Yet the likes of Schroders and Dexia believe they can still reap dividends in Frankfurt, the country’s financial capital, where there is a real intensity of expectation among business development staff.
“Germany is very developed in terms of asset management. There is big competition between foreigners and domestic players,” warns Naïm Abou-Jaoudé, chief executive of Dexia Asset Management, which only recently entered Europe’s second largest funds market. “In order to succeed, you need a competitive edge.”
With the plain vanilla business taken by local players, the likes of Dexia need to cook up a foreign-made speciality. For the Belgian group, this means selling SRI products into institutions backed by a trade union and worker council structure, favouring socially conscious strategies.
Schroders, one of the established foreign players, has been using a variation on the theme of specialised product development to notch up €6bn from German clients, with more than half of this from traditional institutions, and €2.5bn in mutual funds bought by clients of distributors.
The battle for business is so cut-throat that when Schroders recruited Achim Küssner from BlackRock to head its renewed German push last year, the move led to litigation in Germany and the US. Groups such as Schroders have ambitions to grow in institutional, wholesale distribution and retail channels. Increasingly, institutions are buying mutual funds rather than employing managers to run segregated mandates, leaving big ticket sales chiefs such as Mr Küssner in great demand.
But the expenditure must be justified.Mr Küssner, plus the seven Blackrockers who joined him, will feel the heat from Schroders’ head office, and the sharp, multi-lingual tongue of their boss Massimo Tossato if targets fail to be met.
Currently, Schroders is top of the second-tier group of foreigners. But Mr Tossato wants to see them up with JP Morgan, Fidelity and BlackRock. The latter dwarfs Schroders’ operation, running €23bn for German clients.
Despite a flat year in 2007, there is optimism at Schroders that private placement products using derivatives to access agricultural commodities will succeed in the institutional market, with €5bn raised. Tax efficient cross-asset class products for employees of German pension plans have also been in place since January. How to manage investments for Germany’s ageing population is a key issue for both politicians and asset managers.
One answer might lie in packaging alternative products – which have previously failed in Germany due to regulation, bad publicity and an innate conservatism – as something appearing more user-friendly.
Absolute return funds, enabled by loosening restrictions in use of derivatives under the Ucits III European directive, may profit the most, according to Frank Umlauf, who runs Frankfurt based consultancy Faros.
“The biggest product development in Germany is convergence from the Ucits III to the hedge funds world,” says Mr Umlauf. His German clients are now buying more global equity product from hedge fund managers than traditional long-only players. While the rise of boutiques might not please the bigger foreign interlopers, looming capital gains tax regulation may come to their rescue.
“Over the last 12 months, the German market has been very difficult for foreign groups, as only money market funds have sold and the foreigners cannot easily compete in this arena,” says Diana Mackay, CEO of cross-border funds consultancy Lipper Feri.
But she expects to see new inflows in the third and final quarters of this year, ahead of tax measures coming in at the beginning of 2009, as long term holdings will be CGT free. “The move will be into funds that can be held for a long period of time – big regional global equity funds, not thematic ones.”
So expect a new version of the old-style balanced and global products – currently gathering dust at the bottom of Mr Küssner’s suitcase – to be polished up for re-sale.
Yuri Bender, editor in chief.
yuri.bender@ft.com
cut:
Seven ex-BlackRockers have joined him.
, and nudging totals handled by some medium-sized domestic houses
less risky and
once more
