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Publica casts eye on global real estate

The €34.1bn Bern-based Swiss pension giant will initially target open-ended funds in North America and Asia before considering other strategies.

Publica, Switzerland’s largest public pension fund, has announced it is to dip its toes into the global real estate market for the first time.

The €34.1 billion institution, which manages 20 pension plans, has said it plans to establish a 4 percent allocation to foreign real estate on top of its existing domestic portfolio, which is made up of approximately 70 assets.

Publica has stated that it intends to invest mainly in core assets but will accept a 10 percent allocation to foreign real estate. The investor said it would implement the foreign real estate policy over an initial four to six year timeframe.

Geographically, 50 percent of the pension fund’s foreign real estate allocation will be for North America, with 30 percent dedicated to Europe and the rest for Asia.

The firm is understood to be considering a three-stage approach to expanding its investment profile. Initially, it will concentrate on open-ended funds with broad investor bases. The next step would see Publica act as a sole investor in a segregated mandate or alongside larger investors in co-investment vehicles. The final stage would see it consider closed-end funds, club deals or joint ventures.

Publica, according to a source familiar with the firm, initially looked into investing in foreign real estate in 2011 but felt the market was not “sufficiently developed” in order to achieve the real estate returns expected by its clients.

Swiss pension funds have traditionally only invested in domestic assets, but the recent imposition of negative interest rates in the central European country has forced pension funds to look elsewhere for the sort of returns needed to satisfy their customer base.

But other economic factors have also contributed to the changing of strategy of Swiss pension funds, as the principal of one US-based investment firm pointed out. “In the seven years since the global financial crisis, a growing trend among the Swiss investor base is to look into international real estate. Negative interest rates and a lack of domestic assets have forced their hand,” he said.

“Negative interest rates mean your liabilities are not decreasing over time because you’re using the short-term government bond rate. So in the last six months, when interest rates went negative in Switzerland, Swiss pension funds started looking to international real estate much more closely,” added the principal. “Ultimately, real estate is a very popular asset class which has come back from the brink since the crisis and has had phenomenal returns over the last five years.”