UBS's takeover of Credit Suisse is reshuffling the pecking order in the Swiss fund business. Swiss Life Asset Managers head of investment  Stefan Maechler tells finews.com it presents an opportunity, with the provider planning a foray into passive index funds.

UBS is upsetting the pecking order in asset management and the real estate market, with unforeseeable consequences. Stefan Maechler, head of investment (CIO) at Swiss Life Asset Managers, tells finews.com that it creates opportunities for competitors.

Mr. Maechler, the Credit Suisse takeover by UBS is perceived as a seminal event in the Swiss financial industry. What's changed for you as a result?

We see it as an opportunity to enter a market we previously lacked access to and want to launch an offering with passive index funds in the first quarter. So far, the three largest providers, UBS, Credit Suisse, and Swisscanto have a market share of around 75 percent in Switzerland. This represents about 250 to 270 billion Swiss francs, with about 100 billion each accounted for by Credit Suisse and UBS.

«New locations in Lucerne and Lausanne»

This is a low-margin business.

We have assembled an experienced team of 10 to 15 employees. We benefit from our size and the fact that we can implement this with existing processes and IT systems, so there are only marginal costs. With the consolidation in the banking industry, there's room for a new provider. We should be able to attract volume, especially with recent locations in Lucerne and Lausanne. We want to establish ourselves as a third force here.

Is that an option internationally?

We'll limit ourselves to Switzerland. We see it as an opportunity. Currently, international index providers are hardly willing to offer Swiss structures with Swiss fund management, which are more attractive for institutional clients from a tax point of view than those from Luxembourg or as an ETF.

The sharp rise in interest rates has changed conditions markedly. What does this mean for the fixed-income business?

«Fixed income is back» is the motto. We saw that in our numbers, we had 6.9 billion francs of net new money in the first half of 2023, of which 3.3 billion francs went into bonds. There's been a marked increase in client interest.

«Clients are looking at strategic asset allocation»

Are there also consequences here due to UBS's takeover of Credit Suisse?

Due to the rise in interest rates, clients are reviewing their strategic asset allocation. As a result, there's been a marked increase in new tenders for mandates via RfPs (Request for Proposal). We alone had about 25 percent more RfPs in-house, indicating a lot of market stress. When there's a change of portfolio manager or when the asset manager comes into new hands («change of control»), it's customary for the mandate to be put on a watch list and is often re-tendered. This doesn't mean the managers are wrong or that mandates end up elsewhere. However, the issue of diversification of providers plays a role.

How is the Swiss real estate market performing after the interest rate shock?

Money continues to flow into Swiss real estate, albeit less than during the low-interest phase. Many pension funds and insurance companies have become passively overweight in real estate in their asset allocations. As a result, the appetite for further acquisitions has diminished, and the number of transactions has fallen. However, demand has never dried up.

Who is currently active in the market?

Large portfolios are hardly on the market, with few buyers for them. What is up are small and mid-sized properties. This offers opportunities for buyers who have not gotten a chance in the past few years, i.e., private individuals and family offices. They are active in the market now and still paying reasonable prices.

Are players also switched from the buy side to the sell side?

We don't see net sales in insurance companies and pension funds, but there's more investment in the portfolio and densification. So, the existing stock is being decarbonized, and densification is creating more space in demand by the market in central locations. That makes financial sense and environmental sense.

«Real estate offers inflation and interest rate protection»

What makes real estate still attractive despite interest rates and investment alternatives?

Real estate investments in Switzerland have two advantages. The protection against inflation in commercial real estate and interest rate protection provided by the reference interest rate in residential real estate.

As one of the largest property owners and managers, you have also implemented rent increases. What do they expect here?

The increases affected about half of residential tenants. We implemented them a month later than we could have. We wanted to do it carefully. We're trying to take a cooperative course similar to what we did with small businesses or restaurants during the Corona pandemic. So far, we have very few cases of tenants needing help with the increase. There have only been objections from about 5 percent of tenants.

If more increases follow as expected, more tenants will likely be affected and have more problems paying the interest. What do they expect, then?

We are prepared for such cases of hardship. If tenants approach us, we will individually interact with them and examine such cases. That's where our size is an advantage. With our subsidiary Livit, we can also offer solutions in a tight market.

«Rising number of appeals is an obstacle»

People are already talking about a housing shortage in Swiss centers. What can Swiss Life do here?

We still have high net immigration, and construction activity is falling. We have virtually no vacancies in the centers, and even where there were, they are increasingly disappearing. There's only one solution: build more.

Where do you see the obstacles?

In Switzerland, the time between the planning application and the start of construction has increased by two-thirds in the past twelve years. We are now talking about periods of 100 to 500 days. This costs money and doesn't bring new housing. An essential element here is the increasing number of appeals. With less greenfield construction and more densification, requests have also increased. We could build up to a thousand apartments a year if allowed to. This year, it will be several hundred.

Stefan Maechler has headed Swiss Life's Asset Managers unit for more than nine years as Group Chief Investment Officer (CIO) and member of the Corporate Executive Board. Before that, he was responsible for asset management at Mobiliar and as CIO for around five years.

He began his career at Credit Suisse, working 18 years in the capital markets and asset management divisions. Of these, he spent nine years abroad in various positions in Tokyo, Osaka, Seoul, and Frankfurt. He was also the driving force behind the founding of the listed real estate company Swiss Prime Site, of which he was Chairman of the Board of Directors until 2005.

Swiss Life Asset Managers is one of Switzerland's biggest asset managers, with almost 260 billion Swiss francs of assets under management. Around 105 billion francs of this is attributable to third-party clients such as pension funds, investment foundations, asset managers, and private clients. The division employs about 2,100 people, compared with about 10,000 across the Group.