Business Times: German fund to pour up to 4b euros into Asia

June 5, 2008
German fund to pour up to 4b euros into AsiaFavourite markets are Japan, South Korea, Singapore and Malaysia.

(HONG KONG) German fund manager Union Investment Real Estate plans to invest up to four billion euros (S$8.44 billion) in Asia over five years, hoping its drive for diversification will also give returns an extra kick.

German open-ended property funds, including those run by Union Investment, have been busy snapping up property abroad since a redemptions crisis forced them to sell many assets in their home market in 2005 and early 2006.

Union Investment opened an office in Singapore in 2006, and is keen to ramp up its investment in Asia from the current 600 million euros, according to its Asia head, Steffen Wolf.

Globally, the firm has around 15 billion euros of assets under management.

'Asia is very much top of our priority list,' Mr Wolf said in a telephone interview from Singapore. 'We should be looking at between two and four billion euros over, say, five years.'

A pall was cast over Germany's entire open-ended property funds industry in 2005 when attempts to correct inflated valuations of assets spurred thousands of investors to try to cash in investments before fund units were repriced.

Deutsche Bank took the unprecedented step of freezing redemptions in its flagship Grundbesitz-Invest fund, and funds managed by Germany's biggest open-ended fund manager DekaBank were also hit.

But Mr Wolf said Union Investment had seen more money flow into its funds in the last year, despite a global credit crunch that has weakened commercial pro-perty prices in several markets, including the United States and Britain.

'Investors are quite aware of our risk and return profile, and are shifting from stocks to safer alternatives - savings accounts, government bonds or property,' he said.

Union Investment's funds, such as Unilmmo Global and Unilmmo Europa, usually give annual total returns of 4-6 per cent, while its investments in Asia are giving 5-6 per cent, Mr Wolf said.

Despite signs that the Tokyo office market is weakening, Japan tops the firm's list of favourite Asian markets, which also includes South Korea, Singapore and Malaysia.

Analysts believe prices for second-grade and small offices in Tokyo will fall this year, sending yields higher by as much as 200 basis points from about 4 per cent now. Mr Wolf agreed that the office market was softening, but said the type of top-notch buildings it wants to buy will hold their value.

'We're actually quite confident and we're in the process of buying more assets,' Mr Wolf said. 'We believe fundamentals are okay, there's still demand and not enough decent supply. I think the market will pick up in the next 12 to 24 months.' Union Investment has already bought 12 buildings in Tokyo.

And on Monday, rival open-ended fund Grundbesitz Global said it bought a Tokyo office block - the Nikko Building - from a Japanese property firm for 117 million euros.