Asset swaps for pension funds: simplifying portfolios, creating value
Back to overviewProperty asset swaps are often seen as a way to enhance returns, diversify portfolios and reduce the burden of management. However, focusing too much on the benefits can obscure an important point: transforming a portfolio also comes with risks. The first step is to identify those risks clearly and understand their implications.
The first risk is valuation. Swapping properties for units in a collective investment vehicle requires a rigorous and transparent valuation that all parties can agree on.
The second is execution: transactions of this kind require careful legal, tax and operational planning. The third, and more strategic, is the perceived loss of control over the properties. For some pension funds, giving up direct ownership can be difficult to accept and may leave them with the impression that they have less say in how the assets are managed.
These concerns are real, but they are generally outweighed by the broader benefits that an asset swap can offer.
The article was published in the magazine «Immobilier Romand» and is also available as a PDF (in French).
The main advantage of an asset swap is its tax efficiency. When carried out through investment foundations specifically designed for pension funds, it can defer property gains tax and, in some cases, eliminate transfer taxes.
The second advantage is more professional management. Properties held within an investment foundation are managed by specialists with the tools, processes and scale that a pension fund may not be able to achieve on its own. The pension fund, meanwhile, retains exposure to property while benefiting from long-term economic and strategic continuity. Its new status within the investment foundation generally gives it a vote on important proposals and, depending on the circumstances, a seat on committees or the foundation board.
The third advantage follows from the second and lies in the economies of scale achieved through renovation and improvement projects. This is particularly important with the entry into force of the Vaud Energy Law (LVLEne) in the canton of Vaud, which requires fossil-fuel heating systems to be phased out and the building stock’s energy performance to be upgraded by 2035/2040.
Finally, there is also an opportunity to make more efficient use of internal resources. By transferring all or part of a property portfolio to a specialised vehicle, the pension fund can reduce its operational workload. Its teams can focus instead on higher-value areas such as strategy, asset allocation and governance.
Ultimately, the question is not whether asset swaps are risk-free, but whether the risks involved are proportionate to the benefits they deliver: greater expertise, a more streamlined portfolio and stronger management discipline.
The benefits of non-cash contributions to the Avadis Investment Foundation
The Avadis Investment Foundation has many years of experience in handling non-cash contributions and offers pension funds attractive investment opportunities. Its investment groups combine stable performance and moderate fees with high-quality properties in attractive locations. Non-cash contributions are possible across all three investment groups: residential, residential in medium-sized towns and commercial.
