REAL ESTATE - Credit Suisse has urged Swiss pension funds to increase their real estate holdings to 20-30% – but the Zurich-based bank’s own corporate pension fund says it has no intention of doing so.
In a study of Swiss pension funds’ holdings, Credit Suisse economists found that a preference for less liquid domestic real estate and a long-held equity bias have resulted in many large pension funds failing to maximise the potential of real estate investment.
“It isn’t that they must invest more in real estate, but they should,” said Credit Suisse head of real estate analysis Ulrich Braun. “They can take their time but they need to work towards 20-30% as a target allocation for a balanced portfolio.”
The average real estate holding among the top 16 pension funds is currently 15.6% - but a relatively high regulatory cap of 50% has resulted in significant variation between funds.
The largest fund by assets under management, Pensionskasse des Bundes, holds just 8% in real estate, compared with Ascom Pensionskasse, the smallest, with 38%. Credit Suisse’s own pension fund has 18.8% invested in real estate.
Pension fund chief investment officer Urs Bracher said: “The bank has one view, our board of directors has another. Real estate is attractive – but we can get better performance out of hedge funds and private equity.”
The Credit Suisse report predicts a surge this year in the supply of residential housing in Switzerland to meet stable demand. Much of Switzerland’s housing stock was built more than a century ago.
“There has never been a public discussion about ageing housing and we need one,” said Braun. The alternative, he said, would be mass demolition in future, although he acknowledged this was “unlikely”.
Demand for office and retail space will also increase, according to the report. Yet Braun says pension funds are beginning to overcome their preference for limited Swiss stock and looking to invest in EU property markets.
“Swiss pension funds need to look outside national borders because there are just not that many opportunities in Switzerland,” he said.
