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Deutsche miscalculates German hedge fund demand

GERMANY - DWS, the mutual fund arm of Deutsche Bank, has admitted that net inflows to its three new German hedge funds have totalled just a fraction of the one billion euros estimated by its chief executive for 2004.

According to DWS, the three funds – including a fund of hedge funds, a currency hedge fund and an equity hedge fund – have so far taken in just 23 million euros.

DWS spokeswoman Anke Hallmann said, however, that the low volume was partially due to the two single funds having only been approved in late summer.

“On the other hand, there is no question that the negative performance of hedge funds this year is keeping German investors reticent,” she said. DWS’ hedge fund of funds was approved by BaFin, the German financial services regulator, on March 31.

Hallmann added that since DWS “had so dearly miscalculated” net inflows to its hedge funds, it did not have any revised projections on their demand.

Prior to the advent of German hedge funds in January this year, DWS chief executive Axel-Günter Benkner predicted that his firm’s products would attract one billion euros in assets during their the first year of their existence.

All told, German fund industry expected that the new hedge funds would take in between three and five billion euros in assets in 2004. So far, the products – whether offered to investors via direct sale or private placement – have accumulated around 800 million euros.

The news comes as Deutsche Asset Management‘s former top European investment official has hit out at hedge funds.

Karl Sternberg, former chief investment officer for Europe and Asia at DeAM, has written that pension scheme trustees who invest in hedge funds to improve returns were “likely to be disappointed”.

He added: “Hedge funds may be appropriate vehicles to provide diversification for schemes, but unless trustees are lucky with their choice of manager they will not see overall returns enhanced.”

Earlier this month, IPE reported that DeAM was understood to have absorbed DB Advisors, Deutsche Bank’s in-house 'structured trading' business following the resignation of the unit’s head Roger Ehrenberg.
Meanwhile, BaFin dismissed industry criticisms that Germany’s fledgling hedge fund industry was being undermined by a long and complicated approval process for funds.

A BaFin spokeswoman told IPE that the nine-member team in charge of hedge funds was “working as fast as it could” to approve the funds, adding that some delays were the result of “poorly-prepared applications”.

BaFin is currently in the process of approving five further hedge funds from four providers.

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