More uncertainty for German open fund investors after new closures

The French bosses at AXA pulled the plug on the fund earlier this month, making it the fifth fund to be wound up since the onset of the financial crisis, and increasing doubt about the ability of other frozen funds to re-open.

“The number of investors who wanted to sell back their shares on a re-opening of the fund is simply too high”, said AXA Investment Managers’ CEO Achim Gräfen in a statement. Although AXA had been selling off assets from the fund, the liquidity level of 10% was still well below the 25-30% required to pay out investors wishing to cash in.

AXA Immoselect was frozen in 2009 after a wave of semi-institutional investors, including fund-of-funds and private wealth managers, sought to withdraw their money. Set up in 2002, at its peak the fund had nearly € 4bn under management, mainly in European office, logistics and hotel properties, and yielded an average of just over 3% annually.

The fund had even managed to reopen after a temporary three-month closure in 2008, but suffered from punitive withdrawals in that time, losing € 1bn in value and seeing liquidity plunge from 26% to less than 7%. The 2.€ 48bn fund will now be dissolved, with the 66 properties in the fund being sold off and investors receiving payouts on the proceeds at half-yearly intervals, starting next April.

Just this week investors were given the bad news on another fund similarly facing a November deadline to declare its hand. Aberdeen’s Degi International € 1.5bn fund was a candidate to follow an earlier Degi fund (Degi Europa) into dissolution, with an announcement due before the reopening deadline of November 15th. It too duly came this week. With 70,000 investors in the fund, the demand for share redemptions was deemed by Aberdeen to be likely to swamp its available liquid resources, and the group saw no choice but to terminate the fund.

Degi International was set up in February 2003 as a diversified fund focused on Europe but with an international dimension. At end-2008 it had 41 properties in 13 countries and an apparently strong risk diversification, but fund outflows in 2008 led to its freezing. It has since then sold 8 properties valued at about € 600m, with a further 7 assets valued at € 700m also awaiting disposal. It too will pay out its investors at six-monthly intervals until October 2014 when it will complete its winding-up.

Among the other frozen funds, two of the larger funds, the € 6.3bn SEB Immoinvest and Credit Suisse Asset Management’s € 6.1bn CS Euroreal have until May next year to re-open or wind themselves down. Both are engaged in major disposal programmes to raise liquidity in order to redeem share certificates; SEB has made known its intention to sell parts of many of its prestigious properties, including those on Potsdamer Platz in Berlin, to raise up to € 1.5bn.

CS Euroreal is still optimistic about its ability to reopen, and will make an announcement in early-December. Since freezing, it has so far sold 11 properties valued at € 880m, with a further € 360m in the closing stages of negotiation, and currently has liquidity of 21%. However, both SEB and CS Euroreal are being traded on the grey market at a hefty discount to their official fund valuations – 19% and 13% respectively, gloomily indicative of investors’ faith in their prospects. Yet another fund, the € 3.8bn KanAm Grundinvest which also has until May 2012 to reopen, is currently looking for buyers for its entire London portfolio “ However, both SEB and CS Euroreal are being traded on the grey market at a hefty discount to their official fund valuations – 19% and 13% respectively, gloomily indicative of investors’ faith in their prospects.. ” worth € 1.2bn.

All told, the German open-ended fund sector has assets of around € 85bn, according to comparative research published by the European Public Real Estate Association (EPRA). About 30% of the open-ended fund sector is cur- rently closed for redemptions due to the liquidity problems experienced by the sector since 2008. Funds being wound up include Morgan Stanley’s P2 Value Fund, KanAm’s US-Grundinvest, Degi Europa and TMW Immobilien Weltfonds.

(courtesy of REFIRE: www.refire-online.com)