Fund assets

Fund size refers to the total capital invested or to be invested in a real estate fund, i.e., the sum of all investor funds plus the borrowed capital (bank loans). It is a key metric for assessing a fund’s size, diversification, and risk profile. The larger the fund size, the more and larger properties the fund can acquire, and the more broadly the risk can be spread.

Equity and Debt in Fund Volume

Fund volume consists of two components:

• Equity (EK): The funds contributed by investors. For open-end real estate funds, this roughly corresponds to the net asset value (NAV).
• Debt (FK): The bank loans taken out. The proportion of debt in the total volume is referred to as the debt ratio or loan-to-value (LTV). Regulatorily, the debt ratio for open-ended public funds is limited to 30 percent of the fund’s assets (KAGB §260).

The ratio of equity to debt significantly determines the fund’s risk and return profile.

Open-Ended and Closed-End Real Estate Funds: Differences in Fund Volume

For open-ended real estate funds (e.g., Deka-ImmobilienEuropa, hausInvest), the fund volume is variable: it increases when new investors purchase shares and decreases when shares are redeemed. For closed-end real estate funds, the fund volume is fixed from the outset; no further funds can be raised after the placement phase ends. Closed-end funds often invest in individual large-scale properties or a small number of projects, which concentrates the risk.

Net Asset Value (NAV) and Fund Volume

For open-ended real estate funds, the net asset value (NAV) is the most important metric: it indicates how much the fund’s assets-minus all liabilities-are worth. The fund volume, on the other hand, also includes the borrowed capital. A fund with an NAV of 5 billion euros and borrowed capital of 1.5 billion euros has a fund volume of 6.5 billion euros.

For investors, the NAV is the relevant metric because it reflects the actual value of the investment. The fund volume, on the other hand, shows the investment volume and provides insight into the fund’s diversification opportunities.

Significance of Fund Volume for Investors

A high fund volume alone says nothing about the quality of a fund. The following factors are also decisive:

• Property quality and geographic diversification of the real estate
• Occupancy rate (portfolio utilization)
• Current distribution yield
• Costs (initial sales charge, ongoing management fees)
• Liquidity reserve (for open-ended funds)

Practical Tip for Property Owners in Nuremberg and Franconia

Anyone wishing to invest in real estate in the Nuremberg metropolitan region without becoming a direct owner can consider real estate funds as an alternative. However, direct real estate investments in Nuremberg and Franconia often offer more attractive return opportunities and greater control than fund investments-especially for multi-family homes or commercial properties. The decision between direct real estate ownership and fund investment depends on individual assets, desired liquidity, and risk tolerance. For those who lack the time and expertise for direct real estate management, open-ended real estate funds can be a sensible addition to their investment portfolio. We are happy to advise our clients on the advantages and disadvantages of both investment forms within the regional market context.

Frequently Asked Questions

At what fund volume is a real estate fund considered large?

In the industry, open-ended public real estate funds with a fund volume of approximately 5 billion euros or more are considered large. The largest German funds (e.g., hausInvest, Deka Immobilien) manage between 15 and 20 billion euros. Closed-end funds are typically smaller and often start with a total volume of 20 to 200 million euros.

Is a larger fund volume always better?

Not necessarily. Very large funds may be forced by their sheer size to purchase less attractive properties in order to deploy the capital. Smaller, specialized funds can achieve higher returns through targeted property selection in niche markets.

How transparent are fund volumes and property lists?

Under the German Investment Act (KAGB), open-ended public funds are required to regularly publish financial reports and semi-annual reports that detail fund volumes, property lists, occupancy rates, and returns. Closed-end funds are less regulated and require more thorough due diligence on the part of the investor.

What risks are associated with funds that have a very high debt-to-equity ratio?

A high leverage ratio (high LTV ratio) increases returns in good times-but also acts as a downward lever when property values fall or rents go unpaid. Open-ended public funds are legally limited to a maximum of 30% leverage; closed-end funds can have significantly higher debt ratios. Fund volume alone does not provide a complete picture here; what matters is the ratio of equity to total volume.

Fund Volume Comparison: Open-Ended Public Funds vs. Specialized Funds

In addition to open-ended public funds, which are accessible to retail investors, there are institutional real estate funds-so-called specialized AIFs-that are open exclusively to professional investors (insurance companies, pension funds, family offices). Their fund volume is often similar in size to that of retail funds, but their investment strategies are more narrowly defined and focused on specific property types (e.g., only logistics real estate or nursing homes). For private investors, a direct comparison with special funds is hardly possible, as these do not publish public financial reports.

Another special case is Real Estate Investment Trusts (REITs), which in Germany are structured as publicly traded corporations (G-REIT). Their fund volume in the strict sense corresponds to market capitalization plus borrowed funds. REITs are legally required to distribute at least 90% of their distributable profits to shareholders, which makes them attractive as income investments. However, their volatility on the stock market fundamentally distinguishes them from open-ended real estate funds.

Regulatory Framework for Real Estate Funds in Germany

The German Investment Act (KAGB) prescribes a comprehensive regulatory framework for all German real estate funds. Asset management companies (KVGen) that manage open-ended real estate funds require authorization from BaFin and must meet strict requirements regarding risk management, liquidity management, and valuation. The properties in the fund portfolio must be appraised regularly-at least once a year-by independent experts, which ensures the transparency of the fund’s value.

KAGB requirements also apply to closed-end funds, though they are tiered according to the size of the fund’s assets under management and the investor base. Smaller closed-end funds below certain thresholds may utilize simplified licensing procedures, which requires investors to carefully review the offering prospectus before investing.

Fund Volume and Market Cycles

The fund volume of open-ended real estate funds reacts to market cycles: During periods of low interest rates, funds flow more heavily into real estate funds, causing the fund volume to rise rapidly. Fund managers then face the challenge of investing large capital inflows wisely without compromising on property quality. During periods of high interest rates or economic uncertainty, increased redemptions can put pressure on fund volume and, in extreme cases, lead to the suspension of redemptions-as several large German funds experienced during the 2008/2009 financial crisis. Investors should therefore not view fund volume in isolation but also keep an eye on the fund’s liquidity ratio and redemption policy.

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