Consolidation may spark foreign influx

The mounting pressure on German banks to consolidate will make it easier for foreign asset managers to enter the German market, according to speakers at the PWM/BNP Paribas European Fund Series event in Frankfurt. “Cominvest sells more than half of its funds via open architecture, so why does its mother company Commerzbank still need its own asset management?” said Andrej Brodnik, country head for Germany of US funds house Blackrock. Many brokerages should divest their asset management companies, he said, pointing to a lack of demand for the 400 mutual funds investing in European shares. Martin Theisinger, head of sales for Germany at Fortis Investments, said he hopes for the catalyst function that a consolidation of the German banking sector could generate. “The German banks will painfully recognise that it is better for them to concentrate on advising their clients, rather than on asset management,” he said. Up until now, foreign asset management companies in Germany have been doing business almost exclusively with private clients. Based on fund volumes, foreign competitors are trailing their German peers such as the fund houses of Deutsche Bank, the mutual banks, state-owned Sparkassen and Allianz-Dresdner, although the gap has been narrowed during the last few years. Now foreign groups are eying opportunities in the wake of the consolidation process that could massively change the German private banking sector in the coming months. Insurance company Allianz is seeking a buyer for its unbeloved bank unit Dresdner; stricken US financial services giant Citigroup is looking to offload its consumer credit specialist Citibank; logistics company Deutsche Post has put its Deutsche Postbank subsidiary on the block. Deutsche Bank and Commerzbank remain on the buying side. If the latter teams up with Dresdner, the new banking champion could shed its asset management company Cominvest, some experts at the conference said. “Consolidation is painful but we need it,” said Mr Theisinger, who has been involved in the integration of the asset management operations of ABN Amro, with those of his group Fortis, as part of the world’s biggest hostile takeover of a financial company. “Integrating the ABN funds proved to be brutal – the good one remained, the bad one and its management team had to go. That was a clear-cut adjustment,” he said. Alexander Lehmann, head of wholesale business for Middle Europe at Invesco, made the case for focusing on a few, good fund products. “You clearly need a track record to reach the shortlists for fund recommendations. But on the other hand the fund industry permanently brings out too many new funds, averaging 2000 every year,” said Mr Lehmann. This development endangers the reputation of the fund industry as a whole. “Due to that massive supply most of the clients are not sticking long enough to one specific product to earn a yield of 8 per cent or more,” he added. Josef Altmann, country head of Germany at BNP Paribas Investment Partners, also said that the fund industry needs to focus on its core abilities, especially on the sell side. “Only new funds that are good performers generate enough capital inflows. We at BNP Paribas therefore concentrate on our strategic partners.” Although they benefit heavily from the open architecture that allows German banks to sell fund products of foreign asset management companies, many experts criticised the development. Open architecture leads to a confusing selling process, as Invesco’s Mr Lehmann said. “If you buy a chocolate bar in your supermarket, you know what the product is and who sells it,” he told the conference. A different situation occurs in the fund industry. “We need to know better who sells our products. It’s a big problem,” he added. Foreign asset managers should closely watch their banking partners, other speakers said. “For example, you should check if the bank is selling fund products other than yours and how good these products are,” said Rainer Schröder, head of institutional sales at WestLB Mellon Asset Management. “The bank’s portfolio should be diversified. To choose the right partner is a value of its own.” After all, the banks need to understand what kind of fund products they are selling, which will prove even more difficult in the future, said Anton Simonet, head of private wealth management at Dresdner Bank. “We need more than just ratings, we have to understand the investment process of the fund.”