International players pile into German spezialfonds market

The German fund industry is likely to become more fragmented as an increasing number of international players seek to provide spezialfonds structures for institutional investors, according to seasoned real estate professional Barbel Schomberg. The move comes as institutional investors are cooling on German open-ended funds(GOEFs).

The GOEF system was designed 50 years ago for private individuals working to top up their pensions. Up to now institutional investors have been drawn to GOEFs by the possibility of daily redemptions. In the last few years this has led to liquidity problems for the funds. ‘We all know now that daily redemptions do not fit into the overall concept of real estate,’ Schomberg said.

Speaking to PropertyEU on the first day of EXPO REAL in Munich, Schomberg, of independent real estate advisory Schomberg & Co., said that proposed regulatory changes would introduce a two-year holding period before equity can be withdrawn from a GOEF, making the system less accessible to institutions. Such investors and fund-of-fund managers often need to withdraw equity quickly to deploy it elsewhere. ‘Insurance companies in Germany are governed by a law which states they should be able to redeem equity within six months,’ Schomberg said.

This potential conflict is stimulating the growth of spezialfonds. Schomberg said international players like Europa Capital, advised by Schomberg, and Catella have moved to establish the Kag vehicles that are required to manage spezialfonds. This could lead to established Kag players losing market share and a lot of the new players will also have limited market share, Schomberg said. ‘If a new Kag collects a lot of mandates to establish spezialfonds, it has to be able to fulfil the promise.’ Schomberg’s company advisies on matching investors with funds and helping to establish club deals.