Pension funds: illiquid investments account for 36% of assets

Context

TL;DR

• 36% of the assets is held in investments that cannot be traded immediately
• The share has increased over the past 15 years
• Real estate, mortgages and alternative investments offer stability, but less flexibility
• Risks emerge when multiple stress factors occur together

Key facts

• Location → Zurich
• Study → Complementa's 2026 Risk Check-up
• Share → approximately 36% of assets
• Period → past 15 years
• Assets → real estate, alternative investments and mortgages
• Risk → delayed sale or sale at price discounts in the event of turbulence

ZURICH – In Swiss pension fund portfolios, so-called illiquid investments are taking up an increasingly large share. With low interest rates, the search for new sources of returns has caused the share of funds allocated to these assets to rise significantly.

According to experts, diversification is not in itself a bad idea. The trade-off, however, is a less flexible portfolio: real estate, mortgages and alternative investments cannot be traded as quickly as shares. If a fund has to sell at short notice, the transaction may become more difficult.

The 2026 Risk Check-up finding

The picture emerges from Complementa's 2026 Risk Check-up. The study indicates that, over the past 15 years, the share of illiquid investments held by Swiss pension funds has increased significantly. Taking real estate, alternative investments and mortgages into account, approximately 36% of assets are now invested in assets that cannot be traded immediately.

The sought-after advantage is stable returns. The source associates this choice with the search for new sources of returns during a period of low interest rates. But the same structure makes a sale more complex, especially if the real estate market were to cool sharply or if the debt of some countries were to become a problem.

The moment of stress

For experts, the situation remains manageable as long as markets remain stable and the funds have sufficient liquidity. Difficulties arise when several stress factors occur simultaneously. Among the possible scenarios, Complementa includes severe market turbulence, during which institutions may need liquidity in the short term to meet their obligations or adjust the structure of their portfolios.

Some funds are already preparing by focusing primarily on further investments in Swiss real estate and infrastructure, with the aim of limiting geopolitical risks. If markets enter a phase of severe turbulence, however, illiquid investments can only be sold after a delay or at considerable discounts. Moreover, compared with securities listed on the stock exchange, their valuation and the measurement of returns are more complex.

In private equity and private debt, investors' capital commitments may extend over several years, while both the timing and the magnitude of returns remain uncertain. Complementa therefore emphasizes the importance of identifying liquidity needs at an early stage and maintaining adequate reserves.

Operational details

Three scenarios to distinguish

The practical interpretation of the figure starts with a simple distinction: return and liquidity are not the same thing. A property, a mortgage or an alternative investment can contribute to stable returns, but it does not offer the same flexibility as a stock when the fund needs to raise cash quickly. The 36% indicated by Complementa therefore also measures the portfolio's room for manoeuvre.

The risk is not triggered by every market fluctuation. According to experts, it becomes critical when several stress factors coincide: the fund must meet obligations or reorient the portfolio, while a significant portion of its assets is not immediately tradable. At that point, the difference compared with listed securities concerns both the time needed to sell and the price that can be obtained.

Why real estate matters

Specialists identify a point of vulnerability in real estate, which accounts for more than a fifth of pension funds' assets. If the sector loses momentum or faces a prolonged correction in prices and demand, sales may become more difficult and valuations may come under pressure. For a fund, the problem is not only the theoretical value of the asset: the possibility of converting it into liquidity when needed also matters.

Private equity and private debt add a different kind of rigidity. Investors often have to honor capital commitments over several years, but they do not know with certainty the timing and amount of return flows. This can limit the ability to quickly adapt the portfolio to changed market or liquidity conditions. In a crisis, a sudden shortage of liquidity can therefore turn an investment intended for the long term into a disadvantage.

For now, the financial situation eases the pressure: the majority of Swiss pension funds have a comfortable funding ratio, in some cases at record levels, and benefit from high returns. This financial strength supports increased investment in infrastructure, real estate and other alternative assets, but does not eliminate the risk associated with several stress factors occurring at the same time.

Key points

A five-step operational framework

To follow the topic, the practical approach can start with the criteria used by Complementa. Returns and liquidity should be considered separately, together with the portfolio's response to stress.

1. Separate the categories. Distinguish real estate, mortgages and alternative investments: these are the components included in the 36% of assets that are not immediately tradable. 2. Measure the real estate weighting. Real estate accounts for more than one fifth of wealth. Prices and demand should be monitored because a prolonged correction can make sales more difficult and depress valuations. 3. Check commitments. In private equity and private debt, capital may be tied up for several years; the timing and amount of returns remain uncertain. 4. Simulate stress. Examine together severe market turbulence, the need for short-term liquidity and the need to honour commitments or reorient the portfolio. 5. Check reserves. With more assets tied up for the long term, it becomes crucial to identify liquidity needs in good time and maintain sufficient reserves.

The criterion for assessing choices

To limit geopolitical risks, some pension funds intend to allocate additional resources to Swiss real estate and infrastructure. This approach does not, however, guarantee liquidity: during turbulence, a sale may still require time or a discount on the price.

The comparison should also be made with listed securities: for illiquid assets, valuation and performance measurement are more complex. If the portfolio needs to be reoriented quickly, this complexity is added to the time required for a sale.

“As the amount of assets tied up for the long term increases, it becomes increasingly essential for a pension fund to identify liquidity needs promptly and maintain adequate reserves”.

For those following Swiss pension provision, the useful check is threefold: the non-tradable share, future commitments and available reserves. These are the three elements that link the aggregate percentage to the portfolio's actual flexibility.

To learn more about pension provision, consult guida alla pensione.

Source: tio.ch