From hiring and retaining specialist staff and running modern portfolio management systems to measuring and optimising energy consumption, professional return-orientated management of investment properties is becoming increasingly challenging for pension funds holding direct real estate investments.

This is why pension funds should regularly assess whether they have sufficient internal resources to efficiently manage and develop their properties. So, what happens if a pension fund comes to the conclusion that meeting these challenges is no longer possible or worthwhile?

At this point, there are two options:

• Disposal of the real estate assets and withdrawal from the respective capital investment

• Conversion of direct real estate assets into indirect real estate assets

Investment foundations record substantial growth

There are two types of investment vehicles for indirect property investments: publicly traded and non-publicly traded vehicles. Some of the non-publicly traded vehicles, among them investment foundations, offer tax advantages and are specifically tailored to the needs of pension funds.

In recent years, investment foundations have become particularly popular vehicles for pension funds and have recorded significant growth. In 2022 alone, their real estate investments increased by around CHF 7 billion and amount to more than CHF 70 billion today (source: Alphaprop, 2023).

Advantages of making non-cash contributions to investment foundations:

• Lower volatility: The value of real estate held by investment foundations is expressed by the net asset value. Comparison of the historical performance of investment foundations (KGAST Immo-Index) with the track record of real estate shares or funds reveals that investment foundations are significantly less volatile. Their performance has been consistently positive in recent years.

• Tax-neutral transfer: Investment foundations enjoy tax privileges. When pension funds make non-cash contributions to investment foundations, they can defer real estate gains tax and, in the best case, avoid real estate transfer tax altogether. Transferring their properties to an investment foundation is therefore often more cost-effective for pension funds than a sale or a non-cash contribution to another investment vehicle.

• Shared interests: The executive bodies of investment foundations are made up of representatives of the investing pension funds. In this way, the objectives of the investment foundation are aligned with those of the investors. The focus of the real estate investments made by investment foundations is usually on stable long-term performance with solid income returns.

• Right to have a say: As a rule, investment foundations organise an annual investors’ meeting where the investing pension funds can make decisions on board appointments and important proposals. In some cases, pension funds also have the opportunity to appoint their own representatives to committees (expert committees or boards of trustees).

Advantages of making non-cash contributions to the Avadis Investment Foundation

The Avadis Investment Foundation has long-standing experience in the management of non-cash contributions and offers pension funds attractive investment conditions. What sets its investment groups apart is their stable performance, low costs and high location and property quality. Non-cash contributions are suitable for all vehicles. Find out more at: Swiss real estate