Open-ended real estate fund industry presents joint reform proposals (DE)

The open-ended real estate fund providers represented by the German Investment and Asset Management Association (BVI) have put forward joint proposals to improve and enhance the long-term prospects of their products.

The companies declared their commitment to implementing necessary reforms without harming investors' interests or undermining the core features of open-ended real estate funds. Accordingly, the BVI supports a twelvemonth holding period for all new investors; the period would be regarded as elapsed for existing investors. "This holding period for new investors highlights the fact that property is a long-term investment," says BVI director general Stefan Seip.

The BVI also favours a standard notice period of twelve months for institutional investors. "We believe that these measures will considerably improve liquidity management of openended real estate funds and make the product even more attractive to the many private investors," adds Seip. To enhance the appeal of open-ended real estate funds as part of retirement planning, the BVI members also agree that there should be no restrictions on savings and withdrawal plans, with appropriate liquidity levels ensuring servicing of withdrawal plans even when redemptions are suspended.

The BVI additionally proposes that open-ended real estate fund units continue to be available to normal private investors on a daily basis after the initial holding period. "Investors should be able to acquire units every day, as before. This is essential if savings and withdrawal plans, which are typically monthly, are to remain possible," explains Seip.

To further boost investor confidence in the product, the industry is suggesting valuation of properties by independent experts every six months, instead of the current yearly intervals. "We believe the existing valuation regime has worked well and would be bolstered by more frequent valuations," says Seip. In addition to the reforms outlined above, the BVI is keen on the option of agreeing longer notice periods in individual contracts between providers and their customers. Experience has shown that existing agreements of this type have not always been enforceable.

Also, future legislation should allow greater scope for tailoring products to meet the needs of different investor groups. Open-ended real estate funds have proved their worth as one of Germany's most popular investment products for over 50 years. Compared to other products worldwide, they have shown themselves to be extremely stable in the face of the financial and economic crisis. Net inflows of 3.2 billion euros in the first quarter are compelling evidence of investor confidence in open-ended real estate funds.

The BVI is confident that its joint proposals will provide a sound basis for modifying the rules to reflect the changed environment. Constructive talks are currently being held with all the relevant parties.

Source: Union Investment Real Estate GmbH

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