Study shows outperformance of German market over European funds

Returns for German institutional property funds in the third quarter were 0.1%, according to the IPD/BVI German Quarterly Spezialfonds Index (SFIX). Funds invested in Germany significantly outperformed European allocated funds, while at a sector level retail allocated funds outperformed office funds, according to the latest SFIX readings, managed by IPD.

At a recent presentation of the German Institutional Real Estate Funds Study 2013, attended in Frankfurt by REFIRE, Dr Daniel Piazolo, the head of IPD in Germany commented, “We now track the performance of 145 Spezialfonds worth €33.8bn in net asset value, and cover two thirds of the market.” Dr. Piazolo was presenting the results of the latest study, along with Eitel Coridaß, the CIO at Warburg-Henderson in Hamburg, who are sponsors of the fund research.

The outperformance of German funds compared to European funds in the third quarter reached its highest-ever level, with German funds returning 0.9% for the quarter, compared to -0.5% for European funds. Over the last four quarters, the annual return of German funds has been 3.4%, in contrast to -0.7% for European funds. Over a five-year period, the corresponding figures are 3.3% compared to 0.8% per annum.

The study also shows that the yield spread within the Spezialfonds market has never been wider. For 2013, the SFIX index showed a significantly pronounced spread between returns of the various constituent Spezialfonds, ranging from -12% to plus 8%, with the median at 3% and the cap-weighted index itself at 1% annualised.

Dr. Piazolo attributed the spread to diversification and specialisation in the market. “There is a continued trend away from major funds towards niche products” he said.

The net fund volume in German real estate Spezialfonds, designed for institutional investors, was €50.1bn at end-June, a rise of €5.3bn or 11.9% year-on-year, according to IPD.

Eitel Coridaß of Warburg-Henderson, itself a significant manager of Spezialfonds, added some cautionary words, particularly about the apparent underperformance of European-based funds. “We have to take into account the observation period starting in 2007, which means most of the investments were made during the crisis when Germany was considered a safe haven,” he said. “Before the crisis, this was not always the case.”

Also contributing to what became a lively discussion, Sebastian Gläsner, head of fund services at IPD, pointed out that one-third of the Spezialfonds in the index were currently in the selling phase, which also influenced prices and performance.

Helping provide the perspective of an actual fund manager was Dr. Hans Wilhelm Korfmacher, the managing director of the WPV Versorgungswerk der Wirtschaftsprüfer und der Vereidigten Buchprüfer, the €2.3bn pension fund for German auditors and chartered accountants.

The WPV has been in the news recently as one of the buyers of the Tower 185 in Frankfurt, one of the four tallest buildings in Germany and the headquarters of PriceWaterhouseCoopers. WPV has increased its real estate exposure significantly recently to nearly 20%, including participating in two southern German residential portfolios as a syndicate member under Patrizia Immobilien, bringing its residential exposure up to 16%.

Korfmacher described the thinking behind his organisation’s transformation, which is seeing WPV’s portfolio undergoing restructuring into a single German Spezialfonds, as well as two Luxembourg vehicles for real estate and alternative investments, all constructed according to the new German KAGB rules. Any direct real estate investments it might make in future would be directed into the Luxembourg vehicles, he said.

He said categories such as core, core-plus or value-add were used “mostly for marketing”, and that it was more important to understand the opportunities or risks of a given real estate investment, adding that he mostly preferred “investing opportunistically in core assets”.

Commenting on the SFIX Index, Korfmacher said that the index was “on its way to becoming a benchmark for peer group comparison of managers” and “perhaps an additional benchmark for performance-related fees”. He would have to question why in future any fund manager might drag their heels on providing data on their fund performance to IPD/BVI, suggesting that it might look as if they had something to hide.