According to the Credit Suisse survey, however, pension funds now believe the issues of diversification and long-term returns are of greater importance than cost-cutting. More than 70% of respondents said diversification was key, even if it increased costs.A case in point is exposure to direct real estate, which entails increased asset management costs yet comprises approximately 19% of pension funds’ portfolios.In its report (in German) on the survey, Credit Suisse says a shift towards direct real estate holdings is “a clear win”, as it reduces risk, increases diversification and offers roughly the same return potential as portfolios with greater bond and equity exposure. Is also argues that a shift towards lower-risk asset classes such as real estate is a reflection of pension funds’ growing concerns over ageing participants.According to the survey, demographics represents the second-largest challenge for Pensionskassen after the long-term low interest rate environment, although Credit Suisse claimed this would have a minor impact on asset allocation compared with regulatory changes and external market factors.Nevertheless, more than 40% of the surveyed pension funds said they would “slightly lower” their exposure to equities due to demographic developments in their membership structure, while 20% said they would do the same for alternatives, with roughly 5% of this group seeking to reduce exposure “significantly”.For more than 50% of respondents, the relatively high conversion rate has exacerbated the Swiss second pillar’s demographic problem. Not surprisingly, more than 80% welcomed the proposal to lower the rate to 6%, as part of the government’s Altersvorsorge 2020 reform proposal, while as much as 70% said they supported the reform package as a whole. Just one-third of Swiss pension funds are currently looking to cut costs, according to a survey by Credit Suisse, which canvassed custodial clients on such issues as costs, reform, asset allocation and demographic trends.Nearly 40% of respondents were of the opinion they had dealt with the issue, while more than 70% said they had already realised their full cost-cutting potential.Cost-cutting has been a major issue in Switzerland in recent months, particularly since the final implementation of a structural reform that sees pension funds now calculating total expense ratios (TERs) for their portfolios.In addition to renegotiating fees and adjusting asset allocations, a number of pension funds – including the BVK, the pensionskasse for the canton of Zurich – are looking to claw back commissions some service providers have received.