Perspectives
2 June 2021
As the largest economy in Europe, and with a transparent regulatory structure and historically a stable government, Germany has long been attractive to foreign investors. Today, with changing landscapes across a number of sectors, including infrastructure and technology, Germany is now offering an even broader range of investment opportunities than ever before.
The wider scope of investment opportunities and developments are increasingly evident within Germany's infrastructure sector, as Hilko Schomerus, a managing director at Macquarie Asset Management in Frankfurt explains: “There’s more interest now in what you might call 'core plus' investing, which is the term given to infrastructure-like assets. This could be hospitals or care facilities, social housing or even technology service infrastructure. Previously it was mainly private equity firms that would invest in these types of assets, but institutional investors are taking an interest as the market matures and familiarity with such investment opportunities increases.”
Currenta, acquired by Macquarie-managed funds in 2019, is an example of this trend. The business provides infrastructure, energy supply, and other essential services to Germany's chemicals sector across sites in Leverkusen, Dormagen, and Krefeld-Uerdingen. Currenta is a critical enabler of one of Germany's largest industries and is partnering with industrial clients to innovate and invest in emerging technologies, such as hydrogen.
Macquarie has invested and arranged more than €15 billion in German infrastructure. As Macquarie and other global investors seek opportunities in the local market, the interest to invest in the infrastructure sector from Germany's deep domestic capital pools is on the rise.
Mr Schomerus continues: “With interest rates so low there’s greater appetite among insurers and pension funds for infrastructure investment and as a result, they are increasingly looking to us because of our deep expertise and track record. They like the fact that many of us have worked in these types of asset classes and industries ourselves. Yes, we have the financial knowledge, but we also have people with diverse skill sets and operational expertise.”
Perhaps the most exciting sector offering new investment prospects is technology. With Berlin the second-largest tech hub in Europe, interest in German tech companies among domestic and international investors is mounting. Alongside tech firms, Germany’s celebrated “Mittelstand,” an extensive grouping of small and medium-sized enterprises is also offering increasingly attractive opportunities for international investors.
Rainer Langel, European head of Macquarie Capital’s Advisory and Capital Solutions group in Frankfurt explains: “People appreciate the fact that you find the same levels of technology and quality of management as you would in Silicon Valley, but the prices are lower,” he says.
Whether they’re investing in infrastructure, the Mittelstand or tech companies, the new cohort of international investors in Germany can rely on Macquarie’s strong local presence – ensuring they can navigate the language and culture. “Investors also appreciate our best-in-class execution and our focus on detail as well as our experienced, knowledgeable sector teams,” says Mr Langel.
Macquarie’s futures clearing business also helps an increasing number of international investors and their domestic counterparts. With an office in Frankfurt, the futures business (along with it’s affiliates) has been operating for over 30 years and today provides global coverage across all major asset classes and markets, supporting both German and new international clients to navigate the changes among the domestic clearing banks to make the most of opportunities in the futures markets.
“Our strengths lie in our ability to provide market participants with stable and committed solutions across Execution, Clearing and Financing services” explains Tobias Krause, associate director at Macquarie’s Commodities and Global Markets business. “There have been a lot of changes among clearing banks in Germany. Around five years ago there were nearly half a dozen of them, whereas today in the commodities space there are just three left - of which Macquarie is one. And we are continuing to target new opportunities for growth.”
This, according to Mr Krause, is because commodities are at the heart of Macquarie's business, making it very well placed to help investors benefit from the opportunities that market presents. “The breadth of our expertise in commodity markets and the reach of our global platform, has allowed us to manage the increased volatility and volume of trades that has been driven by the COVID-19 pandemic more effectively than most."
Another market condition driven by the pandemic is the exponential growth in flexible and remote working, which is accelerating trends in Germany's real estate sector. Macquarie Asset Management is supporting this growing number of property market investors through its dedicated real estate platform.
Florian Winkle, managing director and Co-head of Macquarie Asset Management's real estate team in Europe suggests: “There’s increasing interest among international and domestic investors in residential developments and office buildings suited to the future of work. This new influx of overseas investors like the fact that Germany has a number of 'secondary cities.' Unlike France and the UK, which have one or two mega-cities, our federal structure means that there are a number of economically successful centres increasing the demand for residential and commercial real estate."
However, one of the most interesting developments for Macquarie's real estate platform has been in the logistics sector, as Mr Winkle explains: "Another unexpected consequence of the pandemic, is that firms are increasingly turning to suppliers that are closer to them and there’s less reliance on just-in-time delivery systems. These increased volumes in inventory have to be stored somewhere locally, and we are seeing great interest and opportunity in this space. As retail also moves online, modern logistics and fulfilment centres are in high demand.”
Venture Capital (VC) is another sector that has grown impressively in Germany over recent years and is now attracting the attention of investors from around the world. “When we first became involved in the German VC space, the market was worth about €400 million, and today it is closer to €4.5 billion. We’re seeing more and more successful IPOs, and a growing number of investors exiting from so called 'unicorns' start-ups," explains Elmar Broscheit, division director of Macquarie Capital's VC group.
Mr Broscheit points to Rocket Internet, the German tech incubator which has spawned a large number of successful tech start-ups. “We’re seeing this market evolving too – with more interest in firms offering business to business (b2b) services, rather than those purely aimed at the consumer market. Valuations based on revenue multiples have been increasing across the board and many start-up companies are benefitting from the move to having more people working from home - as this can reduce costs. This is also boosting interest in cyber companies.”
German and international investors - including an increasing number from the Asia Pacific region - come to Macquarie because of its flexible capital offering and its deep sector expertise, according to Mr Broscheit. “They also appreciate our networking capabilities. Our experience and our contacts mean that we can help to facilitate introductions in what is an increasingly exciting and competitive market.”
Macquarie has invested in and from Germany for more than three decades and today has over 170 staff on the ground. With sector specialists that not only speak the local language but thoroughly understand the local culture, Macquarie is well positioned to help clients navigate Germany's unique investment landscape.
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