State Street in Munich has obtained the go-ahead to set up a KAG in-vestment management company un-der German banking law, the first of a new wave of non-domestic managers taking this step. In Frankfurt, Schro-ders has also just received the greenlight for its operation and Bankers Trust, Chase Manhattan and Goldman Sachs are reckoned by market participants to be going the KAG route.

State Street managing director Klaus Esswein says: Having a KAG gives us the ability to offer Spezialfonds di-rectly to institutional investors. You will aways be perceived as an outsider here unless you have a domestic base."

Up to this, the group was acting as sub-adviser for German-based clients who had assets in Spezialfolds run by other investment managers with around DM2.3bn ($1.36bn) under advice currently.

The target market will include pension funds of German employers, in-surance companies including the bigger and medium-sized life companies and foundations. "We want to broad-en our market." Austria is a potential market, he adds.

On a conservative basis, Esswein says new business flows could be up to DM750m annually, but he is confident about achieving this and more.

At Schroders, KAG managing director Alan Crutchett expects the company to be operational this month and to have its first Spezialfond on board by the end of the year.

With the wider powers granted to KAGs this year, he is also looking at the AltersvorsorgeSondervermögen (AS) individual pensions market and how the new fund of funds products might be of interest to institutions. "Our aim is to attract a broad range of investors, including pension funds, insurers and non-profit making foundations."

He adds: "We see a demand for very segmented portfolios among the larger investors, with a keen interest in European balanced portfolios for others. There is increasing interest in globalisation by investors." Fennell Betson"