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Impact Investing

IPE special report May 2018

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Insurers take on Kags

Faced with the prospect of losing the tax advantaged status of new insurance contracts next year, Germany’s insurers are pooling resources to set up Kags to rival the asset management capabilities of the country’s banks.
And the move is having a noticeable effect on the breakdown of German institutional assets managed between domestic banks, insurers and foreign asset managers.
Prominent examples of the consolidation effect include the Kag joint venture between Munich-based Bayerische Vereinsbank and Hypo - BKG Allfonds, and the current giant tie up taking place between Hamburger Mannheimer, Victoria KAG, Munich Re, DKV and DAS under the banner of MEAG.
Dieter Wolf, CEO at Victoria Kag in Munich explains that the combined assets of MEAG including real estate will represent more than DM200bn (E102bn), 90% of which is insurance money. MEAG’s primary focus will remain managing insurance money, secondly retail cash and thirdly to receive money from pension funds and banks.
“We believe we have a strong chance in the asset management market. The fact that we have seven companies pooling their experienced portfolio management, allied with very low transaction costs, because we are not paying much in fees to our depot banks Dresdner and Hypovereinsbank, means we can be competitive and issues such as all in fees will be possible.”
Wolf says MEAG’s investment focus will be the European equity and bond markets. “I don’t believe that German instutions will remain solely in Euroland for long. My feeling is we will have a top-down industry-related equity investment approach and in bonds a duration and corporate/mortgage spreads focus when the tie up is finally completed at the year end.”
“Our future goal is to be amongst the top insurance Kag players alonside the likes of Allianz. We are about number eight at present in the German institutional business and our target is to be in the top five.”
As the insurers begin to switch to investment management their first move is to shift assets managed by banks into their own Kags. Figures from succesive Kandlbinder reports show the insurance percentage of the spezialfond market has jumped from 10.8% to 13.5% between 1996 and 1998, even before the latest tie ups.
Interestingly, while the grip of domestic banks has slipped in the same period from 38.9% to 36.2%, foreign asset managers have picked up business with market share rising from 5.8% to 6.7%.
Peter Koenig at Morgan Stanley, comments: “The figures suggests that the more specialist insurance money is being transferred to foreign asset managers.” While acknowledging the competition, the big German banks do not seem unduly worried by the threat.
Michael Korn, deputy managing director at dresdner bank investment management Kag, says: “ Most of the German insurers are making a very public drive into the asset management field and working to build up a legitimacy for the business through their independence.
“However life insurance products will remain their mainstay and some may not be able to handle all this business diversification.
“Some are, and will continue to be very serious competitors but there is a definite need for critical mass, and economies of scale will play a very important role in the future set up of the market.
Patrick Roeder, managing director at Deutsche Asset Management, adds: “We are undoubtedly losing money from the insurane side and we have to accept the competition. However, I don’t believe most insurance companies can do everything for themselves and I think we will begin to have asset managers running more specialist products for the insurers.”

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