Volumes, returns grow despite open-ended fund sell-offs

New investments into the German open-ended funds sector are now offsetting the liquidation effect of the funds forced into liquidation, and are generating solid returns for investors of between 2% and 3% for investors, the latest figures from the IPD monthly OFIX index show.

Compared to May 2012, index volume has decreased by €2.6bn. or 3.4%, as a result of fund liquidations. Ten out of 22 OFIX funds have entered liquidation, and their fund volumes have decreased by €4.9bn compared to last year. These vehicles are now worth €18.1bn. and account for 24.7% of the OFIX index. The OFIX index covers 22 funds targeting retail investors, with a total value (NAV) of €73.4bn.

Despite their high level of coverage by the media, liquidating funds actually account for less than a quarter of the market, and for the bulk of the market fund volumes grew. In terms of returns, those ten funds in the OFIX index that have entered liquidation returned -3.9% over the last twelve months and -4.1% over the last three years on an annual basis, while the twelve funds that are open for new investment returned 2.2% in the last year and 2.3% per annum annualised over the last three years. “The market remains split between active funds and funds in liquidation, but new investments now offset the liquidation effect,” said IPD Germany’s Daniel Piazolo. “Active funds return between 2% and 3% p.a., and investors appreciate this.”

Sizeable losses for liquidating funds

So, how are the liquidating funds faring as they move towards their five-year goals of selling off all their assets?

SEB Immoinvest has just made its latest payment to shareholders, distributing another €368m and bringing total payouts to €1.7bn or 30% of its assets. The fund only started liquidation in May 2012. The latest payout came from proceeds of sales including the disposal of a Berlin portfolio to Canadian REIT Dundee International, two Berlin hotels to the ARTIC subsidiary of Qatari group Al Faisal Holding, and a further two individual properties in Berlin and Prague.

AXA Immoselect, which is also in the process of unwinding its holdings, has been aggressively discounting its assets in the interests of a speedy sale. It has recently sold most of its asssets in the Netherlands, an office in France and an office in Germany for about €300m, accepting discounts of up to 48% on their most recent (German accounting) valuations.

Its French office in Colombes near Paris was marked down 21% to €126m, “to reflect the challenging leasing situation of the asset”, the company said, given 2.2 years left of lease life and plenty of new competition in the vicinity. Also selling for a 21% discount on book value at €31m was AXA’s Grafenberger Höfe dual office complex in Düsseldorf, which is facing the departure of its anchor tenant in December 2018.

In the Netherlands the €2.1bn fund sold most of its Dutch portfolio to an unnamed private investor for €140m, a hefty 48% discount on its most recent book valuation, due to the troubled nature of the Dutch office property market. The portfolio consists of six office buildings in what were considered B-locations in Amsterdam, Den Haag, Arnhem, Rijswijk and Rotterdam and one 14,000 sqm retail asset in Dronten with an average lease term of six years and a vacancy rate of 20%. Property advisor Cushman & Wakefield organised the structured sales process for the portfolio, which went to the highest bidder. At the price paid by the buyer, the gross initial yield is 12%.

AXA is under time pressure to liquidate the fund completely by October 2014, and said it took the view that in the Netherlands with its hefty office space overhang, the situation was unlikely to improve substantially in the short- to medium-term.