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If you are not French or German, it may seem unimportant, but being number one in the European funds-under-management league tables is a matter of some pride. France has had this distinction for some years but the growth of the German funds industry of late has created a situation where, if we include Spezialfonds, Germany is now number one, with fund assets worth over DM1.5trn (e767.9bn). France argues that Spezialfonds, because they are not strictly-speaking mutual funds, do not count. Undeterred, Germany is pressing FEFSI, the European funds federation, to include spezialfonds in its total assets calculations. It is not yet an international dispute to rival beef wars, but the French are not about to accept German supremacy in this matter.
This rivalry has been a running joke for members of the Invesco European Press Club, especially as our two most recent meetings have been in Paris and Frankfurt. Invesco’s idea is that every few months, a group of 12 to 15 financial writers from around Europe meet up to learn more about a given market. It is an inspired idea because under circumstances where correspondents from all over the continent are gathered in one place, you begin to build a much greater understanding of what similarities there are with your own country, as well as what differentiates you.
Germany has always been an interesting country from an Anglo-American perspective because it has a relatively open yet surprisingly unsophisticated financial services market. That situation is now changing rapidly. Ingo Narat of the financial newspaper Handelsblatt confirms that this is a good time to visit Germany, because the funds market is really taking off. Manfred Laux, chairman of the German Funds Association (BVI), observes there is a new generation of investors who are willing to consider higher volatility for higher returns. Information is more freely available and this is a key factor in the growth of equity funds as now the largest proportion of funds in the German retail fund universe.
Laux has been one of the strongest proponents of the Altersvorsorgesondervermoegen, or AS pension scheme. This new fund structure, of appeal to German companies of all sizes, has been well documented in this magazine. Suffice it to say that the AS combines the economic efficiency of the Anglo-American pension fund with the structural advantages of investment funds, such as transparency, security and portability.
Laux says the level of interest in the scheme is remarkable given that the German government has not yet granted tax privileges to it. He believes that the scheme could become the blueprint for Europe and has lobbied FEFSI to adopt this as the basis for their input to the European Commission. Steffen Matthias at FEFSI’s secretariat in Brussels confirms that FEFSI has included AS in its submission to the Commission, “but we have adopted it as one of the possible models, not the model”. Matthias adds that the most important aspect of FEFSI’s detailed paper is that the Commission recognises that investment funds can be a vehicle for pension schemes at any level.
Laux recognises that the Commission favours the broad principles of prudent man, adding that, “The BVI is of the opinion that quantitative investment restrictions are acceptable as long as they do not jeopardise the fund’s objectives. In essence, this means the fund must have the possibility to follow an investment policy similar to Anglo-American pensions funds. This is compatible with the restrictions applying to AS funds, that they may not invest 100% of their assets in equities."
The Spezialfonds market is another key growth area for asset management in Germany, with foreign managers playing an active part. The potential growth for the institutional asset management market is indicated by the sharpening growth curve for the number of KAGs being set up by domestic insurers and foreign fund managers. Insurance companies are expected to establish their own KAGs and transfer their existing Spezialfonds to their own KAG.
Elmar Rathmayr of CommerzInvest expects mandates to be much more freely awarded. He suggests the euro has been a catalyst for the growing externalisation of asset management.

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