GERMANY - Union Investment, a manager of German institutional funds, or Spezialfonds, has set a goal of raising institutional assets under management in Germany by as much as one-third three years from now.
That means that by the end of 2007, Union’s institutional AUM should rise to 60 billion euros from 45 billion currently. In the first nine months of 2004, net inflows to Union’s institutional funds totalled 2.5 billion euros.
In an interview with IPE, Bastian Schmedding, managing director at Union’s institutional fund arm, said that despite Germany’s overcrowded institutional market, the goal was achievable due to anticipated robust growth in corporate pension schemes.
“I think the German institutional pie is large enough for us, our competitors and all the international players trying to get a slice. But the pie is getting bigger,” said Schmedding, who spoke to IPE in his Frankfurt office.
“It’s getting bigger not only because of growth in Pensionskassen (Germany’s main corporate pensions vehicle),” he said. “In my view, most of the growth will come from more local schemes for professional groups, like those for doctors or architects. This is where our major focus is.”
Schmedding was hired by Union on September 1 for the specific task of winning more institutional business outside of the asset manager’s shareholders, which are German cooperative banks. Beyond German pension schemes of any type, Union aims to manage assets from foundations, ecumenical organisations and individual German companies.
Schmedding said his goal was to boost non-cooperative bank AUM to 40% of Union’s total institutional AUM by 2010 - from 25% currently. “We do, however, only want to win profitable mandates. We feel pretty confident because of the proliferation of master fund solutions and because of our innovative absolute return funds,” he added.
Union’s absolute return funds, including hedge funds, asset-backed securities funds and other alternative strategies, have so far attracted 200 mandates worth around 13 billion euros.
Schmedding, a former partner at Allianz Hedge Fund Partners in Geneva, said he was pleased with the performance of Union’s two fund of hedge funds since their launch earlier this year.
Those funds have, he said, taken in 412 million euros, three-quarters of which came from institutional clients.
Union’s experience with Germany’s new hedge fund market also led Schmedding to disagree with recent criticism of the products by Karl Sternberg, a former chief investment officer at Deutsche Asset Management.
In a newspaper article, Sternberg recommended that pension funds steer clear of hedge funds because it was more or less left to chance whether the products delivered the returns the promised.
“Characterising hedge funds in that way is a bit simplistic, if you ask me. I mean, you can always say that things are left to chance when you invest,” countered Schmedding. “Hedge funds can be extremely useful if they are, for example, used for diversification of a portfolio,” he added.
For next year, Schmedding expects demand for German-domiciled hedge funds to be “more than double” the roughly one billion euros seen for 2004.
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