GOEF assets approach pre-crisis levels after lengthy climb-back

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Statistics from Deutsche Bundesbank and German funds association BVI at the end of the year show that the fund sector had a very good 2017, for both open-ended mutual property AIFs and open-ended special AIFs.

BVI put net inflows in the mutual segment at €5.5 billion, again considerably higher (30%) than in the previous year (2016: €4.2 billion).

At the end of 2017, open-ended mutual property funds therefore nearly returned to the level they were at before the financial crisis, which seriously impacted the fund sector with widespread freezings. The Bundesbank figures show the industry reached its highest point in fund assets of €91.0 billion in April 2010. In the following five years, the sector shrank down to €77.9 billion (in January 2015). Things have been improving rapidly since then. By end-December 2017, net fund assets had reached around €88 billion.

According to Michael Schneider, Managing Director of fund platform IntReal, “The development of open-ended mutual property AIFs is very gratifying overall. The growth is the result not only of existing funds from the established, major providers, but also of new products such as the Industria “Fokus Wohnen Deutschland” and SwissLife KVG “Working + Living” funds administered by IntReal as a third-party AIFM.

"I expect more product initiatives among mutual funds in the new year. We are seeing greater efforts in this direction on the market. However, the new funds are facing the challenge of finding suitable properties in the current phase of high prices", he added.

Confidence in the open-ended funds sector does indeed appear to have returned in strenght. “The product class meets many retail investors’ needs with regard to property investments: The funds offer very stable performance and continual distributions, even for small investments. At the same time, certain structural defects – such as the mixture of institutional and private money – have been rectified and thus rules created for target customers that also allow flexible and manageable maximum holding periods of one or two years, for example”, said Schneider.

Net inflows were even higher for open-ended special AIFs, designed for institutional investors. In total, this fund class gained around €9.8 billion. The sector’s net assets grew from €64.5 billion at the end of 2016 to around €77.4 billion. According to BVI, net assets of closed-ended special AIFs increased to around €1.8 billion; net inflows were roughly €700 million.

Even here, the actual figures for closed-ended special AIFs are understated - BVI’s statistics only cover products from members of the association, and not all fund providers are BVI members.

IntReal's Schneider commented: “I see no end to the boom in the special AIF segment and expect inflows in 2018 that are at least on a par with 2017 – i.e. between around €8 billion and €10 billion. This development is gratifying for the third-party AIFMs on the market, as it means further growth opportunities that are not limited just to the open-ended special AIF segment."

"The growing acceptance of the “new” German legal form of Investment KG, i.e. the closed-ended special AIF, is especially beneficial for large-scale individual properties. Further opportunities are offered by the investment tax reform that came into force at the beginning of the year. For the first time, funds can now have different tax configurations. For example, customer-specific investment alternatives can be represented in future by setting up funds to be transparent or opaque with regard to tax, according to investors’ needs. Here, Germany has now become much better and more competitive than other European fund locations.

"Nonetheless, the burden of regulatory requirements for AIFMs have also increased significantly. The investment tax reform and MIFID II alone, which both came into force at the start of the year, pose significant challenges for our processes and IT. As a rule, we have to meet these additional costs without equivalent additional income. This means, for example, that we have to keep digitalising our processes and making them more efficient.”