Frankfurt am Main, March 20 2016

Survey: German institutional investors rely on Master KVG

According to the third annual survey on German institutional investors' behaviour conducted by Universal-Investment, the Master KVG that works as a central administration platform on the principle of separating asset management and administration has also already established itself in the real estate sector. Investors want to be closely involved in the investment decisions. In matters of return, the current return plays a decisive role. Participants in the survey completed at the end of 2015 included institutional investors as well as pension institutions and insurance companies with managed assets totalling more than 100 billion euros. The real estate capital of those surveyed amounts to eight billion euros. The survey thus covers some 18 percent of the overall market for real estate special funds.

64 percent of real estate investors view central administration platforms as Master KVGs positively

73 percent of investors want to be closely involved in investment decisions

Cash flow return is the main criterion for the type of return

Investors expect a cash flow of at least 4.2 percent

Master KVG also becoming popular for real estate investments

"Today some 70 percent of security investments of institutional investors are already managed via Master KVGs that works on the principle of separating asset management and administration. What's new, however, is that this trend is also catching on in the real estate investment area", explains Alexander Tannenbaum, managing director responsible for the real estate business at Universal-Investment. According to the survey, 64 percent of those surveyed rated the Master KVG positively. 36 percent even plan to use a Master KVG within the next twelve months. "Investors especially appreciate the higher transparency compared with solutions that offer everything from one source. The greater latitude for selecting the best partners also plays a role and argues for the Master KVG", Tannenbaum continues.

At some 82 percent (previous year: 60 percent), the surveyed investors placed a clear focus on the current earnings distribution and thus on the cash flow return. Compared with the previous year, however, the share that focuses on the internal rate of return (IRR) with a profitable disposal of real estate has halved to around 18 percent (previous year: 40 percent). The survey respondents have somewhat dampened their expectations regarding cash flow and now expect a comparatively moderate minimum return of 4.2 percent (previous year: 4.3 percent). Tannenbaum summarises investor behaviour as follows: "As prices on housing markets creep up further, the cash flow also weakens up, at least in the case of new investments. Investors' expectations are therefore adjusting to the current market situation".

Investors want indirect real estate investments and active involvement

Institutional investors are also giving clear preference to indirect real estate investment. Around 63.6 percent propose to use the indirect version for new investments as opposed to direct investment. The trend towards indirect investment vehicles is therefore accelerating, with the reading in favour of the indirect alternative having already reached 60 percent in the previous year's survey. 73 percent of investors want to be closely involved in the investment decisions. Only 27 percent want to leave this up to the asset manager or the KVG alone.

As regards the choice of the preferred indirect investment vehicle for new investments, the open-end real estate special funds based on German law (Spezial-AIF according to KAGB (German Investment Law)) have also become less popular. Only 18.2 percent of new investments has been set aside for this classic German vehicle (previous year: 30 percent). SCS and SCSp – the Luxembourg versions of the German Investment-KG – currently rank first place with 27.3 percent (previous year: 10 percent). With a share of 36.4 percent, direct investment in real estate can be expected to continue (previous year 40 percent).

"The trend towards indirect investment vehicles has strengthened. Time will tell whether the Luxembourg versions of the German Investment-KG continue to catch on among investors. At least the open-end German real estate special fund no longer appears to enjoy a unique position. Evidently investors are not only increasingly diversifying in terms of the real estate segments and geographical direction but also in terms of their choice of the real estate investment vehicle", Tannenbaum concludes.

You can find more results on the second real estatesurvey on the website of Universal-Investment.