„Property funds are becoming attractive again“
Mr Reinke, at the end of June, your company had to write down the value of the „UniImmo Wohnen ZBI“ property fund by a double-digit figure. What went wrong operationally at the time?
Nothing went wrong operationally. We achieved rent increases in the properties we invested in and reduced the vacancy rate. We were able to finalise project developments. That all worked.
Nevertheless, the value had to be drastically corrected downwards.
Yes, and I feel sorry for the private investors and the banks involved.
What triggered the drop in value?
You have to distinguish between two phases. In the first phase, we experienced the coronavirus pandemic, the outbreak of war in Ukraine, the fastest rise in interest rates for 60 years, and the highest inflation since 1949. Rising construction costs and a freeze on residential property transactions accompanied this.
How has this been reflected in the markets?
First, the share prices of listed property companies fell, and then project developers ran into problems. And this has had negative consequences for banks' property loan portfolios. Of course, these developments have also affected open-ended residential property funds.
In what way?
We have had falling share prices since that time. They are calculated using the capitalised earnings value method, the main factor of which is the property rate. The sharp rise in interest rates was greatly reflected there during the first phase.
And what happened in phase two?
From January 2024, investors cancelled fund units because they were not satisfied with their performance, or were able to achieve higher returns in alternative investments. We were, therefore, faced with the task of creating liquidity for the redemptions. However, there was no corresponding new business and the options for borrowing are limited. So UniImmo had to sell properties.
How high were the discounts that the fund had to accept?
Some opportunistic buyers demanded discounts of 25% to 30%. You usually only sell either above the appraisal value or at most 5% below it, but there were no buyers at this price. That's why UniImmo Wohnen ZBI had to make a markdown – of 16.7%.
What does this mean for those who remain invested?
We assume that the losses in value will be recouped from 2026 – significantly, as the shock paralysis on the transaction market is slowly easing again. On the commercial side, we have already sold properties for 1.2 billion euros very successfully in the first half of the year – and so far at prices above the appraisal values.
But investors now have the recent drastic fall in value in mind when they think of open-ended property funds.
Maybe so. But it should not be overlooked that this drop in value has occurred in an exceptional market situation characterised by a transaction freeze. This market phase that we have just experienced was not expected.
Does this mean that you are confident about open-ended property funds again?
Yes, because structurally, nothing has changed. The housing shortage has become even more significant. The trends towards more single households and moving to the city are continuing. I do not doubt the future potential of investments in residential property. Property funds are becoming attractive again.
What lessons have you learnt from the whole story?
Nobody – and nobody in our organisation – had the rapid turnaround in interest rates on their radar. The lesson learnt is that we need to explore even more scenarios in the future.
Let's talk about your business beyond property funds. How did the first half of the year go?
The momentum is even stronger than last year. New business has doubled.
What does that mean in numbers?
Net sales have climbed from 5.7 billion euros to 11.5 billion euros. Of this, 6.5 billion euros came from sales of mutual funds, slightly more than in the previous year — and 5 billion euros from new business with institutional investors, which has thus turned clearly positive again.
How do you assess this result?
I am delighted with it. The BVI reports a new business of 11.7 billion euros in mutual funds for the entire industry. At Union Investment alone, the figure is 6.5 billion euros. I am naturally satisfied with that. And I am particularly grateful to the Volksbanken and Raiffeisenbanken because they are doing excellent business out there.
Which mutual funds have been bought recently?
Fixed income is in demand. We have net sales of 5.2 billion euros in bond funds, more than twice as much as a year ago. We also sold a net 2.0 billion in equity funds. Meanwhile, sales of mixed funds and open-ended property funds declined slightly.
What role do savings plans play?
The number of fund savings plans has risen significantly. More than 100,000 new savings plans were added in the first half of the year, most of them in equities.
The BVI data shows an industry-wide outflow from actively managed equity funds, and inflows into equity ETFs. What is your argument for keeping customers in actively managed funds?
We succeed because the performance is convincing. In the first half of 2024, our funds achieved our best ever performance for securities – equities, bonds, multi-asset.
What is the situation with institutional customers?
Business with the cooperative banks was complicated, especially during the interest rate turnaround. What is going very well, however, is both foreign business, and business with customers outside the association.
What does new business and performance mean for assets under management?
As of 30 June, assets under management stood at 486.9 billion euros, almost 13% higher than a year earlier.
And what does that mean for your profits?
Despite all the challenges, we are heading for a result at least on par with last year.
What is your outlook for the fund business environment in the coming years? There has been a bit of a bump in the stock markets recently.
In my opinion, there were three reasons for the most recent market correction: Exaggerations in the tech sector have been priced out, growth has slowed in the USA, and the yen has strengthened somewhat in Japan.
And how do you assess these issues when looking ahead?
We think tech stocks are attractive, especially after the recent correction, and the US stock market is intact. We expect a slower pace of growth in the US but no recession. And we expect the Bank of Japan to be even more cautious about how it acts. From an investor's perspective, however, the second half of the year will be bumpier overall than the first, if only because of the US election.
DWS CEO Stefan Hoops recently warned of a loss of importance for the banking sector in the retail business.
I take a very different view – perhaps also because Union Investment is organised differently. We do our business with active products. Our regional focus in the retail business, which is very important to us, is clearly in Germany.
But aren't you worried that fund companies are increasingly becoming suppliers of building blocks?
Quite the opposite. We don't just offer products, because then we might actually be interchangeable, but solutions: We take care of the basic needs of investing, saving and diversification – and are therefore always involved in providing advice. Now, we are developing into a system provider by offering banks self-contained technological architectures.
So, you expect growth to continue?
Absolutely, the fund industry is a growth industry. I expect growth rates of 4% to 5% in the coming years.
What makes you so confident that demand for fund products will remain high?
The drivers for growth are unbroken. The population in Germany is the richest it has ever been. The savings rate remains high at more than 11%. And there are the content drivers.
What are they?
Demographics, decarbonisation and digitalisation. The topic of old-age provision is not getting any smaller – and there is a partial response to this from politicians in the form of pension portfolio initiatives. Savings processes will benefit from this. Digitalisation, in turn, gives us the opportunity to develop more attractive offers that also support our growth. If sustainable funds perform better again and if policymakers make investing in these funds easier to manage from a regulatory perspective, this will also create additional growth opportunities.
In view of what you see as such dazzling growth prospects – you have been CEO since 2010 – how much longer do you intend to fulfil this role?
It continues to give me great pleasure. And apart from that, I will decide from year to year.
