German open-ended property funds resilient against all odds

Despite uncertainty regarding regulation and liquidation of various German open-ended property funds, their performance has remained stable through October.

According to the IPD German Monthly Open Ended Fund Index, German open ended property funds have returned 0% last month.

This resilience is impressive in the light of recent problems faced by open ended real estate funds in Germany, including suggested regulatory changes and liquidation of many funds in the universe.

For months, Berlin has been discussing a ban on setting up new open-ended property funds in Germany as part of adapting the Alternative Investment Fund Management Directive (AIFMD) to local legislation.

On top of this, some 13 German open-ended property funds have announced plans to wind down and five more are frozen with closing dates between November and mid-2013.

Yet both the performance and the volume of assets in these funds has remained resilient. In fact, in October the net asset value of retail funds covered by the IPD index rose from €73.3bn to €73.5bn.

The decreasing volume of funds in liquidation was completely offset by inflows to active products, the index shows.

Daniel Piazolo, managing director of IPD Investment Property Databank, says: “The open-ended real estate fund product is still in demand. In the current environment of volatile equity markets and historically low yields on government bonds, the performance of the overall index of 1.9% per year over the past five years looks healthy by comparison.

“Although the liquidation of some funds has meant a loss of confidence across the entire market and the possibility of imprudent legislation is adding further uncertainty, we assume that under the emerging legal framework, open-ended funds will remain an attractive asset class.”

The latest draft legislation suggests there will be no major changes to open ended real estate funds in Germany, including no ban on the initiation of new funds.

Piazolo says the asset category looks set to retain the lead in the market for German indirect property products.

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