If there is a development in the German market that could change the structure of the asset management industry as a whole, is the development of the ‘master KAGs’, a new multi-manager structure that has hit the headlines of the German financial press during the last few months.
The development of master KAGs was only possible after changes in regulation at the end of last year allowing KAGs to outsource some of their core activities, and came as a response to investors demands to simplify their exposure to Spezialfonds. For institutional investors that have investments in 10, 20 or 30 Spezialfonds, performance measurement and administrative tasks have been complicated and time-consuming.
“Because different Spezialfonds providers have different approaches to performance measurement and reporting, for institutional investors have been difficult to control their whole portfolio and know how the performance of each individual fund is affecting their investment strategy,” says Bettina Nürk, at DekaBank in Frankfurt. “With the master KAGs you have a single big fund that acts as an administrative platform, and then other subfunds from different providers or advisers. This way you only get a single report on the funds performance making the controlling tasks much easier.”
The interest in this new structures has been huge and many KAGs are trying to position themselves as strong players in this market. “As the market is new we still don’t have market leaders in this area,” says Andreas Krebs at Cominvest in Frankfurt. “But at the end of next year we will probably have a set up of managers that will be known as the preferred master KAGs companies, and this will have important implications as for the market as a whole.”
For some, the creation of these will result in small and medium size KAGs dissapearing, although for others this forecast is seen as too dramatic. What it is true is that only those who can offer economies of scale will be able to run master KAGs so the small names will be excluded. “We see this as an opportunity for very few KAGs in Germany because, due to the scalable nature of this business you need to be very important in terms of size or very smart on the IT side, or ideally both,” says Michael Korn, at Dresdner Bank Investment Management in Frankfurt.
Under the new structure investors will not have to close a fund if they are not happy with its performance, but just change the adviser. Also, the new platforms open the door towards more outsoucing among the German KAGs that could result in more opportunities for smaller players and also for international houses wishing to penetrate the market.
“We are very focused on the development of this market and we believe it will have a very important impact in our business,” says Uwe Trautmann managing director at Helaba Invest in Frankfurt. “I think that more than a half of the Spezialfonds market will change as a consequence of this. To be one of the leading professional administrators in the investment community, we have started investing a lot in IT at an early stage.”

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