Too much money, not enough investments

Real estate prices are booming and in times of volatile share markets and low to negative bond returns, real estate funds are increasingly in demand. The run for real assets forces some asset managers to stop accepting new investments.

Since the beginning of the year, share markets are highly volatile and increasingly difficult to predict. Low interest rates make fixed income highly unattractive for investors. In the search for alternative investment opportunities, investors are increasingly interested in real assets. During January and February, 1.7 billion were invested in real estate investment funds. Those have now a very distinct problem of their own.

Currently, fund managers and institutional investors are searching for lucrative real estate investments. That has driven the prices for real estate drastically. That drastically, that some even warned for a bubble on the rental market. Still, the funds must invest additional inflows in real estate.

High markets and unattractive investments have led to some funds not accepting new investments including three funds from Union Investment and one of the DWS. If the funds would keep accepting new money that they had to invest, they may buy at less attractive prices and lower returns generated for their investors. Besides, portfolio manager are tempted to sell assets in times of high prices and cash in a profit of their investors - also with negative effects on the cash balance of the fund.

Overall, closing funds on a short-term basis and not accepting new money is beneficial for investors. They prevent huge cash reserves at low interest rates and lower incentives to hold real estate that can be sold profitably and prevent managers to buy new assets at unattractive prices.