2023-09-18 07:03:25
The announcement of the merger between Credit Suisse and UBS is really not good news for a securitized real estate market which has already been slowing down for several months. It will generate new risks for investors: concentration risk and the risk of uncertainty, explain Lucia Morgillo and Laure Carrard, two independent experts. Interview conducted by Olivier Toublan for Immoday.
Clearly, on the real estate fund market side, the merger between Credit Suisse and UBS is not good news, at least that is the general opinion of everyone we interviewed on this subject. However, this situation might create opportunities for some market players. Lucia Morgillo, CEO, with extensive experience in real estate, and Laure Carrard, director and head of real estate investments at IMvestir Partners SA – a consulting company specializing in the quantitative and qualitative analysis of indirect real estate in Switzerland –, provide us, in two voices, with a lucid analysis of the market situation. They explain to us how the latter might evolve following the merger between the two big banks.
Lucia Morgillo, Laure Carrard, what is the impact of the merger between Credit Suisse and UBS on the securitized real estate market?
The market was already inefficient in terms of quantity of products and diversification compared to other asset classes. This new situation comes at a time when investors had already had a wait-and-see position for several months. As a result, several issuers preferred to postpone their capital increases. Even if the size of the market remains stable following the merger, the new situation will generate new questions with a player who will have a very dominant position.
You spoke to me regarding “concentration risk” on this subject. What does it mean?
One of the problems for investors will be the lack of diversification. They do not want and cannot put all their eggs in one basket. For example, one of the asset allocation rules requires that an investor should not have more than 20% of their wealth in a single issuer. Institutional investors, who represent a large proportion of investors in real estate funds, are particularly attentive to this and apply this rule. With the merger between Credit Suisse and UBS, many will find themselves beyond this 20% limit and will probably have to reduce this risk, by selling part of their Credit Suisse and UBS fund shares, to reinvest it elsewhere.
Or?
As already mentioned, the investment universe does not include a large number of products. However, this represents opportunities for those who will be able to stand out and attract these investors through “hands-on” management, an active strategy and their capacity to create value over the long term.
Are there other risks for investors?
For investors, another risk might be uncertainty, as it is not yet clear what will happen to Credit Suisse funds. Will they merge with UBS funds? Will they be sold? Are they going to be skinned? Will they continue to be managed by separate, identical teams and, if so, will the team continue to apply the same strategy? In short, the context is complicated and it is above all too early to predict anything. Another aspect to take into account today is the volatility which is likely to increase further while the market has already been particularly volatile since 2022.
After the merger, UBS funds will become even larger, therefore more liquid, with significant possibilities for economies of scale, which would ultimately be favorable to investors. What do you think?
In our opinion, the funds were already large enough to have achieved these economies of scale, in management fees, for example. Size is not always an asset, because these funds have become real behemoths, very different from small ones where the manager and the management team know each of the buildings in the portfolio, its business plan, its potential value by visiting it frequently and applying the established strategy. In giant funds, this is often no longer possible.
You mentioned that this merger would be a source of opportunities for certain market players. For what?
This new situation can indeed be a source of opportunities for the most dynamic managers, who have clear strategies and a long-term vision. This now offers them the opportunity to show that they know how to create value and stand out. However, in view of the current market where investors are already questioning due to inflation and rising rates, it will be necessary to observe whether their appetite for new investments will be there in the coming months. However, we tend to encourage managers to communicate more regarding their know-how and to take advantage of the space to be taken during the reallocations which should take place.
In the end, despite this situation, are you optimistic or pessimistic?
It is true that we are not very optimistic since there are still many unknowns at this stage. We are, like many, mainly in a waiting position, with questions. However, we are convinced that this asset class remains an attractive investment in an asset allocation as well as a very interesting means of diversification. Let’s not forget that real estate funds offer a dividend yield of 2.4% for listed funds and 2.8% for unlisted funds. In addition, the level of agios is currently very attractive with agios of 12%. Perhaps this is the time to be opportunistic and select the best managers, who will be able to show solid results in the long term.
Immoday, the media for indirect real estate in Switzerland, is a digital platform dedicated to the promotion of indirect real estate in Switzerland.
Having indirect real estate means holding real estate through a fund share, a token or any other security. Immoday was founded by the Coptis association and some of its active members. We primarily cover the news and events of the different players in real estate securitization, group together market data and offer educational content. Both an online media and data provider, Immoday is independent and at the service of different market players.
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