SWITZERLAND - Swiss pension funds will relinquish their bias towards domestic real estate as concerns grow over a potential property bubble in the market, according to Credit Suisse fund manager Rainer Scherwey.
His comments follow the announcement this week that Credit Suisse had raised CHF231m (€188.5m) from Swiss investors for the first Swiss-listed fund to invest in non-Swiss real estate. The global fund will be equally weighted to commercial assets in Europe, the Americas and Asia.
"What the whole world is doing, Swiss investors must do too," he said. "This new fund alone won't bring a big shift but within Switzerland there is a permanent discussion on real estate bubble, and about whether it makes sense to sell Swiss real estate and diversify into global real estate."
Swiss pension funds' average allocation to real estate stands at 18.5%, according to investment house Swisscanto - but only a very small percentage of it is invested in cross-border property.
Pension funds' home bias tends to be stronger because of the stability of the Swiss property market and the fact that returns have upwards trend over the past decade.
"There may be a risk of a correction," said Scherwey. "I would say in the institutional office market, the risk is not that big but in the two big economic centres, Zug in Geneva, where the local economies are doing well, there is potential for a bubble in condominiums."
Although the fund's target investors comprise not only institutions but retail clients, he said, "in Switzerland there's a big expectation that institutional investors will invest in private vehicles as well".
Swiss real estate funds that are open to investment from retail investors that are listed but are not NAV-based - meaning they do not share the same structure as German open-ended funds.
"We felt confident that institutional investors would invest in a listed fund but we discovered in discussions with some investors who invested in our earlier funds that this wasn't necessarily so," said Scherwey.
"There are a number of pension schemes that are not looking for liquidity but stability." Credit Suisse launched the first non-listed fund for 'Swiss-centric' institutional real estate investors to invest overseas in 2005.
Scherwey said a traded fund would carry a 25% volatility premium as a result of trading volumes. "It's possible that institutional investors will want to build up a premium as well," said. "On the other hand it is our first global fund and there is no 100% certainty about how it will trade."