Assets held by German Spezialfonds are likely to break through the “€2trn threshold” within the next 10 years, amounting to an annual increase of more than €80bn, according to a study by Kommalpha.

As of July 2014, Spezialfonds assets stood at just over €1trn.

New regulations set out in the Kapitalanlagegesetzbuch (KAGB) – through which the AIFM Directive was implemented in Germany – has driven much of the growth in demand for Spezialfonds. 

Among other things, it has established the Spezial-AIF – as Spezialfonds covering real estate and alternative assets are now called – for asset classes formerly covered by closed-end fund providers almost exclusively.

They now must obtain a license to issue Spezial-AIF, or they must find a service provider – i.e. a Master KVG, or Service KVG, as they are sometimes known.

Kommalpha said Spezialfonds would, in future, cover more asset classes but added that they would have to be made compatible with the investment vehicle – “risks have to be reassessed to fit the package”.

This process is still “in its infancy”, and the need to obtain a new license, as well as commission a custodian, is creating a “pile-up of investments”, the researchers said.

“The asset class ‘real estate’ – and with it, Immobilienspezialfonds – have led the way, and themes like infrastructure, agriculture and private equity, as well as further alternative investments, will establish themselves in the Spezialfonds field over the long term – after having faced several challenges,” Kommalpha said.

In light of the new complexity in regulation and investments, as well as new asset classes being made more available for investors, the researchers predicted the use of Master KVGs would increase.

While in 2008 Spezialfonds accounted for just over half of assets managed in structures previously known as Master KAG, this share has increased to 76% in 2014, among an almost unchanged sample when compared with six years ago.

One of the challenges Kommalpha sees for Master KVGs is the “redundancy in services offered alongside custodians”, which will only serve to increase competition. 

Another trend noted in the survey is the specialisation of Master KVGs that cover only the real estate market, such as IntReal. 

Overall, one-third of the surveyed investors feels burdened by new regulatory requirements, which, they argue, ties up resources normally used for asset management, which, in turn, negatively impacts returns.

Larger investors have called for greater freedom in investments and welcomed the prudent person principle introduced in Solvency II and IORP II.

Smaller investors, however, have expressed concerns over by the complexity involved in creating their own structures.