SEB AM slams proposed GOEF changes

Frankfurt-based SEB Asset Management has strongly criticised proposed amendments to the open-ended real estate fund system put forward by the German Ministry of Finance.

The proposed changes could change the definition of an open-ended fund for the worse, according to Barbara Knoflach, CEO of SEB AM and a board member at the German fund organisation BVI.

'An open-ended fund is a liquid investment vehicle but the Ministry of Finance is suggesting changes - such as investors having to give two year's notice to redeem units - that would make these funds very illiquid and the antithesis to what they are today,' she warned.

Her comments come as the government proposals threw the market back into chaos, prompting a run on funds.

In recent days, both Kanam and SEB have banned redemptions, also citing greater uncertainty in the market following the unveiling of a draft discussion document from the Ministry of Finance earlier this month. The document suggested how to better regulate the open-ended fund industry, following spells of heavy outflows over the past 18 months.

Last week, Credit Suisse suspended withdrawals from its CS Euroreal fund for three months. The EUR6.2bn fund mainly invests in office and retail properties in eleven European countries, including Germany, the UK and France.

According to Credit Suisse's head of corporate communications for Central Europe, Björn Korschinowski, Euroreal had EUR 570 mln in liquidity available at the end of April just before Germany proposed the changes. But it has witnessed almost EUR400 mln in redemptions in the same period. Redemptions were halted retroactively as of 18 May.

The draft discussion document proposed a number of changes, including that investors should provide two years' notice before redeeming units. Currently, investors can redeem units at any time. In addition, the document said that investors should hold units in a fund for at least two years.

More controversially, the paper suggested that the value of assets within the funds should be written down by 10%, sparking concern from analysts that such a move could wipe out several years of returns.

The BVI has put forward its own proposals following the release of the draft discussion document. The BVI has suggested a 12-month holding period for new investors, which would be regarded as ‘elapsed’ for existing investors. The BVI also favours a standard notice period of 12 months for institutional investors. In addition, the BVI has suggested that properties in the funds should be evaluated every six months instead of at the current yearly intervals.