New legislative changes will see institutional capital leave the German open-ended fund (GOEF) sector and be invested instead in dedicated special funds (spezialfonds), according to a still to be published report by CB Richard Ellis (CBRE).

New legislative changes will see institutional capital leave the German open-ended fund (GOEF) sector and be invested instead in dedicated special funds (spezialfonds), according to a still to be published report by CB Richard Ellis (CBRE).

The report, entitled 'German Open-ended Funds: Changing Regulations for Changing Times', says the switch to spezialfonds will occur in response to amendments to the German Investment Act, due to be introduced in 2011.

The GOEFs have been in the spotlight over the last couple of years, and the last couple of weeks have been no different, CBRE says. Morgan Stanley P2 Value’s decision to reopen to redemptions in expectation that the significant fall in redemption values will discourage further investor withdrawals, and the first liquidation in GOEF history announced by KanAm US Grundinvest fund, are among the most recent announcements to hit the market. CBRE’s forthcoming report assesses the current state of the funds and analyses the major implications of the legislative changes for the sector.

Iryna Pylypchuk, Associate Director EMEA Research and Consulting and the author of the report, commented: 'Spezialfonds are a more natural place for institutional capital. Exclusively dedicated to institutional investors, they are often managed by the same fund managers as the GOEFs. Spezialfonds offer similar levels of returns - normally slightly higher because they do not need to retain as much cash as the open-ended funds - and their strategies are not dissimilar to those of the GOEFs: focussed on core assets and markets, although generally in smaller lot sizes.'

The main aim behind the amendments to the German Investment Act are: to give even greater protection to retail investors; to set out clearer rules on the timing and structure of redemption freezes; and to outline other steps necessary to protect investors into the funds in the case of a crisis.

One of the key protections for small investors is a EUR 5,000 exemption, whereby withdrawals up to EUR 5,000 per month will be exempt from the restrictions on liquidity, meaning that GOEFs can still be used as a source of regular pension income.