The earliest clues as to the emergence of Swiss institutional capital were gleaned at last year’s MIPIM conference in Cannes. It was there that Cornel Widmar, head of European real estate at Zurich Asset Management, declared the insurer was intending to grow in assets under management by €1 billion. The firm was true to its word, finalizing mandates worth €200 million and €400 million for Asia and Europe, respectively, to UBS Asset Management in the ensuing months.
And, with this year’s MIPIM conference taking place in a matter of weeks, don’t be surprised if more significant Swiss overseas investments are announced at the event.
Such pledges could come in particular from Swiss pension plans, which make up approximately 10 percent of Europe’s 100 largest pension funds, according to Willis Towers Watson’s 2016 Global Pension Fund Report.
For example, Switzerland’s largest public pension fund, the $34 billion Publica, announced last summer that it was to make its first foray into international real estate. In a shift from its previous strategy, Publica stated that it would be establishing a 4 percent allocation to foreign real estate on top of its existing domestic portfolio which, by Swiss standards, is relatively large due to the home bias of Swiss capital. Incidentally, it is understood the pension fund considered tapping into overseas real estate in 2011 but felt the market was not sufficiently developed.
Market commentators have suggested that, depending on the success of Publica’s real estate push, other pension funds could follow suit. Compenswiss, the investment manager of the €33 billion The Swiss Social Security Funds, the second largest Swiss public pension fund, has already put out requests for proposals for value-add and opportunistic mandates for the US, Europe and Asia and is expected to appoint a manager early this year.
Since last summer, a host of Swiss investment managers also have bet on foreign real estate, with a range of fund launches, M&As, real estate mandates and transactions taking place in recent months.
Prominent among these is Swiss Life Asset Managers, the investment arm of the insurer Swiss Life, which had a phenomenally busy fall. The firm launched a series of real estate funds, including open and closed-ended and mutual, starting with the November rollout of its debut German open-ended vehicle aimed at increasing its exposure to the German and wider European market. This was followed by January’s launch of another vehicle, aimed specifically at residential and office space across Europe.
Around the same time, Swiss Life also snapped up UK property fund manager Mayfair Capital, in a deal that creates a pan-European real estate platform of more than £55 billion ($68.6 billion; €61.4 billion) of AUM.
Traditionally, Swiss institutional capital prefers a more cautious approach favoring core strategies at home. But, market experts note that domestic real estate has reached full maturity – a fact underscored by Zurich and Geneva featuring prominently in many rankings of the world’s most expensive cities.
Much of the non-domestic real estate activity has occurred since the UK’s vote to leave the EU, but this overseas push would have likely happened regardless of the outcome of the referendum. The real estate environment back home, after all, has changed. After 20 years of constantly increasing property prices, particularly in the residential sector, the Swiss have been battling what they describe as a ‘supercycle.’
On top of this, the low interest rate environment has also impacted Switzerland, meaning capital is hunting not just for diversification but also yield.
Yet this overseas push may be relatively short-lived. It’s worth noting that most Swiss investors would not be looking abroad if it were not for its country’s extended domestic real estate peak. Should the domestic market move past its supercycle over the coming years, it would not be surprising if the domestically-biased Swiss then refocus their real estate investing back onto their home turf.
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