Open-ended special property strategies remain in demand in Germany, despite uncertainty caused by the coronavirus pandemic.
As though it were business as usual, investors sunk around €2 billion into German real estate alternative investment funds throughout the second quarter – a similar amount to the same period last year.
A testament to the funds’ popularity amidst this year’s volatility, March was the only month in the first half of 2020 that recorded a net outflow (€44 million), according to a report by Hamburg-based real estate specialist Intreal.
Equities and bonds special funds, however, both suffered redemptions of €5.9 billion and €97 million respectively from April to June end, the firm noted.
Michael Schneider, managing director of Intreal, said: “These figures show that institutional investors are carrying out a reallocation in the crisis. They are withdrawing funds from securities funds and redistributing them to property funds in some cases.”
In the UK, open-ended property funds recently came into focus again following a proposed regulation that would require investors to give 180 days’ notice before their investments are redeemed.
As it stands, investors can cash in their investments in UK property funds without advance warning leading to a mismatch in liquidity and underlying assets. It’s difficult to shift bricks and mortar in a day, after all.
In order to cope with heavy redemptions, trading has been suspended on a number of property strategies in the country, including those managed by industry giants Blackrock and Schroders.
In February, credit analysts Fitch Ratings warned that the suspension of two Irish open-ended property funds might have further implications on the industry.
The Financial Conduct Authority is currently reviewing the property fund proposal. If it is implemented, it would see the UK following a similar route to Germany where watchdog Bafin requires 12 months’ notice to redeem from open-ended real estate funds.
Although the proposal has been widely welcomed, it has also led to warnings that it could stymie flows. One observer who thinks this could be the case is Adrian Lowcock, head of personal investing at Willis Owen.
“There is no doubt by putting a six-month notice on the funds they will become unappealing to many investors, especially in a time when investors are used to being able to access a growing range of investments with daily liquidity,” he says.
Despite this, he does agree that the rule could remove short-term investors – something that is said to have happened in Germany – and reduce volatility in the asset class.
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