The giant Allianz insurance group, with worldwide assets of DM600bn ($355bn) is about to tell the world of its ambitions in money management. There is no doubt in anyone’s mind that Germany’s biggest insurer is about to step into third party management.
But this would just be the second worst case scenario for the competition, the worst case would be to be for Allianz to be in bed with Dresdner Bank for asset management, something that is a matter of speculation.
German asset managers are fearful at the power that could be unleashed by Allianz on its own, with its massive assets and its network of branches worldwide. This gives Allianz the far reach and local presence, the goal of those building global businesses. Its worldwide insurance operations are often very familiar with investing locally, so all it has to do is reorganise and realign these operations into a centralised operation to have a ready-made global business.
During the summer, ERGO, the group created by bringing together Victoria and Hamburger Manheimer and some other insurance entities together earlier this year, announced its move into money management. Munich Re has control with over 50%,while in German- style Allianz owns 10% and the remainder, according to Goldman Sachs research, is across a wide range of investors. With around DM200bn, the ERGO Munich Re line up would make it the fourth largest asset manager in Germany. Other insurers, such as AXA-Colonia and AMB, have also signalled their intentions.
Goldman Sachs considers such moves logical for worldwide life insurers which increasingly resemble fund managers. In the case of ERGO, it sees efficiency benefits in bringing the different asset management operations together and providing a common brand.
Germany’s other asset managers are not so dispassionate about the emerging competition. Over 50% of the assets in Spezialfonds managed largely by the banks, is insurance company money. Even if this is left with the managers, the flow of new funds to the existing managers will be hit as insurers manage their own and go hunting for more.
These moves more than anything else will change the asset management marketplace,” points out one bank-based asset manager. The reasons are manifold undoubtedly for the insurance groups who are both global and domestic players. But it is locally that the main impact will be seen from a German investment management point of view.
The pensions issue is regarded as the crux of the matter by some. The insurance companies see their long term life products under threat from the new AltersvorsorgeSondervermögen (AS), an equity investment product. “The old clear lines between banks and life insurers are shifting as the equity market develops and this is driving fundamental change,” says Christoph Dahm of West LB.
If the pension legislation changes and tax advantages become available, then life insurance no longer is the only real way clients can save with tax benefits.
The asset managers should not be in doubt that insurers will be competition, says Klaus Esswein of State Street in Munich. “The biggest are already more professional in their own sphere of investing in equities, including international and emerging markets, since they are investing the premiums of their subsidiaries locally.” Neither are insurers strangers to the corporate market so if pensions develops as is expected at this level, the insurers want to make sure they can get their slice of that cake. As Peter Kolossa at Bayern-Invest KAG sees it: “If there is a law with tax advantaged pension schemes, that will mean competition with the life insurers and they will build up asset management business to get the pension assets.”
Others point to the problems insurers are having to produce competitive returns, in the past this was considered to be over 7% per annum. Insurers have been struggling to make this, so they are having to reconsider not just their asset allocation strategy, but their investment approach.
“It is not that easy to build up a professional asset management business,” points out another manager. “They were relying on the interest rate cycle to give them their returns”.
Stéphan Rey at DG Bank does not dismiss the threat. “Many of the banks’ investment managers will have to revise their budgets drastically once the insurers open their own shops. But the test will be are the insurance companies or the investment management companies the best providers?”
That may be the solution- ultimately. But in the meantime it could mean pain if the insurance companies stopped or worse withdrew their assets from the managers’ Spezialfonds.
Schindler of Oppenheim thinks that “it certainly will not be worth smaller insurers while and they will continue to look for outside advice and use external managers. We are sceptical that all insurers will follow that route.”
As an outsider viewing the market, Alan Crutchett of Schroders says: “A sea change in insurers thinking is occurring. I think we are going to see an interesting struggle emerge in German asset management between banks and insurance companies.” Fennell Betson”
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