JP Morgan eyes profitable German mandates
GERMANY – The head of JP Morgan Fleming in Germany says that winning profitable mandates is the firm’s top priority.
“While we lost several (investment) mandates in 2004, we gained others which have higher profit margins,” Peter Schwicht said in an interview. “Our goal is not necessarily to be the biggest foreign institutional fund player in Germany.
“Delivering superior services, having the right clients and winning profitable mandates is far more the priority.”
In terms of its German institutional asset growth, 2004 did not rank as a one of the better years for US asset manager JP Morgan Fleming, which has been active in Germany since 1989.
Although JPMF won €1bn in new German institutional business in 2003, it did not repeat the feat last year. According to JPMF, assets under management from German institutional clients grew only slightly to total €7bn at the end of 2004.
Meanwhile, rival Goldman Sachs Asset Management gained €4bn in new German institutional business last year, bringing its total AUM from these clients to more than €10bn.
This enabled GSAM to replace JPMF as the leading foreign asset manager for German institutional clients.
JPMF, like other foreign players with a global presence, is benefiting from the trend among bigger German clients like pension funds or insurers to rely on investment consultants for specialist investment mandates.
Up to 50% of the firm’s new German institutional business in the last two years came from consultants. This compares with just 10% in 2001.
Schwicht said heavier reliance on consultants was being driven by the “growing need among big German clients to find sources of alpha”.
“These investors are becoming more professional. There is a new and sophisticated generation of portfolio managers and chief investment officers. They realise alpha is becoming more important in light of the lower yields from equities and fixed income. Hence, they are investing more in different products and investment processes,” he said.
To capitalise on this search for alpha, JPMF offers such specialist briefs as European value and small-cap equities, US micro-cap equities, Asian and Japan equities as well as emerging market and global high-yield bonds.
In addition to these briefs, JPMF launched a tactical asset allocation strategy in late 2002 that has brought in a little over €1bn in new business. It also offers real estate funds and a total return fund that was approved for sale in Germany last summer.
Regarding Germany’s new hedge fund market, Schwicht said he was not surprised that contrary to previous expectations, the market had simply not gained steam.
“Pension funds and other institutional investors in Germany need to devote a lot of resources in order to fully understand these new products,” he said.
“A pension fund told me the other day that if it were to invest 2-3% of its holdings in hedge funds, it would need to allocate 50% of its resources to keep tabs on them. The industry will therefore have to be patient with these investors.”