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Impact Investing

IPE special report May 2018

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German consultants debate new player in fiduciary management

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  • German consultants debate new player in fiduciary management

GERMANY – Faros has claimed to be the first consultancy in Germany to offer fiduciary management services, but, judging by recent comments by other market participants, it may very well remain the only one.

Currently, only large asset managers such as Allianz Global Investors and Deutsche Bank offer fiduciary management services to institutional clients in Germany, which requires an asset management license issued by German supervisor BaFin.

Faros bought that license together with the small asset management house KMS in 2011, laying the foundation for the creation of Faros Fiduciary Management AG.

Other large international consultancies operating in Germany currently lack similar licenses, while Feri, which does have one, has no plans to go down the fiduciary road.

Marcus Burkert, managing director at Feri Institutional & Family Office, said: "Feri decided a few years back not to offer fiduciary management. It is a question of definition, and, if it includes managing the pension payout, etc., this is not our core business."

Similarly, Joachim Meyer, managing director at Meyer & Cie Allokationsberatung in Munich, said his clients valued the consultancy's concentration on its core business of dynamic portfolio allocation in the current low interest rate environment.

But at Faros, founder and managing director Uwe Rieken is convinced that the increasing "pressure" on institutional investors caused by new regulations and volatile markets will lead them to fiduciary management.

At Towers Watson, Nigel Cresswell, head of investment consulting for Germany, said its latest 'Pension Risk Management' study showed that the consultancy's clients were increasingly embracing the concept of fiduciary management.

Two years ago, Towers Watson noted in an interview with IPE that German institutions still feared delegating "too much decision-making power".

But Cresswell said fiduciary management was now considered an "interesting solution" for investors with limited governance resources that do not want to miss out on returns.

Faros has already won five small to medium-sized clients for its new service: two German church funds, two Pensionskassen (one of them from Austria) and one Versorgungswerk, which requested Faros as a fiduciary manager in 2009 when the consultancy did not yet have the necessary BaFin license.

However, in total, Faros has "only" €500m in fiduciary management assets, which means some of the pension funds have outsourced only parts of their portfolios, while others, such as the Austrian Pensionskasse, have outsourced the whole of their assets.

Thomas Bargl, head of Faros Fiduciary Management, said: "We are flexible in our service offerings."

Meanwhile, Burkert said Feri had "selected partners" for its clients, but had little interest in providing an all-in-one package.

"We have also had clients who wanted to get away from fiduciary management, saying it is like 'someone taking away our watch so we have to keep asking them for the time'," he said.

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