Regulation paves way for new German funds

KanAm is preparing to launch a new open-ended retail fund as Germany gears up for tightened government rules on redemption.

The German fund manager is working on its resurrection as an open-ended retail fund manager ahead of new government regulations due to take effect on 21 July. 'The upcoming guidelines will make new funds shock-resistant and therefore very attractive to retail investors,' KanAm’s spokesman Michael Birnbaum told PropertyEU.

The new regulatory regime is also an opportunity for the Frankfurt-based investment manager with €11 bn of assets under management to grow its business again after four slow years.

Since 2006, KanAm has not launched any new closed end funds and has focussed instead on its special funds (or Spezialfonds) for institutional investors and its two open-ended retail funds. However, all three funds were contaminated by the turmoil that racked the sector following the outbreak of the financial crisis in 2008.

After panic-stricken German private investors sought to withdraw billions of euros within days, 15 funds with more than €20 bn of assets under management were frozen and 11 have so far been forced into liquidation.

Through forced sales and further redemptions from other funds, the total volume of assets under management in open-ended retail funds shrunk from more than €96 bn in 2008 to €82.3 bn, according to the latest data by sector association BVI. 'The crisis was a wakeup call for the government and laid bare the structural defects of the funds,' said Sonja Knorr, analyst at rating agency Scope in Berlin.

Under the old regime, retail investors could redeem up to €30,000 every half year. Since the average private investor has no more than €25,000 in a fund, a run on the fund could easily force these vehicles into liquidation. 'In such circumstances, it is just not possible for management to sell property fast enough to stay on top of the outflow of capital,' Knorr explained.

Under the new regulations, due to be implemented on 21 July, any capital invested in an open-ended fund may not be withdrawn for a period of at least 24 months and can only be redeemed after 12 months notice. 'This will make the funds more stable,' said Klaus-Peter Flosbach, financial policy spokesperson for the Christian Democratic party in the German Bundestag. In future, management will have ample time to anticipate capital outflows, he argued.

Experts point out, however, that investors can still make redemptions of up to €30,000 within a six-month period of investment before the new regime takes effect in July. 'As a result, further liquidations among the 29 funds that survived the crisis cannot be ruled out,' according to Dieter Thomaschowski of Thomaschowsi Research & Advisory at Erkrath.

With this risk overshadowing the old funds, KanAm sees an opportunity to attract capital to its new fund. 'In a new vehicle, all investors will be subjected to the same redemption rules,' said Birnbaum. The fund will be launched when the German financial regulatory authority, Bafin, gives its approval, most likely this autumn, Birnbaum said. The investment strategy has already been set out. 'The fund will focus on prime office buildings in central locations of European and North American cities,' he said. Other fund managers will be watching closely whether the new fund starts successfully or not. If so, more new vehicles could be on their way in the spring of next year.

Richard Haimann
Correspondent, Hamburg