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EXECUTIVE INTERVIEW: ‘Spezialfonds are a German success story’

Money_housesThomas Richter, CEO at Bundesverband Investment und Asset Management, talks to Stefanie Eschenbacher about regaining investors' trust after the financial crisis.

Institutional investors have allocated new money to Germany’s Spezialfonds, with the latest fund flow statistics looking encouraging. Retail investors, however, continue to shun risk. Stubbornly.

Thomas Richter, the chief executive officer at the German fund management trade body, Bundesverband Investment und Asset Management, says the German asset management industry has struggled with outflows in the past two years.

The financial crisis, Richter says, has triggered a “crisis of confidence” in Germany.

Publikumsfonds, which include all funds open for investment to the public, have seen particularly large outflows, and even though recent data shows some inflows, Richter says these are not enough to assume a reversal in the trend.

In February, the last month for which data is available, Publikumsfonds have attracted a meagre €700,000.

Germans have long been among the world’s largest savers, making them potentially attractive for asset managers. They have, however, also been among the world’s most conservative investors.

Richter says hedge fund-like strategies, or 130/30 funds, have not sold well in Germany. Many asset managers have closed these strategies while others have decided to run them sub-scale for the time being.

Dividend strategies that aim to offer investors a steady stream of income as well as low-cost exchange-traded funds have been relatively popular.

“We have seen some inflows into Publikumsfonds, so far,” Richter says. “Whether this will lead to a positive result for this year remains to be seen.”

Many of the concerns of German investors have centred on the eurozone crisis and market volatility.

“The sovereign debt problems in Europe and a potential break-up of the eurozone shook the confidence of Germans,” Richter says. “There was also extreme volatility in stock markets throughout late summer last year, when markets fell at a faster rate than after the collapse of Lehman Brothers.”

Richter, however, highlights it is the underlying investments they are worried about, not funds as such. “Germans continue to shun equities, bonds and securities in general,” he says.

Instead, Germans have been buying freehold flats, gold and other tangible assets. Many also hold cash deposits in their savings accounts, even though these offer only low interest rates. In doing so, they are willing to lose to inflation instead of taking the risk to invest.

Success story Spezialfonds, which are reserved for capital institutional investors, are a different story altogether. They have attracted €7.8 billion of new money in February, the highest level since January 2010.

“Spezialfonds are a German success story,” Richter says. These funds, unique to Germany, are regulated in a way similar to Ucits funds. Although they have to meet certain diversification criteria when it comes to ownership and asset allocation, they are still relatively flexible. Apart from Spezialfonds, exchange-traded funds have also seen higher inflows. “Institutional investors are strategic, long-term investors and act more rationally,” he says.

Weaker demand and costs have been two key reasons the number of retail funds has decreased in 2011. New regulation, most notably Ucits IV, which allows cross border fund mergers, was another one.

Richter says many have started rationalising their fund ranges, focusing on existing products instead of launching new ones. Competition from passive investment products has also intensified, adding more pressure and triggering the need for rationalisation.

“The criticism that the big number of funds would confuse investors is not justified,” Richter says.

“At the point of sale the retail customer is only confronted with a very small part of the offering.” 

Another reason new launches were down, he adds, is because there was no big trend in the asset management industry.

“Over the past decade or so we have seen a lot of trends, including biotech funds, 130/30 funds or technology funds,” he says.

“Last year, there was no such overriding theme on the equity side.”

In the course of last year, the German asset management industry has seen a net reduction in the number of funds available. Even though asset managers have launched 419 products in Germany, they closed 439.

There are 6,739 Publikumsfonds and 3,876 Spezialfonds.

Just like their European peers, German asset managers are dealing with various different pieces of regulation, most of which originate in Europe or the US.

This includes the controversial Alternative Investment Fund Managers Directive, the Foreign Account Tax Compliance Act, and the Volcker Rule, part of the Dodd-Frank Act.

While this regulation poses a considerable burden for asset managers, causing additional costs, Richter says a sound regulatory framework may help to restore some of the confidence.

©2012 funds europe