Germany’s mutual real estate funds top €100bn, new funds in pipeline
Net fund assets of all Germany’s open-ended mutual property funds came to €101.1bn at the end of this year’s first quarter, surpassing the €100bn level for the first time ever, new figures from Germany’s fund organization BVI show. The figure compares to €93.3bn at the same time last year, and €88.3bn the year before (2017).
Total net inflows for open-ended vehicles came to €3.0bn in the first three months of 2019, well up on the comparable periods, when this figure was €1.7bn (2018) and €2.4bn (2017).
According to Michael Schneider, managing director of Hamburg-based Service KVG (real estate funds management company) INTREAL, “Getting past €100bn is a historic step for open-ended mutual property funds. The growth and the consistently high inflow show that private investor demand is unswervingly strong and is, in fact, even on the rise. In many cases, open-ended property funds, which have been improved and given greater legal security in light of past experience, are the only way for private investors to invest in property, even from amounts as little as €50.00. In particular, in a sustained low-interest environment, property investments are also becoming more important in a pension context.”
The growth and strong demand are also reflected in a large number of new product initiatives. In the last two years alone, eight new open-ended property funds have been launched or announced, including offerings from established fund initiators such as Deka Immobilien and Union Investment, as well as newer entrants to the sector such as KGAL or Industria Wohnen.
The solid demand for open-ended property funds benefits new funds as well, and not just the established “old” ones. This is partly due to the fact that a majority of the older, big funds are no longer freely investable, and instead have to work with allocation quotas. This means that only certain pre-determined equity tranches can be released to raise capital. According to Scope Ratings, this applies to all the funds of Deka Immobilien and all the funds of Union Investment, for example.
INTREAL’s Schneider says that “the shortage of available products shows that the new fund initiatives are more than justified. There is currently sufficient demand on the market for further new funds as well. I’m assuming that we will see yet further funds launched by the end of 2020.”
The challenge for providers remains acquisitions - in other words, finding enough assets to build their portfolios. “Funds are compelled to build a portfolio during a high-price phase. Fund providers are responding to this by becoming more and more specialized,” said Schneider.
Examples of this were the first open-ended funds to invest in residential property, which emerged a few years ago. A further example is the first open-ended fund which plans to invest exclusively in local level retailers. The opportunities are obviously there for new providers that have precisely this sort of specialist expertise.
INTREAL itself has been on a steep growth path as it accompanies many of the mutual funds by offering them a management platform. It has increased its assets under administration (AuA) to €27.2bn at the end of the second quarter, up from €20.4bn at the same time last year. It now administers 141 funds, containing more than 1,200 properties.
Schneider commented, “Despite – or perhaps because of – the wide range of political and economic uncertainties, property-based forms of investment remain highly popular with both institutional and private investors. I expect the dynamic business growth to continue in the second half of 2019, with assets under administration reaching €30 billion."
To support this growth, INTREAL is opening a Frankfurt office this month, with another German office scheduled to open before the end of the year to maintain close personal proximity to clients.
The company has two major business units, its Partner Funds Division and AIF Administration Services. In the Partner Funds division, the company acts as a capital management company and fully licensed alternative investment manager (AIFM) and offers national and international asset managers a platform for launching and administering regulated property investment funds. In the first half of the year, the division grew by €1.5bn to €17bn, while servicing a total of 36 national and international fund partners.
In its AIF Administration Services division, INTREAL takes on all back-office activities for other capital management companies. In the first half of the year, INTREAL boosted total volume to €10.1bn, an increase of €1.2 billion compared to the same period last year. Schneider said of the rapid growth, “A growing number of AIFMs are using our services, as there has been a huge increase in the bureaucratic and technical requirements in recent years as a result of growing regulation. While we deal with organisational matters in the background, our customers are free to focus on their core business.”