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IPE special report May 2018

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JP Morgan shuts German master fund

GERMANY – US bank JP Morgan has confirmed that it is closing down its German ‘master fund’ business more than three years after launching it.

In a German master fund, the back-office administration of an institutional investor’s funds, such as reporting, is done by a single service provider. The aim of the process is to reduce costs and boost transparency for the investor.

“We invested in the Master KAG in anticipation of the German market evolving to adapt to a model of integrated custody and fund administration,” JP Morgan said. “However, demand for this model has not proved as strong as expected and many clients are favouring an unbundled model so we have decided to exit the business.”

It added that closing the business, which had €4.3bn in assets under administration, would in no way affect any of its other fund business in Germany.

Industry sources, who do not wish to be named, told IPE that other master fund providers in Germany were already bidding for JP Morgan’s clients. They said the most prominent client was German insurer R+V Versicherung, which accounts for €1.8bn of the €4.3bn in total assets.

Other master fund providers in Germany include Universal-Investment (the market leader), Deutsche Asset Management and Allianz Global Investors, as well as Helaba Invest and Bayern-Invest, both of whom are owned by German Landesbanken.

According to the sources, JP Morgan was not able to reach the critical mass necessary to make such a low-margin business viable. Industry experts say the critical mass constitutes a volume of around €10bn, as margins typically range between four and ten basis points.

When it launched its master fund in September 2003, JP Morgan aimed to make the business profitable within two years, and to claim a quarter of the market for master funds in the long-term.

To achieve these aims, the German arm of the US bank put Martina Reichl in charge of the master fund business.

However, Reichl jumped ship last June, accepting an offer from Bayern-Invest to take a seat on its management board. At Bayern-Invest, Reichl is in charge of its master fund business, which at the last count made up €5.4bn of its €15.5bn in institutional assets under management.

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