German open-ended funds 'to dominate home market in 2009'

German open-ended funds (GOEFs) are likely to embark on a bumper shopping spree next year both at home and abroad following massive inflows this year which have left them with sizeable capital to place, according to Sascha Hettrich, a managing partner at King Sturge in Berlin.

‘German open-ended funds are likely to dominate their home market next year - they have learned to buy and sell at the right time in the cycle. I have spoken to fund managers who tell me that they are seeing inflows of EUR1 mln to EUR3 mln a day at the moment which they are very keen to invest,’ he said.

According to BVI Bundesverband Investment und Asset Management , which represents the German mututal fund industry, there were EUR5.78 bn of inflows into Germany’s 43 open-ended funds in the first eight months of 2008. Thiis figure excludes inflows to spezialfonds, said BVI spokesman Frank Bock.

However, Germany’s open-ended funds are unlikely to change their typical investment remit of investing in prime properties - even if they can’t find enough investment opportunities, Hettrich warned. Instead, they are likely to accept lower annual returns in order to preserve their wealth, rather than betting on increasingly volatile markets, he said ‘Typically, open-ended funds would have a target annual return of 5% to 6% but they are likely to accept lower returns on prime properties with good tenants.’

There have been around EUR18 bn in real estate deals in Germany so far this year, of which around a third have involved open-ended and closed-end funds, Hettrich estimated. By the year end, around EUR25 bn in deals is expected to have been transacted - a significant drop from the EUR60bn recorded last year.

Next year is likely to be even more challenging, said Hettrich, who estimated that the total deal volume in Germany next year is unlikely to exceed this year’s total. In particular, the second half of 2009 is likely to be very challenging for occupational markets as the effects of the banking crisis and major lay-offs starts to trickle down to the office market.