INREV: German open-end funds receive vote of confidence (NL/DE)
Friday 15 June 2012
Institutional investors and fund managers in German open-end funds (GEOFs) remain surprisingly positive about these vehicles, despite the imminent introduction of the AnsFuG legislation, according to recent research by INREV.
The AnsFuG reforms, which are due to come in to effect in January 2013, will introduce a 24-month ‘lock-up’ period, a notice period of 12 months for the redemption of fund units, and a cap on the debt ratio of 30% for all GOEFs. The legislation was designed to improve protection for retail investors in these funds, as a result of significant capital redemptions and the subsequent forced closure of some funds following the financial crisis of 2008.
But the vast majority of institutional investors and fund managers welcome the changes saying that; overall, they will strengthen the GOEF market by introducing more capital to Spezialfonds – one of the three main types of GOEF. In fact, 75% of institutional investors are expected to increase their allocations to Spezialfonds. This could result in a projected 20% rise in total NAV for Spezialfonds to around €38 billion.
“Despite initial uncertainty about the impact of new legislation on GOEFs, our research suggests that the reforms will help to strengthen the market in the long-term. There will be a significant shift of capital allocation from retail funds to Spezialfonds. Spezialfonds will therefore become more important,” commented Matthias Thomas, CEO, INREV.
However, the reforms are likely to impact retail funds and institutional retail funds in the GOEF sector, with a potential decrease in NAV from €85 billion to €65 billion. Total NAV for institutional retail funds is expected to halve to approximately €5 billion, with the majority of institutional investors exiting these funds in favor of Spezialfonds.
There is also likely to be consolidation and contraction in the market for retail funds with only half of the current 14 providers remaining active in the medium term.
According to the INREV report, fund managers are unlikely to significantly change their investment strategies for GOEFs. Nearly 67% of fund managers said they would not change their country allocations preferring to stick with Germany and the Eurozone. Similarly, two thirds of fund managers plan to retain the liquidity ratios of their funds, though one third said they would decrease these as a result of the 24-month ‘lock-in’ period.
The majority of these investors still see the key benefits of GOEFs as providing them with portfolio diversification, a positive risk-return profile, and stable long-term cash flows. 76% of investors said that the AnsFuG would not impact their future allocations to GOEFs. The report also suggested that Solvency II regulations might be a deterrent from investing in these funds.
“The findings from our research are fascinating. They provide strong evidence that the market for GOEFs is alive and well and that the AnsFuG reforms will in fact increase the appeal of these funds for institutional investors and private individuals alike,” concluded Thomas.