Union Investment entering debt, ‘repositioning’ fund sectors in 2014

German heavyweight investment manager Union Investment said that it expects to launch a range of new investments for institutional clients next year, including debt funds and repositioning fund, to broaden its product offering and build on the expanded range of products it introduced throughout 2013.

The Hamburg-based Union Investment raised nearly €1.4 billion of new capital this year for its institutional funds, and introduced six new products, including a fund for budget hotels and an infrastructure fund for renewable energy.

According to Dr. Christoph Schumacher, board member at Union Investment Institutional Property GmbH, most of the acquired capital has already been invested in assets. "The start-up phase of our new products has been highly successful in the hotel segment, but also in terms of office real estate in mid sized German cities", he said.

As the ‘800-pound gorilla’ in the sector, Union Investment with its enormous distribution clout has undoubtedly been a beneficiary of the demise of the weaker open-ended funds in Germany. Banks, foundations and other institutional investors have this year ploughed in €421 million into the two of the group’s open-ended funds, UniInstitutional European Real Estate and UniInstitutional German Real Estate. The latter is a new Germany-focused fund, accounting for €100 million of the total, and was heavily oversubscribed in its second subscription phase. Altogether, Union secured new capital commitments of about €222 million for its six special real estate funds throughout the year.

Union also raised about €224 million for its service mandate business, where the group acts on behalf of pension funds and insurance companies. A further €500 million of new investment capital was raised to enable investors pull the real estate investment into one place, and, with service mandates and pooling vehicles now valued at about€1.1bn in place, Schumacher said that expanding this side of the business was a priority.

The plan for a new repositioning fund was hatched out of the company's own experience in refurbishing buildings from its own property stock – with the former Unilever headquarters in Hamburg being a prominent example. We reported in an earlier issue of REFIRE this year that Schumacher had indicated that the group was looking seriously at a move into the creation of debt funds for some time, after several institutional investors had suggested that Union would be a preferred partner for them.

The group has also had success this year in raising money for its sustainable renewable energy fund – with several investors coming back for a second helping. The strategy focuses exclusively on onshore wind energy parks in Germany and neighbouring European countries, including France and Ireland to date. The fund may also invest very selectively in photovoltaic plants, and is expected to reach its target size of €300 million equity by 2016, giving it firepower of nearly €800m with leverage.