German pension funds are continuing to concentrate their Spezialfonds custody mandates among a small group of providers, reinforcing an already consolidated market.
Spezialfonds, vehicles reserved for professional investors, are typically overseen by a limited number of banks that now command a significant share of the market. According to consultancy Kommalpha, there is little sign of diversification among institutional investors.
Clemens Schuerhoff, managing director at Kommalpha, told IPE that pension funds are not spreading Spezialfonds mandates across multiple custodians despite rising concentration.
“On the contrary, in the past, mandates were more likely to be concentrated from various custodians to a single provider,” he added.
The trend is most visible among large pension funds and institutional investors.
“This trend hasn’t really taken hold in the mid-market and smaller segments yet, although such institutions, due to the relatively low volume of their investments, typically only work with one provider anyway,” Schuerhoff said.
Kommalpha is also observing a broader pattern of investors consolidating both Spezialfonds and direct holdings with a single provider.
Although the number of tenders has increased in recent years, it remains unclear whether this reflects a genuine willingness to switch custodians or tactical efforts to renegotiate fees with incumbent providers, Schuerhoff noted.
Consolidation accelerates
According to BaFin, 24 custodians were licensed in Germany as of October.
Market share, however, is concentrated among a handful of large institutions. BNP Paribas ranks first with CHF1.64trn in assets under custody, followed by DZ Bank with CHF1.35trn, HSBC with CHF815bn and State Street with €632bn.
BNP Paribas, HSBC and JP Morgan together hold €1.19trn in Spezialfonds custody mandates, equating to just over 56% of the market, according to Kommalpha.
M&A activity has further strengthened the largest players. Last year, BNP Paribas took over the custody, depositary bank and clearing services business of HSBC in Germany, reinforcing its market position.
Donner & Reuschel acquired custody of liquid assets, including 33 funds with a total volume of around €1.7bn, from Warburg Bank, bringing its total assets under custody to €34bn.
Earlier transactions included the sale by Apobank of its €21bn custody business to DZ Bank, and the transfer of custody operations from Helaba to LBBW.
Overall, BNP Paribas, DZ Bank and HSBC together account for €3.82trn in assets under custody, representing a combined market share of 54%.
“In recent years, further consolidation has taken place. Several providers have withdrawn from the market and divested their businesses, and assets under custody have become increasingly concentrated among a few providers – the big players are getting bigger, to put it simply,” Schuerhoff said.
He cited rising operational complexity, regulatory pressure, scale requirements and investment costs as key drivers of consolidation, alongside banks’ strategic focus on core business areas.
Despite the tightening market structure, Schuerhoff argued that the practical impact on pension funds is limited.
“Pension funds still have a good selection of providers to choose from, according to their preferences and mandate specifications,” he added.
He also noted that the effective pool of custodians available to pension funds is smaller than the headline number of licensed providers, as some institutions primarily target asset managers, wealth managers or boutique funds rather than occupational pension schemes.
