German Real Estate Mutual Funds Halt Redemptions On Write Down Plan And Redemption Scramble
Even as the market is now surging on rumors of massive pan-European bail outs (someone explain to us how a tsunami of failed banks is equity positive... or for that matter how imminent monetization is EUR positive), Bloomberg is reporting that the liquidity crisis in Europe has struck smack in the middle: after the FinMin released a draft bill to forcibly write down real estate asset holdings by 10, investors in certain mutual funds have panicked and attempted massive redemptions, which in turn forced redemption halts by these funds which likely are woefully undercapitalized to begin with. This is just the beginning of the liquidity squeeze moving from the periphery to the core.
"Two German real estate mutual funds with properties worth 10.5 billion euros ($13 billion) closed for redemptions yesterday after government proposals to impose an industrywide writedown of assets spooked investors. SEB Asset Management AG closed its ImmoInvest fund and KanAm Grund KAG closed Grundinvest Fonds after German Finance Minister Wolfgang Schaeuble released a draft bill May 3 that proposed to introduce a 10 percent cut in asset values.The writedown plan triggered “massive uncertainty among investors” and significant outflows, Frankfurt-based SEB said in a statement, without giving the scale of the redemptions. KanAm said it was “compelled” to halt redemptions in response to “fears of losses among investors and asset managers, resulting in those parties liquidating portfolios as a precaution.” Susanne Ludwig, a spokeswoman for the Munich-based asset manager, said outflows since May 3 totaled “hundreds of millions of euros.”
Basically what happened is that in Germany, where it appears assets are just as mismarked as in the US, the administration is finally realizing that by perpetuating accounting fraud the final result can only be catastrophic. So instead the country has decided to take marginal mark downs (10% is about 20% of what the full write downs will end up being). The result: all those who have hoped Germany would encourage accounting fraud with the same zeal that the US has, are now panicking and attempting to bail out of the abovementioned real estate funds. Which in turn prompted these funds to shutter redemptions as they are likely leveraged thru the gills and have no cash to disburse. Kinda like what will happen in the US shortly, when money market funds break the buck again. Readers will recall, as Zero Hedge disclosed a few months ago, Money Market funds can now suspend redemptions as well.