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BERLIN-The $119 billion German open-end property fund community is badly in disarray, highlighted by recent accusations of a spillover re-closure. However, sector specialists hope legislative reform to separate private from institutional investors will go a long way toward solving the problems.

The re-closure for capital redemptions of TMW Pramerica’s Weltfonds last month was a bitter blow to the manager which, since original closure in October 2008 alongside many others, had been carefully building liquidity to 20% of capital to be able to reopen last December. An announced 13.8% portfolio depreciation of Aberdeen’s Degi Global Fund, the largest writedown ever by such a fund, was cited by TMW Pramerica as sparking a panic outflow from its own fund, forcing a second closure in 14 months. While other industry sources say liquidity in TMW Weltfonds had dropped to a low base and the Degi move was taken as a pretext, the debate flared in public again when a TMW Pramerica manager at a conference of the German fund valuers association in February hotly maintained that liquidity had been high.

The situation is complex. After many funds closed around the time of the Lehman Brothers collapse due to runs on capital mainly from institutions desperately seeking to raise liquidity, some have attempted to re-open, only to be defeated by further withdrawals. The challenge is exacerbated by the fact that open-end funds are legally only permitted to close to combat liquidity problems for a maximum of 24 months. If they cannot do so, they are obliged to liquidate. Firms that have either successfully re-opened or avoided closure altogether are mainly domestic: Deka Immobilien, a unit of the German savings banks’ investment bank DekaBank – with nearly $27.3 billion AUM the largest GOEPF manager, Union Investment, its peer from cooperative banks at around $24.6 billion AUM, Deutsche Bank–RREEF, which draws on the private branch network to market its $6.8 billion twin funds, and Commerzbank’s Commerz Real, Deutsche’s private sector counterpart distributing two funds holding $16.7 billion.

Most others grappling with closures are foreign-owned, with limited access to distribution networks. This includes Aberdeen. It acquired Degi in late 2008 from insurer Allianz. The latter, after merging its Dresdner Bank unit into Commerzbank in exchange for a 10% equity stake in the enlarged group, has since given priority to selling fund products from CZ’s Commerz Real unit. AXA Investment Managers, a unit of the giant French insurer, also announced last month it would remain closed for another nine months after initially re-closing in November after a re-opening in summer from the initial crisis-induced withdrawals halt. Morgan Stanley has held its $1.9 billion P2 Value fund also largely closed since 2008; MS shocked the community in mid-2009 with an unprecedented deep valuation write-down, largely on foreign assets bought in the boom years.

Allan Saundersonis a managing editor of Property Finance Europe and a contributor to GlobeSt.com.

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