Figures released by the Bundesbank show that net inflows into German closed-ended property funds recovered strongly in 2019, growing by 13% after several years of falling out of favour with German investors.
While net fund assets for all funds came to just €23.4 billion at the end of 2018, that figure rose to about €26.8 billion by the end of 2019. The two-year view – from December 2017 to December 2019, showed growth of 21% or about €4.7 billion. (The Bundesbank statistics bundle closed-ended vehicles for both private and institutional investors together.)
According to Michael Schneider, Managing Director of Hamburg-based fund management platform INTREAL, “The market for closed-ended property funds is once again experiencing a robust upward trend. Since the introduction of the new regulations under the German Investment Code, closed-ended property funds have been launched as investment KGs. With this, the closed-ended vehicles seem to have adopted a ‘new look’ and found their target customers and investment focal points again.”
For this year, Schneider is optimistic, “I am anticipating net inflows of well over €1bn for the year as a whole, based on our estimates and talks that we are currently holding with providers. Various new closed-ended AIFs will come onto the market in the months ahead. Following the major market consolidation after 2008, a smaller number of providers has emerged who provide the market with new products on an ongoing basis.”
The KVG INTREAL service manages closed-ended AIFs with net assets of around €5.1 billion of which about €5.0 billion are closed-ended property special AIFs. By contrast, the share of closed-ended retail AIFs is far smaller at €92 million. INTREAL did not establish any closed-ended funds for private investors in 2019. INTREAL does not have any specific plans for new vehicles in the next few years. By contrast, further products are being prepared for open-ended mutual funds and strong growth is expected. The Bundesbank’s statistics recorded a total of 1,446 closed-ended property funds for institutional and private investors at the end of 2019.
Schneider says: “The raison d'être for closed-ended property funds is the two investor groups. They can be an interesting building block in asset investment for wealthy, experienced private investors with a long-term investor horizon and who are aware of the risks. This particularly applies to specialised funds involving a particular country allocation or foreign currencies, such as with US property. For institutional investors, closed-ended AIFs are used predominantly as club deals for large-volume individual investments with two to four investors. This opens up investment opportunities beyond the usual investment limits for individual properties in the open-ended special AIF.
All in all, however, closed-ended property funds remain significantly less important than their open-ended counterparts. Figures from the Bundesbank statistics show that they account for only about 12 per cent of open-ended vehicles overall. According to the Bundesbank, the net fund assets of all open-ended property funds (mutual and special funds) came to €226.2 billion in December 2019, an increase of €28.3 billion in 2019 alone. Closed-ended property funds, on the other hand, come in at just around €26.8 billion in net fund assets.
Both institutional and private investors rank the risk-diversified, open-ended funds high up on the popularity scale. This is turning closed-ended funds into a niche product for special investment cases and selected target customers only, both now and in the future.
