Austrian Spezialfonds face new challenges
Institutional investors in Austria have been enjoying the benefits of outsourcing asset management services for a number of years. The key instrument to implement a sound outsourcing strategy is the Spezialfonds (see box).
Spezialfonds are launched by management companies KAGs according to the client-specific needs of a single institutional investor or a small group of up to 10 investors. The custodian bank (Depotbank) takes over the role of the accountant and administrator of the fund and also calculates daily NAVs. Main investors are pension funds, insurance companies, corporate investors and foundations.
In the past the primary reason for the use of Spezialfonds was often the move from an inefficient direct or segregated portfolio investment without daily NAV calculations to a standardised and efficient fund framework. External asset managers can be selected by the institutional investor and appointed by the KAG in the role of an adviser to the fund or as a manager of the fund. This kind of setup had already been the oursourcing model of so called institutional funds for investors in Austria before Spezialfonds were introduced in 1998.
Spezialfonds brought the benefits of a simple registration process as well as lower administration costs. Investors had been taking advantage of that. Total assets in Spezialfonds were E22.3bn as per end of July 2003 with institutional funds at E20.4bn. Among the market leaders are the main domestic players like Raiffeisen Capital Management, ERSTE-SPARINVEST and Capital Invest as well as global asset managers like UBS, Deutsche Asset Management, INVESCO, Schroders, JPMorgan Fleming, Merrill Lynch and Capital International in co-operation with Raiffeisen Capital Management.
A common strategy of domestic institutions was to outsource core government bond mandates, Austrian and eastern European equities to a Austrian asset manager and appoint foreign asset managers for international equity or global balanced mandates, specialised asset classes like high yield corporate bonds or emerging market bonds.
Although Spezialfonds have proven their value as an investment tool, institutional investors today also consider other options. To implement short- to mid-term flexible strategies Spezialfonds might not be the best route to go. Investments in mutual funds can offer opportunities compared to a cumbersome and time consuming change of fund managers for a Spezialfonds. Ernst Krehan, head of investments at UNIQA expects external fund managers to prove their value by delivering capital protection and return in selected asset classes. Core portfolios such as European high grade and corporate bonds are managed inhouse. These funds claim a good track-record and are not structured as Spezialfonds but as institutional funds open to other outside investors – from this month under the UNIQA brand.
Berndt May, country head for Austria at JPMorgan Fleming Asset Management says “We are one of the significant foreign players in the institutional market. A number of funds out of our broad product range were selected by institutional fund of funds.” The group was also ranked among the top three foreign asset managers in Austria’s public fund of fund market since 1998, according to a research study conducted by our firm e-fundresearch.com.
The new Mitarbeitervorsorge-kassen (MVK) managing Austria’s new DC system for severance pay and collecting 1.53 % of gross salaries since the beginning of the year have not yet reached assets levels to efficiently use Spezialfonds. Christian Schön, director institutional sales at Deutsche Asset Management in Vienna refers to the DWS Alpha Fonds as one of the suitable strategies combining capital guarantee, interest income an selected equity exposure.
Pension funds in Austria have been utilising Spezialfonds for a number of years. In the past the classic benchmark mandates were implemented. Günther Schiendl, head of investments at APK Pensionskasse says: “Pension funds will benefit if they open up to more innovative and flexible strategies. Fund managers should be given the flexibility to add value in challenging markets.” Derivatives, property and fund of fund structures with innovative subfunds can result in a better risk/return relationship could also result in disappointment. The decision has to correspond with the inherent risk profile of the investor.
Property is another area where Spezialfonds will be used in the future. Since September this year, a new law (Immobilien-Investmentfondsgesetz) represents the legal framework for open-ended property fund investments in Austria. The German success story with E85bn invested in open-ended property funds is not easy to beat but in relative terms this should translate to E8-9bn in assets under management in Austria over the coming five to 10 years. Considering the risk-averse nature of Austrian investors this target is achievable. Additional adjustments in the tax law are expected to get rid of an unfavourable taxation of unrealised profits.
Albert Reiter is managing director of e-fundresearch.com Data GmbH, Vienna an independent information provider on investment funds