Real Estate Investment and Management Strategies of Institutional Investors in Switzerland Empirical Analyses of 2014 to 2017

Research Article

Austin J Bus Adm Manage. 2017; 1(2): 1010.

Real Estate Investment and Management Strategies of Institutional Investors in Switzerland Empirical Analyses of 2014 to 2017

Trubestein M*

Department of Real Estate, Lucerne University, Switzerland

*Corresponding author: Michael Trübestein, Institute of Financial Services Zug IFZ Department of Real Estate, Lucerne University, Switzerland

Received: June 26, 2017; Accepted: July 13, 2017; Published: July 20, 2017


The paper analyzes and compares – based on empirical surveys among institutional investors in Switzerland in 2017, 2016 and 2015/14 –current and future investment strategies in direct real estate and indirect real estate vehicles. In cooperation with the ASIP (Association of Pension Funds), questionnaires were sent to pension funds/staff pension funds as well as life insurance companies and foundations in Switzerland as well as in Germany and Austria. In total, more than 130 questionnaires were evaluated each year, meaning around US$ 1,000 bn of invested capital and around US$ 100 bn of invested capital in real estate. Due to only very few comparable studies in this specific area, the study is based on an explorative approach, showing empirical validated insights.

Swiss investors are strongly home-biased: now and in the future, clearly contradicting the portfolio theory and their own intention for diversified portfolios. The selection of an external manager is mainly based on reputation, not reflecting contractual solutions based on the “Principal-Agent-Theory”. Due to limited opportunities, investors expect a return of 4-5 % for nearly all real estate investments in Switzerland and of 5-6 % investing abroad, not fully reflecting higher risks with certain investments. Professional IT-software or digital trends are of nearly no importance. When investing indirectly, Swiss Investment Foundations are the preferred and “ideal” vehicle.

Furthermore, the analyzed investors were clustered (k-means) in three different groups based on their organizational structure, also showing different return structures and standard deviations.

Keywords: Real estate; Asset management; Investment management; Institutional investors; Pension funds; Switzerland; Direct investments; Indirect investments; Empirical study


In Switzerland, the retirement systems are based on a classical 3-pillar-system: the public retirement insurance system, company plans and individual retirement investments. Public schemes are structured in a system where the current pensions of the retired are paid from the current premiums of the ‘not yet retired’, in contrast to the privately operated schemes which work on a capital accumulation system. Hereby, company plans (2nd pillar) are mandatory for every employee and are organized based on a funding principle: These pension funds are of high importance for securing the retirement. Furthermore, every company can organize the pension plan in an individual manner. As a consequence, Swiss pension funds, consisting of 75 public and 1,707 private institutions, comprising greater than 4m active members in total, are important market participants in the investment sector. In total, these pension funds invest assets of US$/ CHF 780 bn and real estate assets of US$/CHF 180 bn (23%). During the last 10 years, the number of pensions funds decreased by 40% so a strong concentration can be observed with possibly new investment strategies in the remaining institutions [1].

In recent years, an increasing interest in real estate has been observed among institutional investors worldwide as direct and indirect real estate investments have come to be valued as a targeting part of the investment portfolio. In addition, the positive increase in allocation to real estate assets has been enhanced by low federal fund rates which have led to low returns on benchmark investments. The tendency to allocate capital to real estate has also been observed for investors based in German speaking countries.

This gives rise to questions concerning whether the actual investment strategy of institutional investors in direct and indirect real estate will be maintained, and where future investment foci will be located. Furthermore, the role of foreign real estate investments has to be clarified, as international markets offer possibilities for diversification of real estate investment portfolios and may offer a high, or comparatively higher, return. Selected real estate management tasks are, and may continue to be, executed in accordance with the New Institutional Economics, externalized in order to optimize the organizational structure and to benefit from higher returns. For a diversified portfolio and lean management structures in particular, indirect real estate specific vehicles may and can be of importance for pension funds, especially for smaller pension funds.

The empirical research study which follows herein initiates this process in an attempt to establish empirically validated answers to these questions and to identify the future real estate strategy and management for investors in Switzerland. Although the study was conducted in all German speaking countries, the foci are set on institutional investors in Switzerland as they represent the majority of participants.


In recent years, several studies were conducted in the general area of investments and institutional investors in Switzerland. Many of them focused on the general asset allocation and portfolio management of institutional investors and only a very small minority focused on real estate investments or on real estate asset management [2]. A first broad scientific study and analysis in the area of Real Estate Investments and Asset Management for institutional investors by a University was firstly conducted by Truebestein in 2014 and repeated every year with the same sample and the same questions in addition to some individual foci each year [3].

Because of the absence of scientific research on this topic, the first target was the systematic collection, completion and analysis of data on the current preferences of (real estate) asset management for direct and indirect investments. Thus, the empirical study has, primarily, a hypothesis-exploring characteristic and has been used to determine the relationship of structures and the evolution of hypotheses concerning the current status and concepts in practice in Switzerland. So, where targeting, conclusions of the study of 2016 and 2015 among institutional investors in Switzerland are included in the analysis [4].

In order to derive structured solutions for the real estate investment and management behavior of institutional investors, the empirical survey was conducted in cooperation with the ASIP (Association of Pension Funds). The survey was carried out by means of a written questionnaire consisting of 27questions in 4 parts: general data/general investments in real estate (4 questions), direct real estate investments (11 questions), indirect real estate investments (10 questions) and investments in infrastructure (2 questions) mainly based on “multiple-choice” options [5]. In some questions, the companies had the possibility to add additional information to allow individual company needs and views to be expressed, in an “exploratory nature”. To obtain a wide view of the investment behavior of institutional investors, the questionnaires were sent to numerous institutional investors:

- All pension funds in Switzerland registered in the ASIP (Association of Pension Funds) databank

- All life insurance companies in Switzerland

- All foundations in Switzerland (the Association of Swiss grant-making foundations)

The study was conducted in 2017and analyzes by means of the SPSS Statistical Package for the Social Sciences. In total, the following institutions could be analyzed:

• In the study of 2017, 134 questionnaires were evaluated, representing US$ 915bn of invested assets and US$ 89bn of invested capital in real estate.

• In the study of 2016, 135 questionnaires were evaluated, representing US$ 1,063bn of invested assets and US$ 810 bn of invested capital in real estate.

• In the study of 2015, 152 questionnaires were evaluated, representing US$ 950 bn of invested assets and US$ 80 bn of invested capital in real estate.

Over 2/3 of the institutions in the sample are pension funds or related institutions, clearly dominating the sample and representing over 30% of the investment volume of all pension funds in Switzerland [6].

Limitations of the Study

The objectives of this study and paper are, in accordance with the information and the outline in the methodological approach, to derive an initial contribution to the management of direct and indirect real estate investments of institutional investors in Switzerland and the future structure of the management as well as to compare the results with former studies. In order to address this extensive subject adequately and scientifically, some limitations of the research object are inevitable.

While real estate asset management services from different providers are designed for many recipients, in this study only the views of institutional investors as recipients are selected and analyzed extensively. Although the questionnaires were sent to numerous investors in a cooperation of the ASIP and several investors answered, the possibility of a bias in the survey cannot be excluded, since companies that have a “clear” idea of real estate asset management and/ or the associated services, might tend to be more likely to answer the questionnaires than other companies that have not yet encountered or had sufficient experience of this issue to date. Consequently, there may be a positive over-subscription of responses from the former group. However, the author does not claim to have achieved congruence between the theoretically defined population and the actual companies represented by the sample [7]. This objective is not prosecuted in the present analysis [8].

However, it can be stated that the study has a “tendency” to be representative based on the coverage and real estate volumes. In summary, the companies surveyed, due to their investment volume, their origins and their number, allow an initial assessment of real estate investments in that group. Nevertheless, a high degree of interest in the questionnaire was observed and indicates that further analysis should be undertaken.

Cluster Analyses

Based on a cluster analysis (k-means, missing pairwise) Swiss investors were grouped in three clusters, based on their organization structure for a real estate asset management in their institutions. The cluster analysis leads to different concentrations (Figure 1):