Does our Pension Fund take too many risks?

An article in the Tribune de Genève of 22 June entitled “CERN: the Pension Fund takes risks” expressed the “astonishment” of some Swiss experts regarding the CERN Pension Fund’s investment of 500 million dollars in hedge funds (usually the most speculative, alternative, and non-traditional type of funds), representing some 15% of the assets under management. In the article, Mr Théodore Economou, administrator of our Pension Fund, specified that the Fund makes use of alternative investments in a very selective way (ethical criteria, no positions in funds that use only short selling, and with limitations on leverage).

Some experts consider that the Fund is taking too many risks. We need to recall that the performance target (3% above inflation, or 5% gross) does not allow the Fund to limit its investments to risk-free products (e.g., the Swiss Confederation’s 30-year bonds have a return of less than 1% per annum). Moreover, taken together with the measures taken by the CERN Council in June 2011* and in March 2012**, the target of 5% is mandatory to avoid increasing the deficit of the Fund.

We should also mention the consecutive reports of the external auditors. Already in June 2011, they highlighted the fact that “having a goal of 5% return on investment, under volatile market situations, makes a 'minimum risk policy' not applicable, […]” (CERN/2968, p 17). This message was strongly reiterated in their report of June 2012 (CERN/3019, p 23).

It is therefore up to CERN Council to decide on the strategy: review the methods of financing the Fund, abandon the objective of full funding, or continue to take risks. The next actuarial study will be available in 2013 and will allow these various options to be evaluated. It will also allow the Council to adapt the actuarial assumptions, including the performance target, to the new conditions of the financial and economic environment.

At that time, the Council will need to take into consideration the Preamble of the Rules and Regulations of the Pension Fund of the European Organization for Nuclear Research: “[…] the Council’s direct responsibility for the Fund, its role as the Fund’s supreme supervisory authority and as ultimate guarantor of the pensions benefits, […]”. In fine, “CERN [and therefore the Member States] and ESO guarantee the benefits acquired under the Rules by the members of their own personnel until the cessation of the rights of the last beneficiary.” (ibidem, Article I 3.0.3, Guarantee of Benefits).



* Increase of contributions, freeze of indexing of Pensions, special contributions of CERN and ESO.
** Increase of the retirement age, increase of employee’s share and reduction of the annual accrual rate for newly-recruited staff.

by Association du personnel