Swiss pensions might be characterised as heavily focused on domestic real estate. But the 18 pension funds that own AFIAA have an exposure to a globally diversified direct portfolio. Richard Lowe speaks to CEO Hans Brauwers
The Swiss Foundation for International Real Estate Investments (AFIAA) was founded in 2004 by several pension funds in Switzerland. Today it is wholly owned by 18 pension funds, offering them exposure to global real estate markets. Only tax-exempt Swiss pension funds are eligible to invest in the foundation. Many of its pension fund owners are on the investment committee, including Stefan Schädle, head of real estate at BVK, and Andreas Markwalder, CIO at the GastroSocial pension fund.
AFIAA has spent the past six years building a global real estate exposure and has investments in Europe, North America and Australia. The organisation has cash to spend and is in a position to capitalise on recoveries in the global real estate markets.
The UK is an obvious target at the moment given the recent re-pricing and AFIAA is actively seeking acquisitions. One of its more high-profile purchases last year was Garrard House in London, the headquarters of asset manager Schroders, bought for £70.8m (€87.4m) from Hermes Real Estate. The building was acquired by Hermes in 2005 for £99m.
More recently, AFIAA has been building up its exposure to the Australian market, and its acquisitions have been equally noteworthy. In November 2009 it acquired The Atrium, an office building in Sydney let to American Express International on a 10-year lease, for A$137m (€96.2m). Then in March 2010 AFIAA acquired a new office development in Brisbane, HQ South Tower, for A$94.3m. Both buildings had strong sustainability credentials, with the former awarded a 4.5-star rating and the latter a 6-star rating, in accordance with Australia's Green Star system.
AFIAA has a long-term strategy to increase its international diversification, but Hans Brauwers, chief executive at AFIAA, believes now is a good time to begin investing in the Australian market, because it is highly attractive once more. "It's very transparent and I have seen a lot of buildings there which are very high quality: new buildings, green buildings. That is why we are convinced about the market," he says.
AFIAA aims to build up a A$400m exposure to the Australian market. It is positive about the Australian economy because it is rich in raw materials, and, as a gateway to Asia, is benefiting from the growth from China and India. Indeed, this situation has enabled Australia's economy to begin growing as early as the first quarter of 2009, ahead of many western industrial nations.
The picture is very similar in Canada, another market AFIAA has invested in. Brauwers says both economies are driven by commodities and fall into the category of what he calls a "counter-cyclical" opportunity.
Brauwers says: "We have been looking for counter-cyclical investments. We are monitoring different markets in different continents. We like to step in when we see good opportunities, good economic outlooks, politically healthy environments. Therefore, we are convinced about Canada and Australia."
In one way, Australia can be seen as the first stepping stone into the Asia-Pacific market. Brauwers hopes to make further investments in the region, outside of Australia, by the end of the year. However, the next step will not be China, which Brauwers believes lacks transparency. Instead, AFIAA will make investments in the much more mature market of Japan. It will also focus on another emerging market: India. "I think India is, from the counter-cyclical view, these days very interesting and attractive," Brauwers says.
Given this global ambition, the logical progression might be South American markets. But Brauwers says they are off the investment radar for the moment, despite their fundamental appeal. Brauwers says AFIAA is not large enough to stretch itself in this way, although Brauwers admits the markets in Brazil and Mexico are attractive. "I prefer Asia at the moment, because these markets, as with Japan and Australia, for example, are transparent and professional," he adds.
However, AFIAA has also been aware of the growing opportunities closer to home, in the mature markets of western Europe, for equity-rich investors. For this reason AFIAA launched a second investment group, called EuropeCore, at the end of 2009.
This new strategy will invest in solid, prime real estate and focus on select properties in European countries outside of Switzerland. AFIAA will continue to pursue its counter-cyclical investment strategy for this category in a bid to secure steady revenue growth and long-term capital growth for its pension fund investors. EuropeCore will only make direct investments, with the emphasis on European capitals and other economically strong cities. Its focus is primarily on buildings of high qualitative value, situated in solid, well-established central business districts, with solvent, long-term tenants that guarantee stable revenues.
AFIAA hopes to build up a portfolio worth more than €1bn in Europe. In order to attain a diversified portfolio, AFIAA will also make investments in central and eastern European markets, though this will be limited to a maximum allocation of 30%.
AFIAA will further diversify the portfolio by type and use of properties, location, size and date of construction. The greatest exposure is likely to be to offices, which has an upper allocation limit of 80%, while retail and industrial have upper limits of 50% and 30%, respectively.