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  • 1. chapter 3 / business divisions / Asset Management 28.5 26.6 25.5 18.1 1.3 Equities Bonds Balanced Real estate Other FUND ASSETS UNDER MANAGEMENT ACCORDING TO ASSET CLASS figures in % 72 sal. oppenheim jr. & cie. | annual report 2004
  • 2. Asset Management / business divisions / chapter 3 Risk aversion 01 New investment legislation 02 Financial centre of Luxembourg 03 BUSINESS DIVISIONS Asset Management sal. oppenheim’s asset management division fuses both private banking and institutional asset Management. This integrated approach enables the Bank to fulfil the challenges of a globalised capital market with tai- lor-made investment products, and at the same time meet the high demands of private and institutional clients. The expectations of these clients remain unchanged: sustainable capital appreciation and controlled risk. The ongoing difficulties on the capital market meant that investors remained risk-shy in 2004. The initial opti- 01 mism shown in equity trading waned in the spring as oil prices continued to climb. The markets only returned to a notable upward trend after the US presidential elections in November. Bond trading did not experience the yield hike touted by many market participants, with capital market rates even pushing towards a record low in the European Monetary Union. The foreign currency markets saw the US dollar continue to weaken against the euro, spurring massive exchange losses in US securities investments. Institutional Asset Management New government legislation on investments compensated for the weak market impulses for positive per- 02 formance in the Asset Management division. The legal provisions, in force since 1 January 2004, have sub- stantially boosted Oppenheim Kapitalanlagegesellschaft mbH (OKAG)’s room for manoeuvre. With the authorisation of portfolio management activities covering areas other than securities funds, and the launch of funds of hedge funds, OKAG had the opportunity to move into new fields of business. The revision of the legal and tax framework also resulted in far-reaching changes for a number of divisions within the Company. The new Derivatives Ordinance, for example, meant that additional risk control measures had to be intro- duced. Germany is not, however, the only financial centre to have increased its appeal by producing legislation which 03 is in keeping with practice. Luxembourg has also further adapted its legal framework and financial market su- pervision practices to meet the requirements for efficient asset management. As well as the innovative fund types conceived over the past few years, a new legal form was introduced in the SICAR (Société d’Investissement en annual report 2004 | sal. oppenheim jr. & cie. 73
  • 3. chapter 3 / business divisions / Asset Management 04 Assets under management 05 Net inflow of funds 06 Investors’ market assessment 07 Asset allocation management 08 Analysis tool for life insurers and Pensionskassen Capital à Risque – venture capital investment company), an instrument tailor-made for venture capital and pri- vate equity investments. 04 On the whole, the total assets managed by Oppenheim investment companies in Germany, Luxembourg and Ireland rose by almost 12 % from an initial € 29.8 billion to € 33.3 billion. oppenheim kapitalanlagegesellschaft mbh Despite the improved legal framework, institutional customers showed restraint with regard to new invest- ments. The continued strain on their risk budgets meant that investors continued to shy away from increas- ing the risk-bearing segment of their overall portfolio to any considerable degree and opted instead for conservative, income-oriented investment strategies. In the meantime, the trend towards bundling institu- tional assets with master investment companies continued. As a result, the number of securities funds under 05 management in this client segment fell by 22 to 206. Net fund inflows declined by around 15 % year-on-year to € 1.6 billion. By contrast, the assets under management from special funds and mandates increased by more than 17 % to a total of € 15.2 billion thanks to positive performance. 06 Investors rated OKAG’s performance very highly. Performance comparisons with competitors are testimony to OKAG’s position as one of the top German players. A survey conducted by Feri Institutional Management of 232 institutional investors with total assets exceeding € 1 trillion placed OKAG second in the “Portfolio man- agement” scoring and third for “Acquisitions” out of the eleven private banks under assessment. Oppenheim Asset Management was also pipped at the post in the national scoring of the “Financial News” awards for the best Eu- ropean asset management companies, narrowly taking second place. 07 In order to strengthen its competitive position, OKAG further enhanced its asset allocation expertise in the course of 2004. The company employed the Oppenheim asset allocation management system – a process of over- all asset management where the investment concept and portfolio structure are adjusted to the current client sit- uation and capital market assessment on an ongoing basis - in a client portfolio for the first time. This means that OKAG applies cohesive, overall risk management principles to its own bond and equity components, as well as to offers from selected product partners. The global partnerships with Pramerica and Lloyd George Management have fared particularly well in this regard. 08 Working in cooperation with the management consultancy firm McKinsey, OKAG developed an analysis tool for life insurers and Pensionskassen which aids in deriving the investment policy requirements of individual companies from their asset and financial situation, in order to further enhance overall efficiency. Based on pre- defined capital market scenarios, the Company is given a synopsis of the different investment strategies and their 74 sal. oppenheim jr. & cie. | annual report 2004
  • 4. Asset Management / business divisions / chapter 3 investment concept customer area customer area Observing the investment Permanent monitoring Investment objectives, risk budget objectives and Investment objectives, risk budget capital market situation master fund management e.g. strategy to preserve/increase value according to dynamic asset allocation strategy using using specified parameters dynamic parameters fund/segment structure fund/segment structure – segment structure development specified by the customer – segment manager selection – determination of execution no master fund reporting master fund reporting master fund administration master fund administration EXISTING NEW DYNAMIC REGULATION CYCLE INSTEAD OF INFLEXIBLE GUIDELINES okag asset allocation management annual report 2004 | sal. oppenheim jr. & cie. 75
  • 5. chapter 3 / business divisions / Asset Management 09 Gross fund assets under management 10 New shareholder structure 11 Net fund inflows to and outflows from OKAG/OPAM impact on balance sheets, income statements and cash flow. The analysis tool is currently being developed fur- ther for other groups of institutional customers. oppenheim immobilien-kapitalanlagegesellschaft mbh Oppenheim Immobilien-Kapitalanlagegesellschaft mbH (OIK) was able to maintain its market lead in 2004 de- spite the intensifying competition. Remarkable levels of new business led to net inflows of funds amounting to € 580 million. 09 OIK recorded gross fund assets under management of € 8.8 billion at the end of 2004. € 7.9 billion of this figure is attributable to 25 real estate special funds, while the remaining € 0.9 billion is split between two other funds. The two new funds were the result of the restructuring of real estate special funds. OIK acquired 37 properties worth a total of almost € 1 billion as part of its active asset management activi- ties in 2004. This was countered by 33 disposals in four countries, accounting for a total volume of around € 280 million. OIK now manages 508 properties in twelve countries, meaning that its global remit has expanded further – now including, for example, additional European markets such as Stockholm and Luxembourg. 10 In April 2004, the company acquired a 10 % stake in Real Estate Capital Partners, L.P., New York, USA. This interest is to be increased in 2005. OIK itself now has a new shareholder, Bonn-based IVG Immobilien AG, which holds a 50.1 % interest in the company. The cooperation with IVG is providing OIK with access to the real es- tate markets of northern and eastern Europe. oppenheim pramerica fonds trust gmbh* 11 In a year that was disappointing for the sector as a whole, the Pramerica joint venture also managed to strengthen its position on the German market. The mutual funds of Sal. Oppenheim’s investment companies in Cologne and Luxembourg generated total net inflows of around € 789 million (previous year: € 1.8 billion). While Oppenheim Kapitalanlagegesellschaft mbH (OKAG) recorded a net outflow of €106 million, Oppenheim Pramer- ica Asset Management S.à r.l. (OPAM) enjoyed a net inflow of € 791 million. The former was mainly attribut- able to the tactical outflow of around € 236 million from the OP Moneymarket Euro money market fund – a development that also affected other money market funds in the sector statistics of the German Investment and Asset Management Association (Bundesverband Investment und Asset Management e.V. – BVI). * Prudential Financial, our joint venture partner, has decided to amend its brand name from Prumerica, used by selected business areas and companies from outside of the United States of America, to Pramerica. Oppenheim Prumerica became the new brand Oppenheim Pramerica in October 2004, in order to establish an uniform global brand identity. 76 sal. oppenheim jr. & cie. | annual report 2004
  • 6. Asset Management / business divisions / chapter 3 Fund products with limited risk 12 OP Extra Bond Euro bond fund 13 Fund of hedge funds 14 OPFT assets under management 15 Online activities for sales and customers 16 Given the continued uncertainty on the capital markets, a large portion of the newly invested and reallocated 12 funds was placed in fund products with reduced risk, such as the recently launched OP Bond ABS bond fund. The Worldwide Investors Portfolio (WIP) SICAV, reduced by three fund categories, increased its total assets under management by more than 25 % thanks to abundant fund inflows, but also to the healthy performance of the products managed by the joint venture partner Prudential Financial. The US WIP U.S. Value Fund and the WIP U.S. High Yield Fund recorded very high inflows of funds and were given extremely positive ratings by Standard & Poor’s and Morningstar. The weak dollar was the only obstacle to even better performance in terms of volumes. The bond fund OP Extra Bond Euro, which focuses on the credit risks of convergence countries, was able 13 to maintain its five-star initial rating by Morningstar over the course of the entire year, and continued to earn the confidence of many investors. It was distinguished as the best fund of its class on the German market by the renowned fund data agency Lipper (Reuters). The launch of the two funds of hedge funds, OP Hedge Multi Strategies and OP Hedge Multi Strategies 14 Plus, represented the most important product innovation of the year. The independent investment management company Attica-LJH, based in London, was chosen to select the target hedge funds. OKAG determines the in- vestment policy and the risk profile itself and monitors both on a continuing basis. The primary objective of both funds is to generate reasonable returns with as low risk of loss as possible. The fund management for the OP Hedge Multi Strategies is expecting average annual returns of 7 % to 9 % over a three-year period. The returns target for the OP Hedge Multi Strategies Plus lies at between 8 % and 11 %. Returns are intended to coincide with a mod- est fluctuation in value. Both products were the focus of a large number of sales events. Due to the predominantly cautious coverage of hedge funds in the media, the focus was on information, clarification and public relations for both products, as well as on the quality of their external management. Overall, the assets managed by the mutual funds distributed by Oppenheim Pramerica Fonds Trust GmbH 15 (OPFT) rose from € 8.5 billion to € 9.5 billion. This increase of around 12 % significantly outstrips the overall average rise for German fund providers (5 %). With a share of 12 % in the overall net inflow of funds for the sec- tor, and a market share of 2 % in assets under management, Oppenheim Pramerica was able to sustainably sta- bilise its competitive position amongst the seven largest fund groups in the BVI. The closure of a number of mutual funds meant that the overall total fell to 158. The Internet portal developed for sales partners, OPFTnet, was enhanced by a range of service functionali- 16 ties, including the integration of a portal for end customers (MyOPFTnet.de) as well as dynamic forms for fund purchases and sales or account transfers. OPFT also further expanded the range of funds offered by other providers. In addition to supporting fund-related measures, especially for the two funds of hedge funds, marketing activi- annual report 2004 | sal. oppenheim jr. & cie. 77
  • 7. chapter 3 / business divisions / Asset Management 17 OPAM basic funds and partner funds 18 OPAM increases assets under management ties were centred around the organisation and management of a number of client events, as well as the develop- ment of a new Internet site: www.oppenheimpramerica.de. oppenheim pramerica asset management s.à r.l. 17 The Luxembourg-based investment company Oppenheim Pramerica Asset Management S.à r.l. (OPAM), oper- ated as a joint venture with Prudential Financial, Inc.* since September 2002, has performed equally positively. As well as managing several special basis funds for the joint venture partner Prudential Financial, Inc.* and the Oppenheim Group, its management activities focus in particular on what are known as “partner funds”, which it manages in association with renowned asset management companies, banks and insurers. 18 In contrast to a reserved sector trend, OPAM was able to increase its assets under management by more than 20 % to almost € 5 billion. This means that at the reporting date, the majority of Oppenheim Asset Management’s mutual fund business was based in Luxembourg for the first time. * The companies of Prudential Financial, Inc., which include one of the largest life insurance companies in the US, manage assets totalling around US$ 500 billion (as at 31 December 2004) for private and institutional clients worldwide. These companies offer a whole range of products and services, including life insurance, investment funds, annuities, old-age provision services and management, asset management, securities brokerage, banking and trustee services, real estate brokerage franchises and relocation services. Further information can be found at www.prudential.com. Prudential Financial, Inc. based in the US has no affiliation with Prudential plc. based in the UK. 78 sal. oppenheim jr. & cie. | annual report 2004

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