Opportunistic Investment in Germany - An Agency Theory Based Analysis

Abstract

The role of opportunity funds in the German real estate investment market has increased considerably in recent years. To keep abreast of this development, the following paper proposes an investment model for opportunity funds. The model analyses opportunity funds as intermediaries between capital that is looking for investment and the investment possibility itself. The model should create incentive compatibility beneath original investors (insurance companies, pension funds etc), opportunity funds and possible operating partners who are specialists of local markets by integration of agency theoretical aspects. A double delegation relationship can be observed: First, the opportunity fund acts as agent in relation to the original investor or principal. Second, the opportunity fund as investor is the principal and the operating partner is the agent who has a distinct advantage of information. The different types of asymmetric information which come into play in these relationships are depicted afterwards. It is described how they affect the relation of the transaction partners, and consequently which threats result from an investment with real estate private equity in Germany. These threats are then countered with solution approaches which are incorporated as management and financial elements into an investment model, in order to maintain incentive compatibility beneath the transaction partners.