In the second quarter of 2006 Georg Seil Consulting conducted its third survey on the fee structure in the market for German special funds. The scope of the survey was considerably extended. In addition to management fees for actively managed products, fees for passively managed products as well as for alternative investments (such as total/absolute return, hedge funds) and master KAG administration were also collected.

Some 45 companies participated in the survey. With over € 460bn in assets under management, the managers represent roughly 77% of the German market for special funds. Nine of the 14 active master KAGs in the German market provided their figures. These participants administer 81% of all special funds under administration by master KAGs.

Depending on the particular asset class, compensations for actively managed products still vary by over 600%. The absolute level of management fees for these products asked by non-German managers remains above the compensation level of German managers.

Obviously, the fees for passively managed products are on a lower level and vary less. However, compared to the market for actively managed products there are substantially fewer managers that offer passive management services. The same holds for alternative investments.

The fees for the administration of masterfund mandates also vary considerably. Depending on the size of the mandate as well as the number of segments compensations differ by almost 400%.

However, these fees are not easily comparable since the range of services offered by the master KAGs differs substantially. In addition, investors are facing very different compensation models (for example, absolute fee versus rate in basis points).

Compared to last year's numbers the average compensation for the active management of special funds rose somewhat. However, this was mainly due to German managers raising their fees while the fee structure of non-German managers mostly remained unchanged.

Unchanged means that non-German managers are still charging considerably more for their management expertise, making their inroads into the German market quite bumpy.

Interestingly, Anglo-Saxon managers are on top within the non-German peer group with regard to fee levels, demanding higher fees than their French or Dutch counterparts.

A further drill-down reveals that US-based managers are on average more costly than their colleagues in the UK, probably due to the fact that they represent in most cases niche players with very specific investment competencies.

Non-German mangers are furthermore likely to accept performance-based fees, boosting their confidence to generate outperformance.

Quite often sales representatives are exposed to the ‘sandwiches' dilemma, bearing the pressure of the headquarter acquiring profitable business while at the same time facing an increasingly competitive low-fee environment in Germany.

Georg Seil is managing partner at GS Consulting in Germany.

The 900-page study Gebührenstrukturen im deutschen Spezialfondsmarkt 2006 can be ordered from