Germany's Union Investment sees record institutional inflows

GERMANY - Union Investment saw net sales in its institutional business surge to €11.3bn last year, with Spezialfonds being one of the main drivers.

The net sales result was the best in the company’s history and it topped the 2009 figure of €8.3bn.

Assets under management for the whole group rose by 10% to €174.5bn.

Alexander Schindler, head of institutional business at Union, told IPE after today’s annual results press conference: “This is the continuation of a path started before the crisis.”

He added that this trend continued right into 2011, with Union adding another €1bn in assets from institutional investors in January alone.

The asset manager had suffered outflows of €3.7bn in its institutional business in 2008 after inflows of €4.9bn and €3.2bn in 2006 and 2007, respectively. 

“Although they have been declared dead several times, Spezialfonds remain as popular as before the crisis,” Schindler said.

The Spezialfonds, a fund vehicle created especially for institutional investors in Germany, has seen a revival after the crisis, as it is seen as a transparent way to diversify portfolios.

Schindler sees several motives for the increase in institutional inflows, with one being the increase in occupational pension assets.

Another source is investors looking for diversification opportunities in search for higher returns.

“This forces professional investors to go into asset classes they cannot manage in-house,” Schindler said.

While in 2009 institutional investors had mainly been invested in corporate bonds, the demand has become more diversified, especially regarding emerging market bonds - both in hard and local currency, he added.

Another driver behind the growth of Spezialfonds is supervisory regulations like MARisk or Solvency II, which led to increased diversification in portfolios.

Risk management is something investors are much more aware of since the crisis, according to Schindler.

“In talks with investors, there is much more focus on how the investment will affect the whole portfolio, so managers have to get a better understanding of their clients’ risk profile,” he said.

Further, he noted Spezialfonds were used by institutional investors to outsource their direct real estate portfolios or diversify into the asset class to hedge against inflation.

“But demand for top location real estate is very high and cannot always be satisfied, as the market dipped less than expected during the crisis,” Schindler added.