New regulations for German open ended funds: an end to the troubles

Since the beginning of the financial crises in 2008 the ongoing liquidity problems of German Open Ended Funds (GOEFs) peaked as more and more institutional investors withdrew their capital. This capital movement forced a variety of funds to stop redemptions and currently about one third of the capital invested in GOEFs cannot be withdrawn by their investors. In addition some funds had to close for good and the fund managers have to liquidate the assets. As a consequence the German government enacted the ìAnlegerschutz- und Funktionsverbesserungsgesetzî (AnsFuG) to stabilize the GOEFs as an investment product. The act incorporates two main key changes: first from 2012 on a ìlock-up periodî of 24 months and a cancelation period of 12 month will be introduced and second the leverage ratio is capped to 30 per cent. These new regulations will have a significant impact on the basic conditions of the GOEF sector as well as for institutional investors. On the one hand the implemented holding periods have a positive effect that the funds can reduce their collaterals in liquid assets. On the other hand there are severe restrictions for the portfolio management of institutional investors and they will increase their investment in ìSpezialfondsîù, because the new rules do not apply to them. Another concern is about the decrease of the leverage ratio. Thereby the scope for mortgages in foreign countries in order to reduce currency risks is mitigated. Therefore the allocation of GOEF invested capital in Euroland will change. The paper investigates the current reform with a qualitative research approach. Based on interviews with fund managers and institutional investors the paper develops scenarios for the future investment behavior of institutional investors and the response of the funds managements on that.