Germany’s fiduciary confusion
The simmering debate over institutional interest in fiduciary management in Germany - or rather the lack of it - has boiled over in recent weeks, with an array of consultants and asset managers weighing in on costs, transparency, conflicts of interest and even the very meaning of the term.
The brouhaha kicked off after Benedikt Kutschera, senior investment consultant at Towers Watson in Frankfurt, said that there was a widespread fear in Germany of delegating too much of the decision-making process, particularly as the legal framework spells out that the pension fund will always ultimately be responsible.
Joachim Meyer, managing director of Meyer & Cie. Allokationsberatung, a management buyout of Swiss consultancy Complementa's German operations, added that while German investors have outsourced more decisions to consultants since the financial crisis, they generally still want to "remain in the driver's seat".
But Patrik Bremerich, founder and co-owner of RMC Risk-Management-Consulting, summarily dismissed the very idea of fiduciary management, arguing that the outsourcing of management decisions was essentially "contrary to the basic philosophy of consulting".
After a news story outlining these views and others appeared on IPE.com, entitled ‘Scepticism hindering fiduciary management in Germany', a number of asset managers joined the debate, claiming that German investors had simply "misunderstood" the concept.
Michael Schütze, managing director of the newly created Allianz Corporate Pension Advisors, said: "Fiduciary management is not about yielding decision-making powers - it's about having a service provider that makes it possible for the investor to concentrate on final strategic decisions and controlling." He also pointed out that in the Netherlands the term ‘fiduciary management' is hardly used because of "mixed experiences" with the first attempts at the service, where transparency was not always observed and too much power was given to the fiduciary manager.
Oscar Vermeulen, director and co-founder of Swiss Altis Investment Management, said he liked to think of fiduciary management as a toolkit that helped pension funds to fix problems, while Alfonso Papa, chief executive at ING Investment Management Switzerland, said investors often focused on manager selection while paying less attention to efficient risk management. "It is often astonishing," he added, "how limited are the tools used to manage larger sums."
But more recently, several consultants countered these managers' theory of ‘misunderstanding' by arguing that the term ‘fiduciary management' has grown so ambiguous as to border on the ridiculous. Paul Boerboom, one of the managing partners of consultancy Avida International, said the term had come to refer to too many different practices. He and Petra Zamagna, head of German consultancy Ambitus, said the next generation of consultants saw fiduciary management as "an interesting solution", but rarely referred to it by that name. "Fiduciary management is very confusing, and almost everything is now called fiduciary management, which is becoming somewhat ridiculous," Boerboom added.
But both said they saw interest in a number of outsourced services in Germany, contrary to claims by many other consultants that fiduciary management is not taking off. "We have seen similar reactions to the system by established consultancies in the UK, the Netherlands and Switzerland," Boerboom said. "They will not welcome it unless they reinvent themselves."
He pointed out that the first generation of fiduciary management that started in the
Netherlands at the beginning of this century was "a failure", as it was too static, and too much was outsourced.
"But the new generation, which has already been in place for five or six years now, is more flexible, and even early movers in fiduciary management have returned to the market with a more flexible approach."