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Liquidation of German RE funds confirms structural flaws, says Fitch


The liquidation of CS Euroreal, announced on Monday, confirms Fitch Ratings’ view that the liquidation of German open-ended real estate funds (GOEREFs) is related to structural rather than fund-specific characteristics.

GOEREFs are one of the last segments of the European fund industry with a large structural liquidity mismatch. Historically, they offered daily liquidity despite being invested in property assets, whose disposal to meet redemptions might take some time. This fund structure has proved difficult to sustain in light of market conditions and investor redemption requests. Regulatory efforts have sought to address the liquidity mismatch in these funds, providing for annual redemption only. Unfortunately, this change was too late to prevent large investor redemptions.

Almost 30% of GOEREFs are now in liquidation. The EUR6bn in net assets under management in the CS Euroreal fund brings the total value of GOEREFs in liquidation to around EUR23bn, compared with a total industry size of around EUR86bn in March 2012. The GOEREFs that remain open to redemption and subscription activity in May 2012 typically have captive distribution networks – for example a retail banking network – while those funds in liquidation typically do not. Operators of standalone German real estate funds are increasingly left with institutional businesses run under dedicated funds or mandates.

Credit Suisse has announced that its CS Euroreal fund will enter an orderly liquidation over a five year period. This followed the recent announcement by SEB Investment GmbH that its EUR6.4bn flagship fund, SEB Immoinvest, would be wound down over a similar period. We put SEB’s ‘M2’ rating on Rating Watch Negative on 14 May 2012, reflecting the potential impact on the business from the liquidation of Immoinvest.


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