EUROPE - German open-ended funds (GOEFs) are expected to suffer further liquidity issues in 2009 and should consider restructuring to protect themselves in the future, according to DTZ's latest European quarterly report.

The research paper, entitled ‘2009: A return to risk?', urged frozen funds to adapt to the current market and explore new ways of raising money like taking part in equity partnership agreements or changing their management structures and fees to introduce a minimum withdrawal notice periods or set a maximum payment allowance.

Timo Tschammler, managing director of international investment, told IPE Real Estate: "Moving forward, [GOEFs] are likely to be very cautious about acquisition commitments from the moment of reopening and they are looking at the daily in and outflows to see how sustainable and how defensive the liquidity ratio - that they have regained over the period of the freeze - is for future operations."

GOEFs saw €5.1bn of cash withdrawals last October from mainly institutional investors and 12 were forced to suspend redemptions because they feared a lack of liquidity.

AXA Investment Managers, for example, froze redemptions from their GOEF Immoselect for three months after outflows reached 10% of its total assets.

Only two of the frozen funds have since reopened, with the rest extending their suspension periods by nine months.

The report suggested GOEFs should consider the differences between institutional and retail investors, and proposes grouping each category into separate funds and readjusting dividends to reflect the varying risk profiles.

"I think we will see discussions that do go into the direction of further specialisation and a further separation between the retail and institutional money," said Tschammler.

The report warned, however, that GEOFs should not become "too over-regulated," as they risk becoming more like closed-ended funds.

This is especially important, according to Tschammler, as large institutional investors like pension funds and insurance companies are likely to increase their asset allocation towards real estate via GOEFs.

"The fall in equities has been much further than the fall in real estate values so I think against the background of a security-focused allocation within the assets and a global investment programme, secure assets like real estate will play a bigger role in the future," he claimed.

Outside GOEFs, pension funds are likely to invest in mature markets where prices have corrected the most, such as London, Paris, Madrid and Barcelona rather than developing markets like Russia, said Tschammler.

DTZ believes investors will focus on prime assets that can create greater value and predicts Paris will see more high quality stock coming onto the market in 2009.

The firm said Gecina, the French Real Estate Investment Trust (REIT) plans to dispose of around €700m of properties this year to reduce debt.

The London City office market is also thought to be especially attractive to foreign investors as a result of sterling depreciation and has already seen deals being transacted at yields of around 7%.

DTZ said it expects logistic hubs in Rotterdam, Munich, Helsinki and London to perform well in the medium-term, as demand for space is still high and availability of land for expansion is limited.

That said, sovereign wealth funds are likely to remain on the sidelines and Middle Eastern funds will suffer from weaker oil prices and concentrate on domestic investments before investing abroad, suggested the firm.

Refinancing and further devaluations could lead to more sales in the listed sector, as Real Estate Investment Trusts (REITs) have already been selling to restructure and lower their gearing.

And Colin Child, the group's finance director since 2007, has decided to leave the company at the end of July 2009 to pursue new challenges now the group's fundraising is complete, DTZ also announced earlier this week.

If you have any comments you would like to add to this or any other story, contact Poppy Sketchley on + 44 (0)20 7261 4629 or email poppy.sketchley@ipe.com

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