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German institutions ‘eye mutual funds amid IFRS’

GERMANY - German institutional investors are preparing to increase investments in mutual funds amid stricter accounting standards for traditional German institutional funds (Spezialfonds), according to a new study.

Under the new International Financial Reporting Standards, German institutional investors with more than 20% of their assets in Spezialfonds must report every single investment made by those funds. No such requirement applies when these investors buy mutual funds or have less than 20% of their assets in Spezialfonds.

Hence, active investors in Spezialfonds – who account for virtually all of the German institutional market – worry that IFRS could push up costs.

This worry is reflected in a new study by the Munich-based fund rating agency Südprojekt. According to the study, more than half of the 45 institutional investors surveyed said they were preparing to invest more in mutual funds because of IFRS.

Südprojekt said the institutional investors it queried had €700bn in liquid assets, yet it did not indicate how much more money would be allocated to mutual funds.

Currently, the German Spezialfonds market has a volume of €543bn, and the volume for mutual funds is somewhat higher than that figure.

However, investing in mutual funds costs a good deal more to institutional investors than continuing to do so in Spezialfonds. The funds are, for one thing, tax-privileged.

Faros, a Frankfurt investment consultant, also points out that fees for equity-oriented Spezialfonds are 30 basis points less than those for similar mutual funds. Fees for bond-oriented Spezialfonds are between 15 and 20 basis points less.

Still, Thomas Vorwerk, managing director of Südprojekt, believes that as institutional investor demand for mutual funds grows, fees will come down.

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