German fund and asset management giant Union Investment Real Estate is considering opening up its fund management business to non-German institutional investors, management board member Reinhard Kutscher has told PropertyEU in an interview.
German fund and asset management giant Union Investment Real Estate is considering opening up its fund management business to non-German institutional investors, management board member Reinhard Kutscher has told PropertyEU in an interview.
At present, Union Investment’s institutional client base is located exclusively in Germany, but Kutscher said he did not rule out opening the fund management business to non-German institutional investors in the mid-term. He stressed, however, that this was not on the main agenda for the immediate future.
While private investors account for the bulk – or €19.7 bn - of Union Investment’s business across three retail funds, the institutional business is growing fast, Kutscher said. Currently Union Investment’s institutional business comprises two institutional funds and 14 special funds with a total volume of €5 bn. ‘The growth of our institutional investment business has been very rapid,' he said.
In the context of its retail business, the investor is also focusing increasingly on smaller products due to the dearth of large lot sizes. Being able to say no to new liquidity is a true test of discipline, Kutscher said. ‘You don’t see it very much in this business, but if you don’t want the liquidity then you need to stop the inflows.’
While Union Investment has seen sustained capital flows into its funds since the onset of the financial crisis, it is not about to bite off more than it can chew, chief investment officer Frank Billand added. The fund manager has already had to stop inflows due to anticipated difficulties in spending the liquidity and,
if necessary, they will be closed again for further inflows, he said.
‘Other investors have more pressure to invest and just have no choice but to put their money somewhere. We’re trying to invest as smartly as possible. We don’t run with the crowd, but we try to take advantage of those that are forced to run after the enormous sales in the run-up to the crisis in 2006-07. Since the financial crisis, we have been big buyers.’
SITTING ON THE SPANISH FENCE
The focus in Europe so far has been on stable property markets including Finland, France, the UK, the Netherlands, Switzerland and Poland. While Union Investment is interested in the Spanish market, Billand claims the market has spawned only very limited product of the type that the German investment giant would be interested in. The Hamburg-based fund manager is interested in hotels, but Billand claims none of the offers so far have spurred any action following the acquisition of a hotel and resort in Barcelona in early 2013. ‘We’re one of the big investors sitting on the fence,’ he noted wryly. ‘We haven’t found anything to look at; for core offices in prime locations there’s enormous competition.’
Elsewhere in southern Europe, Italy is on the radar, he added. ‘We are close to a deal in Italy,’ he said, but declined to give further details.
Union Investment has also been active on its own home turf in Germany with a string of acquisitions in the past 18 months in Frankfurt, Berlin, Düsseldorf, Stuttgart and Hanover. While the German investor has actively sought to step up the size of its retail portfolio in the past few years, the supply of relatively new large centres in dominant locations in Europe is diminishing and the opportunities revolve increasingly around refurbishment and redevelopment, Billand noted. Union Investment currently has a portfolio of 40 shopping centres in Europe valued at €6 bn. ‘There are no shopping centres left,’ he grimaced. ‘They’ve all dried up. When we did get involved in a deal, the negotiations took as much as a year and in one case even two. And they’re always too expensive when you want to buy.’
Infrastructure
In April this year, Union Investment acquired its first solar park in France for its new infrastructure fund. The fund now has a broadly diversified portfolio comprising six major energy parks in Germany, the UK, Ireland and France, representing an investment commitment of some €200 mln. At the fund´s launch in November 2013, Christoph Schumacher, a member of the management team at Union Investment Institutional Property, said he would seek to invest €300 mln in the asset class this year. Kutscher said he does not expect to see a shift in this area. ‘Infrastructure is a niche product. We have expanded our institutional offering with thematic funds focusing on retail, hotels and infrastructure. For us, it’s all about real assets.
I can imagine we might do some more, but the fund has to deliver first. I don’t see a big shift at the moment.’