Degi funds remain frozen with more sales on the cards

Degi International and Degi Global Business open-ended property funds will remain closed to redemptions, due to 'insufficient liquidity', a spokesperson for parent company Aberdeen Asset Management said. The freeze on the Degi International fund will remain in place until 16 November 2011. Aberdeen’s Degi Global Business fund will be closed to redemptions until 11 November 2011.

To boost the funds' liquidity, Aberdeen will also start a wave of sales, the spokesperson said. 'We'd like to sell around 10 to 12 of the 39 properties in the International fund, to boost liquidity to at least 30% from 10%,' he told PropertyEU. 'We are already in negotiations,' he said, adding that Aberdeen would prefer to sell the properties in one portfolio, if possible. Aberdeen will also sell a couple of properties in its Degi Global Business fund, he added.

Degi International had EUR 2.7 bn of property under management as of 31 October 2010, according to Aberdeen. Degi Global Business had EUR460 mln of property under management as of 31 October.

In October, Aberdeen announced it would liquidate its EUR1.3 bn Degi Europa fund, saying that it could not guarantee 'that liquidity will suffice to satisfy requests for redemption'. Several other fund managers also announced late last month that funds would be liquidated, including Morgan Stanley’s troubled P2 fund, which had been due to re-open on 1 November after a two-year closure. German law allows the funds to freeze redemptions for only two years.

The fund’s 34 properties will now be sold over a three-year period, with proceeds going to investors, the bank said in a statement. Morgan Stanley said in September that it planned to reopen its P2 fund after writing down the value of the fund to EUR 852 mln, down from EUR 922 mln previously.

Also, in September, KanAm announced plans to liquidate its $550mln US-grundinvest fund. A KanAm spokesman told PropertyEU at the time that investors were becoming more conservative and concerned about currency fluctuations and that if investors would like to take their money out of the fund then KanAm would liquidate it.

Germany’s open-ended property fund sector has not fully recovered from the run on funds in the autumn of 2008. As interest rates have remained low, such funds can offer better short-term returns than traditional money markets. But as fund managers seek to capitalize their own funds, they are pulling their money out of open-ended funds, causing the ongoing run on funds. In addition, pending legislation in Germany could require institutional investors to hold onto their stakes in such funds for longer, which is prompting some institutional investors to get their money out now, while they still can. Under proposed changes due to take effect from next year, investors will be required in future to hold units in a fund for at least two years.

Germany’s 46 open-ended property funds had EUR 87.3 bn of AUM as of 30 September, according to the German Investment and Asset Management Association, or BVI. Of this, 12 funds - including those with a ban on redemptions or which will be liquidated - hold EUR 24.67 bn of AUM, a BVI spokesman said.