GERMANY - As pension funds find some active managers are not really outperforming the benchmark they will move to passive mandates, says Bernd Vorbeck, speaker of the board at Universal Investment.

"Institutional clients are monitoring their active managers and are very often realising that the mandates are returning very close to the benchmark," Vorbeck told IPE.

"Against this backdrop they soon start thinking about investing parts of their portfolio in passive mandates; adding some high alpha managers with which they really try to outperform the benchmark."

According to Vorbeck, this will increase the use of the "core-satellite" structure which is not yet widespread among German pension funds.

This trend will also lead to a clearer division between high tracking error and low tracking error mandates, the lower end being "where passive index funds fit in", Vorbeck is convinced.

"Compared to the US, German institutional investors make much less use of passive mandates. But we see the market growing slowly."

He also thinks index funds are an alternative to exchange traded funds (ETFs) as index funds allow for more customisation and flexibility than standardised ETFs.

Vorbeck has just taken over senior management of the German asset company Universal-Investment after Bernd Wagner confirmed his leaving via IPE in March.