German open-ended funds lock the gates

The German open-ended property fund industry is in virtual lockdown following a flurry of redemption halts imposed by fund managers last week to prevent investors withdrawing their money.

Faced with the prospect of a sudden and potentially massive decline in liquidity as investors clambered to redeem their fund units, German property fund managers raised the drawbridge and shut the gates to prevent a haemorrhage from the EUR 27 bn open-ended fund industry.

Morgan Stanley Real Estate GmbH, Catella Real Estate AG, Axa Real Estate Investment Managers and DEGI are the latest German fund managers to impose temporary lock-downs on major open-ended real estate funds to stem rising outflows.

Morgan Stanley is blocking investors from withdrawing from its P2 Value Fund for three months, Catella from its Focus Nordic cities, while Axa REIM has halted redemptions from its pan-European ImmoSelect fund for a similar period. On Friday UBS Real Estate halted redemptions from its EUR 3 bn Euroinvest Immobilien and EUR 470 mln Kontinente Immobilien funds for six months. By the end of the day, Degi, part of Aberdeen Property Investors, said it was freezing its Degi Europa and Degi International funds for three months, for the time being.

KanAm has already halted redemptions from its EUR 5 bn grundinvest open-ended fund that invests in European property and the EUR 490 mln US-grundinvest vehicle for 90 days. SEB Asset Management has done the same for its EUR 6 bn ImmoInvest fund.

The decision to freeze redemptions from the P2 Value Fund also comes days after Walter Klug, a member of the board of Frankfurt-based Morgan Stanley Real Estate Investment told PropertyEU that the fund would invest $1 bn in property globally over the next 12 months. 'The current climate has definitely affected our investment strategy. We are very interested in markets like the UK and the US, where there has been the most price movement because we think they offer the best opportunities. That said, we are also looking to invest more in Asia,' he said.

The core fund, which was launched almost three years ago, currently has around EUR 2 bn of assets under management. It has an annual target return, after taxes and fees, of between 4.5% and 6%. Around 60% of the fund is invested in Europe, in markets such as Germany, the UK, France, Spain and the Netherlands. An additional 30% of the fund is invested in Asia, with the remaining 10% in North America.

But his office said on Thursday evening following the halt on redemptions: 'The fund has recently experienced large redemptions, particularly in the last two days, as a result of the extraordinary market environment and suspension of redemptions by other open-ended funds'.

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