German open-ended funds reopening earlier than expected (DE)

Following a number of favorable developments, the German open-ended funds (GOEFs) are set to turn the corner earlier than expected. SEB ImmoInvest fund, one of the largest funds to have temporarily closed to redemptions in October last year, reopened at the end of May.

This came as a surprise to many, despite earlier announcements by the fund expressing its intentions to lift the redemptions ban. Having seen over €150 million net inflows over the November 08–April 09 period, and having negotiated short-notice flexible credit lines, SEB's liquidity level has improved to above 20%. The fund's decision to reopen early generated some positive sentiment towards the sector as a whole. Overall net inflows into the GOEFs in April totalled a strong €556 million, the highest April result for the past five years.

Even more encouraging is the fact that the flight of capital from the GOEFs, caused by the German government guarantee of all bank deposits last October, is coming to an end. In recent months, interest rates on bank deposits have fallen rapidly and investors are returning to the GOEFs, who have reported €1.6 billion net inflows in the first four months of the year. In fact, the first signs of a possible upturn are starting to become evident for other Publikumsfonds too, with equity and bond funds seeing positive net inflows in contrast to the substantial net withdrawals during the first quarter of 2009.

This improved investor sentiment is encouraging the nine remaining 'closed' funds to consider reopening sooner than initially expected, and the reopening of SEB ImmoInvest puts further pressure on their timing. These nine funds account for almost a third of the sector's total value; however eyes are likely to be on the three largest – CS EUROREAL A (€6.8 billion), KanAm grundinvest Fonds (€4.8 billion) and AXA Immoselect (€3.7 billion). The CS EUROREAL A fund has already reported its intention to reopen before the end of June, whilst KanAm Grund is now also in a better position as some cash has been freed-up as a result of the much lower price on its forward purchase agreement in Moscow.

For all of the 'closed' funds, however, the key to the decision to reopen lies in improved liquidity levels and their ability to maintain investor confidence to prevent substantial outflows post reopening. The average liquidity ratio for those funds that are trading as usual is currently at a very healthy 22%, leaving them well-placed to continue active acquisition programs. In Q1 2009 alone, the GOEFs invested close to €700 million, with AXA, DEKA and Union Investment managed funds being the most active.

On the other hand, the average liquidity rate for the nine remaining 'closed' funds is closer to 14%. Whilst this is an encouraging improvement compared to earlier in the year, it is not likely that all of the nine funds will reopen in the next two months. Most of the fund managers would not consider reopening unless they are confident in their ability to remain open permanently. They will therefore aim to reach a minimum of 20% liquidity before doing so, to guard against the possible risk of high redemptions on reopening.

Iryna Pylypchuk, Senior Analyst in CB Richard Ellis' EMEA Research & Consulting, commented: "Recent events and improved investor sentiment towards the German Open-ended Funds sector are certainly promising, and developments over the next few months will give an even clearer picture of the general health of the sector. Strong inflows over recent months have contributed to improved liquidity levels for most of the funds. The other important factor to take into account is that German funds are very modestly leveraged. Although a maximum 50% fund-level gearing is allowed by law, the average in the sector is currently around 30%. They are therefore free to increase their level of debt if further capital is needed and recent announcements show that some funds have done just that by agreeing flexible credit lines."

Source: CB Richard Ellis

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