Swiss insurer Swiss Life Asset Managers has launched its first real estate fund in Germany to take advantage of near parity between the Swiss franc and the euro, Gerhard Demmelmair, head of real estate portfolio management at Swiss Life Asset Managers in Switzerland, told PropertyEU this week.

Swiss insurer Swiss Life Asset Managers has launched its first real estate fund in Germany to take advantage of near parity between the Swiss franc and the euro, Gerhard Demmelmair, head of real estate portfolio management at Swiss Life Asset Managers in Switzerland, told PropertyEU this week.

Swiss Life Asset Managers, the asset management arm of Swiss insurer Swiss Life, announced last Monday that it would start fundraising later this year with its German asset management arm, Corpus Sireo, for its first real estate fund in Germany, Swiss Life REF German Core Real Estate.

They are targeting an investment volume of €1 bn and Corpus Sireo will manage the fund.

‘It makes sense for us to launch a German real estate fund at this time because there is near parity between the Swiss franc and the euro, which means that it is now around 20% cheaper to invest in Germany than it was last year,’ Demmelmair said. ‘In addition, we’ve had negative interest rates in Switzerland since January this year, which has also strongly supported interest in real estate investment.’ (The Swiss National Bank left its deposit interest rate on hold at record low of -0.75% in June to protect the franc.)

The fund will focus on office, retail and residential space in Germany’s ‘Big Seven’, including Frankfurt, Munich, Hamburg and Berlin. Over 50% of the fund will invest in the residential sector, with offices accounting for around 30% and retail around 15%, according to Demmelmair. The target annual total return, after costs, is 5%.

‘We are taking a core and core plus strategy to focus on prime real estate in Germany,’ Demmelmair said. ‘We will also look at additional smaller cities, such as Freiburg (Breisgau) but mainly for residential investment opportunities.’

Swiss Life Asset Managers is aiming to raise €400 mln in equity this year, initially from companies within the Swiss Life Group. It plans to grow the fund to a €1 bn vehicle, including 25% leverage, Demmelmair said, noting that the leverage cap has been set to attract Swiss pension funds which are not allowed to invest in vehicles where the leverage exceeds 33%.

In September, Swiss Life Asset Managers will start fundraising to attract a broader investment base, including Swiss pension funds as well as other institutional investors. Going forward, it also plans to list the Luxembourg-based fund, Demmelmair added.

‘The fall of the Swiss franc will galvanize Swiss investors to look at the eurozone because it has become much cheaper this year for franc denominated buyers,’ said Andrew Groom, C&W’s new head of capital markets in Germany. ‘Swiss Life is essentially monetizing those thoughts. Some people might say that it is late in the game for a core fund but the game is not over yet.’

Other Swiss investors have already stepped up investment in the eurozone this year to take advantage of the favorable exchange rate. In January, Swiss real estate investor Corestate Capital told PropertyEU that it plans to double its investment in the eurozone this year to at least €1 bn, up from around €600 mln last year.

Other Swiss investors are choosing to pump money into existing German funds, according to Jochen Reith, head of institutional investment in Germany, Austria and Switzerland at German real estate group Patrizia Immobilen in Munich.

‘We are seeing increased interest on the part of Swiss investors in the German market, not just due to parity between the Swiss franc and the euro, but also because Swiss real estate has become increasingly expensive,’ he said. ‘Negative interest rates in Switzerland also play a big role for Swiss investors because they increase the investment pressure. Typically, the Swiss allocation to real estate is higher than in Germany – it can be as high as 30%. This naturally puts pressure on investors to find suitable assets,’ Reith added. Unnamed Swiss investors also invested in the Patrizia fund that sold the Süddeutsche Wohnen portfolio to Deutsche Annington for €1.9 bn last month.

Nonetheless – offices, not residential assets - are typically the first port of call for Swiss buyers, according to Marcus Lütgering, head of office investment in Germany at JLL. ‘Typically, Swiss investors have a preference for offices, followed by retail and then residential assets – basically, the inverse of the new Swiss Life fund. Even if a lot of Swiss investors were to target Germany, there is more than enough product to go round.’

For Swiss Life, however, German real estate is a quasi-bond investment, a kind of ‘bond corrector’,’ Demmelmair explained. ‘Germany represents the "healthy" Europe. ‘We also have strong real estate expertise in Germany via our German asset management arm, Corpus Sireo, with more than 500 people there.’

Swiss Life Asset Managers had CHF182.9 bn of AUM as of end-December 2014. (Figures for the first half of 2015 will not be published until August). This figure includes CHF33.7 bn of AUM for third party clients. Of the total, 37.5% is invested in Swiss real estate, with the rest divided between asset classes such as the money market (14.8%), fixed income (19.8%) and equities (6.4%).