German funds industry saved by Spezial funds
Institutional investor appetite for so-called ‘Spezial’ funds and segregated mandates saved Germany’s fund industry from net outflows last year, as private investors redeemed from pooled vehicles.
Institutions put €45bn fresh cash into Spezial funds and €1bn into mandates, while private investors pulled €16bn from mutual funds – a net result of €30bn new business for managers.
One bright light last year was open-end property funds, whose investors could benefit from new legislative requirements and fear of inflation.
Thomas Neiße, president of fund trade body the Bundesverband Investment und Asset Management (BVI), says: “In light of the widespread fear of inflation and continually low interest rates, we expect the open-end property funds to see greater demand in the second half of the year.”
According to new requirements, these funds cannot be used by institutional investors as replacements for money market funds for regulatory reasons.
Neiße adds: “Sudden outflows by individual large investors cannot then destabilise the liquidity management of the funds. With the new legal requirements the mutual funds will be oriented exclusively on the needs of private investors.”
Open-end property funds already grew in popularity last year, taking in €1.2bn, to lead the sales list. Neiße says overall results for German funds in 2011 were “respectable”.
Germany’s fund industry now manages €1,783bn. This is equivalent to 70% of the country’s gross domestic product, 88% of its sovereign debt, or €22,000 per person.
About half (€846bn) is in Spezial funds for professional investors, while a further €286bn is in non-portfolio structures for sophisticated allocators. Germany’s mutual funds have about €651bn. Investors redeemed €16.6bn from them last year.
Neiße says: “The outflows from mutual funds are anything but pleasant. The difficult market conditions certainly had a direct effect on our industry.”
Need for security
He said many investors have “lost trust in the stability of our currency, in the financial system, and particularly in the ability of Europe’s politicians to solve the debt problem. The redemptions by private investors are because of the search for security”.
The BVI noted that between 1991 and 2010 – much of it called the ‘lost decade’ for shareholders – , the volume of private and not-for-profit wealth held in mutual funds grew six times.
Neiße says “2012 will be a difficult year. But after the losses on share markets, these difficulties have already been priced into prices.