Spezialfonds, listed sector the big 10-year winners in Germany
It is easy to forget how radically the landscape of the German real estate industry has changed over the past ten years, and how the structure of capital flows has adapted to the growing array of investment options offering exposure to the various asset classes of real estate.
A new and very useful study by the consulting team of Peter Barkow and Jesse Freitag-Akselrod highlights in sharp relief how the dominance of the all-powerful open-ended funds has been eroded in the space of ten years. The study draws a direct comparison between capital inflows in the years 2001-03 and then 2011-2013.
In the first earlier phase, 68.4% of all German capital destined for indirect property investment went into the retail open-ended funds, while 20.5% flowed into closed-end funds and about 11% into the institutional-friendly Spezialfonds. By the period 2011-2013, a mere 21% of all pooled capital was headed for the retail open-ended sector.
The crisis in the retail open-ended sector has been well-documented, and REFIRE itself has dedicated countless pages to chronicling the woes of the sector over the past six years, so the figures don’t come as a huge surprise. Nonetheless, the transformation is stark. The big winner over that period has been the Spezialfonds segment, which by 2013 had captured a market share of 37%, with inflows of €6.3bn, nearly €2bn more than into member funds of the fund association BVI, according to Bundesbank figures.
The rise of listed real estate, a subject close to Barkow/Akselrod’s heart, is also well documented in the study. Often viewed as the ugly stepsister in German indirect investing, it barely registered as a destination for property investment funds. Last year the listed sector raised €3.5bn, or 20% of all investment funds, to reach a new record high, below closed-end funds at €3.9bn (23%) but ahead of retail open-ended funds at €3.4bn.
The retail open-ended funds have undoubtedly been hit by the launch of the KAGB (retail investor protection act), as well as repayments from the many frozen funds, and the sector will have its work cut out to regain the trust and confidence of investors.
The Barkow/Akselrod study also examines where the funds’s proceeds end up. The authors estimate that 50% of net capital inflows are earmarked for investment in German properties (as against overseas). This represents a total potential investment volume of €15.6bn, a new record.
The recent strength of the residential sector has attracted about 21% or €3.6bn of combined net capital inflows into German residential – the highest share and volume ever – despite the much-vaunted distrust of the stock market as a vehicle for residential property (and hence its exclusion from the REIT legislation seven years ago).
The authors point out that the inflows into the retail open-ended funds in 2001-2003 were exceptionally high, and by 2003-2005 had fallen from a market share of 68.4% to 45%. Nonetheless, the halving of market share since then is still a radical change.
Learn more about the study on www.barkowconsulting.com