The Baden-based Sfr4.5bn (e2.8bn) ABB Foundation, which manages the assets of the Swiss-Swedish multinational ABB, has capped a frenetic year and a half of portfolio rejigging and third-party fund launches by creating its first international property vehicle – a Sfr100m US Reits fund.
And the Reits fund may soon be complemented by the addition of a Sfr50m indirect European property fund for third parties. ABB is researching European tax legislation, having selected an unnamed manager to run the assets.
The fund launches follow hard on the heels of amendments to Swiss law, which mean that funds no longer have to seek government permission on circumventing investment guidelines, provided investment boards stick to a rigid asset/liability profile.
Daniel Dubach, chief investment officer at the ABB Foundation, which manages assets on a third-partybasis for Swiss tax-exempt pension schemes, says several clients have come into the Reits arrangements, although he notes they are mainly in-house parties from the ABB group.
The fund has Sfr950m in Swiss direct property engagements and Dubach explains that ABB will be looking to market the US property asset class in Switzerland more vigorously in the coming months.
“We will see first how this develops and whether we can meet our expectations – there are only a few funds though in Switzerland with this asset class in their allocations. The trigger for creating the fund was that one of my biggest clients, the ABB fund, wanted to have a broader, more diversified approach to the real estate asset class, so they decided to go to the US Reits market for indirect property funds.”
Dubach says the indirect European real-estate fund will not include Switzerland because of the fund’s current direct engagements. “This would be a new product. However, at the moment we are facing tax problems and that is why we are not launching it yet.”
Dubach explains that the fund’s investment foundation status under Swiss law is not that well known in other European countries and that this is delaying progress. “Unlike in the US, there is no specific tax treaty that exists between Switzerland and all the European countries. We are checking the fiscal treatment between European countries with particular reference to this kind of tax-exempt Swiss vehicle.”
The US Reits funds are managed by two houses. Boston-based AEW has an active fund of Sfr50m and Boston-based Tuckerman Group – a subsidiary of State Street – is running a Sfr50m passive brief.
He explains: “What we are looking at is a passive core and active satellite approach, but as an experiment we are operating a 50/50 stance on the assets. The reason for this is that when we looked at past figures for the asset class we didn’t get a sense of direction for which approach would be best. We will see what happens.” The managers are benchmarked against the Willshire Reits index.
Dubach says the programme will be expanded if successful: “My clients are going to expand into this asset class. As far as we see it, they want to have a change in their existing exposure, which was traditionally in direct Swiss investment. A lot of Swiss clients are looking to diversify into this indirect approach. It’s not really a return question, but the direct investment was very difficult and time consuming for funds. Perhaps the more pressing issue, though, is the illiquidity of the Swiss property market.”
The foundation’s direct Swiss property holdings consist of the original allocation of the ABB pension fund, which in 1995 was brought into the ABB Foundation fold, as well as a minor third-party stake.
Dubach notes: “The fund opened to third-party money a year and a half ago, after a period of portfolio restructuring, and currently has Sfr50m from four external clients. It is a separate property asset class from the Reits exposure and the Sfr950m portfolio is one of the biggest amounts of an asset class in this field in Switzerland – if you compare it to bank allocations etc.”
He says the fund focuses predominantly on residential property with a junior portion in business units.