EUROPE – Swiss pension funds are targeting euro-zone property markets as an alternative to "excessive risks" in their small domestic market, characterised by hotspots, according to the country’s third largest pensions provider.
A spokesman for the CHF10bn (€8.2bn) Zurich Investment Foundation said it had seen an increase in demand for diversification to euro-zone commercial and office markets, singling out mid-sized and large pension schemes.
The average Swiss pension fund invests only 7% of its real estate portfolio overseas, against a regulator-recommended target of over 30%.
The foundation provided both the structure and the investors in the €225m pan-European fund launched last week by Schroders exclusively for Swiss pension fund investors.
Zurich Investment Foundation – which is equally represented with Schroders on a joint investment committee, holding 50% of the votes on each proposed investment – is "carefully controlling the whole investment process", according to spokesman Frank Keidel.
Despite the challenging fundraising environment, Schroders raised the Swiss vehicle within six months. Duncan Owen, head of property funds at Schroders, attributed its speed to a combination of the fund manager’s strong brand within Switzerland and its pan-European reach.
Although sovereign pressures continue to afflict peripheral European markets, Owen said liquid markets such as Germany, France and Benelux "still produce goods and provide services people want to buy".
The fund will initially target assets in Germany and France, although the foundation this week also cited the UK as a potential investment destination.
Owen said tight liquidity in core European markets had weakened competition for institutional-quality, core assets. "Pricing for trophy assets is high, but outside the trophies there is little equity or debt for the vast majority of stock," he said.
Keidel said the foundation had considered euro-zone macro risks when it planned the investments. "But real estate is still a very local asset class. That's why it is so important that Schroders has its own people on the ground," he said.
