Germany is now the focus of international asset managers as never before, and we have seen a procession of firms start up operations there. They seem to have got their timing right as the inflows into institutional mandates, best represented by the growth in Spezialfonds, used almost exclusively by institutional investors, had their highest inflows in 2006, since 1999.

What had long been regarded as a virtual no go area for outside managers, due in part to the expectation that managers would set up their own KAGs - the peculiarly German bank needed to provide investment products, such as Spezialfonds - to prove that they were serious players.

This was a dauntingly high price to pay and no guarantee of market acceptance as a number of non-domestic players found to their cost.

Now things are much more flexible, thanks in part to the recent investment act and the arrival of the master KAG structure, which provides a way of delivering institutional mandates on a par with international practices.

Another potent lure for international managers has been the opening up of German investors to outside and specialist managers, creating the climate where doing business in Europe's most populated and wealthy market becomes a practical proposition. Increasingly this is by setting up local operations, which might be no more than a sales office.

But why now has to be the current boom in corporate pensions activity, as more groups set up external funding arrangements to finance their pensions liabilities.

Recently, UK asset manager Morley put up its plate on its office in Frankfurt, with old European hand Adam Lessing overseeing the venture, while a German head is being hired.

Having a native incumbent is seen very much as a requirement, as evidenced by the case of Aberdeen, which recruited a very high profile and respected figure from the local consultancy community. It appointed Hartmut Leser, who had been 10 years with Feri in Bad Homburg, a stone's throw from Frankfurt where his new offices will be.

The Australian investment bank Macquarie has also taken the plunge for its real estate arm by opening an office in Frankfurt, under Marius Schöner, as well as in Paris as part of its continental drive.

But it is not just asset managers. Slipping across the border from the Netherlands, KAS Bank, the securities services provider is to establish a German office later in 2007. It had acquired depot bank status from the German authorities last year as part of its expansion plans.

It has no doubt about the need to hire local talent in pursuit of its ambitions in Germany. "We need Germans to hunt Germans," said the bank's chairman Albert Roell, with true Dutch candour.

These names are just the 2007 crop, but other asset manager firms setting up shop since late 2005, include ING Investment Management, Principal Global Investors, Credit Agricole and Dexia, with BlackRock taking on the Merrill presence in Frankfurt.

Lessing of Morley probably sums up the thinking of all: "We
recognise that a permanent sales presence and focused commitment is needed to successfully penetrate this market."

But meeting that condition is just for starters. The German asset management scene contains examples of non domestic groups who have had local presences and are just at the €3bn mark of AUM seen as the minimum required for a viable operation. despite years of trying. BNP Paribas and Merrill are hovering around the €3bn mark, for example.

But there have been more successful foreign players, including UBS, Goldman Sachs and State Street which have taken in around €10bn apiece over the years. So it can be done.

Aberdeen is not shy about its ambitions. "Our long-term ambition is to rank in the top third of foreign asset managers active in Germany," says Leser. The group is hoping for €3bn to €5bn in the next few years.

Morley is more circumspect about a figure, while, Macquarie Global Property Advisers hopes to pull in €1bn in the next 12 months in real estate from the German and French markets together.

The size of the institutional marketplace is indicated by the €669bn in Spezialfonds, at the end of 2006, with a healthy inflow of new investment of €48bn last year.

In addition, institutional investors are increasingly using the more retail Publikumsfonds, or retail oriented mutual funds, which had AUM of €571bn at year end, and additionally there were advisory mandates amounting to €158bn. So it is certainly a market worth playing for if you are prepared to pay the entry costs.

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