GERMANY - Investors employing the master KAG structure in Germany are increasingly interested making manager exchange more flexible, implementing overlay strategies and reducing administrative costs, research and rating company Telos has found.
In this year's master KAG study, it reviewed 11 providers of the administration and management structure and surveyed 60 institutional investors - nearly half being pension funds - on the subject.
According to respondents to this year's study, the main reason to work with a master KAG provider remains the 'unified reporting', which 50% of the polled investors cited, although the number was down from 76% in last year's study.
In turn, the 'more flexible exchange of managers', the 'implementation of overlay management-strategies' and the 'reduction of the administrative burden' were cited by 40% of respondents.
By comparison, these points were cited by 12%, 18% and 24% of respondents, respectively, last year.
The master KAG's ability to provide a 'one-stop shop' of services was cited by 30% respondents, up from 24% last year.
Telos noted a significant drop in investors using a consultant to choose a Master KAG provider, with their share having dropped to 25% from 43%.
Instead, investors are using ratings, reports and databases more frequently, the research and rating company pointed out.
Overall, 80% of the investors taking part in the study said they had already awarded a mandate to a master KAG, a 10% year-on-year increase.
On the other hand, only 20% of those that are not using such as structure are thinking about doing so in future.
Nevertheless, Telos said it saw further market potential for master KAGs, as their range of services was widening and now included transition management, overlay management, ALM studies, securities lending, investment services, manager selection and fiduciary management.
Three-quarters of respondents to its survey said they had integrated all of their Spezialfonds into the master KAG structure (42% last year), while 37% have also added direct investments (17% last year).
Currently, out of around €800bn currently being managed in Spezialfonds in Germany, around €500bn is being managed in Master KAG structures.
Despite the positive development in the market, Telos expects financial pressure to increase on master KAG providers, as they must invest more in risk management structures.
It also pointed out that investors are shying away from riskier asset classes that would normally provide higher fees.