The investment consulting industry in Germany is still small in size. However, recent developments in the country’s pension provision structure is making the use of consultants advice more important among institutional investors.
In Germany, the domestic consultancy firms still keep the largest marketshare, but as the investors are looking more and more at global investment strategies, the worldwide expertise of international consultants is also attracting greater interest.
Everyone in the market says that the role of the consultants is growing and that this is helping not only investors but also asset managers competing the market.
The pension reform in Germany has meant the first step towards a more sophisticated structure for pension provision and although this year might not be as busy as some consultant and asset managers expect, it is clear that the potential for business is significant.
Institutional investors are moving away from the advice that traditionally has been given by the large banks, and are now seeking for external expertise when it comes to decide how to run their plans and investments.
Recently, one of the big names within the German consultancy arena, Dr Heissmann, was hired to give advice in all aspects involved in the setting up of a new retirement savings scheme for around 4 million worker in the metal and electronics industry. The collaboration with the consultants was described by the scheme as essential which shows the willingness among new schemes for hiring independent advice.
At Bad Homburg-based consultancy firm FERI Institutional Management, managing partner Harmurt Leser, believes in the opportunities ahead. According to him, companies such as FERI, that in 1999 created a joint venture with Buro Dr Heubeck to develop its pension asset consulting division, represent a segment of the market that it’s only focused on consulting as opposed to the traditional consulting services offered by the large banks. Another local house based in Frankfurt, RCM Risk Management Consulting, has also become an important name in the market, servicing clients that want to set up strategic asset allocations, helping towards the sophistication of the industry.
In general, managers are happy with the work being done by consultants. It is helping them to reach new clients and spread their different approaches to investment across institutional portfolios. At State Street in Munich, managing director Klaus Karl Esswein, says that more and more consultants are inviting them to participate in presentations, because there are more investors, especially those that are starting funds from scratch that are more open to hire a consultant, and also because consultants are more interested in their approach to investment and indexing.
On the same line, at Fidelity Investment Services in Frankfurt, Olaf John, responsible for institutional business, comments that consultants are helping managers to communicate with clients and act as a very important distribution channels for their products. The increasing demand for consultancy services is affecting both foreign and domestic players and although international houses’ market share is still lower than that of local firms, their presence is becoming more important.
“It is true that the market tend to be dominated by local players but we are competing with them, and with the other international houses present to win mandates,” says Erik Crawford, senior consultant at the asset consulting division of Towers Perrin in Frankfurt. “There is a lot of talk at the moment about the potential of new pension funds being created as a result of the new legislation, but so far no much has happened. The potential is there, but for the time being the volumes of new assets will be lower than those anticipated.”