REAL ESTATE – Fund industry association BVI has unveiled a set of sweeping measures aimed at shoring up German open-ended property funds, which have been battered by panic-selling and unprecedented fund closures.
Chief among the measures is a requirement that the investor must disclose his identity to the fund provider and hold on to his shares for a minimum of 12 months, for property fund investments exceeding €1m.
According to the BVI, the requirement is designed to preserve the “long-term nature” of German open-ended property funds and to better protect small investors in the funds.
“The requirement carries advantages for the average private investor without limiting his access to the funds on a daily basis,” said BVI chairman Markus Rieß, who unveiled the measures at a news conference in Frankfurt.
Indeed, industry sources speculate that institutional investors, particularly Sparkassen (state-owned savings banks) and co-operative banks, are mostly to blame for the panic-selling that has hit German property funds.
Since mid-December, Deutsche Bank’s real estate fund arm as well as a Munich-based provider called KanAm have temporarily closed their funds after the products suffered hundreds of millions of euros in outflows within days. The closures were the first since the birth of German open-ended property funds 40 years ago.
In Deutsche’s case, the panic-selling was caused after word got out that its core German fund would downgrade the value of its property. KanAm closed its core European fund and its US fund after a sale recommendation from the rating agency Scope prompted panic-selling in those products.
Other open-ended real estate funds, like that of SEB ImmoInvest, a German arm of Sweden’s SEB, have also suffered outflows in recent days, though not to the same extent as those from Deutsche and KanAm.
Rieß said the BVI had no idea who exactly was behind the panic-selling. He added, however, that German private investors had so far not succumbed to it, which was partly why “we’re seeing signs of a stabilisation in the outflows from the funds.”
Regarding other measures aimed at propping up the funds, the BVI proposes permitting them to raise their minimum liquidity to 10% from 5% now. The BVI also wants them invest 20% of their holdings in real estate investment trusts (REITs) and other listed real estate companies. Finally, the BVI says the funds should be able to sell their property holdings at market price to other funds from the same provider.
Rieß said that while German fund industry itself could implement some of the measures by the third quarter, others – like the one pertaining to liquidity – had to be implemented by the government in Berlin.