Climbing on a fast-moving bandwagon
For Deutsche Asset Management, who have built up their master KAG business in the past few years, the decision to go this route was client-driven. “We have seen an increasing demand for master KAG solutions from our clients and we took the step in the late 1990s,” says Rüdiger Albrecht, director. DeAM started this particular business in 1998, but progress was slow for the first two years. “In the last three years, the numbers have been increasing rapidly.”
“We are one of the market leaders now. At the end of 2002 we had 18 mandates with E7.7bn in assets under management. By end of June this year, the number of mandates had risen to 21, with over 80 segments and assets of E10bn,” he says.
What gives DeAM an edge is the range of services it can provide, he adds. “Clients have the ability to choose a multi-manager approach by an outsourcing arrangement, or by pre-approval mandate.” DeAM believes is one area where the approach is different to some of its competitors. “We have the infrastructure and the resources to offer clients both.
“But our biggest advantage is having a consultancy that can provide strategic and tactical advice on investment strategy,” he claims. “This is based on our own asset liability studies and our investment expertise.”
There will be increasing polarisation in the marketplace he predicts between administration and asset management. “If the client uses the master KAG as a pure cost-effective administration solution, this is similar to a global custodian solution. In fact we will see increasing competition between master KAGs solution and global custodians,” says Albrecht.
But on the investment side, the master KAG can offer value added solutions for clients through investment consultancy and overlay management. Albrecht says that their clients are divided on this point with some opting for doing asset allocation and hedging strategies by themselves or with their investment consultants, while others want the additional services from the KAG. “We think this latter area will increase.”
Joerg Sihler, managing director responsible for product development in this area, points out that the master KAG will become more of a commodity in the future. “It is a question of providing the additional services, such as asset allocation, performance measurement, performance attribution analysis to those funds.”
The aim is to be able to cover all the aspects of asset management through the master KAG structure in the package that is put to clients. As IT systems become more developed, there will be more that can be offered to the client, he reckons.
The multi-manager concept fits in well with the master KAG concept and this will appeal particularly to the more medium sized pension plans now making their move in this direction. “The big groups were those who made the first move to master KAGs.”
Having built up the assets under administration, DeAM have a firm foothold in the markets, which specializes in the administration. The reckoning is that there is probably only room for a limited number of players, as they need a critical mass to be effective. “In the end, there will probably be only a few on the administration side,” says Sihler. “Perhaps only as many as 10.”