Open Special Funds Dominate 2018 Investment Inflows: Key Trends for Insurance & Retirement Planning
Understanding where major institutional money flows can provide valuable insights for your own financial planning and retirement strategy. A recent mid-year review by the German Investment and Asset Management Association (BVI) reveals clear trends in the fund market, highlighting the vehicles favored by professional investors like insurers and pension funds. These trends matter to you because they reflect where long-term, safety-conscious capital is being deployed—knowledge that can inform your decisions regarding insurance-linked investments, pension plans, and overall asset allocation.
2018 Market Leaders: Open-Ended Special Funds Take the Crown
From January to August 2018, open-ended special funds dominated new business with an impressive inflow of 53.4 billion euros. This is hardly surprising, as these funds are primarily used by institutional investors like insurance companies and pension providers to manage vast pools of retirement capital. In fact, the BVI states the fund industry is "one of the most significant managers of retirement capital in Germany."
What are Open Special Funds? In simple terms, they are investment funds not offered to the general public but created for specific institutional investors or investor groups. As they typically cater to experts, they are often subject to less regulation than retail funds available to everyone.
The largest share of this inflow went to securities and equity funds, attracting 49.2 billion euros in new assets. Real asset funds played a much smaller role within this subgroup, with a net inflow of 4.2 billion euros.
Retail Fund Trends: Mixed & Real Asset Funds Gain, Bond Funds Lose
Open-ended retail funds saw inflows of approximately 16.4 billion euros. The standout performers in this category were mixed funds, which grew by 13% with a net inflow of 17.8 billion euros. Real asset funds—which invest in tangible assets like gold, real estate, or farmland—also saw significant growth, attracting around 3.5 billion euros in new money.
In contrast, both bond funds and money market funds experienced notable outflows. Bond funds saw a net outflow of around 3.6 billion euros, while money market funds lost approximately 2.1 billion euros, marking the most negative performances among open-ended retail funds.
The most significant outflow of the year, however, occurred in discretionary mandates outside of investment funds, with 13 billion euros withdrawn since the beginning of the year.
Snapshot of the German Fund Universe
The scale is impressive. Fund companies manage a total of 3.1 trillion euros in net assets. Of this, 1.6 trillion euros are in open special funds, and 1.1 trillion euros are in open retail funds. To put this in perspective, one trillion euros is a thousand billion.
Within open retail funds, equity funds lead with a net asset value of 401 billion euros, followed by mixed funds (285 billion euros), bond funds (206 billion euros), and real asset funds (95 billion euros).
A Word of Caution: The Role of Closed-End Funds
Closed-end funds, while offering potential opportunities, can carry substantial risks, as historical cases have shown. They are less significant in the safety-oriented German investment market than open-end funds. These funds are typically not traded on an exchange and are created to finance a specific project, like a shopping center or wind park. The number of shares is limited, and the fund closes once a predetermined total investment sum is reached.
For the current year, closed-end funds recorded a net inflow of 667.2 million euros, dominated by closed-end special funds (590.8 million euros). This dominance is largely due to closed-end real asset funds, which attracted an inflow of 921.3 million euros. Conversely, closed-end securities and equity funds saw an outflow of 330.5 million euros. In total, approximately 7.1 billion euros in net assets are managed in closed-end funds.
Real Estate Fund Focus: Office Spaces Dominate
Real estate funds manage a net asset value of 185 billion euros. Office and practice spaces dominate both open retail funds (55%) and open special funds (36%). Interestingly, the importance of office spaces in open special funds is slowly decreasing (from 40% in 2016 to 36% in 2018), while retail and gastronomy properties are catching up (from 27% to 30%).
Notably, the share of residential real estate is gaining importance in open special funds, rising from 8% to 11% between 2016 and 2018. In open retail funds, there is a growing focus on hotel properties, with their share increasing from 6% to 9%.
What This Means for Your Financial and Insurance Planning
- Institutional Confidence: The massive flows into open special funds signal strong institutional confidence in these vehicles for managing long-term liabilities, such as future insurance claims or pension payouts.
- Diversification Lessons: The growth in mixed and real asset funds within the retail segment suggests a search for yield and diversification in a low-interest-rate environment—a strategy individual investors can emulate.
- Risk Awareness: The outflows from bond funds and the cautious stance on closed-end funds underscore the importance of understanding risk profiles, whether in investments or when choosing between different health insurance plans (e.g., high-risk/high-reward vs. stable coverage).
- Professional Management Matters: The scale of assets under management highlights the role of professional fund management in securing retirement capital, akin to relying on expert advice when navigating complex insurance options like Germany's PKV/GKV or US Medicare plans.
By observing where the pros invest, you can gain a clearer perspective on building a resilient portfolio that supports your long-term goals, including a secure retirement and adequate insurance coverage.