Dhe closed-end fund market appears to be recovering somewhat. In the first half of this year, the issue volume of closed alternative retail investment funds in Germany increased by around a quarter compared to the first six months of the previous year. The increase in so-called investments was as much as two thirds. This is the result of data from the Scope rating agency.
In the previous year, the outbreak of the corona pandemic had left deep marks here. While other investments such as stocks quickly recovered from the sharp price falls in the spring when investor interest increased again, the picture for closed-end funds remained bleak. Issuing activity had already fallen significantly in the first half of 2020, which was confirmed for the year as a whole. According to Scope, the planned equity volume of closed retail funds fell by a third in 2020 – from 1.24 billion euros in 2019 to 839 million euros. The demand for long-term investment products in a market segment that is increasingly characterized by uncertainty is low, it said.
Real estate funds dominate
In the first half of 2021, as in the previous year, 16 new retail funds were approved for sale by the Federal Financial Supervisory Authority (BaFin). The announced (“prospectus”) equity volume across all these funds totaled around 525 million euros – an increase of 23 percent; in the first half of 2020 it was 427 million euros. Real estate funds continue to dominate, according to Scope, and eleven investments were approved after 18 in the same period of the previous year. The issue volume to be placed was recently around 221 million euros after around 134 million euros – an increase of 65 percent.
The corona crisis will continue to have consequences for the product range in the investment segment and the issue volume in 2021 will again be less than one billion, says Scope. In addition, the “law to further strengthen investor protection” passed by the Federal Council in June leads, among other things, to the fact that “blind pool” constructions of investments are prohibited – one speaks of this when specific investment goals for investments are unknown. External control of the funds used for certain investments will also be mandatory.
Closed funds are “closed” when enough equity has been raised. The fund units cannot be returned and can only be traded on a secondary market (with price discounts). Open funds, on the other hand, can be bought or sold by investors at any time. Closed-end fund buyers become co-owners of a real asset such as real estate, an aircraft or a ship. Some investors accept the reduced flexibility and liquidity in the hope of more attractive returns. Many investors have been and are being put to the test.
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