While German special funds have largely invested in Europe in the past, investments in North America and Asia are becoming increasingly popular amongst fund managers.

Since the reform of the German Investment Act in 2007, the special fund has enabled German investors to access foreign markets in a highly efficient manner from both a legal and tax perspective. Consequently, large German investors have tended to favour special funds over equivalent foreign structures such as the Luxembourg FCP. The case study below illustrates this point:

Case study global real estate portfolio

In 2008, a large German pension scheme appointed a special fund manager to develop a global real estate portfolio on its behalf. The following investment strategy was agreed by the investor and appointed manager:

• Volumes: up to 1 bn euros AuM (Leverage maximum 50%)
• Investment style: Core
• Regional allocation: Asia (35%) and USA (35%), Europe (10%) as addition to portfolio, 10% tactical reserve
• Sectoral allocation: Offices, retail and logistic
• Vehicle: special fund
   

Using the different regional real estate cycles, the fund has since acquired real estate assets of 800 mn euros and, by end Feb 2011, had generated a yield of over 8% IRR. Assets had been acquired in locations such as Seoul, Tokyo, Atlanta, New York City and Miami as well as in large European locations. Many different models were used in the individual investments e.g.
 

• Direct acquisition
• Acquisition of a property company to be set up whose shares were held by the fund e.g. US C-Corp, Singapore LLC, German GmbH, Jersey LP, Korean LLC Type REF
• The use of shareholder loans
• The establishment of a joint venture in which the fund  held the majority interest
   

Overall, the special fund has been shown to be an ideal vehicle when developing a highly tax-efficient global portfolio of core real estate assets. The stable and transparent legal framework provided by the German Investment Act offers sufficient leeway to tailor individual agreements and flexible investment strategies. At the same time, setting up a special fund incurs no appreciable costs due to the wide-reaching market standardisation. Thus, the special fund is also a cost effective alternative to Luxembourg FCP model.