Swiss National Bank’s investment policy – A preview..

There was some recent news over Swiss National Bank selling its shares in unethical companies. I was kinda amused to read this as one does not see central banks investing in equities. But it seems SNB has this whole investment policy which allows equity investments.

Fritz Zurbrügg, Member of the Governing Board of SNB has this interesting speech over its investment policy:

At the SNB, the move towards a sustainable investment policy aimed at optimising risk and return began as early as the 1970s. At that time, the management of foreign exchange reserves focused exclusively on the highest possible level of security and liquidity. Imagine a situation whereby, until 1978, a residual term of only three months was a legal requirement. As a result, foreign exchange reserves consisted primarily of short-term US dollar investments, particularly US treasury bills. This led to considerable concentration risk. At the same time, the potential return was extremely low.

Despite narrow statutory provisions and market-related limitations, the SNB tried to make use of the existing room for manoeuvre as regards returns. However, it was not until after the partial revision of the NBA in 1997 that strategic importance was attached to the generation of returns. This became possible because of the abolition of the maximum residual term of one year for foreign exchange reserves, which had applied until then.

A further important step towards a sustainable investment policy was the entry into force of the fully revised NBA in 2004. Although, at the time, the changes to investment policy did not attract much public attention, they were very important for the SNB’s investment activities.Within the monetary mandate, investment policy was defined as one of the SNB’s core tasks for the first time. Moreover, most statutory restrictions with regard to investment instruments were removed. And so the foundation was laid for a modern investment policy whose aim is to optimise the risk/return relationship for assets.

However, this was only possible to the extent allowed by monetary policy, which has always had priority over investment policy considerations. In addition to expanding the SNB’s freedom of action, investment and risk control processes were fundamentally adapted and adjusted to the new requirements from 1997 onwards. As a result, the SNB frequently found itself in the role of central bank pioneer, not only as regards the choice of investment instruments, but also in the area of investment processes.

It is with some pride that I can report how, in recent years, we have received enquiries from other central banks about our investment processes. The SNB has also played a pioneering role with regard to transparency. The composition of our investments is, to a large extent, accessible to the public. Indeed, the SNB is one of the few central banks which publishes both its investment allocation and the net result on foreign currency positions on a quarterly basis. 

Equities form 16% of the portfolio and around 48% of investments is in euro.

Nice bit..


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