The top domestic financial groups still control the investment fund market in Germany, with 90% of the assets and 80% of fund sales channelled through them.
According to data from Lipper, the top 10 German fund managers increased their hold on the market during the second quarter of the year at the expense of smaller fund managers.
Lipper points out that while the top 10 groups’ fund assets grew at a rate of 6%, the rest of the market decreased by 11.5%. A large part of this growth has come from an increase in equity fund assets of 9% while the groups’ bond fund assets only increased by 3.5%.
Focusing on how the changes in regulation and the pension reform could change or in any case affect the German fund industry, it is necessary to say that it is still very early days. However, a number of companies have launched retail funds under the third pillar Riester regulation.
In this way the AS-fonds, mutual funds for old age savings, could see significant growth as a consequence of the new legislation and the establishment of new tax subsidies. However, it is also expected that this growth will especially affect balanced AS-fonds due to the capital guarantee required by Riester products.
In terms of distribution, according to data from Lipper, the introduction of the pension reform at the beginning of next year is expected to increase the importance of brokers also for products other than insurance as people start to look for advice for retirement investments as the government is trying to direct some of the increased disposable incomes into pension savings through incentives and tax breaks, especially for those groups with lower income. It is expected that a significant proportion of the new pension schemes under the new legislation are likely to be set up as occupational plans, and fund managers, both domestic and foreign, are getting prepared for the new opportunities.
It seems that it will be harder for foreign fund managers to break into the private schemes, but the increasing demand for professional unbiased advice, combined with a wide product range, will increase. According to Lipper, this is one likely reason for German banks to start including third- party funds in their product range and for trying to get their own products sold through other distribution networks than their own.
In this line, and according to players within the market, independent financial advisers could become the main suppliers of the new pension products, rather than bank branches.
A study published earlier this year by London-based investment fund consultancy European Fund Information Services (EFIS), points out that in the mutual fund arena German banks will retain their dominant position in the distribution chain, despite the rapid introduction of open architecture, and will be selling advisory services rather than house products. The survey says that, by 2005, distribution via independent financial advisers (IFAs) will account for 19% of mutual fund assets, while foreign groups will source 41% of business from IFAs and 35% from banks.
Changes in regulation affecting German investment funds have just been announced. The new law could bring important changes to the fund management industry and opening the door for KAGs to enter the third party distribution world. “Apart from some changes related to the internationalisation of real estate funds and some general modifications regarding the way securities funds can be managed, the most important improvements that this new regulation will bring are to do with the distribution of third party funds,” says Rudolf Siebel, director of general policy and international affairs at BVI, the investment fund trade association in Frankfurt. “Currently, and this is unique in Europe, KAGs are only allowed to distribute their own funds, directly or through a bank or an intermediary, and administer and safekeep the units of the investment funds and act as a depositary bank for those,” Siebel says. He adds: “ But now this will be supplemented by the capacity to distribute and market funds of third- party providers, and this is really important in the new open architecture world.”
Another main improvement pointed by Siebel is that funds in the near future will be able to offer multiple classes. “For example, a fund could have a retail class with a different fee structure from the institutional class,” he says. This could significantly ease the adaptation of the retail fund market to the institutional arena.