GERMANY - Recent redemptions from German open-ended funds (GOEFs) were "mainly driven by institutional investors rather than retail investors," according to a senior analyst for CB Richard Ellis.

The increased market turbulence of recent weeks has encouraged institutional investors to readjust their real estate portfolios and redeem from the vehicles, said CBRE's Iryna Pylypchuk.

"The events of September and October - Lehman Brothers going into liquidation, Hypo Real Estate crisis, freeze of pfandbrief market and rapid fall in equity markets - brought further turbulence into the market," she said.

"As a result, a lot of fund of funds or institutional investors were redeeming their units from the GOEFs to cover redemptions from their own funds or to rebalance their own portfolios. For example, with the equity markets falling so much, it may be that their exposure to real estate is much higher than planned, so they have taken money out to rebalance their portfolios."

According to Pylypchuk, the lack of fees imposed on institutional investors meant there was less of disincentive for them to make withdrawals.

"Institutional investors generally do not pay the 5% participation fee that the retail investors do when buying GOEFs units. Therefore, unlike retail investors, they are not ‘penalised' for disinvesting from the funds within a short period of time," she said.

GOEFs are required to have a minimum of 5% liquidity, but the high level of redemptions in September forced 12 open-ended funds to temporarily close in October 2008. CB Richard Ellis' latest market review on GOEFs revealed that the so-called frozen funds accounted for 40% of the total GOEF sector.

Most suspensions are currently being limited to three months, although Bavarian DJE Kapital AG has suspended redemptions indefinitely.

Despite bringing liquidity into GOEFs, institutional investors "raise volatility in uncertain times like these" says Pylypchuk.

Commenting on whether institutional investors' attitudes towards GOEFs will change, Pylypchuk said: "Institutional investors are realising that the market is very different to what it used to be. However, the real estate vehicles, like the GOEFs, with their proven track record of stable returns over time, should continue to be attractive investment option for long-term investors seeking stable returns."
 

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