Munich, 3 October 2011 – The institutional capital leaving German Open-Ended Funds (GOEFs) as a result of changes to the German Investment Act is mainly being reallocated to other forms of unlisted real estate, rather than into different asset classes, according to the latest research by CBRE.

The amendments made by the German government will, to a great extent, separate private money from institutional capital. This is expected to be a lengthy restructuring, but is already evident in the GOEF sector today and is a clear confirmation of what CBRE predicted in October 2010.

A risk-averse attitude, asset preferences and allocation requirements, and absence of an established listed real estate market mean that much of this institutional capital is being reallocated into other real estate investment vehicles. Based on the recent increase in new fund launches, market evidence suggests that it is predominantly German Spezialfonds, as well as Luxemburg-domiciled collective vehicles, that have attracted most of the institutional capital leaving public GOEFs. Although some market participants anticipate that a proportion of the institutional capital will leave GOEFs to reinvest in property directly, considering the level of expertise, cost implications, and time required, CBRE believes that it is the Spezialfonds and other tax efficient real estate funds that are likely to benefit most.

Iryna Pylypchuk, Associate Director of EMEA Capital Markets Research, CBRE, commented:

“There are several reasons why this transition is likely to benefit Spezialfonds, at least in the short-term. Many fund managers that run public GOEFs also run Spezialfonds – a traditional and tax efficient investment choice familiar to German institutions. This leads us to believe that the change can be incorporated fairly quickly by the existing fund managers, mainly those that have weathered the GOEF crisis well.

“However, in the medium term, and considering that this transition will be a lengthy one, I believe this influx of institutional capital will also benefit other unlisted real estate funds, especially those that are tax efficient for a German investor. Much of the institutional capital is locked into those GOEFs that are being liquidated or are closed to redemptions. Thus, it will be over the course of the next two-to-four years that institutional capital will continue to leave GOEFs, allowing fund managers both in and outside Germany enough time to set up appropriate strategies and absorb much of this capital in an orderly way.”

While institutional capital is poised to flow out of the GOEFs, the next year or so could see inflows from private investors increase. History suggests that at a time of financial market turmoil retail investors have tended to shift savings from equity funds into real estate. This is supported by a recent survey carried out by Forsa Institute, which found that real estate was the second most popular asset class with private investors, behind only money market funds.