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German roundup: Master KAGs, Telos, BVI, second pillar

GERMANY - The business for master KAGs in Germany is growing, but the market is already saturated, according to research and rating company Telos.

The first master KAG (a KAG, or Kapitalanlagegesellschaft, is the preferred vehicle for German institutional investors) was established in Germany eight years ago, and since then, the business has grown from €132bn in assets under management to more than €450bn.

Among the 70 institutional investors surveyed by Telos (33% of which were pension funds), 72% said they already had a master KAG.

Of those that did not, 40% are thinking about cooperating with one - and many more investors than before now use a consultant to do so, Telos said.

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The remainder do not see added value in this step, but, according to the findings, costs are rarely an issue.

Master KAGs primarily offer unified reporting and overlay management to clients, but the service range has grown over the last years to include, among other things, ALM-studies, transition management or manager searches.

According to the survey, fiduciary management - defined as offering the full range of services, from asset allocation and ALM to asset management, reporting and manager searches - is currently only being offered by large providers in Germany such as DB Advisors and AGI.

Telos said it found a clear trend toward investors outsourcing investment decisions to Master KAGs since the crisis, whereas before the service providers had mainly been used as advisors.

However, fewer investors than in previous years have placed all ‘Spezialfonds’ in their portfolio under the management of a master KAG.

The financial crisis led to a consolidation in the market, with larger Master KAGs surviving.

The survey also found that it is difficult for foreign players to get a foothold in this market, with the only successful new entry being BNY Mellon, which bought BHF Asset Servicing.

The authors of Telos’s report said the chances for a new provider to establish a presence in the German market were “very low”.

In other news, the German fund federation BVI has released its latest figures regarding asset flows in the domestic fund sector.

In November 2010 alone, €10.1bn flowed into German Spezialfonds, the institutionals-only vehicle.

In total, German funds had seen net inflows of €80.9bn between January and November last year, well above the average for the period between 2000 and 2009 of €63.3bn.

Lastly, the German statistics bureau has released figures on employee contributions to occupational pension schemes in 2008.

According to official figures, German employees paid around 0.7% of their annual gross income into a pension scheme offered by their employer.

People in the financial industry made the highest contributions, where the percentage went up to 1.6%, while temporary workers made the lowest contributions (0.1%).

That is more than Germans paid into the state-subsidised third pillar Riester plans in the same year.

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