It gradually became evident during the course of 1999 that, while the specialised investment funds investment medium saw continued high-level expansion, the quite dizzy rates of growth seen in 1997 and 1998 could not be maintained (see Kandlbinder in: Kreditwesen, vol. 3/2000, page 113f. and 147f., for which the Bundesbank statistics up to October 1999 were available), and the motto for the specialised investment funds business in 1999 could well be that specialised investment funds continued their high-level growth. In any event, 1999 was the year when specialised real estate investment funds really began to take off (see Kandlbinder in Der Langfristige Kredit, vol. 13/2000, pp 442-450).

High, but declining growth rates…
Although net sales receipts (see Table 1) of the specialised investment funds during 1999 were almost 11% down on the previous year, at c59.5bn, this was still a good 8% up on the peak year of 1997, making it the second highest inflow of funds into specialised investment funds in any one calendar year. Specialised investment fund volume rose in 1999 by ‘only’ 28.4% (previous year: 31.2%), but in absolute terms exceeded the previous year’s figure by c17m, rising from c89m to c106m (see Table 2). As a result, the share of sales receipts flowing into the specialised investment funds fell sharply to 61.2% (previous year: 77%), and in terms of the whole volume of the investment funds market to 62.4% (having peaked the previous year at 64.3%). If the foreign funds of German provenance open to the general public (volumes in Luxembourg c99,265m, Ireland c6,046m), together with their sales receipts (Luxembourg c7,208m, Ireland c1,672m) are also taken into account for 1999, the decline in the respective specialised investment funds shares is even sharper: in terms of sales receipts to 56.1% and in funds volume to 54.8% of the respective total investment funds market.
The slowing momentum in specialised investment funds development in 1999 is also evident in the figures for new fund issues: in the year under review, according to Bundesbank statistics, these numbered 583, compared to 737 the year before, and according to a survey by the author ‘only’ 579, against 739 the previous year. Apart from the minor differences in the figures, which can be easily explained, there is a marked decline evident in the hitherto almost frantic frequency of new fund issues: in 1999 there were ‘only’ around 11 new specialised investment fund issues per calendar week, or less than 2.5 per banking day, compared to 14 per week, or almost 3 per banking day in 1998.
… and in 2000, the decline goes on
In the first four months of 2000, net receipts in the specialised investment funds (excluding specialised real estate investment funds) totalled c13,074m, an average of c3,269m per month, markedly less than in the previous years 1998 (c5,571m per month) and 1999 (c4,821m per month).
By contrast, sales of German investment funds open to the general public (excluding real estate investment funds) positively boomed in the first four months of 2000, at c20,956m, or c5,239m per month.

New types of funds start to appear
As at the end of April 2000, the figures for investment fund numbers and fund volumes (excluding real estate funds) are as follows: 616 equity-based investment funds open to the general public (including mixed funds and old-age provision special assets), with a fund volume of c173,766m, account for 22.5% of the total funds volume of the investment fund branch (excluding real estate investment funds): 320 money market and bond funds open to the general public, at c88,428m, represent about 11.5% of the entire funds volume of the investment fund branch (excluding real estate investment funds). As of April 2000, however, there are already another 41 investment funds open to the general public, namely holding funds, and also, in theory, mixed security- and property-based special assets, which at this stage can only be deduced from the Bundesbank statistics, with a volume of c5,401m, or 0.7% of the investment funds branch (excluding real estate investment funds).
Additionally, however, as at the end of April this year, 4,988 specialised investment funds (excluding specialised real estate investment funds) with an average volume per fund of almost c101m (the previous year, as at the end of May 1999, the figure was c91m), achieved a total funds volume of c503,539m, representing a 65.3% share of the total funds volume of the investment funds branch (excluding real estate investment funds) of c771,134m. This share has therefore perceptibly declined from the previous year’s level, where it peaked in May 1999 at 68.6%, in line with the general specialised investment funds trend. Something else that can now be deduced from the Bundesbank’s specialised investment funds statistics is that the new fund types, specialised investment fund of funds and mixed securities- and property-based special assets, are increasingly taking on a life of their own as specialised investment funds.
As at the end of 1999, five such new type funds came into being as specialised investment funds, with a volume of c527m, with a c127m share allocable to the credit institutions investor group, and another c400m share to the insurance enterprises group. The corresponding inflows took place during the last quarter of 1999, although, as suggested by the author’s research, there were also some false reports. Nevertheless, as of April 2000, there were already 11 of these new fund types as specialised investment funds, with a volume of c394m (which have obviously been adjusted for the false reports of the previous year), and this volume can be broken down as follows:
q c226m specialised investment funds of credit institutions
q c154m specialised investment funds of insurance enterprises (including pension funds), and
q c14m specialised investment funds of other companies (according to the Bundesbank’s definition of investor groups).
According to the Bundesbank’s capital market statistics, the numbers of specialised investment funds newly established so far in 2000 are at roughly the same reduced level of the previous year: 190 new fund issues in the first four months of 2000 (with 80 banking days in the months January–April 2000) means de facto ‘only’ 2.4 new specialised investment funds per banking day, compared to almost 2.5 in 1999.

Equity quota and foreign share continue to rise
The asset distribution weighting of the securities-based specialised investment funds has again shifted perceptibly in favour of domestic and foreign equities, which at the end of 1998 already accounted for 38% of the funds volume of the securities-based specialised investment funds, compared with 36% at the end of 1997; as at the end of 1999, however, they had already reached over 46% (see Table 3).
The proportion of foreign securities (bonds and equities) in the specialised investment fund portfolio has also risen constantly over this three-year period: from 18% at the end of 1996, through 23% and 30% at the end of 1997 and 1998 respectively to 42.7% at the end of 1999.
So far in 2000 (see Chart 1) some of these trends have been held, and some have certainly progressed. As at April 2000, the proportion of equities in the specialised investment fund placements amounted to 45.3% of the fund volume, and the proportion of foreign equities to 46.1%; in the latter case, the one-third mark was passed for the first time in February 1999, and the 40% mark for the first time in November 1999. What seems particularly striking is the fact that, since the beginning of 1999, the proportion of foreign equities in the portfolio of German securities-based funds has exceeded the proportion of domestic equities. The proportion of foreign equities at the end of 1998 was already equal to that of domestic equities (both 19%); by January 1999 the ratio was already 21% to 19%, as at the end of 1999 it stood at 29.3% to 16.9%, and as of April this year the figure was 31.1% to 14.2% of the total fund volume of securities-based specialised investment funds in favour of foreign equities.

Substantial rises in value, except for bond funds
From the Bundesbank capital market statistics (see Chart 2) can be determined the increases in value for 1999 in specialised investment funds, as well as the high receipts (the same was naturally true of the investment funds open to the general public): specialised investment funds volume as at the end of 1998, less projected distribution of income for 1999 plus net receipts in 1999 give the calculated value for fund volume as at December 1999; if we look at the latter in relation to the actual values for specialised investment fund volume as at December 1999, the effective value increase in 1999 can be calculated, and even subdivided into bond, equity and mixed specialised investment funds. However, the capital gains realised in specialised investment funds cannot be derived from these, as they are difficult to calculate more conclusively. The new undisclosed reserves in securities placements by the specialised investment funds have therefore declined (64.7% down compared to the previous year) during 1999 only in the case of the bond funds; but have markedly improved in the case of equity funds (trebled) and mixed specialised investment funds (doubled), in overall net terms up by a full 77%. These cushions, which in French are strikingly known as ‘réserves occultes’, are still impressive, but should not, however, lead the tax-hungry fiscal authorities to make some disastrous decisions, since there are naturally other phases, too, which will come again (for example, it would only take interest rates to rise once more …).
In other respects, Table 5 shows that in the foreseeable future the Bundesbank will have to rethink the layout of the investment funds statistics if the new fund types, holding funds (as well as mixed securities- and property-based special assets) continue to increase in volume. In any event, according to the latest statistics available, for April 2000, in terms of volume these two new types of funds, as investment funds open to the general public, are already twice the size of the old-age pension special assets – and the latter already have their own column in the funds statistics. In other respects, it will certainly be welcome if the Bundesbank’s investment fund statistics show not only individual former main fund types selectively under the heading ‘including’, but rather in each case include a complete breakdown of the entire fund assets under the heading ‘of which’. Then all ‘cross-wise additions’ will again agree with the totals figure, as was previously the case (before the third capital market promotion law came into effect). However, this would create an additional problem, namely that of duplication in the case of holding funds, if no distinction is made between foreign and German target funds (the latter, for example, are already recorded once in the statistics).

On the structure of holders of specialised investment funds
Not all 55 investment trust companies (Kapitalanlagegesellschaft – KAG) took part in the author’s 1999 year-end survey of investment trust companies. As at the end of 1999, according to Bundesbank statistics, these companies were managing some c473.5bn of the specialised investment funds volume (excluding specialised real estate investment funds – see Table 4). Nevertheless, with 54 investment trust companies included in the breakdown, 99.979% of the volume has been recorded, so Table 4 may be regarded as authoritative. The analysis of the survey results shows a figure of c473.8bn, slightly different to that given in the Bundesbank statistics, which can be disregarded in view of the magnitude of the figures involved.
In the first place, it must be noted that in 1999, the specialised investment funds market (excluding specialised real estate investment funds) has expanded, albeit not quite as much as in the peak year 1998. The entire funds volume of the specialised investment funds (excluding specialised real estate investment funds) rose from c369.4bn at the end of 1998 to c473.5bn at the end of 1999, a rise of c104.1bn (previous year: c88bn) or 28.2% (previous year: 31.2%). According to replies to the author’s survey, the number of funds (excluding specialised real estate investment funds) increased by 567, or 13.4% (previous year: +21.1%), from 4,238 at the end of 1998 to 4,805 specialised investment funds (excluding specialised real estate investment funds) as at the end of 1999 (Bundesbank figures show 4,224 specialised investment funds at the end of 1998 and 4,798 specialised investment funds as at the end of 1999 - this difference too can be explained and may be disregarded). In this market, which in overall terms is still growing, the relative sizes of the different investor groups are as follows:
q The insurance industry and institutional pension funds still constitute the most important investor groups, with a share of specialised investment funds volume of 52.2%; this share has increased in absolute terms (+c61bn specialised investment funds placements, compared to +c37bn the previous year) and has continued to grow in relative terms, inching back towards the 53.2% share reached in 1997. The ‘institutional pension funds’ investor group, with over c31bn in 1999, is also represented in the specialised investment funds investment medium;
q The second most important investor group of business enterprises, which can be subdivided into two distinct subgroups, has fallen back to the relative shares of 1997:
l what are known as the banks’ own security deposit funds, with a share of the specialised investment funds volume declining to 22.3% (or in absolute terms +c18bn new specialised investment fund placements, compared to +c27bn the previous year), in which the savings banks and co-operatives sector institutions are particularly strongly represented, and
l those business enterprises whose share of the specialised investment funds volume has fallen to 16.3% (compared with 17.1% the previous year), and whose specialised investment fund placements serve largely as ‘capital with societal restrictions on individual property rights’, that is, the ‘funding’ for pension provisions (in absolute terms, receipts of these specialised investment fund placements once again rose by +c14bn, compared with +c15bn the previous year).
q Although the relative share of the group of other licensed specialised investment funds investors remained the same as the previous year, at 6.4%, and in absolute terms the total sum invested increased by almost c6bn (previous year +c7bn, with at that time a rising relative share).
q Placements in specialised investment funds by the social insurance institutions group again rose substantially, by almost c6bn, and in absolute terms doubled from the previous year, to a relative share of 2.1% (from a 1.2% share the previous year). The last time the social insurance institutions group had such a large share in the specialised investment funds investment medium was in 1995, but at the end of 1991 and 1989 the figures were respectively more than twice as high, at 5.1%, and three times as high, at 6.8%.
q The specialised investment fund share of the group of foreign specialised investment fund holders is stagnating in terms of volume, and in relative terms the share has declined to 0.7%.
Analysis of another Bundesbank statistic (see Chart 3) even shows that in effect there were substantial flow backs from specialised investment funds to non-German investors during 1999.
The reluctance of non-German investors to participate in the specialised investment funds sector (excluding specialised real estate investment funds) remains a phenomenon which is difficult to explain rationally, especially if we consider how heavily non-German investors are committed to direct investment on the German capital market.