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Germany's open-ended funds are opting to keep the hatches battened down a while longer as the financial market turbulence rages on. At end-January, half the dozen fund managers which imposed a temporary freeze on redemptions last October said they were extending the ban for a further nine months. Crédit Suisse and Morgan Stanley Real Estate were the first to announce that their funds - CS Euroreal and Morgan Stanley's P2 Value fund - would not re-open.

Other fund managers were quick to follow suit: AXA Immoselect, SEB ImmoInvest and KanAm (grundinvest and US-grundinvest) and Pramerica all announced their funds would remain 'locked up'.

Degi, meanwhile, said that the ban on its international fund would be lifted, while that on its Europa fund would remain in place for another nine months. Degi International had EUR 65 mln in inflows between 30 October and 23 January this year, which has improved its liquidity, spokesman Dietmar Müller said. Catella Real Estate unlocked its Nordic Cities Focus fund.

The 12 funds which suspended withdrawals accounted for 37.58% of the EUR 83.78 bn of assets under management of all open-ended real estate funds as of 30 November 2008, according to Frank Bock, spokesman for the BVI Bundesverband Investment und Asset Management, which represents the German investment and asset management industry.

It now seems likely that the remaining funds will also keep their bans in place, especially in light of the worsening global recession and the deepening gloom in the banking sector. Fund managers are required to inform German regulator BaFin about whether they intend to lift the temporary freeze on redemptions when the three-month, self-imposed ban expires. Commenting on the decision to extend the ban on the CS Euroreal fund, CEO Karl-Heinz Heuß of Crédit Suisse Asset Management said: 'During the past two-and-a-half months, the market environment still hasn’t calmed down enough to generate sufficient liquidity for the opening of the fund.' A spokeswoman for UBS, which imposed a six-month ban, said the funds were due to re-open at the end of April but that they might unlock the gates sooner, in mid-March.

Analysts, too, are sceptical about the ban on redemptions being lifted, given the worsening banking crisis against a backdrop of new asset writedowns. 'I don’t think they'll lift this ban yet,' said Iryna Pylypchuk, a senior analyst at CB Richard Ellis in London. 'A lot of institutional investors who invest in such funds have liquidity problems and might want to access their capital. It would be more damaging for the funds to lift the ban and to witness massive outflows than to keep the ban in place and wait until market sentiment is better before allowing outflows,' she said.

Of paramount importance to the fund managers will be the need to renegotiate any sales orders to ensure there are not any big outflows if the funds lift the ban on redemptions, said Timo Tschammler, head of international investment at DTZ in London. He also emphasised that some institutional investors will want to withdraw their money, not because of a lack of faith in open-ended funds but because they have cashflow problems of their own and need quick access to their capital. There are three main ways in which the funds can raise liquidity going forward, Tschammler added: they could sell some properties - an unpopular choice as fund managers will not want to give the impression that they are selling distressed assets; they could re-finance to take the LVT ratio to 50% from 35% to 40%.

'If a fund has EUR 5 bn of assets under management and it can renegotiate adding 5% to the LVT, that’s a nice cash injection,' he said. Lastly, the parent company - typically a bank - behind the fund could also inject cash into the fund, he said. However, a cash injection from any parent company could be a costly business, given the huge run on funds in October. In that month alone, investors withdrew more than EUR 2.7 bn from the 12 funds. According to the BVI, the 43 open-ended real estate funds reported combined outflows of EUR 5.06 bn in October. One of the worst-hit funds was Morgan Stanley's P2 Value fund, which saw EUR 518 mln in outflows in October. The fund invests in core properties in Europe, Asia and North America. AXA's Immoselect fund also took a hit to the tune of EUR 376 mln, along with KanAm's grundinvest and US-grundinvest funds from which investors withdrew around EUR 350 mln in October.