BVI head Richter defends German open-ended property fund sector

The head of Germany’s fund trade association has come to the defence of the country’s open-ended property fund sector, saying the products are “sustainable” and face demand, even as some of the community are curbing dealing.

The support from Thomas Richter, chief executive of the trade body for German fund managers, the Bundesverband Investment und Asset Management, came as European-focused managers in Germany’s embattled sector lost 0.2% of their value in May.

European-focused products have lost 0.8% of their value in the past three months, “mainly caused by the specific one-off impact of the devaluation of funds that went into liquidation recently,” according to Investment Property Databank.

Meanwhile, open-ended real estate funds with at least half their assets in German property lost 0.1% in May, following a 0.5% decline in April.

Some 13 of the sector’s 22 funds currently allow investors to sell shares at net asset value, IPD said, otherwise they must use secondary markets, often trading at discounts to NAV. One fund has suspended redemptions and the rest are in various stages of liquidation.

“For these nine funds, selling shares at short notice is only possible on the secondary market, and at considerable discounts to NAV,” IPD said. Its performance calculations exclude these funds.

But Richter said: “Open-ended property funds are a sustainable product [and] there is demand for this product. In the discussion it is often made out as though all open-ended property funds had problems, or are frozen. That is not true. A good 70% were and are open. Even in 2011 more than €1.2bn flowed into these funds. This trend strengthened itself in this year.”

Richter also pointed to new rules of German legislators which will “protect these funds from liquidity bottleknecks”.

For example, investors will have to place any orders for redemptions of over €30,000 in a calendar year 12 months in advance.

Richter said, in using these products “investors can invest with realtively little money in a widely-spread portfolio of property.”

He noted the alternative of property company shares, or real estate investment trusts, are not realistic for typical investors, as they correlate strongly with equity markets.

“Closed vehicles are out of question for most small investors because of the limited spreading of risk and the high investment sums,” he added.

This week we bring you the views of Thomas Richter and the BVI on various issues, including FATCA, Dodd Frank, the Volcker Rule, and the Alternative Investment Fund Management directive.



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