Germany’s BVI challenges AIFMD plans on real estate funds

The German Bundesverband Investment und Asset Management (BVI) is against the proposal to make all newly created real estate investment funds closed-ended in the future, outlined in the Alternative Investment Fund Managers Directive (AIFMD) bill.

The directive is backed by the European Commission. Its aim is to establish a common regulatory framework for hedge funds, private equity and other types of funds without a UCITS passport domiciled in the EU. Real estate funds fall under the scope of this framework.

CEO of BVI Thomas Richter is convinced the opportunity to set up open-ended real estate funds must remain, since it serves the interests of the end investor. “This will ensure that the €100bn held in real estate mutual and special funds remains secure,” he said.

Open-ended funds do not limit the number of shareholders and therefore allow investors to allocate small amounts of money to an asset class. For example, the minimum investment in an open-ended real estate fund of Germany’s Union Investment is just €50. This type of investment vehicle is particularly attractive to private investors.

Property investments have been historically particularly popular in Germany as an alternative to government debt, with disappointing yields of below 1% for 10-year bonds. In contrast, returns on property investments are stable and relatively attractive and the asset class offers a degree of inflation protection.

BVI is supportive of the other proposals outlined in the bill. In particular, it welcomes the decision of the regulators to keep the German Spezialfonds unchanged under the new regulation. This type of fund is “indispensable” for institutional investors, especially pension funds and life insurance companies. BVI estimates that around €860bn is managed through these types of funds on the German market.

Richter added there was no need for additional regulation of this fund type, since “in practice there has been a process of standardisation among Spezialfonds, which allows for more efficient administration and facilitates the comparison of funds across the range.”

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