Markus Gotzi, Editor, Der Fondsbrief
You will have recently read here in the pages of REFIRE that BaFin boss Mark Branson is concerned about the development of open-ended property funds, with investors increasingly seeking to redeem their units. This can put the funds in an emergency situation if they have to sell properties at a loss in order to create the necessary liquidity.
However, there are alternatives to cancelling units - even for institutional investors. Last year, Fondsbörse Deutschland presented its new "Private Markets" trading platform at the Expo Real property trade fair. Since then, numerous potential buyers have registered with the platform.
As Alex Gadeberg, the CEO of Fondsbörse Deutschland Beteiligungsmakler AG puts it, "We have been trading shares in mutual funds with property, infrastructure, ships and private equity on our secondary market exchange in Hamburg for more than 20 years. In this way, we can create liquidity for sellers and can provide new investors with a range of financial assets with a good track record. At the end of 2023, we expanded trading to include open-ended and closed-ended special funds for professional and semi-professional investors."
But what many institutional investors often don't realise is that if they cancel their shares in open-ended special funds, they might be waiting a long time for their money, while the funds have to sell their assets in order to pay out the investors. And it's not at all certain what they will ultimately get for their shares. By contrast, "If the institutional investors sell their shares on the Fondsbörse platform, they will receive the proceeds after just a few weeks - and for the value that they themselves have negotiated," says Gadeberg.
The ability to trade is also a huge advantage for asset managers, as it allows them to avoid fire sales. And the service capital management companies (Service-KVGs) also welcome the alternative to cancellation. This is because if the asset managers are unable to sell their properties within a given deadline, the custodian must take over management - "a situation which every depositary wants to avoid" says Gadeberg.
Last but not least, share trading also offers a form of reassurance to the remaining fund subscribers, since the change of investors does not change the profitability of the fund. This also benefits the new investors, who can acquire funds with a proven performance at the current price level.
Almost a year ago, the European Central Bank, in its latest report at the time, expressed its worry about possible distressed sales from property funds, with consequences for the stability of the financial markets. The price losses on bonds in some portfolios have led to a sharp rise in the relative value of alternative assets and the legally prescribed quotas being exceeded. "We have spoken to many asset managers and Service-KVGs over the past year. Even though they were initially sceptical, almost everyone eventually conceded that a trading venue is necessary and can solve the problems of many investors," says Gadeberg.
In co-operation with the Service-KVG Hansainvest, the fund exchange has therefore developed standards and contracts for structuring, accelerating, and simplifying trading. Many potential sellers are still unaware that it is possible to sell their shares early. As soon as this changes, supply and demand will increase, Gadeberg is certain: "We saw a similar development in the past with the trading of mutual funds."
Nonetheless, the markets for mutual funds and special funds are fundamentally different. Transparency is particularly important when trading mutual funds. Sellers want to know the exact prices at which other investors have sold their shares. This is why the fund exchange publishes the trading prices after each transaction. "We will never do that with special funds," assures Gadeberg.
Special funds demand absolute discretion. Every investor has to register and is vetted as a potential customer in a personal interview. If the buyer is interested in a specific offer, they initially only receive a teaser with key data that does not allow them to identify the fund. If they confirm their serious intention to buy, they are given access to a data room - similar to a direct transaction. There, both trading partners can negotiate the price for the respective shares individually - moderated by the fund exchange.
In times of global market turbulence and changes in asset valuation, second-hand funds are taking on greater significance. Compared to the international market for secondaries, however, trading in shares in open- and closed-end special funds for institutional investors is still in its infancy in Germany. Gadeberg says, "We presented the Private Markets trading centre to the industry for the first time at Expo Real in Munich last year. Since then, around 50 interested parties have registered as potential investors. We have brokered the first deal and are working on further transactions."
About the Author
Markus Gotzi is the Editor of Der Fondsbrief.