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German roundup: Union on M&A, RCM on KAGs, local schemes on ECJ

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  • German roundup: Union on M&A, RCM on KAGs, local schemes on ECJ

GERMANY - Increased M&A is on the cards in the German asset management industry, according to Union Asset Management, but the company has no intention of making any purchases in the near future.

Speaking with journalists in Frankfurt, Hans Joachim Reinke, chairman of the management board at Union, said increased regulation, more sophisticated customer demands and an increasingly difficult market environment would drive consolidation in the asset management market.

"Niche players and company with deficits in their sales channels will find it especially difficult in this new market environment," he added.

Reinke said, prior to the financial crisis, an asset management company could be run with 50 employees, but that now this same number was needed "simply to deal with the demands set by the legislators".

According to the Union chairman, only 25 out of the 84 fund providers in Germany are "significant".

However, he told IPE his company did not have any plans to acquire smaller asset managers, as it has no intention of "only buying assets under management", and none of the business models would fit Union's approach.

"The Anglo-Saxon model has a different philosophy, and, in combination with a German asset manager, it can lead to a 'tail wagging the dog' effect," he said.

"Over the last 10 years, I have not seen a merger in the asset management industry that has worked."

Speaking at the same event, Mathias Bauer, chairman of the management board at Austria's Raiffeisen Capital Management (RCM), also sees "the pressure for consolidation" rising in the asset management market.

He too sees difficult times ahead for niche players, but also new challenges for 'one-stop-shop' providers, such as his own company, due to a trend in the institutional sector toward "splitting up the value chain" in asset management.

"Until recently, investors wanted all services - asset management, custodian services, etcetera - from one provider," he said.

"Now, they are splitting these among various providers, which places enormous demands on providers, as it adds a lot of complexity."

He added that the use of Master KAGs had accelerated this trend, as they divide these services among different providers.

He also said RCM wanted to extend its presence in the German institutional market with risk overlay management and inflation protection.

In other news, the association of local government employees (VKA) has opted to tender for supplementary pension services.

Last year, the European Court of Justice (ECJ) ordered local German governments to tender supplementary pension services instead of automatically choosing local supplementary pension vehicles, known as Zusatzversorgungswerke.

The VKA has now put in place a directive that is binding for its members, which means larger service contracts will have to be tendered.

The European Commission has not yet responded to the directive, which was put in place without union agreement.

Unions have criticised the move, arguing that allowing commercial providers of pension services might lead to higher costs and lower pensions.

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