplace for any segment, access is difficult. Even if investors are suitably qualified, many markets are not available to private investors.

Reading tip: Stock market crash: Stock market at the bottom – how should you react?

Investments in private markets require in-depth expert knowledge

Investments in private markets offer high return opportunities and diversification possibilities, but also represent an increased risk. In order to manage these risks and find the optimal investments, sound expert knowledge is required.

The variety of products in Private Markets

Private markets encompass a wide range of investment products, from private equity and private debt to infrastructure and real estate. Due to the large number of products, it can be difficult for non-experts to identify the best investment opportunities. Experts have the expertise to evaluate the various products and select those that best fit the investor’s investment objectives and risk profile.

Complex and non-transparent fee structures

Fee structures in private markets can be intertwined and opaque, making it difficult for investors to understand the true cost of their investments. Experts help decipher fee structures and ensure investors are getting a fair deal and not overlooking hidden costs.

Differences in investment style and fund strategies

In private equity alone, the opportunities of a buyout (acquisition of companies) and those of venture capital (growth financing) must be evaluated in a completely differentiated manner. Only experts with proven expertise are in a position to make a sound assessment of the differences in opportunities and risks. Professionals can help understand the different approaches and identify those that best fit the investor’s individual goals and requirements.

The role of experts in analysis and pre-selection

As described earlier, investments in private markets are much more difficult to access compared to publicly traded financial products. At the same time, this means that the research and evaluation of the necessary data is only accessible to a limited circle of experts . Private investors therefore need to take advantage of this know-how. They can draw on their expertise to ensure, as investors, they invest in the right products that match their goals and risk appetite.

Reading tip: Asset management mandates: definition, meaning & advantages

Digital wealth advisors open up return opportunities in private markets to broad groups of investors

Private markets, such as private equity, private real estate, private debt and private infrastructure, have long been the exclusive domain of large institutional investors and high-net-worth individuals. But thanks to technological innovations and digital wealth advisors, these attractive investment opportunities are now opening up to a broader range of investors. Startups such as Everon enable investments in these segments from as little as CHF 10,000, allowing private investors to benefit from expanded investment opportunities with potentially high returns.

Digital wealth advisors as new enablers for private markets

Digital wealth advisors combine professional expertise with a high degree of automation to cost-efficiently create investment recommendations for their clients and provide them with support. By using these technologies, private investors can also gain access to private markets investments that are otherwise difficult to access.

Opening up private markets to a broad range of investors

The minimum investment amount for private market investments is often in the six- or seven-figure range. This excludes many private investors from these attractive investment vehicles. However, startups such as Everon have recognized that there is a great need for access to private markets and, as a consequence, offer investment opportunities from as little as 10,000 Swiss francs. Digitization and the innovative power of young providers have thus opened the door to private markets for broader investor circles.

Reading Time: 12 minutes

A separation and the subsequent divorce proceedings are difficult times and always involve the sensitive issue of finances. The assets are to be divided fairly and the pension equalization must be carried out. Therefore, the dissolution of marriage is not least about how to deal with the pension fund. After all, pension provision should also be secured after the separation.

This article informs those affected about the consequences of separation and in particular shows what happens to the pension fund assets.

The most important facts in brief

• Almost every second marriage in Switzerland ends in divorce.
• The average age of spouses in divorce proceedings has risen.
• Higher average age means greater challenges for pension distribution.
• Spouses can make individual arrangements within the framework of legal requirements.
• Proper handling of the pension fund secures retirement provision and standard of living in old age.

Divorce in Switzerland: Facts

In Switzerland, the divorce rate remained at a high, constant level until the mid-1960s. It then increased significantly, reaching a high of well over 50 percent as of 2011. In the past 10 years, however, the number of divorces has declined again and is currently around 40 percent.

In a global comparison, Switzerland’s divorce figures are in the midfield. France, Spain, Australia and Sweden, for example, have higher divorce rates. In Russia, the rate is twice as high as in Switzerland. And in the USA, too, around 50 percent more people divorce than in Switzerland.

Average age at divorce has risen

The age at which Swiss spouses divorce has shifted backwards in recent years. The average age is around 46. This means that men and women are still around eight years older at the time of divorce than they were in the 1970s. This can be explained in particular by the fact that couples are also marrying later.

Paying attention to divorce consequences at older ages

The tendency for older age at the time of divorce brings special challenges for the division of finances. As a result, the retirement savings already accumulated are often higher and the time to retirement is shorter. This means that for divorcees, the issue of pension funds plays a major role.

Marriage: essential rights and obligations

In Switzerland, marriage is possible from the age of 18. The principle of equality applies, which means that men and women have the same rights, which must also be taken into account when it comes to finances.

Major financial implications of marriage are thus:

• Family maintenance: spouses can agree on who should contribute how much to the family’s maintenance – however, both are equally obliged to do so.
• Children: Both parents have the same duty of care. This applies to care, nurturing and education, which results in a maintenance obligation.
• Matrimonial property regime: The spouses jointly determine the matrimonial property regime. In this way, they determine who owns what property and how the assets and debts are divided both in the event of divorce and death. Swiss law provides for the following matrimonial property regimes: joint ownership, community of property and separation of property.
• Occupational and private pension provision: the second and third pillar assets earned during the marriage also count towards the joint pension assets.

Separation: significant effects

The above-mentioned rights and obligations already give an idea of the effects of a divorce on finances and what things need to be settled.

If both are in agreement: Procedure of an amicable divorce

Provided both spouses agree to the divorce, they jointly file a petition for divorce. In the so-called divorce convention signed by both, no reasons for the divorce need to be given.

Furthermore, the spouses describe on a jointly written document (divorce agreement) the points on which they have agreed:

• Dissolution of the matrimonial property regime
• Division of occupational benefits
• Maintenance and custody of children
• other points, for example, who will remain in the marital home

As a rule, the court adheres to the divorce agreement in the divorce decree. However, it checks the balance. For example, a waiver of child support is usually rejected, as is a retirement provision that is not balanced.

Both must provide for their own maintenance after the divorce

After divorce, personal responsibility generally applies. However, depending on the age, duration of the marriage and distribution of responsibilities, a court ruling may require one spouse to make temporary alimony payments. Both parents are responsible for the maintenance of the children until they reach the age of majority or until the end of their education. Depending on the personal possibilities, the court examines the possible agreement between the parents, but makes the final decision. This is to ensure that the needs of the children are met in any case.

The division of property is regulated in Switzerland by the matrimonial property law

The matrimonial property law regulates the financial relations between the spouses during the marriage period as well as the division in case of divorce and death. The division of assets upon separation depends on which matrimonial property regime the spouses have chosen.

Swiss law recognizes three different property regimes:

• Acquired property: This matrimonial property regime is also referred to as the “ordinary matrimonial property regime.” It always applies if no other matrimonial property regime has been agreed in a marriage contract. The assets consist of personal property and acquisitions. Personal property is all assets that were brought into the marriage and thus remain in personal ownership. Inheritances and gifts also count as personal property. Everything that was earned during the marriage is referred to as acquired property and must be divided in half in the event of divorce.
• Community of property: The difference between community of property and community of inheritance is that no distinction is made between inheritance and personal property. Rather, everything is divided in half in the event of divorce. It is possible to exclude individual assets from the community of property by contract.
• Separation of property: As with community of property, the separation of property must be agreed in a marriage contract. The assets of the spouses remain separate, as they were before the marriage. Likewise, you also operate a separate asset accumulation during the marriage.

The professional and private pensions are also divided in the context of a divorce, as will be described in more detail later. Furthermore, debts must also be divided fairly; you will also receive further information on this in a subsequent chapter.

What does AHV splitting mean in the event of divorce?

The joint claims in the AHV are redistributed in the event of divorce in order to arrive at a fair allocation. For this purpose, an income distribution, the so-called splitting, takes place within the marriage. In order to determine the pension entitlements for old age or invalidity of divorced persons, the income earned by both spouses during the marriage is divided and attributed to each half. Only the years in which both partners were insured with the AHV/IV are taken into account.

The income in the year of the marriage and in the year of the divorce is not divided. Splitting is therefore only possible if the marriage has lasted at least one complete calendar year .

Maintenance obligation for joint children

Regardless of any agreements on post-marital maintenance between the divorced partners, parents are always obliged to provide maintenance for their children. This obligation continues until the child reaches the age of majority or completes his or her first vocational training.

The parent obliged to pay is the one who does not live with the child. The parent who forms a domestic community with the child fulfills his or her obligation to pay child support by raising the child as well as by providing personal care. The court shall determine the amount of child support without affecting the subsistence level of the parent liable to pay.

Legal remedies in case of non-fulfillment of child support obligations

If the parent liable to pay fails to meet his or her obligations, the person entitled to child support may seek collection assistance from the respective canton. Each canton must offer free assistance for the collection of child support. Furthermore, the cantons offer advances for child alimony to bridge the gap.

In certain cases, a debtor ‘s order can be applied for against the arrears payer at the competent civil court. Through this order, the child support is deducted directly from the salary or wages of the parent liable to pay and forwarded to the applicant.

If there are already long-term arrears in child support payments, debt collection proceedings can be initiated. The debt collection office at the place of residence of the parent liable to pay is responsible for this. If the parent continues to fail to meet his or her obligation to pay, criminal proceedings may be initiated.

Prenuptial agreement: these points can be agreed

Although a contractual agreement is unromantic, it can contribute to a relatively conflict-free separation in the event of a divorce, since the essential matters have been settled in advance. This can often reduce the high costs of divorce proceedings. Furthermore, fundamental property issues as well as the distribution of the inheritance can be clarified.

A prenuptial agreement regulates

• the matrimonial property regime
• the division of assets in the event of divorce
• the inheritance claims of the divorced spouses
• the inheritance claims in a marital union

Divorce: not always amicable

In Switzerland, spouses can in principle divorce without a lawyer. However, due to the complexity, an experienced specialist lawyer is advisable in most cases. If the spouses do not agree, the only option is to file for divorce. If one spouse does not agree with the divorce in general, a separation period of two years must first be observed. After that, the person wishing to divorce can sue for separation of the marriage.

While in the case of unity a divorce can be settled for about 2,500 francs, the costs quickly add up to 10,000 francs or more in the case of disputes. The costs are shared in the case of unity – in the case of divorce suits, the losing party bears the total costs.

Since both spouses are concerned about their future existence in the context of divorce proceedings, property issues are also frequently disputed. Here it is a question of the allocation of personal property and acquisitions or the valuation and division of real estate assets. A prenuptial agreement can help to save costs and nerves here.

What happens to debts in the event of divorce

After a divorce, spouses do not necessarily have to pay for the debts incurred by the other partner. Spouses are only liable for jointly concluded loan agreements, as is often the case with mortgage loans. However, for debts that are part of joint household management, such as household debts, insurance premiums or outstanding tax bills, both must be jointly liable. A division does not arise here.

Pension equalization for occupational pensions

Pension equalization refers to the division of the pension assets accumulated during the marriage. In the event of a divorce, the property settlement takes place first, followed by the pension equalization. Finally, the maintenance contribution is determined.

Divorce and pension fund: equitable distribution of pension assets

Pension equalization balances out the often differing assets that the couple has accumulated during the course of the marriage. If one person was primarily responsible for childcare, caring for dependents or managing the household, they often did not have the opportunity to build up a large pension fund balance.

In contrast, the person who was more gainfully employed during the marriage period usually accumulated a larger balance. Pension equalization divides the assets accumulated during the marriage equally between the spouses in order to compensate for the pension losses of the person who was not or only slightly gainfully employed. This ensures a fair distribution of the pension assets for both spouses.

Components of the pension equalization

The entitlements of the compulsory and non-compulsory second pillar that are divided include:

• the termination benefit (retirement assets accumulated during the marriage at the time the divorce proceedings were initiated)
• the vested benefit credit (with a vested benefit institution)
• theadvance withdrawals for home ownership (payment by the pension fund to purchase owner-occupied residential property)

In order to calculate the termination benefit to be divided, any one-time contributions made from personal assets are deducted from the result. Any further capital payments made during the marriage are also deducted. Since only entitlements acquired during the marriage are relevant for pension equalization, assets prior to the marriage (including interest) are also not taken into account.

Pension equalization in the event of a disability pension

If a disability pension is drawn before the pension is drawn upon divorce, a “hypothetical termination benefit” must first be drawn up. This is the termination benefit in the event of regaining earning capacity. This calculated termination benefit is then divided in half. The division has the effect of reducing the disability pension.

Pension equalization in the case of an existing retirement pension

If one spouse is already receiving a retirement pension or disability pension and is already of retirement age, the pension is divided. In this case, half of the pension is considered as a guideline, but the court makes a discretionary decision in this case. Provided that both spouses receive a pension, a settlement can be made without any problems. However, an equalization of pension on one side and termination benefit on the other side requires the consent of both pension funds.

Divorce and pension fund: in exceptional cases there is no division

In exceptional cases, the court may deviate from the rule of splitting the pension fund assets in half.

These exceptions are:

• Over-half division: if one spouse was unable to work because of caring for several children, the court may order an over-half division. In doing so, the court will take into account that the spouse subject to the equalization obligation will be left with adequate retirement provisions.
• Refusal of equaldivision: If there are important reasons, the court may refuse equal division. This may be the case, for example, if one spouse is about to retire and the other is still able to save for his or her own retirement on account of his or her young age.
• Impossibility of division: If it is not possible to equalize the pension fund assets because, for example, the pension assets are located abroad, the person subject to the equalization obligation owes a lump-sum settlement as an alternative.
• Unreasonableness of the division: Unreasonable in this context could be, for example, the reduction of an already ongoing disability pension. However, the entitlement to compensation through free capital remains, which can also be paid in installments under certain circumstances.

Mutually agreed waiver of the termination benefit

Although the legal principle states that BVG assets accumulated during the marriage period should be divided at the time the divorce petition is filed, spouses may agree to a waiver.

The law allows spouses to waive division if both have adequate retirement or disability insurance. In this regard, the court is free to deny the waiver of division in case of doubt. The question, then, is what provision is adequate. In principle, this is the case if the person waiving benefits from other advantages, and thus a proper retirement is guaranteed.

To assess what is an appropriate retirement provision, below are some key points:

• Long marital periods usually require equitable compensation.
• For short periods of marriage, personal responsibility weighs more heavily (especially if the marriage was childless).
• If both spouses have reached retirement age, the principle of division is often without alternative, since neither can build up new pension entitlements.
• In the case of a considerable age difference, a half split is usually not appropriate, since each has adequate pension provision for himself or herself or will still benefit from it in the future.
• In the case of considerable income or assets on the part of the person entitled to equalization, it can be assumed that old-age provision is possible without any problems. This justifies a waiver of equalization.
• If one spouse is self-employed, the value of the business may be a substitute for retirement assets and thus a waiver of equalization is legitimate.
• If both spouses have excellent incomes, there is no need to equalize additional pension assets.
• If one spouse is particularly favored in the division of assets (such as leaving a condominium as the sole owner), a waiver of equalization of pension assets is justified.

The third pillar after divorce

As private pension funds, the third pillar funds count towards the matrimonial property settlement. The assets saved during the marriage are therefore halved in the event of divorce. Other arrangements can be made in the marriage contract. The taxes due on the subsequent payout must be taken into account in the division.

If Pillar 3a assets are transferred during the division of property, this capital must remain tied up. The bank or insurance company is therefore obliged to transfer the money to an occupational pillar institution, i.e. a pension fund or, if applicable, a vested benefits institution.

Learn more now: Vested benefits at Everon

All parties benefit from well-considered solutions

Because of the emotional nature of the matter, it may seem difficult to remain objective during a divorce. But spouses who treat each other with respect during the divorce proceedings and also think about retirement planning during this phase save time, money and nerves.

The Swiss pension system, in conjunction with the matrimonial property regime, allows for many structuring options. These can be used to give all parties a positive perspective. The courts take care to ensure that there is no discernible injustice. Parents should bear in mind that money lost through costly court proceedings is ultimately also missed by their own children.

Reading Time: 5 minutes

The so called “60/40-portfolio” is a classic. The combination of 60 percent stocks and 40 percent bonds in a portfolio, was seen as very favorable in risk-return relations. The main assumption behind it is that stocks and bonds exhibit a low, if not even negative, correlation over time. Therefore, historical correlations between stocks and bonds have been a subject of interest for investors seeking to diversify their portfolios.

Understanding these correlations provides valuable insights into asset allocation strategies and risk management.

This article will explore the historical correlation between stocks and bonds in the U.S., discuss factors influencing these correlations, and highlight recent trends and their implications for investors.

Historical Perspective: A look into the past

The relationship between stocks and bonds has not always been consistent. There have been periods when the two asset classes have moved in the same direction and periods when they have moved in opposite directions. In general, bonds have served as a hedge against stock market losses due to their typically low historical correlation to stocks​, at least over the last 25 to 30 years. When we look over a longer horizon, there was a regime of largely positive stock and bond correlation between 1945 and 1995.

This was for instance the case in 1969 when the Federal Reserve hiked interest rates to curb rising inflation, which led to both stocks and bonds moving in a negative direction. This scenario happened again in the last year, when stock and bond returns fell after the Federal Reserve increased interest rates at the fastest pace in 40 years. Over four decades, this simultaneous drop has occurred only 2.4% of the time across any 12-month rolling period​.

Factors Influencing the Correlation

Several factors can influence the correlation between stocks and bonds. One of the significant drivers is interest rates. Higher interest rates can reduce the future cash flows of these investments, hurting both stock and bond returns. Bond prices are directly linked to the interest rate level and their valuation drops with an increase in interest rates, as long as their coupon payments are fixed. The reason is that existing bonds with old (low) coupons become less attractive compared to newly issued bonds with higher coupons.

Stocks are impacted because higher interest rates mean higher financing costs and an intentional slowdown of the economy. Both effects tend to reduce company profits and therefor lead to lower equity valuations.

Additionally, the level of risk appetite among investors also plays a crucial role. When the economic outlook is uncertain and interest rate volatility is high, investors are more likely to reduce risk in their portfolios, pushing down both equity and bond prices. Conversely, if the economic outlook is positive, investors may be willing to take on more risk, potentially boosting equity prices​​. Also consider that the attractiveness of cash increases with the interest rate level of a currency as it can already provide decent “riskless” returns.

Reading tip: Investment strategy in focus: The power of income strategy

Recent Trends and Implications

We look at the US equity and bond markets, represented by the S&P 500 and the Bloomberg US Aggregate. As shown in the below graph, the rolling 53-weeks-correlation between bonds and stocks was negative most of the times between 2012 and 2020. So, over this period, the diversification effect of stocks and bonds worked well. However, the 60/40-portfolio was not a very attractive investment from a return perspective, as the zero-interest rate regime introduced very low yields on fixed income investments.

In recent years however, a notable shift has occurred in the stock-bond correlation and in the attractiveness of fixed income. In 2022, there was a lockstep movement between the S&P 500 and Treasury bonds. This was driven largely by high inflation, restrictive Fed statements, stubbornly high consumer spending, and nominal wages, which frequently upset the bond market.

This led to a situation where stocks often fell when interest rates rose, challenging the diversification benefits of traditional 60/40 portfolios​​, but boosting yields for fixed income investments.

As we move into 2023, the investing landscape appears to be changing. Weak manufacturing data, a softening household employment picture, and tame 3-month annualized inflation gauges suggest that the U.S. economy may move towards a mild contraction at times during the year.

This could lead to softer interest rates and a shift in the correlation between stocks and bonds, with Treasury bonds potentially moving in a different direction from equities. If this shift occurs, it would likely benefit diversified portfolios, particularly given the higher starting yields in Treasury bonds compared to previous years​.

Moreover, the investing climate may begin to resemble the period between 1945 and 1995, where stocks and bonds often moved together in a high-growth, sustained inflation environment. This would mark a significant shift from the period from the late 1990s through the early part of the COVID-19 pandemic, where deflation was more of a concern than high inflation, promoting the benefits of diversification between stocks and high-duration Treasury securities​​.

Reading tip: Investing money in Switzerland: investment strategies and the 1×1 of investing

The Impact of the COVID-19 Pandemic

The COVID-19 pandemic also played a significant role in influencing the correlation between stocks and bonds. The Federal Reserve’s shift to unprecedented monetary stimulus in response to the pandemic led to a unique situation in the bond and equity markets.

The U.S. stock market rebounded from the initial shock of the pandemic and reached new highs, fueled in part by the low interest rates that made bonds less attractive. Meanwhile, the Federal Reserve’s commitment to keeping rates at near-zero levels led to a surge in bond prices, resulting in a rare period where both bonds and equities performed strongly (period from mid 2020 to mid 2021)​.

Reading tip: Factor risk premiums: Value, Momentum, Size and Quality in recent years

Conclusion

While the correlation between stocks and bonds has varied over time, understanding this relationship and the factors that influence it is crucial for investors seeking to diversify their portfolios and manage risk.

As we move into 2023, it remains to be seen how this correlation will evolve. However, given the current economic trends and the higher starting yields in Treasury bonds, diversification could potentially prove more beneficial in the coming year​1​.

Today, financial markets are experiencing sharp swings as the implications of higher interest rates become more apparent. Yet, it’s important to remember that, over the last century, cycles of high interest rates have come and gone, and both equity and bond investment returns have been resilient for investors who stay the course​5​.

While the correlation between stocks and bonds will continue to shift based on various factors, what remains constant is the importance of a well-diversified, balanced investment portfolio. Investors who understand these shifts and adapt accordingly can better navigate the ever-changing financial landscape.

Reading Time: 10 minutes

Companies are constantly on the lookout for efficient financing options to maintain their growth trajectory. In doing so, they often encounter challenges with traditional sources of financing. Private debt provides suitable financing solutions for emerging companies.

The asset class also strikes a chord with many investors who are looking for promising return opportunities and want to further diversify their portfolios. Having long been the preserve of institutional investors, this credit marketplace is increasingly opening up to private investors.

In this article, you will get an overview of private debt, what added value this asset class offers and how this form of investment differs from other investment classes. Furthermore, different types of private debt are explained and which risks have to be considered for this private market investment.

The most important facts in brief

• Private debt is an internationally growing asset class in a non-public market.
• Corporate financing as a private market investment promises high returns.
• Studies predict double-digit growth in Switzerland as well.
• Everon enables private investors to invest in a market that was long reserved for institutional investors.
• Investors should understand the distinction from other financial instruments before investing.

Private Debt: Definition and Explanation of a Private Markets Asset Class

The term private debt describes the extension of corporate credit to companies by non-public institutions such as banks or investors. In contrast to public debt, where companies issue bonds on the public markets or receive loans from banks, companies receive debt capital from private lenders. Private debt has gained in importance in recent years and is used by both institutional investors and wealthy private investors.

Compared to traditional bank loans, private debt often offers more flexible terms and tailored loan arrangements. This enables companies to take advantage of alternative financing solutions, especially when they have difficulty obtaining loans from traditional banks.

Private debt investors, in turn, can diversify their portfolios and achieve attractive returns by investing in corporate lending.

Differentiation from other financial instruments

Private debt differs from other financial instruments available to retail investors in several key ways.

Some important differences and distinctions are explained below, based on some common investment products:

• Public Bonds: Unlike public bonds, which are issued by corporations or government institutions in public markets, private debt is a non-publicly traded security. Private debt investors invest directly in loans to companies and receive interest payments in return and possibly also a share in the company’s profits (mezzanine).
• Stocks: Private debt contrasts with stocks, which represent ownership interests in a company. While equity holders benefit from price increases and dividend payments, private debt investors receive fixed interest payments and are usually not entitled to company shares.
• Private Equity: Private debt also differs from private equity, in which investors invest equity in companies. Private debt investors, on the other hand, provide debt financing and are creditors of the company. They have priority over equity investors in the event of insolvency or restructuring.

Reading tip: Family Office – definition, services & for whom it is worthwhile

Private debt: a rapidly growing asset class worldwide

Over the past decade, the private debt market has expanded rapidly due to long-lasting low interest rates and high investor demand. The success of private debt is a result of the special market conditions following the global financial crisis. Private debt opens up liquidity opportunities for expanding private companies as well as higher return opportunities for investors compared to public debt instruments. Private debt is therefore often already regarded as an asset class in its own right , having originally been considered a subcategory of private equity. This is also due to the fact that private debt investments are often used to finance leveraged buyouts, i.e. leveraged takeovers of companies.

The international private debt market is one of the fastest growing private markets and is now the third largest private market after private equity and real estate. On average over the last ten years, the private debt market has grown by 13.5 percent annually. This compares with growth of 11.5 percent for private equity and venture capital and 9.1 percent for real estate over the same period. According to forecasts by the British information service Preqin, the private debt market is expected to continue expanding and even reach assets of USD 2.7 trillion by 2026.

Private debt: market size in Switzerland

The market for private financing solutions is also growing in Switzerland, not least due to the general economic conditions. However, as it is a non-public market, statistics are often based on estimates. However, the Lucerne University of Applied Sciences and Arts has already proven the growing importance of corporate financing with private debt in a study in 2019.

The key findings from the study:

• The Swiss private debt market volume is around three billion Swiss francs.
• The global growth of private debt will continue.
• Although banks will remain the main lenders, alternative forms of financing such as private debt are growing.
• Analogous to the growth rates of private equity, double-digit growth rates are expected to continue.
• Investor interest in private debt is strong and will remain strong.

Banks are observing the development and will participate in platforms.

An interesting investment opportunity is now also opening up for private investors

For many years, private debt was reserved almost exclusively for institutional investors. But in recent years, the private market for corporate loans has become increasingly democratized. Triggered by the ongoing low-interest-rate policy, investment opportunities are gaining in importance for private investors as well as the traditional capital markets. For an increasing number of investors, private debt comes at the right time to further diversify their asset structure.

Thanks to innovative asset managers such as Everon, smaller investment sums can now be invested in this attractive asset class in the digital world. Depending on the project, investments as low as 10,000 Swiss francs are possible with Everon. Read more about asset management at Everon if you are interested.

Private debt is primarily suitable for investors with a long-term investment horizon who are not dependent on short-term availability. This requires not only appropriate expertise, but also a certain risk capacity. In return, investors optimize their asset structure and receive an investment with ongoing cash flow. Private debt thereby shows a risk with low correlation to listed securities such as stocks or bonds.

Reading tip: Digital asset management: Tips & tricks

These opportunities open up for investors

The basic principle of private debt is that private lenders bear the risk of financing a company or a project. As a reward, they receive a decent return that is significantly higher than that of publicly traded investments. Depending on the investment strategy, returns of around 3 to 15 percent per year are achievable for private debt investments, and in some cases even higher. The prerequisite for an effective investment is a well-founded selection as well as control of all selection options. Investors are rewarded for the extra effort with above-average return prospects.

Apart from the usual advantages of alternative asset classes – such as attractive returns, diversification and a low correlation with public markets – private debt brings additional specific benefits:

• Less risk: compared to private equity and real estate, debt is less risky. This is because returns are fixed and investors’ claims in the event of default are prioritized.
• Predictable returns: Returns are predictable and contractually fixed based on an interest rate.
• Close relationship with borrowers: private lenders typically maintain closer relationships with borrowers than standard loans. This results in a more efficient process and often contributes to the success of the business in question.
• Expanded investment opportunities: private debt gives investors access to a variety of economic sectors that would otherwise be inaccessible to them. These include renewable energy, investment in early growth stage companies, and investment in an area otherwise reserved for banks.

These are the risks investors should watch out for

It is important that private investors carefully assess their risk appetite and seek professional advice before investing in private debt. This is the only way they can arrive at a suitable investment approach. Private debt investments involve specific risks for private investors.

The main risks that can occur with private debt investments are:

• Illiquidity: private debt investments are often long-term exposures with limited liquidity. Unlike publicly traded securities, private investors may have difficulty selling their investment early. This is due to the fact that the secondary market in private debt is comparatively underdeveloped.
• Credit risk: Private debt investments carry an increased risk that the debtor will not be able to meet its obligations. This can happen due to payment problems, insolvency or other economic challenges. The risk depends not least on the ranking of the debt instruments in the event of insolvency (senior or subordinate to other claims).
• Concentration: Private debt investments can often be concentrated on specific companies, sectors or regions. This increases risk, as a negative performance in one company or sector can have a significant impact on the entire investment.
• Lack of Information: Unlike publicly traded securities, private debt investments as private market investments often offer less transparency and information about the company, the borrower, or the specific terms of the investment. This can make it difficult for private investors to conduct a comprehensive risk assessment and make appropriate investment decisions.
• Barely regulated: Compared to publicly traded securities such as stocks or bonds, investors cannot rely on government regulation to review investment guidelines. In-depth financial knowledge, especially in the area of credit financing, is required.
• Interest Rate Risk: Private debt investments may be tied to variable interest rates. Although floating rates allow investors to benefit from rising interest rates, they also increase credit risk for borrowers because they can strain their liquidity. Today, most private debt portfolios have a predominance of floating rates, often with an interest rate floor to provide investors with a minimum return.

Reading tip: Investing in volatile markets – risk strategies for investors

Private debt: the complex asset class requires expert knowledge

Private debt is a complex asset class that requires specific expert knowledge. Private investors usually do not have the expertise and access to the necessary information to successfully manage this asset class. Therefore, it is important that experts in the form of professional fund managers or specialized asset managers are involved in the management of the private debt portfolio.

Challenges of the financial markets

Financial markets face many challenges, such as inflation, global economic developments, political conflicts and high debt levels. These factors can have a significant impact on the performance and risk profile of private debt investments. Experts with in-depth knowledge of the markets can correctly interpret these factors and make informed decisions to best position the portfolio.

Market analysis

Analyzing and evaluating private debt investment opportunities requires specific know-how. Selecting suitable borrowers, assessing credit risk, evaluating repayment ability, and negotiating loan agreements require expertise and experience. Private debt experts are able to assess the quality of borrowers and their business models, keeping the goals of capital preservation and return in mind.

Professional asset management

Managing risk and implementing appropriate diversification also play a critical role in managing private debt investments. Professionals can help diversify the portfolio across borrowers, industries, geographies and instruments to spread risk and increase the chances of positive returns. They have access to a broad network of borrowers and can provide a balanced mix of different types of private debt investments, such as senior secured loans or mezzanine capital.

Access to expert research

Involving expert asset managers in the management of the private debt portfolio allows private investors to benefit from their expertise and experience. Experts typically have access to extensive information and resources to effectively manage the portfolio and ensure appropriate risk management.

Reading tip: Private financial planning – how to achieve your individual goals

Different investment strategies and financing instruments

The majority of private debt investments are in unlisted private debt funds. These funds differ both in terms of their strategy and the debt instruments offered.

The financial instruments are mainly divided into the following areas:

• Loans withsenior collateralization (senior secured loans)
• Loans with subordinated or no collateralization(junior unsecured loans)
• Mezzanine instruments (ranking behind other loans)

Combinations of the various instruments are also conceivable.

The main strategies of private debt funds are described in the following sections.

Direct Lending

In this form of financing, specialized private debt funds grant loans directly to companies. This is done without syndication by a bank. Direct Lending investors enable loans to be structured quickly and flexibly. Among other things, they can waive interest payments for a certain period of time or handle credit ratings more flexibly. Direct lending investors are remunerated for these flexible components with a comparatively higher interest rate.

Distressed debt

As a rule, distressed debt refers to bonds or loans issued by companies that are in financial difficulties. They may be facing insolvency or may already be insolvent. This debt often trades at a price lower than its face value as investors consider the increased risk and uncertainty associated with repaying the debt.

With distressed debt, investors invest in companies that are struggling. However, these have the potential to recover and generate attractive returns once the financial problems are overcome.

Mezzanine capital

Mezzanine capital is a form of financing that combines characteristics of equity and debt. It is ranked between equity and debt in the capital structure.

Mezzanine capital is typically used to supplement a company’s equity and provide additional financing for specific purposes. These include acquisitions, growth investments, capital increases or corporate restructuring. It can also be used in situations where traditional bank loans are unavailable or insufficient.

Compared to traditional equity, mezzanine capital has a higher interest rate, but also involves a higher risk for the investor. Mezzanine capital investors often have the right to share in the profits of the company or to convert their receivables into equity at a later date.

Private debt fund of funds

This strategy is comparable to a traditional fund of funds. Depending on the strategy, the private debt fund of funds invests in several debt funds and thus offers investors greater diversification.

Special Situations

Private debt funds that specialize in so-called “special situations” look for opportunities to provide capital and help companies overcome their specific challenges.

The potential occasions for special situations investments can be many and varied. Examples include companies that are planning an expansion or an acquisition in a certain market segment and require specific financing solutions.

Venture Debt

Venture debt refers to a specific form of financing in which venture capital companies or start-ups raise additional debt to support their growth. Unlike traditional debt financing, venture debt is a form of financing specifically targeted at early stage or growth stage companies. These are typically supported by venture capitalists.

Reading Time: 8 minutes

Unemployment can affect anyone. In times of economic uncertainty in particular, it is important to be prepared for the changed situation in terms of finances and pension protection. With the right management of your pension fund assets, you are protected even in difficult situations.

With the following information on the consequences of unemployment, how to handle your pension fund assets, and how to continue your insurance, you can make the right decisions for you.

The most important facts in brief

• Almost half of today’s professions will disappear in the next twenty years.
• Digitization and robotics are the key issues in the future world of work.
• Unemployment can affect anyone – pension fund options should be used wisely.
• Optimal handling of the pension fund in the event of unemployment secures retirement provisions.

Unemployment in Switzerland: Anyone can be affected at some point in their working life

In Switzerland, a total of 92,755 people were unemployed in March 2023, which corresponds to an unemployment rate of two percent. In the individual cantons, the figures vary widely, ranging from 0.6 percent in Obwalden to 3.7 percent in Geneva.

For many people, technological development has increased the likelihood of becoming unemployed at least once in their working lives. According to a study by the University of Oxford, nearly half of the professions will become redundant in the next two decades, as they are largely taken over by robots. Many of the remaining jobs will also be automated.

The positive perspective: Wherever new technologies emerge, skilled workers will be needed in new fields of activity. In addition, there will be an increased demand on the labor market in the next few years as the baby boomers of the 1950s and 1960s retire.

Mit dem Laden des Videos akzeptieren Sie die Datenschutzerklärung von YouTube.
Mehr erfahren

Video laden

YouTube immer entsperren

You can expect these financial effects

When wages are eliminated, the financial losses are enormous. After all, unemployment insurance only provides temporary basic security. When looking to the future, you should also keep an eye on your pension fund if you are unemployed. After all, saving for retirement with the pension fund is an essential building block.

The basic security: Unemployment benefit

Unemployment benefits are applied for at the local municipal administration or at the responsible unemployment placement center (RAV). While receiving benefits, specified obligations must be fulfilled. These include applying for jobs and participating in programs that improve employability.

The essential conditions for receiving unemployment benefits in Switzerland are:

• You were employed at a gross wage of at least 500 francs before becoming unemployed.
• Contributions have been paid to the unemployment insurance fund for at least the period of one year in the past two years. If children under the age of ten were raised, it is sufficient to have paid contributions for one year within a four-year period.

In some special cases, you are also insured against the consequences of unemployment for up to one year without having paid contributions:

• You cannot work during pregnancy.
• Work is not possible because of an accident, illness or psychiatric treatment.
• A course of study prevents you from taking up work (provided that you have been resident in Switzerland for at least ten years).
• As a Swiss citizen, you are temporarily living in a country outside EFTA or EU.

In principle, unemployment benefits amount to 70 percent of your last salary. However, it is important to note that the maximum salary of 12,350 francs per month is taken as a basis.

In the following cases, you can receive unemployment benefits of up to 80 percent of your last salary:

• There are dependent children.
• In case of disability (from a degree of disability of 40 percent).
• If the last monthly wage was below 3,797 francs.

The following table shows the period of entitlement to unemployment benefits:

Contribution payments	Age and maintenance obligation	Other conditions	Unemployment insurance Daily allowances
12 to 24 months	up to 25 (no maintenance obligation)		200 months
12 to 18 months	from 25		260 months
12 to 18 months	from 25 (with maintenance obligation)		260 months
18 to 24 months	from 25 (no maintenance obligation)		400 months
18 to 24 months	from 25 (with maintenance obligation)		400 months
22 to 24 months	from 55		520 months
22 to 24 months	from 25	for invalidity pension, from degree of invalidity of 40 percent	520 months
22 to 24 months	from 25 (with maintenance obligation)	with disability pension, degree of disability at least 40 percent	520 months

If you become unemployed within four years before reaching retirement age, you will receive unemployment benefits again for 120 working days.

BVG payments: What happens if I become unemployed?

If you become unemployed, this means, to a certain extent, a withdrawal from the pension fund. This means that your retirement assets with the pension fund must usually be transferred to a vested benefits institution.

The following options are available for investing your vested benefits:

• Vested benefits policy: the capital is well protected and the insurance claims are guaranteed. Often, a lump-sum death benefit is also insured in addition to the endowment capital. However, costs are incurred for the insurance benefit. Depending on the personal situation, insurance may not always make sense, and the solution is often not worthwhile, especially for short terms.
• Vested benefits foundation: Here, the money is invested with a bank. The interest rate is not particularly high. Nevertheless, a comparison is worthwhile, and attention should also be paid to the fees.
• Fund investments: For investment periods of more than ten years, experience has shown that investing in the stock market is a more effective option. Here, digital investment advisors offer interesting investment opportunities even for manageable sums.

Those who do not give their pension fund instructions on the whereabouts of their pension assets when they become unemployed will automatically receive their vested benefits account from the BVG-Auffangeinrichtung. This foundation was established by the federal government to ensure that pension assets are preserved in any case.

The compulsory disability insurance and survivors’ insurance of the pension fund is continued in the event of unemployment via the BVG-Auffangeinrichtung. This insurance automatically continues as long as unemployment benefits are drawn. The premiums are paid in equal parts by the policyholder and the compensation fund.

Tip: More about vested benefits at Everon

Check option: Continuation of BVG payments

In the event of unemployment, the options with the pension fund should be considered and used depending on the personal situation. The aim is to maintain the standard of living in retirement.

The paths described below can be taken.

Voluntary continued insurance with the Stiftung Auffangeinrichtung BVG (BVG Contingency Fund Foundation)

As long as unemployment benefits are being drawn, the mandatory insurance against disability and death continues with the Auffangeinrichtung, as described above. Note that coverage is maintained for only one month after the last daily allow ance has been paid.

There is also the option of voluntary insurance for up to three months after leaving the previous pension plan. This allows both risk protection to be maintained and additional savings contributions to be made for old age.

Since budgets are tight when people are unemployed, voluntary insurance is out of the question for many unemployed people, since they have to make the contributions on their own. In addition, vested benefits accounts with the supplementary institution offer only a modest return. On the other hand, it is interesting to have the option of buying into the new pension fund in the event of temporary unemployment when taking up a new job, thus closing the gaps due to missing contribution periods.

Voluntary continued insurance with the previous pension fund

If you are at least 55 years old and your employer terminates your employment, you have the option of continuing to be insured with the employer’s pension fund. The prerequisite for this is that you do not belong to a new pension fund. It is important to observe the 90-day deadline for registration.

If the contribution based on the previous salary is too high, the relevant salary can be reduced in consultation with the pension fund. Only the BVG entry threshold must be observed. This gives you the option of flexibly adapting your pension provision to your financial possibilities. The contributions are also tax-deductible.

Reading tip: Change of employer: How to secure your pension fund entitlements

Check another option: Advance withdrawal of pension fund assets

In some cases, early withdrawal of retirement assets from the pension fund can also be an alternative.

This is possible in the following situations:

• Financing of residential property: in addition to the purchase, this also includes the repayment of mortgage loans. The prerequisite is that it is the main residence. However, the full capital can only be withdrawn up to the age of 50, after which the amount is limited.
• Taking up self-employment: This can be the basis for setting up a business if you are unemployed.
• Leaving Switzerland for good: However, drawing the obligatory amount is only possible when emigrating to countries outside the EU and EFTA.
• Early retirement: This is usually possible at the age of 58. However, some pension schemes provide for retirement at the age of 60 at the earliest. The early withdrawal creates an income gap, the amount of which depends on the conditions of the pension fund. In most cases, you can expect five to eight percent per year of early withdrawal.

Reading tip: Pillar 3a payout: What you should bear in mind when making a withdrawal

What else you should bear in mind

The topic of unemployment and pension funds is very complex, and your personal situation determines which measures make sense in each case.

Depending on your initial situation, you should therefore consider the following points:

Starting a new job

When you start a new job after an interruption, you are obliged to transfer all existing vested benefits to the new pension fund. Any surplus can only remain in a vested benefits account if the capital exceeds the complete regulatory benefits.

Self-employed persons

Self-employed persons have no coverage against unemployment and therefore do not receive unemployment benefits. However, the possibilities of early withdrawal in the case of business start-up, as described above, must be taken into account.

Optimal investment of vested benefits: investment horizon is decisive

The pension fund assets can be transferred to up to two accounts of different providers. In this way, you not only spread the risk, but also have the advantage of possibly being able to withdraw the assets at different dates.

Although most providers pay interest on the money in vested benefits accounts at a preferential rate, interest accounts are hardly recommended for long-term investment. Currently, the funds there earn between 0.01 and 1.25 percent interest, depending on the provider. At 0. 01 percent, the interest on the vested benefits account of the Auffangeinrichtung is one of the lowest-interest accounts.

In addition to conventional interest-bearing accounts, banks and vested benefits foundations also offer securities solutions with different proportions of shares and bonds. Experience has shown that, over the longer term, the return is significantly higher than with interest-only accounts. However, if share prices fall during the investment period, the vested benefits balance may also be reduced. In order to compensate for price fluctuations, an investment in securities is therefore particularly advisable for a longer investment horizon. Today, digital investment advisors already offer sound asset management for manageable sums. Here, professionals take care of the optimal mix of securities funds.

Reading tip: Vested benefits for occupational retirement provision: Tips & FAQ

Reading Time: 3 minutes

In our Market Update for the month of May 2023, you will find current developments on the financial markets and an assessment of current events. Our aim is to give you an overview of the latest developments in the global financial markets.

Key interest rates and inflation

At the beginning of May, the U.S. Federal Reserve decided to raise the key interest rate by another 25 basis points. This was in line with the expectations of market participants. What was received as very positive, however, was the fact that the Fed held out the prospect of an interest rate pause in June. Given the disinflationary trend and the instability of the U.S. regional banks, it would seem to make perfect sense to put the brakes on a bit and wait to see the effects of the high interest rate level.

For April, U.S. inflation continued to decline, with the core rate still at a high level of 5.52%. The U.S. labor market was surprisingly robust and consumers also continue to seem to know nothing of a recession, as retail sales, after two months of decline, also rose again in April. Currently, it is expected that the FED will not raise interest rates in June, but it is quite possible that this will be made up for in July.

Reading tip: Factor Risk Premia: Value, Momentum, Size, and Quality

Raising the debt ceiling in the USA

The big topic this month was the controversy over raising the debt ceiling in the US. As has been the case several times before, the decision was used by Republicans and Democrats to blame the other party for the plight.

The threat of default weighed on the stock markets and the prices of short-dated US Treasuries also fell. At the end of May, a compromise was finally reached, which was approved by the U.S. Senate at the beginning of June.

Interest rates and inflation in the euro zone

The picture in the euro zone is similar: a declining trend in inflation with robust core inflation data, a robust labor market and improved retail sales. However, economic indicators such as the Purchasing Managers Index and the business climate are becoming increasingly gloomy.

The ECB also raised interest rates by a further 0.25% in May, which represents a clear reduction in aggressiveness after previous increases of 0.75% and 0.5%. Unlike the Fed, however, the ECB made it clear that it was not planning to pause interest rates.

Inflation in Switzerland

In Switzerland, inflation fell to a comfortable 2.6% for the month of April, which is only slightly higher than the general target of 2%. Nevertheless, the SNB recently made it clear that further interest rate hikes are not ruled out.

In Switzerland, economic indicators also clouded over slightly, although the unemployment rate is lower than it has been for more than 10 years.

Reading tip: Market review 2022 and outlook 2023

Trend: Artificial intelligence

Another important topic is the stock indices in the U.S., which are currently driven by one topic in particular: Artificial Intelligence. The big tech giants like Nvidia, Apple, Google, Meta and Microsoft are driving indices like the S&P 500 and Nasdaq, due to the great potential seen here in the field of AI. According to an article from Nasdaq.com, 10 stocks are responsible for over 80% of US index profits.

This is referred to as narrow market breadth, where a few companies are responsible for the majority of the market movement. This is because, as can be seen on the chart above, more than half of the companies have negative performance. As a result, even the broad-based S&P 500 can no longer be considered representative of the U.S. equity market. However, this fact has not yet entered the perception of many investors in this way. We consider this development to be extremely alarming and continue to focus on well-diversified portfolios.

Reading Time: 6 minutes

In today’s turbulent financial climate, the advantages of a reliable and steady source of income are becoming more relevant again. After years in which the stock markets knew almost only one direction, we are currently in a phase in which this direction must first be found again. Due to the current interest rate development and the correction in the area of growth stocks, a well-tried investment strategy is coming back into focus: the income strategy.

This article looks at the intricacies of income strategies and examines their structure, advantages and disadvantages, suitable investor profiles and a comparison with non-income strategies.

What is an income strategy?

An income strategy refers to an investment strategy that focuses on generating consistent income from your investments. Typically, this is achieved through dividends from stocks, interest from bonds, and rents from real estate investments.

The main goal is to create a predictable income stream that can be used to cover living expenses, supplement retirement income, or reinvest for continued portfolio growth.

Structuring an income strategy

The core of an income strategy is diversification, which includes multiple asset classes and sectors. Bonds, stocks (especially high-dividend stocks), real estate investment trusts (REITs), and high-yield savings accounts are popular asset types.

• Government and corporate bonds are generally preferred because of their relatively lower risk and consistent payouts. While bonds have hardly been able to generate any income in recent years, especially from good borrowers, this has changed as a result of the increase in key interest rates. This asset class is thus once again becoming an essential component of any income strategy.
• Stocks of companies with solid dividend payouts offer a growth component while generating income. Where dividend stocks were one of the most important sources of income in recent years, however, they are currently losing a bit of their appeal compared to bonds, as the latter now offer attractive coupons with lower volatility again.
• Last but not least, REITs offer participation in real estate income without the need for direct real estate ownership. High-yield savings accounts and money market funds offer modest returns, but bring consistent income and liquidity to the portfolio.

The specific allocation among these options depends on the investor’s goals, risk tolerance, and market conditions.

Advantages and disadvantages of an income strategy

Advantages:

• Stable income: This is the key advantage. Income strategies provide steady, predictable cash flow, which can be especially beneficial in retirement or during financial downturns.
• Risk mitigation: income-generating investments often have lower price volatility, providing a buffer during times of market turmoil.
• Accumulation: If income is not needed immediately, it can be reinvested, accelerating portfolio growth through the compound interest effect.

Disadvantages:

• Limited capital appreciation: compared to growth strategies, income strategies may generate lower total returns over the long term because they focus more on income than capital gains.
• Inflation risk: fixed income from bonds may lose real value if inflation exceeds interest rates.
• Interest Rate Sensitivity: Bond prices are inversely related to interest rates. Rising interest rates can depress bond prices, resulting in capital losses for holders. However, these losses are only realized if the bond is sold before it matures.

The ideal investor for an income strategy

Income strategies are particularly beneficial for investors seeking a regular income, such as retirees or those nearing retirement. They may also appeal to risk-averse investors who prioritize preserving capital and earning regular income over chasing high growth.

However, it is important to remember that a well-rounded portfolio should include a mix of income and growth investments, regardless of the investor’s life stage. The ratio may change depending on the individual’s needs and market conditions, but having both components helps maintain balance and potential returns.

Reading Tip: Retirement planning in Switzerland: How your financial security works

Income-oriented strategy vs. non-income-oriented investment strategy

When comparing income strategies to non-income strategies, two main aspects are examined: returns and volatility.

• Returns: Over long periods of time, growth strategies can generate higher total returns due to the compound interest effect of capital gains. However, during economic downturns or volatility, income strategies may perform better because they continue to deliver returns despite market conditions.
• Volatility: Income strategies generally have lower volatility than pure growth strategies. The steady returns act as a buffer against price fluctuations, making these strategies more stable over time.

Performance Comparison

To illustrate, we look at the Swiss SPI® Index, which includes almost the entire Swiss stock market, over the 9-year period. For this purpose, we have selected three ETFs , each of which tracks the entire SPI® Index, only the mid-sized companies (SPI® Mid Cap Index) and finally only the highest dividend paying stocks (SPI® Select Dividend 20 Index). For the sake of comparability, we consider so-called return indices, i.e. dividend distributions are reinvested and are thus included in the performance of the indices.

• As can be seen in the chart below, mid-sized companies perform better in times of positive market trends. This would be comparable to a more growth-focused strategy. The broad market and dividend strategy perform very similarly during this market phase.
• During negative market phases, the growth strategy reacts the most, with the dividend strategy correcting less sharply. Thus, over different market phases, dividend strategy and growth strategy offer different advantages and disadvantages, with the former having lower volatility.
• Although the total returns of the dividend strategy and the growth strategy appear very similar over the entire period under consideration, it is important to note that dividends are assumed to be reinvested here, again generating returns. Since in a traditional income strategy, cash flows are typically paid out and consumed, the return will be lower over the entire period. However, it makes up for this with the stable and regular income.

This is a simplified illustration using Switzerland as an example. This relationship may behave differently in other markets with different sector breakdowns. However, it illustrates well the basic characteristics of income and growth strategies.

Reading tip: Market review 2022 and outlook 2023

Everon’s income strategy

Everon’s investment strategy uses stocks, bonds and real estate, as their income suitability has already been mentioned. Fixed income and Real Estate are inherently asset classes that tend to generate income streams. We select the products that are best in terms of value stability, income generation and Fees are best.

On the equity side , our proprietary selection process is applied. The key metric for high-yielding stocks is dividend yield. However, looking at this metric alone can lead to suboptimal decisions because it takes into account dividend and price data. A high dividend yield may indicate a high dividend amount relative to the price, but the low price may be so low for a reason. This situation can pose the risk of what is known as a“value trap.” This is where favorable market-to-book ratios are used to incorrectly conclude that an investment instrument is undervalued, which can ultimately lead to a loss.

Everon’s approach analyzes many criteria in addition to dividend yield to determine which stocks offer stable, above-average and slightly growing dividends with reasonable price volatility. This ensures not only stable income generation, but also stable portfolio value.

Reading tip: Factor Risk Premiums: Value, Momentum, Size and Quality in recent years

Conclusion

An income strategy can be an important tool for investors seeking regular income and lower volatility. However, like all investment strategies, it carries potential risks and may not be suitable for everyone. A well-diversified portfolio that combines elements of income and growth strategies can help investors weather varying market conditions and achieve their financial goals.

It is important for investors to understand their financial needs, risk tolerance, and investment goals before choosing an investment strategy. A well-designed income strategy can be a source of stability in an uncertain market and provide a lifeline of regular income in a turbulent sea of economic change.

Ultimately, the most successful investment strategy is one that is carefully tailored to your personal financial situation and goals. Not only will you be able to maximize your investment returns, but you will also have the peace of mind that your financial future is secure. Whether you’re approaching retirement or simply want to diversify your investment approach, an income strategy could be a wise choice.