GERMANY - German fund administrator Universal-Investment plans to introduce contractual trust arrangements, which let firms create an external fund to finance their pension liabilities.

A huge number of German companies finance their pension liabilities via book reserves. This method accounts for around 60% of the €342bn in total pensions assets. In most of these cases, liabilities remain on the balance sheet.

But international accounting standards have put companies using this system under pressure to create an external fund to finance their pension liabilities.

So creating a CTA has become attractive for them. Universal’s product, due to be launched in the second half of 2005, creates a CTA for a cluster of companies.

Thomas Keil, director of Universal’s pensions department, noted that unlike the CTAs offered by other asset managers in Germany, his firm would limit itself to back-office administration of the product.

Asset management and clearing services for the CTA would be handled by others, Keil said, adding that these would be chosen not by Universal but, for example, by a consultant.

“In this way, we demonstrate our complete neutrality, which we believe will resonate well with corporate clients,” Keil told IPE at a pensions conference in Berlin sponsored by Handelsblatt.

Asset managers in Germany currently offering CTAs include Metzler, Julius Baer and Crédit Suisse. These players handle part or all of the asset management for the product.

Keil gave no predictions about demand for the new CTA, but said it would be targeted mainly to small and midsize outfits. He acknowledged that as Universal would restrict itself to administration of its CTA – a low margin business – the success of the product depended on generating a significant amount of pensions assets.

Keil also said that while CTAs were a promising business currently, it could come under threat if the government removes a major burden preventing Pensionsfonds, Germany’s newest pension fund vehicle, from luring assets away from the book reserves system.

Companies using it have so far shied away from transferring their assets to Pensionsfonds, as this would require the building of huge capital reserves. The government is considering remedying this when it transposes the EU pensions directive in September.

Universal is Germany’s leading administrator of institutional funds. It provides the service for 70% of the €46.7bn in assets entrusted to it.

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