GERMANY - Asset managers in Germany are at a competitive disadvantage to interloping foreign houses in the commodities and liability-driven investments (LDI) markets, Fitch Ratings has claimed.

In a new report on German asset management, Fitch said domestic players should prepare for "increasingly intense competition" from foreign firms following the regulatory changes and pension reforms of past years.

In 2002, the government abolished a requirement on fund companies to both manage and administrate an investor's funds. This move enabled fund companies to operate as pure advisers or as pure administrators. Berlin then also legalised hedge fund investment at the start of 2004.

Similarly, government reforms of 2001 and 2004 gave a huge boost to external pension funding and created Germany's market for private pensions.

According to Roger Schneider, director of asset manager ratings at Fitch, the foreign competition that has emerged since "represents a significant challenge to most players in the German market, who still focus mainly on their domestic core business".

Schneider stressed German houses could effectively compete with foreign ones both in traditional asset classes and absolute return products such as hedge funds.

"But two areas where I would say some foreign houses have a competitive edge are commodities and LDI," Schneider told IPE during a telephone conference yesterday albeit he declined to name the foreign houses in question.

Asset management experts in Frankfurt, however, disagree with Schneider.

"Deutsche Bank was the first - even among US asset managers - to launch a commodity product in the US. So I don't think you can generally say foreign houses have an advantage of German ones in that area. It depends on the house," said one asset management expert.

"As far as LDI goes, we're hearing pension funds believe many German asset managers can deliver that service, so that may not be a competitive concern either," he added.

Since late 2005, numerous foreign houses have infiltrated Germany's institutional market, including Aberdeen Asset Management, ING Investment Management, Principal Global Investors, BlackRock, Crédit Agricole Asset Management and Dexia Asset Management.

Foreign houses that have made the biggest impact so far include Goldman Sachs, State Street Global Advisors and UBS. These managers run either more than €10bn in assets or a volume close to it.

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