GERMANY - Deutsche Bank's retail fund arm DWS is rolling out its sixth single hedge fund domiciled in Germany amid signs of growing investor demand for the products, according to DWS chief executive Klaus Kaldemorgen.
German hedge funds have been in existence since January 2004 when the government legalised them for the first time. But demand for the products, currently at around €2.5bn, has lagged behind initial projections.
DWS is the current market leader for German hedge funds, having taken in €800m in assets from private and institutional investors so far. DWS also has one fund-of-hedge fund.
Yet speaking after a news conference in Frankfurt, Kaldemorgen said DWS had noticed a growing preference among investors for single hedge funds. "Single hedge funds are doing well for us and in fact we're just about to launch a new one that invests in the Pacific Rim and follows a long-short strategy," he told IPE.
Kaldemorgen added that demand for DWS' single hedge funds were, roughly speaking, split 50-50 between family offices (which serve wealthy clients) and institutional investors. The news conference was Kaldemorgen's first since he replaced Axel Benkner as DWS CEO in October.
Asked by IPE how he felt about the government's plans to make German hedge funds more attractive, Kaldemorgen said that while he welcomed them, it was difficult for Germany to compete with hedge fund centres like London.
"The main problem is attracting hedge fund talent, as the same salaries are not paid in Frankfurt as they are in London," he said. He also agreed that London hedge fund providers enjoyed a tremendous tax advantage by, for example, domiciling their products in the Cayman Islands.
During the news conference, DWS said it would challenge the market leadership of rival Union Investment in fund-based versions of the ‘Riester-Rente', a government-subsidised private pension.
As part of the effort, DWS is building a sales team headed by Frank Breiting, a director who joined in September. So far, Union has sold 700,000 fund-based Riester pensions compared with just 50,000 for DWS.
Asked how DWS hoped to make up for the huge head start held by Union, Stephan Kunze, DWS' European head, said: "We certainly won't be able to catch up to Union next year. It will take some time."
"However, given the quality of our (Riester) product, we feel that we have a good chance of emerging as the market leader in the long term," Kunze added.
Since its launch in 2002, around 7m people have acquired a Riester pension, though less than one million of these contracts are fund-based. The market potential for the pension is put at 30m.