German open-ended Spezialfonds have drawn a record sum of €131bn in net inflows last year, out of a total inflows of €256bn, a new peak from the €128bn recorded in 2020, according to figures released yesterday by the Investment Funds Association BVI.
The fund industry is managing an all-time high €4.33trn in net assets after an “exceptional” 2021, BVI’s president Alexander Schindler said, up from €3.85trn in 2020.
Assets grew overall by more than 140% over the past 10 years, making Germany the largest fund market in the EU with a 27% share according to the European Central Bank.
BVI’s figures show that, of the total assets, €2.18trn is managed in open-ended Spezialfonds, which represent therefore the largest fund type in Germany, and €634bn is managed under discretionary mandates.
This means that nearly two thirds of total assets managed is owned by institutional investors including retirement benefit schemes or insurance companies, BVI noted. The remaining €1.47bn is managed in open-ended retail funds and €41m in closed-ended funds.
The year-on-year increase in assets in closed-ended funds, from €29bn in 2020 to €41bn last year, signals the growing value of alternative asset classes, such as private equity and private debt, for institutional investors seeking opportunities of higher returns in private markets, it added.
Private equity funds increased their assets almost tenfold over the past three years to reach a level of €24bn, according to BVI.
The German fund industry is managing a total of €588bn in Spezialfonds and sustainable retail funds according to Article 8 or 9 of the EU Sustainable Finance Disclosure Regulation, and 16% of the assets in the funds is invested in products with sustainable characteristics.
EU taxonomy and pension reforms
Commenting on the EU taxonomy and the decision of the European Commission to include nuclear and natural gas as sustainable activities, BVI said that shareholders’ engagement guides companies with “poor sustainability scores” towards transforming their business models, therefore sustainable funds should be allowed to remain invested in such companies.
It added that the guidelines of the supervisory authority BaFin complicate the picture for sustainable investment funds that are required to comply with several minimum exclusions.
BVI’s chief executive officer Thomas Richter said that BaFin is accepting that “funds with sustainability features will be set up in Luxembourg or Ireland because its rules only apply to German funds”.
The BVI therefore is against a “German approach to sustainability requirements”, favouring instead an “active participation to help shape EU regulation on sustainability at all levels,” it said.
The association is backing the plan to reform Germany’s first pillar pension system put forward by the government coalition, with a capital component, similar to the Swedish model, or statutory-equity pension.
The government is also planning to “fundamentally reform” the private pension system by setting up a public fund to offer an inexpensive product with an opting-out clause.
“We reject the idea of state funding in privately funded old-age provision,” Richter said, adding that instead BVI supports the coalition’s review of the legal recognition of private investment products with higher returns, calling to consider fund savings plans for old-age provision.
A flexible premium guarantee should be added to Riester-Rente contracts to achieve higher returns, it said.