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Spotlight On Germany: What Is The
Significance Of Domestic And Foreign Fund
                Boutiques?

   Observations On Market Entry And Manager
                     Selection
     (Institutional Fund Forum International,
         Amsterdam, 23 February 2009)



                                        Markus Hill
• Market overview: Boutiques & Private
  Label Funds
• Target client behaviour and manager
  selection procedures
• Marketing / Distribution – Myths and
  Reality
• Entering the market: Are there any secrets
  to success in the German market?

                     2             Markus Hill
1. Market overview: Boutiques & Private
             Label Funds




                   3             Markus Hill
Definition: Private Label Funds



   •   Mutual funds being launched by an investment company in
       cooperation with an external partner are called „Private Label
       Funds (PLF)“.
   •   As a general rule the name of such a fund beside the name of
       the investment company includes the (corporation´s) name –
       the „label“ - of the external partner (e.g. „investment boutique“).
   •   „Private Label Funds“ are sometimes also called Third- or
       White-Label-Funds




                                                              Markus Hill
Funds in Germany I
More than 5,900 Mutual Funds with AUM of EUR 700 bn



  Strong Fund Growth in Germany           Mutual Fund AUM development / trends
                                             (30.06.2005 – 30.06.2008)
  o   Current AUM in mutual funds: EUR
      700 bn
                                          •   Between 30.06.2005 and 30.06.2008
                                              AUM in „mutual funds“ (in total)
  o   „PLF“ as of now account for some
                                              increased from EUR 541 bn to EUR
      EUR 40bn thereof according to
                                              703 bn (+ 30 %)
      „VuV“- estimates.

  o   In 2007 and 2008 due to a special   •   Fund of Funds: AUM grew from EUR
      boom fund of funds and mixed            33 bn to EUR 55 bn (+ 62 %)
      funds experienced strong growth
                                          •   Mixed Funds: AUM increased from
  o   Actively managed approaches gain        EUR 28 bn to EUR 60 bn (+ 114 %)
      ground („investment boutique
      strength“)



                                                                Markus Hill
Funds in Germany II
PLF Opportunity: Trend „net flows BVI“


  •   Trends in „Fund Launches“ from 30.06.2005 – 30.06.2008
      (numbers, % increase)
                                      30.06.2005         30.06.2008             %
      Mutual Funds (in total)           2833               5927                109

      Fund of Funds                          393                680             73

      Mixed Funds                            320                895            180

      (including open end real estate funds, source BVI as of 30.06.2008)
      Assumption: current stock market environment will slow down growth short
      term. It remains to be seen if measures taken by the US government will
      succeed. Many actively managed approaches applied by investment boutiques
      are under severe scrutiny by the market. The trend towards launching fund of
      funds and mixed funds (withholding tax!) will continue (slower rate).



                                                                      Markus Hill
History:
„Driver“ PLF-Market


  •   Bafin regulations
  •   UCITS III
  •   Enhanced opportunities „investment company business models “
  •   Outsourcing / IT-infrastructure investments
  •   Market entrance by foreign asset managers
  •   Discretionary portfolio managers (dpm / „private asset managers“) become
      accepted in the market
  •   Demand: behaviour of target group „insttutional investors“ – mutual funds for
      institutional investors (mutual funds as „show case“, instrument of transparency /
      reputation)




                                                                        Markus Hill
PLF:
Assumptions about current Market Conditions I


  •   „proprietary products“ of established investment companies come under
      pressure; active client demand also within client segment „Independent
      Financial Advisors (IFAs)“
  •   Increased pressure for providers of multi management approaches (fund of
      funds / fund based portfolio management)
  •   PLF: journalists / media topic (sexy / up-to-date)
  •   „whip of transparency“ through established rankings / ratings
  •   Product launch: withholding tax and potential „run on product wrapper fund of
      funds“ (assumption: 2010 „death of funds“ due to too many small funds)

  •   Investment boutiques become „accepted“ by institutional investors
      (professionalisation, attractiveness for new target groups: mutual funds for
      institutional investors!)

  •   Professionalisation (fund analysts and „fund manager“ wanted!)




                                                                        Markus Hill
PLF:
Assumptions about current Market Conditions II


   •   In-house products vs. investment boutiques OR as
       „investment boutique shelve“ (PLF launches, „spill-over-effect“)
   •   Superfunds and „dpm“ approaches (competition of concepts, „hedging“, „130-
       30“)
   •   Cost argument: fee-split regarding allocation of responsabilities (quality, pros
       and cons)
   •   Investment boutiques / PLF: lower market entrance hurdles (production -
       pipeline)
   •   „perpetual“ bottleneck „marketing / sales / pr“ (top-ranking-issue, „initiator-
       parsimony-phenomenon“ for marketing expenses esp. true for „dpm“)
   •   Consultants: increase of interest in concepts
   •   Impulse for „institutional clients “ by „retail“: no one-way street!
   •   Foreigners entering the market (Constantia Privatbank, Bankinvest,
       Liechtenstein etc.)




                                                                          Markus Hill
Possible Criteria for Investment / Service Company
Selection I


   Selection Criteria regarding choice of investment company by the fund
      initiator :
   • Operational Stability (number of employees / experience / business model)
   • Fund administration (master investment company or „investment company-
      light“)
   • IT-structure (sustainability)
   • Know-how (market knowledge)
   • Conflict of interest (neutral vs. political business model)
   • Client base (know-how „institutional clients“)




                                                                   Markus Hill
Possible Criteria for Investment / Service Company
Selection II


  Continued:
  • Service (service, reporting and tax concepts)
  • Risk-controlling (constructions of funds)
  • Market access for initiators (marketing / sales within B2B)
  • Location (constructions of funds)
  • Security / trust (current market sentiment!)
  • Multi management / institutional clients: master investment company, investment
     company expertise
     conclusion: marketing opportunity - „size, experience, IT“
     Initially fund initiators often focus on pricing




                                                                    Markus Hill
PLF:
Providers / Users


  Selection (example partner):
  • Universal (Acatis / Dr.Leber, Gebser & Partner / Wolfgang Schuhmann,
     WMF / Wolfgang Mayr)
  • Hauck & Aufhäuser (Trendkonzept, Acatis / Dr. Leber)
  • LRI Invest (Bernd Greisinger, Luca Pesarini)
  • IP-Concept (DJE, Sauren, Huber, Acatis / Dr. Leber)
  • AmpegaGerling (Frank Lingohr, Conrad Mattern)
  • LBB-Invest (Frank Lingohr, Keppler)
  • Constantia (C-Quadrat-“family of funds“)
  • Alceda (Merkur AM)




                                                                  Markus Hill
DPM / „Private Asset Managers“ (Providers &
Users)

  Tied DPM: app. 100                                               Independent DPM: app. 350




Quelle: Verband unabhängiger Vermögensverwalter Deutschland e.V.
                unabhä       Vermö
                                                                                      Markus Hill   13
Boutiques: PLF Initiators (international)



  •   Boutique with „figurehead“
      e.g. Frank Lingohr, Dr. Jens Ehrhardt

  •   Boutique with specialty knowledge about regions / market segments
      e.g. Tiberius, Craton Capital

  •   Boutique part of a bigger group
      e.g. Rosenberg, Mellon (including cooperations etc.)

  •   Boutique as „asset allocator“ – core competency (Markus Hill)

  •   dpm approaches, expertise of VuV-members

  •   „conflict“ or complement to specialisation definition!



                                                               Markus Hill
Peter E. Huber                                                                 Winfried Walter
          Der antizyklische                                                                Der Ertragswert-
          Dynamisierer und                                                                 Bedachte Visionär
                Generalist                           Tobias Klein
                                                   Der Fundamentale

               Michael Keppler                                                  Dr. Hendrik Leber
               Der Quantitative                                                Der Rosinen-Picker
                                                                               auf dem Value-Feld
                                    Example „German fund boutiques“ (fof):

                                               German
                                               Masters                       Dr. Klaus-Dieter Wild
              Manfred Piontke                                                       Die Spinne im
              Der Stockpicker                                                     neuronalen Netz

                                                                             Elisabeth Weisenhorn
                                                                              Die Freiheitsliebende
                Anko Beldsnijeder
                Der Quality-Growth-               Heinrich Morgen
                Manager                          Der Trendspezialist




     Dr. Jens Ehrhardt
Der Substanz-Bewußte                                                                      Frank Lingohr
            Generalist                                                                    Der Systematiker

Quelle: Huber Portfolio AG ▪ Oberursel                    15                           Markus Hill
VuV:
PLF Supply / Demand Opportunity in Germany


   •   About 60 out of 200 VuV*- members manage / advise
       „own“ funds:


       67 equity funds
       (global, Europe, Germany, US, Asia, Emerging Markets,
       sector, certificates)
       45 mixed funds
       16 bond funds
       51 fund of funds / „Superfunds“
        2 Fund of hedge funds
        1 real estate fund


       AUM of all VuV-funds: app. € 40 bn
       (*association of independent portfolio managers)




                                                               Markus Hill
Asset-Classes of PLF


 Equity Funds         Focus on regions, market cap, themes or styles.


                      Focus on specific regions, markets or durations.
 Bond Funds           Applying different allocation models.



 Mixed Funds          Flexible or max. equity allocation possible.



                      Different risk levels available:
 Fund of Funds
                      Income – Balanced – Growth.


                      Using traditional money market instruments or
 Money Market Funds
                      derivatives in addition.


                                                            Markus Hill
PLF: Ratings / Rankings



  Examples:
  • Feri
  • Fondsconsult / Sauren
  • Morningstar / Standard & Poor‘s
  • Lipper
  • Citywire
    Assumption: provide transparency within mutual fund universe. Basis
    for marketing approaches / differentiating strategies. Offer first
    approach to discussions with consultants and investors about products
    / fund advisors that are not „mainstream“. Aggregate fund information
    for B2B and B2C target groups.




                                                            Markus Hill
4.3 Investment Boutiques:
 Product Quality / Awards


Ratings (31.05.2005 – 31.05.2008)   Group Total number of rated mangers
• DWS Investment                           13
• Universal-Investment                     12
• M&G Investments                           6
• Allianz Global Investors                  5
• Invesco                                   4
• SEB                                       4
• JP Morgan                                 2

 source: Citywire, 2008




                                                       Markus Hill
4.4 Example „Investment Boutiques“ (general /
global equities)
                                                                                                    Perf. 3J   Perf. 5J                 Max. Verl.
 Fonds                                            KAG                      Perf. lfd. J. Perf. 1J                         Volatilität
                                                                                                      (p.a.)     (p.a.)                       6M
 M&G Global Basics A Euro Acc                     M&G Securities Limited       -7,61% -6,99%        10,36%     17,67%       16,73%       -14,46%
 Astra-Fonds                                      DWS Investment GmbH         -11,58% -6,80%         8,72%     14,60%       12,68%       -10,02%
 FMM-Fonds                                        FRANKFURT-TRUST             -10,11% -6,90%         9,04%     13,52%       12,70%         -9,96%
 DJE - Dividende & Substanz P                     DJE Investment SA           -12,21% -10,79%        7,12%     12,83%       11,47%       -10,61%
 Carmignac Investissement A                       Carmignac Gestion SA        -12,08% -3,48%        11,68%     12,78%       17,54%       -15,16%
 M&G International Growth A Euro Acc              M&G Securities Limited       -9,00% -11,80%        5,16%     12,62%       14,04%       -15,80%
 GLG Performance D                                GLG Investments plc         -15,22% -9,22%         6,55%     11,96%       14,48%       -17,01%
 Portfolio Vermögensverwalter (11 VV-Fonds)       Diverse*                    -14,37% -13,04%        7,30%     11,34%       14,37%       -16,23%
 DWS Top Dividende                                DWS Investment GmbH          -9,63% -7,00%         6,38%     11,24%       12,10%       -14,20%
 DWS Global Value                                 DWS Investment SA           -11,84% -11,56%        3,79%     11,16%       13,19%       -16,90%
 FIVV-Aktien-Global-Select-UI                     Universal-Investment-        -6,96% -10,39%        8,54%     10,49%       11,74%       -16,83%
 Vontobel Fund Global Value Eq (ex US) B USD      Vontobel Management         -19,05% -15,48%        3,69%     10,34%       14,55%       -21,15%
 StarCap SICAV - Starpoint A - EUR                StarCap SICAV               -15,69% -16,22%        5,73%     10,08%       14,78%       -17,66%
 C-Quadrat ARTS Best Momentum EUR                 C-Quadrat                   -16,57% -14,35%        5,78%     10,03%       16,46%       -16,50%
 STARCAP - Priamos A - EUR                        StarCapital SA              -22,15% -27,75%        3,82%      9,96%       16,92%       -23,19%
 Klassik MegaTrends T                             Raiffeisen Salzburg I       -19,95% -13,43%        8,51%      9,92%       19,12%       -24,39%

 Carnegie Fund - Worldwide                        Banque Carnegie LU          -16,69% -11,68%        6,50%      9,89%       14,29%       -16,76%
 M&G Global Leaders A Euro Acc                    M&G Securities Limited      -15,59% -20,09%        3,09%      9,75%       14,82%       -22,71%
 FvS Portfolio Aktien Global A -R-                Oppenheim                    -7,48% -7,23%         7,28%      9,73%       10,73%         -9,95%
 Portfolio Flaggschiffe (Uni Gl., Temp. Grwth; DWS
                                                   Diverse*
 Verm. I)                                                                     -13,88% -17,06%        0,64%      4,43%       12,58%       -20,13%

Source: Feri Euro Rating Services AG
As of: 31.08.2008
Peer: global equities
Sorted by: perf. 5y. (p.a.),
*Diverse: average, funds equally balanced

                                                                                                               Markus Hill                           20
2. Target client behaviour and manager
         selection procedures




                  21            Markus Hill
PLF:
target groups B2B and B2C


  Users of PLF:
  • banks (large commercial banks, private banks, cooperative banks,
    savings banks)
  • Fund of fund managers
  • Family Offices
  • endowments (institutional, often „semi-professional“ selection process)
  • insurances (retail: unit-linked / direct sales)
  • DPM / CFP (Certified Financial Planner)
  • Pyramid sales organisations (premium partner „product quality)
  • Broker Pools / Independent Financial Advisors (IFA)




                                                              Markus Hill
Distribution Channels for Mutual Funds
Advance for asset management companies and online banks

      Distribution Channels for Mutual Funds in Germany
      (%, 2006 and 2007, multiple answers are permitted)




                                                           Markus Hill
PLF for Institutional Investors I



    Examples: Endowments / Pension Funds / Insurances / Corporates
    • PLF fund advisors are of interest due to their degree of specialisation /
      market knowledge „specialisation segment“ / investment style /
      performance (!)
    • Track record and size are becoming more and more attractive for
      investors
    • Trend: mutual funds for institutional investors (i-shares / master-
      segment-funds)
    • Advance: foreign providers tend to be perceived as international
      specialists / advisors (Carmignac, Comgest, M & G etc.)
    • Market opportunity: boutiques with PLF or individual mandates for
      german speaking managers / providers (?) (example: Frank Lingohr,
      BB Invest or DJE)
    • Critical success factor: risk management / committee decisions



                                                                  Markus Hill
PLF for Institutional Investors II



    •   Opportunity / „gateway“ for PLF
    •   Generation of strong net flows
    •   Net flows are a trigger for semi-institutional investors (fund of fund
        managers)
    •   PLF often important for satellite allocation
    •   catalyst: IFRS implementation / accounting principles
    •   Consultants: development of mutual fund expertise though not core
        competency
    •   Possible driver for evolution (side effect): PR for ETFs supports
        acceptance of product wrapper mutual fund




                                                                    Markus Hill
PLF:
Consultants - National and International


  Examples:
  • Feri
  • Faros
  • Mercer
  • Watson Wyatt
  • Fondsconsult
    Assumption: investment boutiques will be screened, often even rated
    (in some cases paid for by the boutique). Important for generating
    critical size within institutional arena. Issue: differentiation between
    degree of specialisation by domestic and foreign investment boutiques
    as well as the decision making process of institutional investors.
     Furthermore consultants apply a rigorous risk management   .

                                                               Markus Hill
Target Groups:
Selection Process


  •   Very often instruments like ratings and rankings will be used as an
      initial step.
  •   Database research is the bottleneck at the first level. Many PLF will be
      deselected due to lack of size.
  •   Many PLF do not focus on distribution. Result: very low sales and
      marketing budget; applies to external partners, too. Lack of reputation /
      brand awareness with investors. Even paid for ratings are only slowly
      accepted as a marketing tool.
  •   Distribution partners that require greater presence by the product
      provider cannot be supported by the single PLF provider.
  •   Important differentiation for successful distribution: „old bull“ (see „Top-
      Ten“ in Germany) or newcomer within the PLF or investment boutique
      market.



                                                                    Markus Hill
PLF Argument „Consistency“



   •   Factors like consistency in fund management / retention of managers
       are often critical issues with investors
   •   Fund advisors of PLF are entrepreneurs / have a share in the success
       of the business
   •   Loyalty to own company often critical for deepening the degree of
       specialisation
   •   Risk of loosing a talented manager much higher with a „payroll“ fund
       manager / fund advisor (Morningstar research 2004, trend is
       continueing)
   •   Institutional / semi-institutional investors appreciate this pro-boutiques-
       factor when making investment decisions




                                                                    Markus Hill
Trends I



  •   New entrants: domestic / foreign
      (pull and push effect: PLF-industry / manager)
  •   Withholding tax: „booster“ for fund of fund boutiques
  •   Competition: trend towards pressure on margins / specialisation
      (impact „professional portfolio management “?)
  •   Improving perfomance (blending effect)
  •   „pro cyclical fund launches“ will be growing
  •   Expansion of internal /external fund research / „management“ (hiring
      and / or „freelancer“, Feri etc.)




                                                               Markus Hill
6.1 Trends II



  •   Flight to boutiques
      (former employee becomes entrepreneurs, e.g. Loys)
  •   Talent hotel Germany
      (Citywire, road shows abroad by investment boutiques)
  •   Marketing / Sales / PR: services- & boutiques consulting
      (Universal-Vertriebs-Service / UVS, LRI Invest etc.)
  •   Alliances: boutique looks for boutique, boutique „buys“ manager
      („multi boutiques“)
  •   Pressure on costs
      (market entrance by foreign investment companies, e.g. Constantia
      KAG)
  •   Mixed Special Asset Funds / Other Special Assets Funds / UCITS IV




                                                            Markus Hill
Fund of Funds: Investment Boutique Allocation
          (HwV FlexConcept Select)
Nr.   KAG                 Fund             WKN     S      %/NAV
1     CARM     Patrimoine                 A0DPWO   MF     6,21%
2      Opp     4Q Blend                   A0MP9E   A      3,05%
3     Fortis   L Opportunities USA        A0Q6WJ   A      3,31%
4     Axxion   Squad Value                A0B7ZX   A      1,92%
5      DJE     LuxTopic Aktien Europa     257546   A      5,46%
6      LRI     ETHNA Aktiv                764930   MF     3,22%
7      JPM     Highbridge Stat. Mk. Nt.   A0LHKQ   AI     2,18%
9      SG      Modulor LSE                A0DPKD   AI     2,20%
11     SEB     Asset Selection            A0J4TG   AI     2,03%
12      UI     Absolute Return Plus       A0M80V   AI     1,98%
13      UI     Athena UI                  A0Q2SF   AI     2,20%


                                   31                  Markus Hill
3. Marketing / Distribution – Myths and
                Reality




                  32             Markus Hill
Myth „Fund Distribution“


• Standard: Marketing-Mix
• Relationship management also possible
  from abroad
• Broad target group („windfall profits“)
• Huge opportunity
• Quick and sustainable success



                      33             Markus Hill
Reality „Fund Distribution“


•   element length of time / point in time
•   Know how about target group expandable
•   Image problem: long term engagement?
•   Performance issues
•   Distribution channel structure „Germany“
•   Quality of sales (qualification / reputation)



                         34               Markus Hill
Foreign Investment Boutiques


• Asset classes / Themes
• Multi management (consultants etc.)
• Examples: Comgest, Carmignac, M & G
• Market entries
• Quality: appropriate for institutional
  investors
• Addition to ETF allocation


                     35           Markus Hill
Market Entrance: Investment Boutique example


•   Comgest
•   Specialisation
•   Clear view on target group
•   Product quality
•   Pro: hiring local expertise (sales)
•   Existing „flagship“



                         36               Markus Hill
Importance of Sales Quality I (internal support)


• „hot air type sales person“ is out
• Sales minded outgoing „solution provider“
• At arms length with investor (technical
  qualification)
• Headhunter have embraced issue
• Incentive structures (Fixed / Bonus /
  equity)


                        37             Markus Hill
Importance of Sales Quality II (external support)


•   Strategy (research, surveys, concepts)
•   Sales („Placement Agent“)
•    Products (manager selection)
•   Marketing & Sales („hands on“)
•   Fragmented Value Chain
•   New Job Descriptions
•   Intermediary Business Developement


                        38             Markus Hill
4. Entering the market: Are there any secrets
     to success in the German market?




                     39             Markus Hill
Is there a secret of success for the German market?


  Indications, no recipe:
  • Product performance „outstanding“
  • Long term view
  • Local expertise (internal or external)
  • language (company language „bad
    English“)
  • element: go the extra mile


                         40             Markus Hill
6.2 Summary I



  •   Ongoing dynamic evolution of PLF market for dpm, semi- institutional
      and institutional investors
  •   Tendency towards specialisation and rationalisation of business models
      of investment companies / asset managers continues
  •   Target group „institutional investors“ starts to become more receptive
      for PLF
  •   Increasing acceptance by institutional clients leads to growing
      acceptance by consultants („pull effect“)
  •   As a marketing tool well established investment companies take
      advantage of the investment boutiques` expertise
  •   Sales support measures for fund initiators will become more important
      as a differentiating factor for investment companies




                                                              Markus Hill
6.2 Summary II



  •   Ratings and rankings will enhance the acceptance and brand
      awareness of fund initiators („testimonial effect“)
  •   „Withholding tax hype“ within fund of funds will diminish from 2009
      onwards („fund exitus“ and fund mergers)
  •   UCITS regulations will trigger new product launches
  •   Momentum and pressure to innovate coming from Germany and
      Luxemburg as fund launch locations will grow
  •   Attractiveness of the german market for foreign asset managers
      increases because of growing professionalism regarding outsourcing
      activities at investment companies
  •   Investment companies more and more take on a roll as a „know how
      pool“ and network provider for fund initiators




                                                              Markus Hill
Additional information


Articles (PDF) available per mail or print (European Fund Manager 2007/2008):
• Implementation of mutual funds in institutional business
• Fondboutiques and institutional business
• Ratings / rankings „mutual funds“ (institutional business)
• Private Label Funds (Germany)
• Myths & reality „Sales“ (Letter from Germany)
• Trends „Products“ (Letter from Germany)
(partly source of presentation, also slides from Hill/2007 and Frohne/Hill 2008)
Markus Hill
MH Services
Schaefergasse 42 – 44
60313 Frankfurt
Germany
Email: markus.hill.cologne@t-online.de

                                       43                       Markus Hill
Profile Markus Hill

                      Since mid 2005 Markus Hill has been working as as independent asset
                      management consultant. Before that he worked for SEB Bank and Credit
                      Suisse Asset Management amongst others. His services for clients include
                      marketing, sales and pr. In addition to that and due to his special area of
                      interest in „investment boutiques / usage of mutual funds by institutional
                      clients“ he is covering the topic „selection of target funds within multi
                      manager concepts“. Because of his close cooperation with the leading
                      provider of „PLF / Master KAG“ (Universal Investment GmbH, Frankfurt)
                      combined with the „initiation“ of well known research studies (amongst
                      others the first questionaire in Germany amongst consultants in cooperation
                      with Telos) he is a renowned industry expert. Individual publications in
                      Germany and abroad underpin his „industry network“. (source: DPI-Gipfel,
                      Montreux, 2006)



                  email: markus.hill.cologne@t-online.de



                      phone: 0049 (0) 280 714      mobile: 0049 (0) 163 4616 179




                                                                      Markus Hill

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Amsterdam Iiff Final080309

  • 1. Spotlight On Germany: What Is The Significance Of Domestic And Foreign Fund Boutiques? Observations On Market Entry And Manager Selection (Institutional Fund Forum International, Amsterdam, 23 February 2009) Markus Hill
  • 2. • Market overview: Boutiques & Private Label Funds • Target client behaviour and manager selection procedures • Marketing / Distribution – Myths and Reality • Entering the market: Are there any secrets to success in the German market? 2 Markus Hill
  • 3. 1. Market overview: Boutiques & Private Label Funds 3 Markus Hill
  • 4. Definition: Private Label Funds • Mutual funds being launched by an investment company in cooperation with an external partner are called „Private Label Funds (PLF)“. • As a general rule the name of such a fund beside the name of the investment company includes the (corporation´s) name – the „label“ - of the external partner (e.g. „investment boutique“). • „Private Label Funds“ are sometimes also called Third- or White-Label-Funds Markus Hill
  • 5. Funds in Germany I More than 5,900 Mutual Funds with AUM of EUR 700 bn Strong Fund Growth in Germany Mutual Fund AUM development / trends (30.06.2005 – 30.06.2008) o Current AUM in mutual funds: EUR 700 bn • Between 30.06.2005 and 30.06.2008 AUM in „mutual funds“ (in total) o „PLF“ as of now account for some increased from EUR 541 bn to EUR EUR 40bn thereof according to 703 bn (+ 30 %) „VuV“- estimates. o In 2007 and 2008 due to a special • Fund of Funds: AUM grew from EUR boom fund of funds and mixed 33 bn to EUR 55 bn (+ 62 %) funds experienced strong growth • Mixed Funds: AUM increased from o Actively managed approaches gain EUR 28 bn to EUR 60 bn (+ 114 %) ground („investment boutique strength“) Markus Hill
  • 6. Funds in Germany II PLF Opportunity: Trend „net flows BVI“ • Trends in „Fund Launches“ from 30.06.2005 – 30.06.2008 (numbers, % increase) 30.06.2005 30.06.2008 % Mutual Funds (in total) 2833 5927 109 Fund of Funds 393 680 73 Mixed Funds 320 895 180 (including open end real estate funds, source BVI as of 30.06.2008) Assumption: current stock market environment will slow down growth short term. It remains to be seen if measures taken by the US government will succeed. Many actively managed approaches applied by investment boutiques are under severe scrutiny by the market. The trend towards launching fund of funds and mixed funds (withholding tax!) will continue (slower rate). Markus Hill
  • 7. History: „Driver“ PLF-Market • Bafin regulations • UCITS III • Enhanced opportunities „investment company business models “ • Outsourcing / IT-infrastructure investments • Market entrance by foreign asset managers • Discretionary portfolio managers (dpm / „private asset managers“) become accepted in the market • Demand: behaviour of target group „insttutional investors“ – mutual funds for institutional investors (mutual funds as „show case“, instrument of transparency / reputation) Markus Hill
  • 8. PLF: Assumptions about current Market Conditions I • „proprietary products“ of established investment companies come under pressure; active client demand also within client segment „Independent Financial Advisors (IFAs)“ • Increased pressure for providers of multi management approaches (fund of funds / fund based portfolio management) • PLF: journalists / media topic (sexy / up-to-date) • „whip of transparency“ through established rankings / ratings • Product launch: withholding tax and potential „run on product wrapper fund of funds“ (assumption: 2010 „death of funds“ due to too many small funds) • Investment boutiques become „accepted“ by institutional investors (professionalisation, attractiveness for new target groups: mutual funds for institutional investors!) • Professionalisation (fund analysts and „fund manager“ wanted!) Markus Hill
  • 9. PLF: Assumptions about current Market Conditions II • In-house products vs. investment boutiques OR as „investment boutique shelve“ (PLF launches, „spill-over-effect“) • Superfunds and „dpm“ approaches (competition of concepts, „hedging“, „130- 30“) • Cost argument: fee-split regarding allocation of responsabilities (quality, pros and cons) • Investment boutiques / PLF: lower market entrance hurdles (production - pipeline) • „perpetual“ bottleneck „marketing / sales / pr“ (top-ranking-issue, „initiator- parsimony-phenomenon“ for marketing expenses esp. true for „dpm“) • Consultants: increase of interest in concepts • Impulse for „institutional clients “ by „retail“: no one-way street! • Foreigners entering the market (Constantia Privatbank, Bankinvest, Liechtenstein etc.) Markus Hill
  • 10. Possible Criteria for Investment / Service Company Selection I Selection Criteria regarding choice of investment company by the fund initiator : • Operational Stability (number of employees / experience / business model) • Fund administration (master investment company or „investment company- light“) • IT-structure (sustainability) • Know-how (market knowledge) • Conflict of interest (neutral vs. political business model) • Client base (know-how „institutional clients“) Markus Hill
  • 11. Possible Criteria for Investment / Service Company Selection II Continued: • Service (service, reporting and tax concepts) • Risk-controlling (constructions of funds) • Market access for initiators (marketing / sales within B2B) • Location (constructions of funds) • Security / trust (current market sentiment!) • Multi management / institutional clients: master investment company, investment company expertise conclusion: marketing opportunity - „size, experience, IT“ Initially fund initiators often focus on pricing Markus Hill
  • 12. PLF: Providers / Users Selection (example partner): • Universal (Acatis / Dr.Leber, Gebser & Partner / Wolfgang Schuhmann, WMF / Wolfgang Mayr) • Hauck & Aufhäuser (Trendkonzept, Acatis / Dr. Leber) • LRI Invest (Bernd Greisinger, Luca Pesarini) • IP-Concept (DJE, Sauren, Huber, Acatis / Dr. Leber) • AmpegaGerling (Frank Lingohr, Conrad Mattern) • LBB-Invest (Frank Lingohr, Keppler) • Constantia (C-Quadrat-“family of funds“) • Alceda (Merkur AM) Markus Hill
  • 13. DPM / „Private Asset Managers“ (Providers & Users) Tied DPM: app. 100 Independent DPM: app. 350 Quelle: Verband unabhängiger Vermögensverwalter Deutschland e.V. unabhä Vermö Markus Hill 13
  • 14. Boutiques: PLF Initiators (international) • Boutique with „figurehead“ e.g. Frank Lingohr, Dr. Jens Ehrhardt • Boutique with specialty knowledge about regions / market segments e.g. Tiberius, Craton Capital • Boutique part of a bigger group e.g. Rosenberg, Mellon (including cooperations etc.) • Boutique as „asset allocator“ – core competency (Markus Hill) • dpm approaches, expertise of VuV-members • „conflict“ or complement to specialisation definition! Markus Hill
  • 15. Peter E. Huber Winfried Walter Der antizyklische Der Ertragswert- Dynamisierer und Bedachte Visionär Generalist Tobias Klein Der Fundamentale Michael Keppler Dr. Hendrik Leber Der Quantitative Der Rosinen-Picker auf dem Value-Feld Example „German fund boutiques“ (fof): German Masters Dr. Klaus-Dieter Wild Manfred Piontke Die Spinne im Der Stockpicker neuronalen Netz Elisabeth Weisenhorn Die Freiheitsliebende Anko Beldsnijeder Der Quality-Growth- Heinrich Morgen Manager Der Trendspezialist Dr. Jens Ehrhardt Der Substanz-Bewußte Frank Lingohr Generalist Der Systematiker Quelle: Huber Portfolio AG ▪ Oberursel 15 Markus Hill
  • 16. VuV: PLF Supply / Demand Opportunity in Germany • About 60 out of 200 VuV*- members manage / advise „own“ funds: 67 equity funds (global, Europe, Germany, US, Asia, Emerging Markets, sector, certificates) 45 mixed funds 16 bond funds 51 fund of funds / „Superfunds“ 2 Fund of hedge funds 1 real estate fund AUM of all VuV-funds: app. € 40 bn (*association of independent portfolio managers) Markus Hill
  • 17. Asset-Classes of PLF Equity Funds Focus on regions, market cap, themes or styles. Focus on specific regions, markets or durations. Bond Funds Applying different allocation models. Mixed Funds Flexible or max. equity allocation possible. Different risk levels available: Fund of Funds Income – Balanced – Growth. Using traditional money market instruments or Money Market Funds derivatives in addition. Markus Hill
  • 18. PLF: Ratings / Rankings Examples: • Feri • Fondsconsult / Sauren • Morningstar / Standard & Poor‘s • Lipper • Citywire Assumption: provide transparency within mutual fund universe. Basis for marketing approaches / differentiating strategies. Offer first approach to discussions with consultants and investors about products / fund advisors that are not „mainstream“. Aggregate fund information for B2B and B2C target groups. Markus Hill
  • 19. 4.3 Investment Boutiques: Product Quality / Awards Ratings (31.05.2005 – 31.05.2008) Group Total number of rated mangers • DWS Investment 13 • Universal-Investment 12 • M&G Investments 6 • Allianz Global Investors 5 • Invesco 4 • SEB 4 • JP Morgan 2 source: Citywire, 2008 Markus Hill
  • 20. 4.4 Example „Investment Boutiques“ (general / global equities) Perf. 3J Perf. 5J Max. Verl. Fonds KAG Perf. lfd. J. Perf. 1J Volatilität (p.a.) (p.a.) 6M M&G Global Basics A Euro Acc M&G Securities Limited -7,61% -6,99% 10,36% 17,67% 16,73% -14,46% Astra-Fonds DWS Investment GmbH -11,58% -6,80% 8,72% 14,60% 12,68% -10,02% FMM-Fonds FRANKFURT-TRUST -10,11% -6,90% 9,04% 13,52% 12,70% -9,96% DJE - Dividende & Substanz P DJE Investment SA -12,21% -10,79% 7,12% 12,83% 11,47% -10,61% Carmignac Investissement A Carmignac Gestion SA -12,08% -3,48% 11,68% 12,78% 17,54% -15,16% M&G International Growth A Euro Acc M&G Securities Limited -9,00% -11,80% 5,16% 12,62% 14,04% -15,80% GLG Performance D GLG Investments plc -15,22% -9,22% 6,55% 11,96% 14,48% -17,01% Portfolio Vermögensverwalter (11 VV-Fonds) Diverse* -14,37% -13,04% 7,30% 11,34% 14,37% -16,23% DWS Top Dividende DWS Investment GmbH -9,63% -7,00% 6,38% 11,24% 12,10% -14,20% DWS Global Value DWS Investment SA -11,84% -11,56% 3,79% 11,16% 13,19% -16,90% FIVV-Aktien-Global-Select-UI Universal-Investment- -6,96% -10,39% 8,54% 10,49% 11,74% -16,83% Vontobel Fund Global Value Eq (ex US) B USD Vontobel Management -19,05% -15,48% 3,69% 10,34% 14,55% -21,15% StarCap SICAV - Starpoint A - EUR StarCap SICAV -15,69% -16,22% 5,73% 10,08% 14,78% -17,66% C-Quadrat ARTS Best Momentum EUR C-Quadrat -16,57% -14,35% 5,78% 10,03% 16,46% -16,50% STARCAP - Priamos A - EUR StarCapital SA -22,15% -27,75% 3,82% 9,96% 16,92% -23,19% Klassik MegaTrends T Raiffeisen Salzburg I -19,95% -13,43% 8,51% 9,92% 19,12% -24,39% Carnegie Fund - Worldwide Banque Carnegie LU -16,69% -11,68% 6,50% 9,89% 14,29% -16,76% M&G Global Leaders A Euro Acc M&G Securities Limited -15,59% -20,09% 3,09% 9,75% 14,82% -22,71% FvS Portfolio Aktien Global A -R- Oppenheim -7,48% -7,23% 7,28% 9,73% 10,73% -9,95% Portfolio Flaggschiffe (Uni Gl., Temp. Grwth; DWS Diverse* Verm. I) -13,88% -17,06% 0,64% 4,43% 12,58% -20,13% Source: Feri Euro Rating Services AG As of: 31.08.2008 Peer: global equities Sorted by: perf. 5y. (p.a.), *Diverse: average, funds equally balanced Markus Hill 20
  • 21. 2. Target client behaviour and manager selection procedures 21 Markus Hill
  • 22. PLF: target groups B2B and B2C Users of PLF: • banks (large commercial banks, private banks, cooperative banks, savings banks) • Fund of fund managers • Family Offices • endowments (institutional, often „semi-professional“ selection process) • insurances (retail: unit-linked / direct sales) • DPM / CFP (Certified Financial Planner) • Pyramid sales organisations (premium partner „product quality) • Broker Pools / Independent Financial Advisors (IFA) Markus Hill
  • 23. Distribution Channels for Mutual Funds Advance for asset management companies and online banks Distribution Channels for Mutual Funds in Germany (%, 2006 and 2007, multiple answers are permitted) Markus Hill
  • 24. PLF for Institutional Investors I Examples: Endowments / Pension Funds / Insurances / Corporates • PLF fund advisors are of interest due to their degree of specialisation / market knowledge „specialisation segment“ / investment style / performance (!) • Track record and size are becoming more and more attractive for investors • Trend: mutual funds for institutional investors (i-shares / master- segment-funds) • Advance: foreign providers tend to be perceived as international specialists / advisors (Carmignac, Comgest, M & G etc.) • Market opportunity: boutiques with PLF or individual mandates for german speaking managers / providers (?) (example: Frank Lingohr, BB Invest or DJE) • Critical success factor: risk management / committee decisions Markus Hill
  • 25. PLF for Institutional Investors II • Opportunity / „gateway“ for PLF • Generation of strong net flows • Net flows are a trigger for semi-institutional investors (fund of fund managers) • PLF often important for satellite allocation • catalyst: IFRS implementation / accounting principles • Consultants: development of mutual fund expertise though not core competency • Possible driver for evolution (side effect): PR for ETFs supports acceptance of product wrapper mutual fund Markus Hill
  • 26. PLF: Consultants - National and International Examples: • Feri • Faros • Mercer • Watson Wyatt • Fondsconsult Assumption: investment boutiques will be screened, often even rated (in some cases paid for by the boutique). Important for generating critical size within institutional arena. Issue: differentiation between degree of specialisation by domestic and foreign investment boutiques as well as the decision making process of institutional investors. Furthermore consultants apply a rigorous risk management . Markus Hill
  • 27. Target Groups: Selection Process • Very often instruments like ratings and rankings will be used as an initial step. • Database research is the bottleneck at the first level. Many PLF will be deselected due to lack of size. • Many PLF do not focus on distribution. Result: very low sales and marketing budget; applies to external partners, too. Lack of reputation / brand awareness with investors. Even paid for ratings are only slowly accepted as a marketing tool. • Distribution partners that require greater presence by the product provider cannot be supported by the single PLF provider. • Important differentiation for successful distribution: „old bull“ (see „Top- Ten“ in Germany) or newcomer within the PLF or investment boutique market. Markus Hill
  • 28. PLF Argument „Consistency“ • Factors like consistency in fund management / retention of managers are often critical issues with investors • Fund advisors of PLF are entrepreneurs / have a share in the success of the business • Loyalty to own company often critical for deepening the degree of specialisation • Risk of loosing a talented manager much higher with a „payroll“ fund manager / fund advisor (Morningstar research 2004, trend is continueing) • Institutional / semi-institutional investors appreciate this pro-boutiques- factor when making investment decisions Markus Hill
  • 29. Trends I • New entrants: domestic / foreign (pull and push effect: PLF-industry / manager) • Withholding tax: „booster“ for fund of fund boutiques • Competition: trend towards pressure on margins / specialisation (impact „professional portfolio management “?) • Improving perfomance (blending effect) • „pro cyclical fund launches“ will be growing • Expansion of internal /external fund research / „management“ (hiring and / or „freelancer“, Feri etc.) Markus Hill
  • 30. 6.1 Trends II • Flight to boutiques (former employee becomes entrepreneurs, e.g. Loys) • Talent hotel Germany (Citywire, road shows abroad by investment boutiques) • Marketing / Sales / PR: services- & boutiques consulting (Universal-Vertriebs-Service / UVS, LRI Invest etc.) • Alliances: boutique looks for boutique, boutique „buys“ manager („multi boutiques“) • Pressure on costs (market entrance by foreign investment companies, e.g. Constantia KAG) • Mixed Special Asset Funds / Other Special Assets Funds / UCITS IV Markus Hill
  • 31. Fund of Funds: Investment Boutique Allocation (HwV FlexConcept Select) Nr. KAG Fund WKN S %/NAV 1 CARM Patrimoine A0DPWO MF 6,21% 2 Opp 4Q Blend A0MP9E A 3,05% 3 Fortis L Opportunities USA A0Q6WJ A 3,31% 4 Axxion Squad Value A0B7ZX A 1,92% 5 DJE LuxTopic Aktien Europa 257546 A 5,46% 6 LRI ETHNA Aktiv 764930 MF 3,22% 7 JPM Highbridge Stat. Mk. Nt. A0LHKQ AI 2,18% 9 SG Modulor LSE A0DPKD AI 2,20% 11 SEB Asset Selection A0J4TG AI 2,03% 12 UI Absolute Return Plus A0M80V AI 1,98% 13 UI Athena UI A0Q2SF AI 2,20% 31 Markus Hill
  • 32. 3. Marketing / Distribution – Myths and Reality 32 Markus Hill
  • 33. Myth „Fund Distribution“ • Standard: Marketing-Mix • Relationship management also possible from abroad • Broad target group („windfall profits“) • Huge opportunity • Quick and sustainable success 33 Markus Hill
  • 34. Reality „Fund Distribution“ • element length of time / point in time • Know how about target group expandable • Image problem: long term engagement? • Performance issues • Distribution channel structure „Germany“ • Quality of sales (qualification / reputation) 34 Markus Hill
  • 35. Foreign Investment Boutiques • Asset classes / Themes • Multi management (consultants etc.) • Examples: Comgest, Carmignac, M & G • Market entries • Quality: appropriate for institutional investors • Addition to ETF allocation 35 Markus Hill
  • 36. Market Entrance: Investment Boutique example • Comgest • Specialisation • Clear view on target group • Product quality • Pro: hiring local expertise (sales) • Existing „flagship“ 36 Markus Hill
  • 37. Importance of Sales Quality I (internal support) • „hot air type sales person“ is out • Sales minded outgoing „solution provider“ • At arms length with investor (technical qualification) • Headhunter have embraced issue • Incentive structures (Fixed / Bonus / equity) 37 Markus Hill
  • 38. Importance of Sales Quality II (external support) • Strategy (research, surveys, concepts) • Sales („Placement Agent“) • Products (manager selection) • Marketing & Sales („hands on“) • Fragmented Value Chain • New Job Descriptions • Intermediary Business Developement 38 Markus Hill
  • 39. 4. Entering the market: Are there any secrets to success in the German market? 39 Markus Hill
  • 40. Is there a secret of success for the German market? Indications, no recipe: • Product performance „outstanding“ • Long term view • Local expertise (internal or external) • language (company language „bad English“) • element: go the extra mile 40 Markus Hill
  • 41. 6.2 Summary I • Ongoing dynamic evolution of PLF market for dpm, semi- institutional and institutional investors • Tendency towards specialisation and rationalisation of business models of investment companies / asset managers continues • Target group „institutional investors“ starts to become more receptive for PLF • Increasing acceptance by institutional clients leads to growing acceptance by consultants („pull effect“) • As a marketing tool well established investment companies take advantage of the investment boutiques` expertise • Sales support measures for fund initiators will become more important as a differentiating factor for investment companies Markus Hill
  • 42. 6.2 Summary II • Ratings and rankings will enhance the acceptance and brand awareness of fund initiators („testimonial effect“) • „Withholding tax hype“ within fund of funds will diminish from 2009 onwards („fund exitus“ and fund mergers) • UCITS regulations will trigger new product launches • Momentum and pressure to innovate coming from Germany and Luxemburg as fund launch locations will grow • Attractiveness of the german market for foreign asset managers increases because of growing professionalism regarding outsourcing activities at investment companies • Investment companies more and more take on a roll as a „know how pool“ and network provider for fund initiators Markus Hill
  • 43. Additional information Articles (PDF) available per mail or print (European Fund Manager 2007/2008): • Implementation of mutual funds in institutional business • Fondboutiques and institutional business • Ratings / rankings „mutual funds“ (institutional business) • Private Label Funds (Germany) • Myths & reality „Sales“ (Letter from Germany) • Trends „Products“ (Letter from Germany) (partly source of presentation, also slides from Hill/2007 and Frohne/Hill 2008) Markus Hill MH Services Schaefergasse 42 – 44 60313 Frankfurt Germany Email: markus.hill.cologne@t-online.de 43 Markus Hill
  • 44. Profile Markus Hill Since mid 2005 Markus Hill has been working as as independent asset management consultant. Before that he worked for SEB Bank and Credit Suisse Asset Management amongst others. His services for clients include marketing, sales and pr. In addition to that and due to his special area of interest in „investment boutiques / usage of mutual funds by institutional clients“ he is covering the topic „selection of target funds within multi manager concepts“. Because of his close cooperation with the leading provider of „PLF / Master KAG“ (Universal Investment GmbH, Frankfurt) combined with the „initiation“ of well known research studies (amongst others the first questionaire in Germany amongst consultants in cooperation with Telos) he is a renowned industry expert. Individual publications in Germany and abroad underpin his „industry network“. (source: DPI-Gipfel, Montreux, 2006) email: markus.hill.cologne@t-online.de phone: 0049 (0) 280 714 mobile: 0049 (0) 163 4616 179 Markus Hill