Of course the agio can dissapear in litteral seconds
My personal take is that indeed those funds are riskier and can trade away from fundamentals (like most/all closed end funds). Also given that the rebalance on friday took quite some time (and it’s not always very liquid), I don’t necessarily believe everything is fully priced it (even the merger).
What I’ve heard make sense is that you should keep those for decades and buy them for a given yield (so you don’t care that much about the market value but more about the cashflow it generates). The value will change but the dividend amount is pretty stable (I guess like some kind of riskier bond).
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For me, it is mainly a learning experience on how this works. I am happy that I got to learn this before I invested significantly in Direct RE Funds. This also helps me understand the inherent risks of closed funds where fund manager can do whatever they want. I will see how this turns out by 2044 for my holdings in DRPF.
I did some math, and some data collection.
- If the current premium/discount paid by investors (as of 7 Nov) holds in future, then Newfund will have market cap of 5.081 Billion CHF and NAV of 3.888 Billion . Effective Agio 31%
- In this case, DRPF shareholders would lose approx. 5-5.5% in notional value. Similar loss should be expected for CSLP.
- The final fund will be 65% residential & have an effective yield of 2.47% based on market cap of 5.081 Billion
- On 8th Nov, this value dropped by 1.5% as an initial reaction
- This move obviously improves prospects of STA & HOSP to have higher stability and that is why we see bigger price action on these funds in +ve direction.
- Lets see what happens in next 20 years
Ahh I see. Yeah I ignored mixed use . But perhaps it’s also including some residential
Funds like these qualify as active funds, no?
They do. But that’s mainly about what they do within the fund adhering to the strategy.
For example -: if DRPF strategy says that they are majorly residential in German speaking area then I am fine if they buy or sell properties within these boundaries.
However here we have another problem to deal with. Which is that they can just merge with another fund. This means that not only we need to deal with active fund management risk, but we also need to deal with risk of fund house organising their funds.
To be honest UBS merger might not be that bad. But I read that sometime back AXA merged Commercial fund with Residential fund. This is going beyond the fund strategy and just doing whatever they feel appropriate.
Now I know that fund houses are not crazy and they would normally do these things keeping interest of their investors in mind. But this was just a surprise for me that it’s so simple.
Agreed
Great thing for STA
Hi @DRPF
Thanks for the update, is the 32% capitalization/NAV weighted?
Why does it need to be weighted ?
Shouldn’t the calculation be as follows -:
Total Current Market cap of all funds / Total NAV of all funds
Btw- was there any announcement on how the exchange ratio will be calculated ?
The announcement will come next year probably. At that point the annoncement will mention that the premiums are similar
I want to invest in Direct Residential Real Estate Funds this year. It should be well diversified in Switzerland and across providers. Which 3-4 funds do you recommend?
From this month’s UBS report
Real estate funds are currently rather overvalued with an average
agio of almost 30%, which is why we do not recommend them
overall at present.
Could you please share the report from UBS?
They are saying their funds are overvalued?
ZKb has another take on this topic
Thanks
It’s interesting because the largest real estate funds actually belong to UBS after the announced merger
So they are in fact saying “do not buy our funds” as they are overvalued ?
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It being a closed fund changes a lot here.
They can‘t emit new shares and get more AUM that way.
I see, so in principle they are saying that DRPF & CSLP are trading at very high prices and people should not trade them unless they fall approx. 15% in value.
However at the same time, 3a pension funds use CH0036599816 (UBS Index fund) as vehicle which invests in all of these overvalued Swiss RE funds.
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Nice page. Good to read “officially” from UBS re the NAV’s being used for the merger.
Given the low overall liquidity, that seems unlikely?