German institutional investors are placing greater importance on separating Master KAG services from asset management, according to a recent Telos study.

Telos said 80% of respondents to its survey preferred ‘pure’ Master KAGs as service providers, rather than ones offering asset management services as well.

By comparison, 60% of respondents highlighted the importance of this separation in 2012, while only 50% did the same in 2011.  

Telos did note that the survey did not take into account the fact some investors might not object to using Master KAGs for passive mandates.

It also stressed that all service providers strictly separated administrative and management services.

“Recent tenders confirm the trend for a clean separation of the two businesses,” Telos said.

The survey’s findings echo a recent comment by a board member at the annual press conference of Austrian asset manager Spängler IQAM.

Markus Ploner, one of three managing directors at the quant manager, which also has a KAG license, said “the more complex the mandate, the less likely all the services will be provided by one KAG”.

He added that risk management might be provided by one KAG and hedging overlays by another. 

“Investors are selecting their service providers carefully,” he added.

In its survey, Telos predicted there would be “two types of provider” in Germany – full-service providers and those focusing on reporting and administration.

It also found that institutional investors wanted their Master KAGs to be able to report on and administer all asset classes.

Meanwhile, Master KAGs have topped up their staff resources and will continue to do so as reporting requirements grow more complex, Telos said.

This is happening despite lower margins from equity and alternative mandates.

“The very conservative-orientated investment policy of institutional investors is increasingly difficult to handle for Master KAGs,” Telos said.

The researcher said Master KAGs were increasingly providing consultancy services to institutional investors, moving into territory formerly occupied by traditional advisers.