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Fidelity wants 20% annual growth in fast changing German market

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GERMANY - Klaus Mössle, head of institutional business at the German arm of Fidelity Investments, has reaffirmed his ambitious goal of growing that business by 20-30% annually.

In an interview with IPE, Mössle said that as he has now assembled a proper institutional sales team for the German-speaking lands, "I would simply reaffirm that, on a net basis, we aim to grow our institutional business by between 20-30%".

The team includes Christof Quiring and Hans-Jörg Frantzmann, both hired during the fourth quarter. Quiring is in charge of pensions sales while Frantzmann is responsible for acquiring institutional clients.

As of September 2006, Fidelity had €1.6bn in institutional assets under management in Germany. More than three-quarters of this volume stems from pension funds. Including Austria, Fidelity managed €1.98bn.

Annual growth in Fidelity's German institutional business has, however, lagged behind the 20-30% target that Mössle cited shortly after joining Fidelity in mid-2004. Last year, for example, the business suffered slight outflows.

Mössle had previously told IPE that the business' performance in 2005 was not that worrying. "Sure there was stagnation on the institutional side in 2005, but you have to understand that the building of the business is a long-term project," he said in January 2006.

In the current interview, Mössle  stressed that the business' prospects were even better following the recruitment of Quiring from Invesco's German arm and Frantzmann from Frankfurt-Trust.
Around 30% of Fidelity's new volumes in 2006 was  through investment consultants. "We work very closely with consultants, but that's not surprising as we still have a very small sales force relative to other asset managers in the market."
Mössle added that while consultants were gaining popularity in the German institutional market, their potential would probably not exceed one-third of total allocations.

Regarding sources of growth in Germany's institutional market, Mössle cited external pension funds such as contractual trust arrangements (CTAs) and the Zeit-Wert overtime accounts as chief examples.

But since many bigger German corporates have already set up CTAs to finance pension obligations, he believes that the growth will be seen among small and mid-size enterprises (SMEs). "Of the €220bn in corporate pension liabilities, only 30% have been funded via CTAs, so there's still a lot of potential, particularly among SMEs," Mössle said.

Three months ago, Fidelity joined other asset managers in Germany - including  Metzler, Universal and Frankfurt-Trust - in offering a CTA vehicle targeted specifically at SMEs. It also launched an overtime account, which enables employees to save, on a tax-deferred basis, the monetary equivalent of overtime hours or unused holiday to finance retirement. Quiring is in charge of these products.

Mössle played down the threat that exchange traded funds may pose to asset managers in Germany. Because these track benchmarks - and thus offer only beta returns - fees for ETFs are lower than for funds. This fact recently led Continental,  auto component and tyre maker, to invest €300m in pension assets entirely in ETFs.

But Mössle said: "ETFs are doing well because the market performance has been incredibly strong in the past three years. In such a period, beta is always attractive."

"But before March 2003 we had bearish equity markets and beta was not attractive. I therefore think investors will always have a need for those asset managers like us who seek to generate alpha," he added.

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