Article published in Immoday.ch, April 9, 2025
For a real estate fund, reaching a size of over CHF 2 billion can provide a stronger positioning with investors, for whom greater scale ensures better diversification and improved liquidity. However, size isn’t everything—and there are alternative strategies to remain small yet attractive. Insights from Diego Reyes.
A little over three years ago, we published an article on the critical size of real estate funds. At the time, experts estimated it at CHF 1 billion. But with the upcoming launch of the new funds created through the merger of Credit Suisse and UBS real estate vehicles, the landscape has shifted. While some believe that size is no longer a decisive factor for investors, others—such as Diego Reyes, Senior Fund Manager at Dominicé Swiss Property—now see the threshold reaching, or even exceeding, CHF 2 billion.
Diego Reyes, in your opinion, the real estate fund landscape has changed significantly in recent years, particularly when it comes to critical size.
Indeed. Three years ago, the critical size for a real estate fund in Switzerland was generally considered to be around CHF 1 billion. Today, with the Credit Suisse and UBS fund merger creating entities of CHF 3 billion, CHF 3.5 billion, and even CHF 5.4 billion—not to mention the SIMA fund already exceeding CHF 11 billion—it’s clear that the benchmark has moved. Looking at the top 10 Swiss funds by market capitalization, UBS will occupy the first six positions, while the next four will each have an average size of CHF 2.5 billion. In total, these funds will represent a market capitalization of around CHF 30.5 billion, or over 43% of the SWIIT index.
Given this context, what is the new critical size for real estate investment funds?
To remain competitive, a generalist fund should ideally reach between CHF 2.5 and 3 billion. However, we must remember that critical size always depends on positioning: a more specialized fund can perform well below this threshold, provided it offers clear differentiation.
Why has this changed so much in just three years?
Several dynamics are at play:
- The concentration effect caused by the UBS/CS merger, which shifted size and liquidity benchmarks.
- Investor expectations—especially from institutional players—for greater size to ensure better diversification and enhanced liquidity.
- Changes in the regulatory and economic landscape, with new standards increasing management costs, favoring large-scale structures.
- Access to capital: larger funds benefit from increased fundraising capacity and more efficient financial management.
What options are available if a fund doesn’t reach that critical size?
While size is a key factor, there are several alternative strategies to remain attractive:
- Focus on a niche segment (such as sustainable real estate, healthcare, urban logistics, etc.) to capture a specific market.
- Prioritize asset quality and performance. A well-managed portfolio with solid returns can compete with larger funds.
- Optimize liquidity to appeal to investors. Strong access to secondary markets and enhanced transparency can offset a smaller fund size.
- Form alliances or co-investment partnerships to benefit from scale effects without necessarily increasing the fund’s own size.
Could this rising critical size lead to further sector consolidation?
As mega-funds gain dominance, mergers and acquisitions in the sector are becoming increasingly likely. This would enable funds to grow in size and visibility while strengthening access to institutional investors. I believe we will see a wave of consolidation among Swiss real estate funds. In a market dominated by a few giants, mid-sized players may need to join forces to achieve sufficient scale to stay competitive.
Ultimately, which matters more for investors: critical size or liquidity?
Both factors are essential. Critical size provides stability and diversification, which reassures institutional investors. Good liquidity, on the other hand, allows investors to enter and exit the fund easily—an essential feature for many market participants. The ideal scenario is to combine sufficient size to ensure diversification with an effective strategy to guarantee unit liquidity.
