Credit Suisse launches mortgage fund

The mortgage fund Swiss Mortgage Fund I, which has been approved by FINMA as a "miscellaneous fund for traditional investments", is aimed at Swiss institutional investors. They can invest in a broadly diversified portfolio of mortgages on investment properties in Switzerland issued by Credit Suisse (CS). According to the major bank, this includes mortgages on multi-family houses, single-family houses, condominiums and commercial buildings. Client relationships with mortgage borrowers will remain with Credit Suisse.

The fund is divided into four share classes, which differ primarily in terms of redemption periods and minimum investment amounts. The first subscription period for the fund has started and will last until February 17, 2017, after which fund units can be subscribed monthly via Credit Suisse.

Independent asset manager selects mortgages

The mortgages for the fund are selected by an independent asset manager, Tavis Capital AG. In doing so, Tavis has the right to acquire mortgages in accordance with its investment strategy. Credit Suisse must offer the asset manager all mortgages that meet an agreed catalog of criteria. In this way, a negative selection by Credit Suisse is to be ruled out. The criteria include, among other things, that the borrower's domicile and the property are in Switzerland and that the loan was issued in CHF. The loans must also have a minimum rating and the loan-to-value ratio must be a maximum of 80 percent of the property value, with at least two-thirds of the portfolio having a loan-to-value ratio of no more than 70 percent.

It was also determined that the focus in the selection by the asset manager would largely be on Libor-based mortgages with short maturities. This ensures the specified average interest rate duration of a maximum of nine months, which significantly reduces the risk of value losses in the event of a possible rise in interest rates, according to Credit Suisse.

Target return between 0.2 and 0.5 percent

The fund's return is expected to be between 0.2 and 0.5 percent annually, depending on the share class, at current negative interest rates. Should interest rates rise again to a positive level, the fund's interest income will also increase due to the large proportion of Libor-based mortgages.

Like Finance and economy writes, a fund volume of CHF 200 million is to be reached by the end of March. In the second half of the year, Credit Suisse wants to reach 500 million. According to the report, a representative of the major bank sees the maximum fund size at three billion CHF. This corresponds to around ten percent of the mortgages issued by Credit Suisse on investment properties.

From CS's point of view, the sale of mortgage receivables allows it to relieve pressure on its own balance sheet and "increase flexibility in managing its capital base."

The asset manager of the mortgage fund, Tavis Capital AG, is an independent, FINMA-regulated asset manager of collective investment schemes. In addition to the "Swiss Mortgage Fund I", Tavis manages the "Swiss SME Credit Fund I". This was launched in July 2015 and focuses on mezzanine financing.