German Spezialfonds return 3.4% in 2015

German real estate Spezialfonds achieved their best annual performance since 2009, according to the MSCI SFIX index, returning 3.4%. German funds performed better than those funds with a European focus. However, analysis by MSCI shows that the gap between the best and worst performing funds is widening.

Of the 175 funds covered by the index – amounting to a market coverage of 65% – the best performing funds are performing better and the worst performing funds are in decline. The hallmark of the most successful funds was timing, active asset managers and a homogenous investor structure, the latest SFIX reading shows.

However, the key factor affecting performance is the vintage, or actual year in which the fund was launched, was the main take-home message.

The findings were presented at a press briefing recently in Frankfurt, held jointly by index group MSCI Deutschland, and as last year, actual fund initiators Warburg-HIH Real Estate and Gothaer Asset Management, the real estate investment subsidiary of the Gothaer insurance group.

Spezialfonds with a European focus performed especially strong in 4Q15, with a 1.4% return, compared to 0.8% for Germany-focused vehicles, according to the IPD/BVI German Quarterly Spezialfonds Index (SFIX). “The strong recovery in many regions has led to a better performance across Europe,” MSCI Vice-President Sebastian Gläsner told the briefing. Total annual return for European funds was 2.6%, while those for German funds were 4%.

But the key message, said Gläsner, was that a fund’s vintage was more important than, for example, its sector weighting. He said that the MSCI study shows that only 35% of funds with a negative return in one year managed a turnaround in the following year. “Once a fund is off the path it is difficult for it to make a comeback,” he said. The remaining 65% of funds continue to post a negative returns “very often also into the following years”, he added.

Discussing this 'vintage' effect, Eitel Coridass, managing director at Warburg-HIH, said the most successful funds were mainly those that invested during the global financial crisis. “It is important to have courage and trust in the manager to go into markets when they are down after correction phases,” said Coridass.

He cited a trend towards smaller and more homogeneous investor groups. “You need to be quick to get the good deals – and thus know exactly which committee hurdles need to be taken with the investor,” he said. Coridaß came well equipped with figures for three of his house's own funds managed for three different investors, which had well out-performed the SFIX benchmark. Their strength was anti-cylical investment, along with close rapport between manager and investor.

The reduction of leverage has also been a key issue, he said, so that although Warburg does have funds with 50% leverage, "these are now set up only for the short-term, and by investors who if need be can boost their equity level if interest rates go up."

Ingo Bofinger, head of real estate at Gothaer Asset Management, said “We have been indirectly invested in real estate since 2004, and especially funds which have first invested between 2004 and 2006 are struggling today.”

Investors have become much more demanding, compared to 2006 when a lot more unfocused global strategies were bought into, said Bofinger. Nowadays more money flows into service KVGs, serving smaller and more specialised managers. “We want to invest with specialists in each field, thus a pan-European fund does not have that much of a chance these days,” he said.

The overall market for Spezialfonds continues to grow rapidly, with 2015 seeing the creation of a further 13 new Spezialfonds, adding a further €8.2bn to bring the new volume up to €68.3bn by year-end 2015.

According to Gläsner, the market for Spezialfonds, which started only in 2000 with €8.6bn, has been growing at about €6bn a year since 2012, and is now (at €70bn) almost the same size as the original open-ended mutual funds sector which ran into such trouble in Germany after 2008.