Unrest on the real estate market: Investors take legal action against the merger of the UBS and CS funds

What began as a sober administrative act is developing into a power struggle in the otherwise predictable Swiss investment fund market. It concerns real estate funds. They invest in residential and commercial properties throughout Switzerland. Stable investment vehicles with solid returns and little drama.

And yet, precisely this unspectacular asset class is currently causing unrest, according to research by the "NZZ am Sonntag." At the center of this is the major bank UBS, which, along with its takeover of Credit Suisse, also inherited its real estate funds.

UBS plans to merge the CS funds with its own funds. A complex undertaking involving legions of lawyers and experts. The ultimate outcome will be a new giant in the Swiss real estate industry: UBS will manage real estate investments worth 62 billion Swiss francs and a portfolio of 72,000 apartments.

The real estate market's enthusiasm for the Paradeplatz project is limited. The industry platform Immoday warns of UBS's "ultra-dominant position." Resistance is also brewing among shareholders of UBS real estate funds: They fear that their assets will be contaminated by troubled CS funds.

Following the announcement of the merger, investors decided to take legal action against the merger. This is a unique event in the otherwise sluggish world of Swiss real estate funds.

The project got out of hand for UBS early on: In November 2024, the bank presented its plans. The bank aimed to merge eight of its fourteen listed real estate funds by 2027. The goal: to realize economies of scale, reduce costs, and increase the resilience of the vehicles. Who could possibly disagree?

But UBS had to backtrack on the very first planned step. The UBS Direct Residential fund, a product focused on traditional residential properties in the metropolitan areas of Zurich, Basel, and Bern, was originally supposed to be part of the merger – but then UBS surprisingly excluded the fund from the merger.

Apparently, powerful investors exerted pressure behind the scenes and convinced management to keep this fund independent. As soon as the case was resolved, the share price of this popular fund reached an all-time high (see chart below).

The next blow for the bank came at the end of June 2025: UBS wanted to merge three funds focusing on very different types of housing – UBS Living Plus, UBS Hospitality, and UBS Residentia. What UBS sold as strengthening the funds' "diversification and resilience" led to an escalation.

Mergers of real estate funds are rare – and objections to them are even more unprecedented. This is the first time most experts have heard of investors formally filing an objection with FINMA. The merger of the three funds has been blocked ever since.

Although UBS emphasizes that the objecting investors represent only 0.1 percent of the invested capital, the reputational damage is considerable. Industry experts expect a delay of at least three to six months. Worse still, the affected funds are considered "lame ducks." Until regulatory clarification is granted, the fund managers will not make any purchases or sales.

The major merger, initially launched as an efficiency project, has turned into a nail-biter. And many investors are upset. One of them is Reto M. (name withheld from the editors).

Reto M. is a retiree and a veteran of asset management. For decades, he managed funds for institutional clients as an employee of another large bank; today, he manages his own retirement savings. He is angry about UBS's actions: He had invested in a solid real estate fund with residential properties – and now it is being forcibly merged with two inferior products. The "NZZ am Sonntag" has obtained the details of his case.

Reto M. is particularly concerned about the fact that funds with completely different focuses—for example, hotels, educational institutions, or retirement homes—are being merged with conservative residential funds. This contradicts legal requirements for such mergers—the law only allows funds that pursue the same investment strategy to be merged.

The stock market's reaction to the merger announcement was particularly bitter for Reto M. His fund, previously considered an attractive investment, suddenly came under pressure. At the same time, the prices of the troubled funds that were to be included in the merger skyrocketed. The reason: The prices of the funds to be merged apparently had to align.

The investment expert addressed his objections to FINMA. They responded by saying they would ensure the legality of UBS's actions—nothing more. To avoid further hassle and expense, he decided not to pursue legal action.

Zurich real estate economist Andreas Loepfe believes the fund holders' objections to the merger are understandable: "Around half of the acquired CS funds had underperformed for years." While the defunct bank had attracted attention with its creativity and marketing power, its products had disappointed on the stock market.

The list of problem funds is long – and most of them originate from Credit Suisse. A CS fund focused on international office and commercial real estate was particularly problematic. Its performance remained disappointing for years. UBS had barely taken over the reins when it pulled the ripcord: The fund was liquidated. However, it will likely take years before the properties can be sold and investors paid out.

Another example: the former Swissôtel in Zurich Oerlikon, whose building has long belonged to the CS Hospitality fund. After the hotel's bankruptcy in 2020, the fund was left with a derelict property with no future. The fund is currently renovating the hotel for CHF 120 million. It is now being transformed into the "Oerlikon One" residential concept, featuring mini-lofts and expensive small apartments. This is a costly renovation project with an uncertain outcome.

Another key concern for investors is UBS's sheer size in the real estate fund business. According to Roland Vögele, CEO of the consulting firm MV Invest, it's becoming increasingly difficult for investors to diversify their assets across multiple fund operators. Those who currently invest passively and index-oriented in Swiss real estate funds can hardly avoid UBS, says Vögele. The SXI Real Estate Broad Index, for example, is 50 percent made up of UBS funds. The bank also has "too large a dominant position" in research and analysis.

When asked about the criticism from investors and experts, UBS declined to address individual questions – repeating almost verbatim a sentence from a previous press release: "We are convinced that merging funds with similar investment strategies will strengthen the diversification and resilience of the respective funds, focusing on long-term investor needs." The bank further states that the planned mergers will not incur any costs for investors. The bank declined to comment further.

Although the lack of information creates even more uncertainty, the Swiss Financial Market Supervisory Authority (FINMA) is also refusing to provide information: "As a general rule, we do not comment on the details of our supervisory activities or on individual cases," says a FINMA spokeswoman.