Fondsboutiquen.com

Search for Articles

Here you will find the articles published so far on Fondboutiquen.com. You can search for any keyword or select the individual articles in the archive sorted by month and year.

You can search for any keywords

Select individual articles from the archive

Articles on fondboutiquen.com

Recent Posts
  • Family offices and classic institutional investors have been intensively involved in the field of alternative investments for years. Markus Hill* spoke on behalf of FUNDBOUTIQUES.COM with Martin Dürr, FAROS Fiduciary Management AG, about the challenges for asset management consultants in the selection of liquid and non-liquid investments in the area of real assets. Topics like,  the use of mutual funds in this segment, investment process, capital market analysis, and manager selection will be discussed. Additionally, areas such as fiduciary management, consulting, and fund management (“implemented consulting”) as well as current challenges in asset management too. The importance of Borussia Dortmund and “A Brief History of Humanity” will complement the technical explanations. Hill: What does FAROS do? Dürr: FAROS deals with the entire process of capital investment by institutional investors. From the strategic allocation considering the liability side, over the tactical orientation to the concrete implementation of the investments – i.e. the selection of managers and funds. Also accompanying processes such as risk management, regulatory reporting, ESG strategy are part of the process. Hill: What topics do you personally deal with in the company? How did you get into the consulting area? Dürr: In my career, I have always switched between the investor and the consultant side, so I know both perspectives well. This has given me a very broad base and a good overview of the various facets of capital investment. During my time with one of the leading German family offices, I became involved with alternative investments quite early on. Even today my field of activity is still very broad. From capital market research in general to the special focus on alternatives, in particular the topic of infrastructure in the selection of managers and products. I started at dit, the investment company of the former Dresdner Bank, as an equity portfolio manager at the turn of the millennium. Then I switched to the consultant FERI Institutional Management to get to know not just one but many, especially international investment managers and their processes. At FERI, I was responsible for the further development of the manager selection department. Finally, I changed to the investor side, Munich Re and Harald Quandt Holding – for more than 10 years now working on the consultant side with FAROS. Martin Dürr, FAROS Fiduciary Management AG Hill: You said that you also know the portfolio management area from practical experience. You have launched a mutual fund at FAROS. Why did you decide to do this? Dürr: The mutual fund has developed from the cooperation with customers of fiduciary management. The liquid portfolio of this fund consisted of listed real assets, which we created as part of a “Best Ideas” portfolio. In terms of performance, the fund was convincing across the board – and the use case was also convincing thanks to the flexible and simple “exposure” to an attractive asset class. We, therefore, assumed that many investors must be interested in our allocation and selection service, especially as it was being offered at a reasonable price. Hill: What is the investment process of your fund? Dürr: First of all, the investment process is a top-down process: Based on our market assessment, our insights into existing investments in private market funds, and discussions with their managers, we decide on the allocation by region and sector. The cells of the resulting matrix are then filled by bottom-up selection. This means that the entire universe of potential investments is first qualitatively examined to determine the extent to which it meets our ESG and profitability criteria. The profitability criteria focus on the actual ownership of assets. Besides, the companies should have moderate leverage and not too aggressive capital growth. Concerning our ESG criteria, we generally exclude companies that are conspicuous, for example, by child labor, production of outlawed weapons, or corruption. The remaining companies are rated with an MSCI ESG score and must achieve a minimum score to be eligible for investment. Besides, the companies are then selected quantitatively according to the criteria of the highest stability in terms of dividends and generation of free cash flows. Hill: What are the challenges in the area of liquid versus non-liquid investments? How important are risk management and volatility? Dürr: In the case of non-liquids, for example, direct investments or private market funds, the challenge is the enormous inflexibility. It takes a long time – namely several years – before the desired exposure can be built up. It takes just as long to change the orientation of an existing exposure. Moreover, because of the blind pool risk, such a control is often imprecise. Last but not least, the required minimum investment of five million euros or more is also a considerable obstacle. It is very challenging to be able to construct a well-diversified portfolio by sectors and regions at this limit. These problems can be addressed and solved very well with liquid investments. There again the challenge lies in the higher volatility. Since I have the freedom to buy or sell the investment at any time, I also have a price at any time. In the case of private market funds, I only get it once a quarter – firstly, usually with a considerable delay of six weeks or more, and secondly, it is only an estimate. Whether I could sell my investment at this price is up in the stars. In the long term, liquid and illiquid investments are on par in terms of performance, but the short-term volatility of liquid assets is of course a challenge for some investors. We counter this with a so-called equity tail risk hedge. This means that we acquire put options on stock indices for part of our earnings. These options are relatively far out of the money, around 10 to 15 percent. This means that these puts normally expire worthlessly. If, however, the market falls sharply by 10 percent or more, the options go into the money and the portfolio is partially hedged. We always invest a constant amount, namely 10 basis

  • In the search for alternative sources of income, fund selectors at family offices, independent asset managers, and classic institutional investors have been increasingly dealing with alternative investments for years. Markus Hill spoke to Martin Friedrich, Lansdowne Partners Austria GmbH, about cat bonds as an asset class, risk versus return, correlation properties as well as the respective advantages and disadvantages for investors. Besides, in this niche market, they talked of challenges and opportunities for manager selection. Likewise, sources of information on this topic, and current topics of the in-house publication (capital market strategy) were discussed too. Hill: As a capital market expert and fund of funds manager, you closely observe markets and available investment options. In one of your last publications, you discussed the topic of behavioural finance and then specifically addressed the asset class of cat bonds. Why are cat bonds of particular interest to you and other institutional investors? Friedrich: As a multi-asset investor, our fund can potentially invest in anything that is tradable at least weekly and complies with the UCITS regulations. In addition, we adhere to the principle to only invest in capital market segments that we understand sufficiently. The criterion for ‘understanding’ is our ability to formulate our own return and risk models. That is the case in the cat bond segment, an asset class which I have been following for a number of years now. To be more precise in answering your question, our interest in an asset class can be measured primarily by two factors: First, what potential returns do we expect from an investment? Second, how strong is the correlation of these returns with the rest of the portfolio? Theoretically, it is sufficient for an investment if an asset class stands out positively in only one of the two dimensions. In extreme cases, according to portfolio theory, even an investment with negative return expectations could still be appropriate if that class of assets exhibits sufficiently stable and negative correlations. Insurance-linked securities, or cat bonds for short, are even better than that. They actually offer the best of all possible worlds in a multi-asset context. In the context of today’s market outlook, they offer attractive yields AND low correlation coefficients. Hill: How do you assess the risk/return ratio? Friedrich: On the basis of a pure Sharpe ratio analysis – expected return divided by volatility – cat bonds beat practically all other asset classes. However, we need to question whether that ultimately leads to a correct assessment of the true risk, because cat bonds have the unpleasant characteristic of producing really large losses from time to time, and these losses are unfortunately not predictable, as they are triggered by natural disasters. Worst of all are hurricanes – typically those that form over the Atlantic and then hit the coast of the United States. In this way, losses in the double-digit percentage range can occur practically overnight. As an investor in catastrophe bonds, you must be able to live with this risk. In purely mathematical terms, it means that you should not rely solely on volatility as a measure of risk in sizing your position. Hill: What are the advantages, what are the disadvantages? Friedrich: I have already touched on the advantages: cat bonds are a high-yielding investment with simultaneously low correlation to traditional asset classes. At the same time, many investors have withdrawn from the asset class after two disappointing years in 2017 and 2018, at an inopportune time as we think. Today, more than ever before, the insurance industry has a need to lay off risks in the capital market. The pandemic is hitting this industry hard and will tear a big hole into balance sheets. Cat bond investors, on the other hand, have escaped with practically no losses, but are indirectly profiting from the losses – many of which are not exactly quantifiable yet – of large insurance groups. To elaborate, just a week ago we received an example of how this is actually playing out: Google is currently issuing a $237 million cat bond to protect its buildings and server farms in California against earthquake risks.  The fact that THIS COMPANY is directly accessing the capital market is an indication for us that their traditional insurers do not have sufficient capacity on their balance sheets to offer this certainly attractive customer satisfactory conditions. It is a signal that the insurance market is in a “hard phase”. This is a good time for investors, as they can influence the conditions of catastrophe bonds in their favour! As a drawback, I would mention that even today’s spreads of 6-9%, which are attractive from a historical perspective, cannot protect against sudden, unforeseeable catastrophes. Against this background, an investment in catastrophe bonds always remains partly a poker game, even if you have a relatively good hand in today’s market environment. Whenever such losses occur, the newspapers will be full of reports on them; which can quickly create a difficult situation for a fund selector who then has to see his boss and take responsibility for a big hole in the portfolio. Hill: How do you identify suitable asset managers in this segment? Friedrich: Basically, we proceed as we do with all such decisions. We observe the market and compile lists of all available providers. In the case of catastrophe bonds, this is relatively simple. It is a genuine niche market, with a manageable number of providers. In fact, I think we are in contact with all the funds we could invest with today. Thereafter, it depends on how much each respective approach convinces us. As always, the quality of the team is in focus, and experience in the insurance industry is really a key issue in this case. In addition, we make sure that the balance between avoidance of risk and ability to meet return targets is tailored to our needs as a multi-asset investor. After all, it makes a big difference whether a specific risk affects you by 100%, or whether you can diversify

  • “As soon as the mind is directed toward a goal, much comes to meet it” (Goethe). Innovation, medium-sized companies, and sustainability are interesting topics for investors in the usual value-versus-growth discussion. Markus Hill spoke for FONDSBOUTIQUEN.DE with Marc Siebel, Managing Director of Peacock Capital GmbH, about “tried-and-tested” professors, DCF models, and the enthusiasm for value investing. In connection with this investment style, topics such as ESG & taxonomy in small caps, investments in technology, and the art of archery were also addressed. Hill: Where does your enthusiasm for small and medium-sized companies and value investing come from it? Siebel: I spent part of my business studies in the USA. I was fortunate to find Prof. Dr. Bey, a renowned professor of finance, who, in a student investment fund course, “drove” me to set up my DCF models, conduct SWOT analyses of the business models, and then present these to an assembled team. The standard works of Benjamin Graham and Aswath Damodaran were on my desk as a basis. Back then I was “thrown in at the deep end”, which has shaped me to this day and made me a disciple of “value investing”. The satisfying thing about the exercise at that time is, since then I have been able to understand DCF models and, above all, to calculate them myself. It’s not important when you talk about the “fair value” of stock and are sometimes presented with questionable DCF models. At the turn of the millennium, I started my career at the fund company of the former WestLB. There I directly experienced bursting bubbles on the stock markets and also lost money privately. Quite instructive. Since then, I no longer run after every “hype”. My time in London in the field of asset management and the cooperation with equity analysts on the sell-side have broadened my horizon, as the view of companies here is very different. I then concentrated on medium-sized companies, or “small & mid caps”. This meant extensive balance sheet analyses, studying extensive sector and stock publications by banks, and travelling to investment conferences in the various countries and the companies themselves (“site visits”). After a stopover at Bankhaus Lampe, where I set up and managed a small-cap mutual fund as well as WestLB, I founded Peacock Capital GmbH in 2013. It was good to be able to show a long-term and resilient track record for small caps. This is important to investors. To this day, my passion for second-line stocks has never left me. Our fund, the Peacock European Best Value Fund, is a European second-tier fund. It has the heart of a true “value investing” supporter. Marc Siebel, Managing Director of Peacock Capital GmbH Hill: Long-term thinking and sustainability also determine the thinking in medium-sized companies. What significance does the current discussion on ESG and taxonomy have for your investment approach? Siebel: Starting in 2022, the EU’s Taxonomy Regulation stipulates that companies and providers of financial products will be grouped into different categories concerning their ecologically sustainable activities and investments. This will finally create sufficient pressure on the industry to take ecological criteria seriously in its business activities. Given dramatic images from the Antarctic and periods of drought in Europe, too, it is time to finally step on the gas. We already reacted to this at the beginning of the year and screened our companies in the portfolio in terms of a declaration of compliance with various ESG criteria. We have always used analytical questionnaires on the business model and balance sheets at our meetings with the members of the Board of Management. We have supplemented these with ESG criteria. We also use our network of analysts. Various partners in Europe now offer ESG conferences at which listed companies present ESG reports. As critical investors, however, the focus on the “S” – Social and “G” – Governance should not be missing. As a critical “value” investor, it is not only the accuracy of the balance sheet that is important but  the quality of the management and supervisory board. As the Wirecard case shows, ignoring this quickly leads to serious financial losses. For us, the company has always been a red rag. The Management Board was too involved with the Supervisory Board, which always dismissed critical comments by renowned journalists as nonsense. As late as 2018, an investment bank proved that a large part of Wirecard’s e-commerce sales revenues could not exist. Two reasons that made all the alarm lamps light up. The fact that Wirecard also uses dubious practices to intimidate or monitor Wirecard critics, as reported by the Financial Times at the end of 2019, only makes an investment even more dubious. It is surprising how many companies do not fully comply with the German Corporate Governance Code, for example. Small caps are particularly attractive for ESG investors. I have been concentrating on European second-tier stocks for almost 20 years. The trend toward sustainability is particularly impressive here. Remember the introduction of the Renewable Energy Sources Act in 2000, where Germany pioneered the way for the renewable energy sector, and where “pure plays” have emerged in great numbers. Nordex and Vestas are well-known names, but things get more exciting in the second and third rows when it comes to hydrogen, solar, wind, raw materials, and electric mobility. This starts with Italian IT software companies, continues with our long-standing investment in Corticeira Amorim, the market leader for cork, and ends, for example, with the electric charging station manufacturer Compleo, which recently celebrated its stock market debut in Germany. Many companies here offer unique selling points and a strong “economic moat”, which are otherwise only attributed to companies like Google or Apple. Together with our partners and analysts in Europe, we have already created a “Green Deal” list that includes these “Pure Plays”. In the Best Value Fund, we follow these guidelines. Because of the large number of innovative “pure ESG plays” in small caps, we are also considering a “PURE ESG” fund, which can probably

  • Family offices, think tanks, and independent asset managers frequently have interesting economic “Maps” in the area of capital market strategy. Markus Hill spoke on behalf of FONDSBOUTIQUEN.DE with Martin Friedrich, Lansdowne Partners Austria GmbH, regarding connections between share prices, economic growth, and central bank policy. Additionally, the topics discussed were inflation and the importance of fiscal policy in coronavirus times. The interview was written as a follow-up to the lecture “Stock Puzzle of the Year 2020” (Organizer: CD Invest Consult GmbH, Vienna). Hill: It seems like a mystery to many investors – the economy is constantly delivering new negative records, but stocks are rising. Have the central banks severed any connection between the stock market and reality? Friedrich: We are not convinced by this argument. People are quick to blame, or credit, central banks with almost everything. In reality, we should first understand what is and what is not really different about the current situation. After all, before we can anticipate the future, we should first of all have an explanation for the present! So let us first understand what caused the stock market rally. The connection with between stocks and economic growth is often cited but frequently misunderstood. Yes, we can show that in the past, strong growth rates in economic activity have correlated with positive stock market returns; the opposite also holds. However, there is a catch to this “analysis”: it only works when looking backwards. In investing however, you have to plan ahead to make money – investment decisions are fundamentally about the future. So the question is, does the observed positive correlation hold up when compared with forward-looking returns? Unfortunately not! If you compare the GDP growth of the past year with the stock market returns of the next 12 months, the beautiful correlation just described is suddenly gone. Moreover, you cannot forecast equities based on an economic forecast, either, because there are simply too many surprises for that – see the special year 2020. So be careful with that. Instead, we see two other correlations:There is a certain correlation between the stock returns of the previous year and the economic growth of the following year. One can therefore very well derive an economic forecast from the shares. a) Secondly, there is an observation – it doesn’t happen often, but if global GDP has really plummeted, then in the last 30 years we’ve not had a single case of negative stock returns in the following 12 months. So, deep recessions are really the time when you can buy stocks with the least risk. This has also proved true this year.b) So what we conclude is the following: Central banks have helped to limit the duration of the recession to one quarter by providing liquidity and other measures. The fact that shares rise after a recession, on the other hand, is a completely normal thing. Hill: Your explanations sounds plausible. Can you prove your conclusions with concrete examples? Friedrich: Of course we can back our claim up. We looked at the Standard & Poors 500, before and during all the major recessions of the last 50 years. According to the research of the NBER (National Bureau of Economic Research), there have been exactly six recessions since 1970. We wanted to know, and asked ourselves two questions: a) How many months before the beginning of the recession do stock prices start to fall? b) When do they rise again? What we have seen is that the best time to buy has always been before the end of the recession – in fact always exactly when it seemed to be at its worst. Our analysis shows that while stocks begin to fall a good six months before the recession, when it comes to anticipating the new economic cycle, the market is much more short-sighted. On average, lows have been marked two to three months before the end of the recession. This, by the way, has been true well this year as well. So the stock rally is not really that surprising in principle, even though the current crisis is anything but normal. I think we can formulate the following hypothesis: If the economy started a new expansion cycle in the third quarter, then March 24th, 2020 was also the beginning of a new bull market in stocks! This is why I said in July already that we will not see the lows again. Hill: What role did the central banks then play in this scenario? Friedrich: The study of market panics – and we saw one in March on the world’s stock exchanges – leaves no doubt that in times of such emotional turmoil only the intervention of authorities is really able to stop the downward spiral. I recommend reading Charles Kindleberger’s classic “Manias, Panics, and Crashes”. This time, however, the authorities have really gone very far. The Fed has thus managed to dramatically reduce interest rates, up to very long maturities. For example, 10-year US yields fell from around 2.00% at the beginning of the year to 0.70%, and even 30-year yields came down from 2.40% to 1.20% in August. Hill: So, the result of the central bank’s intervention influences stock markets? Friedrich: Yes, and massively! As we have both talked about before, shares are financial instruments with a basically infinite term. And we can show that a drop in interest rates has a greater impact on their valuation than a temporary drop in profits due to the current recession. This is particularly the case with so-called growth stocks. It is therefore not surprising that technology and pharmaceutical companies have marked new highs in recent weeks, while on the other hand the cyclically exposed part of the market has been stuck in a sideways movement since April. Some use the term “K-shaped recovery” for this kind of dynamic. What is important to understand in this context is that the correlation between equities and bonds works both ways. Put simply, if interest rates rise again at some point, it

  • Asset allocation and fund selection also pose a particular challenge for decision-makers from family offices in Corona times. In the run-up to a joint Family Offices panel with Martin Friedrich, Lansdowne Partners Austria, Markus Hill spoke about selection criteria for fund boutiques and “traditional” asset managers as well as the current assessment of the topic “investment in illiquid asset classes”. Also discussed were the different views on the topic “Use of Emerging Managers” in contrast to portfolio management in the endowment fund concept for an organization that has positioned itself as an incubator in the asset management sector for quite some time. The differentiated view on the selection of managers is supplemented by thoughts on the topic of know-how expansion in their own company. (Event note: Vienna, 15.10.2020, “The Stock Puzzle in 2020”). Hill: What criteria do you use to select asset managers? Friedrich: We proceed just as systematically in our selection as we do with all other investment decisions. First, each search relates to a distinct area of the portfolio. We only consider managers if they represent the asset class we want to invest in a style that is true to our top-down guidelines. If there are many managers in one area, we first narrow the selection using quantitative filters. The filters are deliberately kept simple. Criteria such as investable within the scope of our strategy or low costs are given priority. This is followed by a qualitative assessment of the most promising candidates. For this purpose, we take the time to understand each strategy, first based on a study of written documents and then in personal interviews. Sometimes we also carry out cross-checks with external consultants. Finally, we ask ourselves, how well does the manager fit into the portfolio? We put together a team of managers for each of our investment segments in the fund. And in a good team, the members complement each other. The strengths and weaknesses of the various strategies should complement each other, ideally in such a way that in the end one plus one equals more than two. Hill: Which asset classes are of particular interest in Corona times? Has there been a change in investment behavior? Friedrich: The asset class structure has changed partially due to Corona. Our strategy is long-term oriented and does not live from changing positions in staccato. Nevertheless, due to the changed data situation in June, we increased the weighting in commodities, emerging markets, and inflation-linked bonds. Besides, we are currently overweight in absolute return strategies and catastrophe bonds. Hill: How do you see the importance of investments in illiquid asset classes? What type of asset manager is of particular interest to you? Friedrich: Illiquid asset classes are traditionally important for endowment strategies. In our case, however, only liquid positions come into question because we are subject to UCITS regulations. Fortunately, listed investments can also very well reflect the risk characteristics of real assets like private equity, real estate, or infrastructure, especially if you have a long investment horizon. The additional advantage we see here is that valuations are generally lower than in the private capital market. When selecting investments, we again place great emphasis on a high degree of specialization of the strategies invested in the respective universe. We also welcome managers who share our long-term philosophy. Hill: You work in a firm that is itself the “incubator” of new funds. How do you see the role of emerging managers in asset allocation in general? Friedrich: Indeed, the Vienna office of Lansdowne Partners in particular has always played a pioneering role in the development of new approaches in the fund sector. It is a very top-class and powerful team that I have around me. In addition to the flexibility of such an environment, I have the backing of a highly professional asset management organization. This combination naturally offers a huge advantage in the implementation of innovative ideas. The situation is somewhat different when we talk about the Endowment Fund that I manage. The investment process of this strategy usually requires a track record of 3 years. However, there are exceptions in justified cases: For example, when known strategies appear in a new form. This may be the case if teams change companies, or if a strategy has already existed for some time in a different regulatory environment and is then newly provided in the UCITS mantle. Here I can act relatively flexibly, but of course, I must also take responsibility for such decisions. Hill: How important are fund boutiques in your selection of asset managers? Friedrich: Boutiques have the advantage, as I just mentioned, that they can react unbureaucratically to changes in the market environment and we appreciate this ability to adapt. We are therefore in constant contact with several smaller providers and have already invested with some of them. But there are also areas of the capital market where a large house if it is well organized, enjoys clear advantages. If, for example, you need to keep an eye on the interest rate, currency, and credit risks in 80 countries at the same time to manage an asset class, the resources of a large, internationally positioned house are already significant advantage. In the end, it’s all about the mix. We like to be diversified, and that also applies to the selection of managers. Hill: Has Corona changed your information behavior in the selection of managers? Friedrich: Of course we – like probably all investors – now do more video conferences than 1-on-1 meetings. The frequency has rather increased as a result. Many of our managers were also very proactive and offered conference calls on their initiative in March and April. We gladly accepted this offer. As a result, I worked extremely long hours, which paid off – because I was able to get to know many of the managers even better. Hill: Which topics are currently being dealt with more intensively? Friedrich: Mostly with the enlargement of the team! We would like to enlarge the

  • Webinars and digital trade fairs are currently attracting increasing interest from investors in the fund sector. Markus Hill spoke on behalf of FONDSBOUTIQUEN.DE with Andreas Hausladen, HANSAINVEST, about success factors for fund boutiques, “full-service KVGen” and about the personal reasons for his fascination for this market segment, for the hidden champions of the fund industry. Additional topics of discussion were the challenges for the asset management industry in the field of digital communication, as well as the concept and content of the new event format FONDSTIQUE (event, 15.10.2020). Hill: You observe the industry intensively and attentively. How do you think the fund boutique market segment has developed over time? Hausladen: The market for fund boutiques has been developing in Germany for more than 30 years now in the third generation. Firm changes such as the ever-increasing density of regulation and the narrowing of distribution channels have not slowed down the market thus the industry has steadily and intelligently developed its solutions. Operational quality no longer has to hide behind large fund houses. On the contrary: At least with the bank-independent, neutral service CVGs with open architecture, an individually optimized set-up is possible. An ecosystem of its own has emerged from various providers, with solid concentration tendencies on the part of the service providers. But vice versa, due to the continually evolving depth of service, it has never been easier than today to launch an “own fund”. The organizational professionalism comes from the Service-KVG and its partners, an asset manager focuses on the quality of the concept so that the products are often “outstanding” in quality and flexibility. As a side note: Due to the manifold support of the fund initiators, these service providers should somewhat be called “full-service KVG” by now. Andreas Hausladen, HANSAINVEST Hill: Who will the future belong to here? Hausladen: The fund initiators have become remarkably professionalized and are increasingly asking the right questions: The success factors are a clear customer focus, innovative strength, an appropriate size that still allows flexibility and customer proximity, an open architecture, a state-of-the-art IT platform, and specialist know-how, also concerning ESG. Recently – not least driven by the systemic risks that continue to develop in a crisis-like manner – completely new aspects have also come to the fore. For example, the counterparty risk of a KVG, which many people seem to have been unaware of until now. For this reason, the more professional fund initiators, in particular, are increasingly subjecting aspects of substance and risk to meticulous scrutiny. Sustainability and credibility are also trumped on the material level. However, this new “critical thinking” has not yet arrived everywhere. In contrast to the private label fund market, we recently started to take a closer look at the exclusive fund’s sector with its landscape shaped by consultants. To the size of the business, the fund initiators see a clear advantage here for equity-strong institutions with low complexity risks and a stable, long-term ownership structure, such as HANSAINVEST with Signal Iduna as its strong reliable parent and partner. Hill: You have been active in the service KVG sector for about 20 years. How do you personally see your role in this area? Where does your enthusiasm exist for the “small houses”? Hausladen: Even before my time at Service-KVGen, I was able, as a pioneer in the banking sector for more than ten years, to give the first boutique funds on the market their well-deserved recognition in fund selection and by opening up conventional distribution channels. In this respect, I have had a great passion for independent thinkers and creative entrepreneurship for more than 30 years. And it doesn’t look as if it will get boring in the next few years: The private label fund market is in a founder’s time mood. In phases of financial and economic crises, as is the case again now, new innovative approaches are constantly emerging that do not fit into any conventional product range in the conventional fund world or simply do not meet the profitability expectations of the big houses as a niche strategy. We are happy to be obstetricians. Many special and successful concepts have meanwhile added up to an enormous and indispensable enrichment of the investment world. Hill: How did you get the idea for a digital trade fair? Aren’t the analog formats enough anymore to make the fund initiators visible in the market? Hausladen: My work of many years with banks and KVGen always stood under the sign to be a strong voice and platform for the independent ones as well as to unite and bundle the forces. KVGen such as HANSAINVEST can help small houses to reach a critical mass in terms of fund volume more quickly through support in sales and marketing. These advantages are also recognized on the investor side. Furthermore, a large field of self-decision-makers is growing up in a world in which professional information is available online virtually free of charge. So how do both sides come together in the digital parallel universe? The old world worked well, but will that also be possible in the digital world? The investor matrix is not only shifting horizontally as a result of the digital possibilities of new reach, but completely new opportunities are also opening up vertically in the B2C market. Covid-19 will probably posthumously write the history of turbo-digitization as a major achievement in the Wikipedia logbook. Of course, new digital formats do not replace personal contact. But they are a more than useful addition, so to speak the digital format as a “warm-up phase” for the direct contact of investor and fund initiator that may follow later. For existing contacts, these formats are a welcome change in communication. If there is no time for a personal reunion, then our digital fund fair www.FONDSTIQUE.de offers a pleasant, uncomplicated opportunity to stay in contact and to deepen it. Hill: What is so special about your FONDSTIQUE? Hausladen: The FONDSTIQUE is another step to expand the field of possibilities excitingly, another experimental

  • The topic areas of family offices, fund boutiques, and incubators often appear to be linked interestingly. Markus Hill spoke on behalf of FONDSBOUTIQUEN.DE with Martin Friedrich, Head of Economic and Market Research & Portfolio Manager, Lansdowne Partners Austria GmbH, about this professional connection and liquid investment in the asset class of real estate (REITs). These remarks are supplemented by thoughts on valuation issues for investments in real estate (liquid and non-liquid investments). This interview is directly related to the participation in the panel discussion “RealX: Real Estate Investment Opportunities for Family Offices” on September 18, 2020 (link to the video, further events: Family Office Panel, FundForum International, 6.10.2020 & Vienna Lecture at CDInvest, 15.10.2020, see below). Hill: Lansdowne Partners is a well-known investment manager based in London. What was the reason for establishing the Vienna office? Friedrich: Lansdowne Partners was founded in London in 1998 and manages assets for clients around the world. As a group, Lansdowne manages assets of approximately $10 billion and offers equity funds of various types in European and global markets, energy, China, and India, through to multi-asset strategies. As far as Austria is concerned, we opened our Vienna office in 2009 because Lansdowne Partners’ co-founder, Steven Heinz, moved here. Mr. Heinz is Austrian and lives in Vienna. Lansdowne Partners Austria was therefore established as a platform for the investment of internal capital and seeding and incubating new Lansdowne fund strategies. Hill: What investment strategy do you pursue concerning real estate? Friedrich: As far as real estate is concerned, Lansdowne has traditionally not been a core investment class, as the company focuses primarily on equity investments. Therefore, our natural approach is to invest only in listed real estate companies and not in direct real estate. The structure we use to make these investments is the Lansdowne Endowment Fund, a global multi-asset strategy which I manage myself. Hill: How does invest in listed real estate stocks differ from investing in direct real estate? Friedrich: There are several differences: First, REITs are liquid, which makes them much more volatile. This also means that they are correlated with stocks, especially in the short term. Because they can be traded daily, they also react much faster to changes in fundamentals. So if you look at how REITs are traded today, you will get a very good idea of how your direct real estate could react several months later. This is no coincidence: as anyone familiar with the asset class knows, property valuation follows strict standards. These valuation principles are necessary and sensible for investors, but in practice means that the current valuation is partly based on the past. Changes in fundamental data are therefore reflected with a certain delay. Mathematically, we see this as a result of a high degree of serial autocorrelation in the time series analysis of direct real estate returns. Autocorrelation is a sign that the full risk of the asset class is not 100% reflected by the reported returns – unlike with REITs. The second important difference is that REITs are legally structured as companies and are endowed with free capital. This makes them more volatile compared with existing real estate, even after adjustment for the aforementioned smoothing induced by the different calculation methods. On the other hand, this also means that their yield is higher. Hill: What are the advantages and disadvantages of REITs? Friedrich: The main advantage is that if you as an investor look up and down through the “noise” of the daily ups and downs, you gain access to the real estate asset class with the convenience of daily liquidity and minimal transaction costs. We can demonstrate this by performing correlation analysis with delayed returns on direct real estate: for example, the correlation of U.S. real estate to U.S. real estate stocks increases from 15% to 80% when they delay returns by just one quarter. In Europe or Asia, the time lag may be different, but the principle is the same. The second advantage that I mentioned earlier is that the returns are attractive. Let’s take US real estate once again as an example: the total return of a REIT index since 1990 has been 10.2%, which is significantly higher than the 7.6% per year that direct real estate generated according to NCREIF. Thirdly, listed real estate enables us to represent a globally diversified commitment even with a small investment. This is not possible on the direct side. The final advantage is that REITs are generally managed in a highly professional manner and often own high-quality real estate. Such properties are not necessarily available to investors in the private market. Of particular interest is the “alternative investments” sector within the real estate sector, in which we are heavily overweighted: Logistics, healthcare, data centers, mobile phone masts, and the like. Hill: So far you have only talked about advantages; are there also disadvantages? Friedrich: Of course. The main disadvantage is that REITs have a high correlation with traditional stock indices. From the perspective of quantitative portfolio construction, investors cannot therefore expect the same level of diversification as they would from direct real estate. This also limits our options for property allocation, as the fund I manage is subject to a systematic, disciplined investment process. In concrete terms, this means that we currently have just under 7% of our total equity allocation in REITs. Hill: Looking at the direct market – what kind of opportunity/strategy would be attractive for family offices? Friedrich: As I have already explained, Lansdowne Partners Austria is not a typical family office. The fund I manage sees itself as a patient, very long-term oriented investor with a mandate to ride out short-term market disruptions. For this reason, the higher returns and liquidity of REITs outweigh the volatility and occasional interim losses. For other investors, this compromise will probably be different. Ultimately, every investment policy has an emotional core – and many family investors appreciate the control and sense of security that comes with owning a physical structure. Hill: Thank

  • 1. FondsmanagerRunde, Dusseldorf, October 28, 2020 (AMPEGA) 11:00 am Arrival at the Industrie-Club11:15 am Welcome and moderation by David Krahnenfeld Next Session: Cyrus Moriabadi, Chairman & Portfolio Manager, Martagon Family Office AG:”Share-oriented investment with defensive qualities – active discount strategies convince even in a crisis year!” Berndt Maisch, Senior Fund Manager, Tresides Asset Management GmbH:”With successful and reliable dividend payers through the crisis – Proven dividend strategy with additional growth focus!”                        Marc Siebel, Managing Director & Fund Manager, Peacock Capital GmbH:”How to beat the market in the long term with second-line stocks – Attractive companies off the usual indices in special situations!” 14:00: Farewell and summary by André Heidecke 2. FAMILY OFFICES-PANEL, FUND FORUM INTERNATIONAL (LIVE-STREAM – DIGITAL) Tuesday 6 October 2020 / Time: 08.30-08.55am (CET)Fund Buyer & Asset Owner Academy Breakfast Briefing – DACH FAMILY OFFICE SPECIAL Exploring the role of asset allocation and fund selection in Corona times – „traditional managers” versus fund boutiques and the challenges for fund distribution in digital times!  Moderator: Markus Hill, Managing Director, MH SERVICES Panelists: Marcel Müller, Managing Partner, Head of Portfolio Management,HQ TRUST (MFO – Frankfurt)Martin Friedrich, Head of Economic and Market Research & Portfolio Manager,LANSDOWNE PARTNERS (SFO – Vienna)Florian Schmitt, Managing Director, SLDV (SFO – Fulda) To view the latest agenda you can click on our website, and to view your fellow panelists’ CV please click it here. 3. “Think and invest like an entrepreneur – Value Investing, Fund Boutiques & Family Offices”. “The word crisis in Chinese is composed of two characters – one signifying danger and the other opportunity” (John F. Kennedy). For 18 years, former strategy professor Dr. J. Carlos Jarillo (former Ph.D. student of Michael Porter and Harvard Research Associate) and his team have been managing equity funds at Strategic Investment Advisors Group (SIA). His latest book, “Strategic Logic – The Sources of Long-term Corporate Profitability” is considered by many executives to be the practice-oriented successor to Michael Porter’s classic “Competitive Strategy”. “Strategic Investing” is thematically closely related to the way independent entrepreneurs think (ownership approach). Markus Hill will therefore speak about “Value Investing, Fund Boutiques and Independence” (USA formula) as well as initial feedback from the MH-Survey 2020 “Family Offices & Value Investing”. For years he has been observing and commenting on the development in the field of owner-managed, independent asset managers/family offices and the long-term horizon of investments. This year, the entire investment committee and the partners of SIA will be on site: Prof. J. Carlos Jarillo, Alex Rauchenstein (CEO), Marcos Hernandez (CIO), and Urs Marti, moderator: Markus Hill. “Think and invest like an entrepreneur” (topics) Think and act like an entrepreneurWhat is a good enterprise?How do we evaluate a company?Portfolio construction and lessons learned from 2008Commodity stocks, still an undervalued investment themeValue Investing with Values (“Sustainability”) Event date / venue: Thursday, 24 September 2020, from 11.30 to 14.00 h, Main Nizza (www.mainnizza.de), Untermainkai 17, 60329 Frankfurt am Main Strategic Investment Advisors Group (SIA, www.s-i-a.ch) is a value boutique from Switzerland that has been successfully serving investors in Europe for many years. SIA maintains an intensive dialogue with its investors and value investment-oriented investors. Since 2015, the professional exchange of ideas has already been conducted intensively in Frankfurt, Cologne, Munich, and Hamburg. An interesting aspect of these meetings in previous years was the discussion of the concepts of mutual funds and private equity funds in the value investing segment and the classification of commodities as part of asset allocation. These and other points will be taken up again this year (“investment horizon”, Warren Buffett, etc.). Another aspect: Family offices and independent asset managers seemed particularly interested in learning more about the range of independent addresses in the value investing segment during the exchange of ideas at the time (“Diversification with brains”, MH-Survey 2020). INQUIRIES ON THE TARGET GROUP OF EVENTS – Investor Event (“invitation only”), registration, presentation, and content: Markus Hill redaktion@fondsboutiquen.de0049 (0) 163 4616 179 Family offices, entrepreneurs, and high net worth individuals are currently dealing more intensively with the topic of commodities as an investment. Markus Hill spoke on behalf of FONDSBOUTIQUEN.DE with Urs Marti, Partner at SIA Funds AG, about the assessment of the market cycle in this real asset segment and about the investment behavior of various investor groups in the market. Additional topics in the discussion in the connections between value investing and investment in commodities as well as the current importance of sports and Hugo Stinnes (“Industrialist & Politician”). Commodities, Value Investing, Family Offices and Hugo Stinnes (Interview – Urs Marti, SIA Funds) 4. SAVE THE DATE – Martin Friedrich, Lansdowne Partners Austria GmbH, October 15, 2020, Vienna, additional information to follow Family offices and institutional investors think in long terms in the investment sector. Markus Hill spoke on behalf of FONDSBOUTIQUEN.DE with Martin Friedrich, Lansdowne Partners Austria GmbH, about topics such as strategic asset allocation and the selection of asset managers. The similarities and differences between the fields of activity of family offices and fund boutiques were also discussed, as well as previous experiences as a portfolio manager and last but not least the reference to an interesting book. FUND BOUTIQUES & PRIVATE LABEL FUNDS: Family Offices, Strategic Asset Allocation & Asset Manager Selection (Interview – Martin Friedrich, Lansdowne Partners Austria GmbH) 5. TAKING PLACE (NOVEMBER 2020, Frankfurt am Main) – FAMILY OFFICES & FUND SELECTION (info@markus-hill.com) Independent asset managers (fund boutiques) enjoy great popularity among private and institutional investors. Regardless of the respective asset class (shares, bonds, real estate, etc.) and product packaging (mutual funds, special funds, AIF), the strongly entrepreneurial asset managers score points through independence (U), specialization (S) and authenticity (A). In most cases there is no corporate affiliation, they concentrate on one or a few asset classes, they have skin-in-the-game: authenticity here means that many of these owner-managed houses start the funds (private label funds) with their own money and that the entrepreneurs (fund initiators) “burn” for their cause. The independent site www.fondsboutiquen.de is happy to discuss the topics mentioned above and is grateful for input, ideas, and suggestions in this market segment. (redaktion@fondsboutiquen.de) Related Interviews: Family offices and fund boutiques have many similarities (Interview – Thomas Caduff, Markus Hill)Stock Valuation, Corona & “Horror Movies” (Interview, Martin Friedrich, Lansdowne Partners Austria GmbH)Dividends, Value versus Growth, Foundations and “Asia 2030” (Interview – Bernd Maisch, TRESIDES)“It

  • Theater-Frankfurt

    “We should approach everything with both caution and confidence” (Epiket). Value investors in particular are currently experiencing challenging times. Markus Hill spoke on behalf of FONDSBOUTIQUEN.DE with Alex Rauchenstein, CEO of SIA Funds AG, about topics such as “Value versus Growth”, expectation management, the dialogue with family offices, and about investments in commodities. Topics in this context were also two “LIVE events” of this fund boutique (“Natural Resources Day”, Zurich, 17.9.2020, and “Strategic Investing – Thinking and investing like an entrepreneur”, Frankfurt, 24.9.2020). The discussion was rounded off by an anti-stress secret that certain people can also replace reaching for a cell phone or book. Hill: As in previous years, a lively value versus growth discussion is repeatedly taking place in expert circles. Value investing is investing with staying power – what are the reasons for this in the current market environment? Rauchenstein: Yes, you say it right. Value Investing is not a 100-meter sprint, but a marathon.  In the current situation, it feels like an ultra-marathon. After all, the underperformance of a value-based global strategy has been going on for several years, almost a decade. However, it is interesting to note that with the European share of our portfolio we have been able to outperform the Euro Stoxx 600 by 100% since 2011. In other words, it was almost impossible for a value-oriented, global investor to beat the global index. The situation was different for Europe. In other words – the valuation exaggeration has been taking place primarily in the USA for some time. Now that, in our view, interest rates are unlikely to fall any further and the debt financing of many growth companies has come to a standstill, things are getting exciting. But I and our company can’t predict that it will turn out exactly as it should. Such a forecast would appear to me to be dubious. On the other hand, I continue to invest my children’s money in our Value Fund and not in the NASDAQ. Hill: Many of your investors are family offices and independent asset managers. How do these investors see value investing, what do you notice during the interviews? Rauchenstein: Yes, many of our investors come from the family office segment and independent asset managers. Our contacts are often very professional investors with 20 to 30 years of investment experience. All with a clear long-term, entrepreneurial mindset. This fits very well with our investment approach and the view of an entrepreneur. We offer our clients an interesting opportunity to invest in listed stocks with the mindset of a private equity investor for the long term, with daily liquidity. Hill: A special feature of your firm is the combination of value investing and investment in commodities. How did this combination come about? What arguments speak for this combination? Rauchenstein: In principle, we are interested in all investment opportunities that present themselves. Because of the greater the selection, the greater the chance of finding something undervalued or “misunderstood”. Now, commodity companies are probably the most cyclical one can imagine – on the other hand, the cycle for most commodity companies lasts 7 to 10 years. If one is now able to correctly assess the cycle in the medium to long term, there are excellent investment opportunities. Many investors find it extremely difficult to correctly value these companies. This is where we close the gap on topics such as long-term thinking, cycles, and company valuation. Hill: How do you assess the current market situation? Rauchenstein: The current market situation reminds me and my colleagues very much of the year 2000. Similar to that time, we notice that hardly anyone seems interested in fundamental valuations. Something along the lines of “as long as a company’s sales increase, everything is okay”. However, hardly anyone is currently concerned that turnover does not equal profit. Let’s see how long this will continue. We are monitoring this situation intensively. Hill: What are you currently working on more intensively? How do you stay in touch with your investors? Rauchenstein: Covid19 has also somewhat limited our travel activities. Like many addresses in the market, we have reduced direct visits to a minimum. Phone, zoom, Skype – there are currently many ways to stay in dialogue. Just two weeks ago, we took part in the Wiesbaden Investors’ Day. We noticed that after this long communicative “announcement of distance”, many investors are once again enjoying a direct exchange of ideas, face to face. This is of course subject to the usual requirements, such as keeping their distance and wearing a face mask. This year, we will again be holding our event “Think and invest like an entrepreneur” (Strategic Investing) on September 24 in Frankfurt. First of all, thank you for your moderation and your short intro (“fund boutiques”) at the event. One week before, on September 17th, this year’s Natural Resources Day will take place in Zurich. Both events also serve to intensify the dialogue with investors and professionals on topics such as investment styles, asset allocation, and portfolio management in the current market environment. We are particularly looking forward to an unusual topic in Zurich, as the topic of emerging markets is also intensively discussed in Corona times: “Commodities and the development of India” by Chrys Kamber (Picard Angst), Head of Indian Investments. Hill: If the stock market is not the main focus – how do you clear your head? Rauchenstein: Investing is my passion and I would do the same if it were only my own money. Covid19 has certainly shown us all once again what the important things in life are. For me, the fastest way to clear my head in a short time is to do the activities with my three boys – a challenge and a joy for every father! By the way, without knowing it, they are 100% invested in our fund. Their investment horizon should be long enough to benefit from it. Hill: Many thanks for the interview. Related Interviews: Family offices and fund boutiques have

  • European-Central-Bank-Skyline

    “I have no special talent, I am only passionately curious” (Albert Einstein). This joy of discovery can be found in many personalities in the fund boutique segment. There you will find many independent minds with extensive know-how and (contradiction!) extraordinary talent. Many of the fund managers may not like to hear it – the proximity to “artistry” is obvious. If one generously assumes that fields such as economics and asset management, for example, are not “drawing board knowledge fields” but still have many undiscovered mechanisms of action, then one approaches this daring characterization. As long as not all the regularities have been discovered here, there are opportunities for independent talents who offer added value in the area of investor education in addition to performance. Where is the interface to Investor Relations? Which formats are often used? Think Tanks and “Citizen Education” Many of the so-called think tanks are often not primarily associated with the field of investment, they are often located in the general area of economics and politics. Examples: Institute of the German Economy Cologne e.V. (IW), Institute for World Economy at the University of Kiel (IfW), Friedrich Naumann Foundation, etc. Many of these institutes fulfill a valuable function, acting as catalysts in the area of “diffusion of knowledge”, for example in the named subject areas – of course, the framework is much broader concerning all think tanks. The interested absorption of this knowledge requires responsible citizens. Why? For each of these institutions, it is advisable to consider the respective “agenda” of the institutions. Who publishes what and with what interest? This seems to be natural and does not pose a problem. You just have to do your homework. Seen positively: This information is presented transparently and is also critically discussed in the media. Society benefits from the constructive discussion that these institutes make it possible for the interested public. As one of many sources of information, the added value is created. Fund boutiques and investor education Detached from the above-mentioned structures, many other forms of think tanks have emerged. Similar to the buzzwords family offices, fund boutiques or impact investing, it appears positive, creativity-promoting that all these terms are still in the debate at the stage of the discussion on the sovereignty of interpretation, see also the committed discourse on “sustainability”. Particularly in the area of more commercially oriented addresses in the asset management segment, there are interesting addresses that make a transparent effort to provide investor education. Addresses such as FERI Cognitive Finance Institute and Flossbach von Storch RESEARCH INSTITUTE, as well as “hybrid think tanks” such as Kiel Economics, should be mentioned here. In the shadow of these so to speak institutionalized houses, one could look at some other addresses that operate investor education without being able to advertise directly with an institute label. Addresses such as ACATIS, DJE, Lansdowne Partners Austria, Eyb & Wallwitz, and sentix, among many other addresses, strive for additional input for investors in investment decisions – where the focus is not on pure product advertising. Some houses act as portfolio managers (fund advisors) themselves, some wear several hats, so to speak (investor, portfolio manager, “incubator” etc.). Every address finds its fans, so to speak, and every pot also has its lid. Treasure Island – Newsletter, White Papers, and Webinars Many fund boutiques naturally pursue an interest in selling their products (funds). However, many of these addresses are aware that the constant publishing, posting, and sending of pure product information (Who reads all the mails with attached fact sheets on the investor’s side?) is meeting with increasingly sparse interest: Information overflow, besides, there should be databases and other sources of information that prepare this seemingly “hard” information about funds in an understandable, independent way and put it into context. Only a certain proportion of asset managers manage to create added value here. A lot of feedback from investors results in an interesting picture, for example, webinars: Often used by fund selectors, information is often given in private: “I organize product information myself anyway, the macro view of the manager is interesting, then I disengage”. This type of feedback corresponds with the great interest in added value information on the investor side: asset allocation – justification, alternative assessment of market scenarios, interesting specialist conferences or webinars with “information-above-the-plate”, views of fund managers, who, in addition to the current portfolio manager view, can discuss interesting additional aspects on these topics, as one might have had many other interesting “hats” on one’s head before the portfolio manager career (analyst, banker, publicist, family officer, etc.). A treasure island that may not have been discovered by many investors in the independent houses is certainly worth a deeper look: newsletters, webinars, and white papers on selected topics! Personality, know-how, and skin in the game Independent asset managers live in a different world compared to corporate experts. Nassim Nicholas Taleb already addressed this issue indirectly in the book “The Risk and its Price – Skin in the Game”. Ideally, decisions are made by people who can also experience the effects of the decisions via a direct feedback loop: There is a difference between analyzing things, describing them, and making them public without practical actions being linked to the results of my analysis. Independent asset managers usually appear under their name, building up a personal track record with their fund. By continuously communicating their world view to markets, asset classes, timing decisions, or via rule-based systems in fund management (Doesn’t every fund manager have their rule-based system – implicitly or explicitly described?) they make themselves “vulnerable”, transparent and measurable. He has Skin in the Game! No serious fan of fund boutiques claims that each of the independent managers beats the market and the “big guys” at all times. It is well known that the perfect manager, who has all the others with his “objective” portfolio management results, has fortunately not yet become reality. As long as this is still the case (solution: AI approaches in 2050?), there are a

  • Frankfurt-Main-Skyline

    Drill thick boards have a long breath and a lot of knowledge, all this in combination with deep pockets – this, or something similar, could be the success factors for an incubator in the area of investment funds.Similar to the terms family office and fund boutique, the slow, level-headed “breeders” in the investment sector have a wide variety of expressions. Why are incubators interesting and why do you find so few in the market? Talent and Innovation Lupus alpha is known as a fund boutique. On the one hand because of its convincing performance, and on the other hand because of the way it was set up at the time and the subsequent closure of its talent hotel for “emerging managers”. The special feature of this model was that it deliberately focused on lesser-known managers (track record etc.) and had done grassroots work in the hedge fund strategies segment for the industry. Regardless of the outcome of the experiment, the company has thus gained additional excellent know-how in the evaluation of complex, innovative strategies. Talent and Tradition In contrast to the above-mentioned “greenfield approach” at Lupus alpha, there has been a small industry of incubators in the asset management sector for years. These are hardly noticed. Old wine in new bottles, these are the typical addresses for seed money inquiries for “classic” fund concepts in the liquid and non-liquid fund sector. Similar to the area of family offices and club deals, much of the communication here takes place within an almost closed community. Of course, there are also “emerging managers” here, but interestingly enough, they often find more traditional concepts with often lower levels of innovation in seed money. Managers with a solid background, asset management history, a special characteristic in the family office sector are managers that you often develop yourself: First a specialist mandate in asset management, later your fund using the know-how, network, and infrastructure of the family office. Of course, there are exceptions, such as the area of asset management and AI (artificial intelligence) – many managers without a classical financial background, but equally subject to the pressure of having to deliver convincing real results in addition to initially convincing backtesting results. “Ambiguity tolerance” and social work – self- and external definition for incubators Classic seeders for fund projects can be found in the Family Office area. Entrepreneurs like to talk to entrepreneurs, understand entrepreneurs, and like to support entrepreneurial action. One loves consistency, is a long-term thinker. Names are often hollow – family office, investment office, private office, asset managers, classic independent asset managers, AIFM structures, etc. are often and gladly used in marketing: It is interesting to note that many of these organizations would not describe themselves outwardly as incubators. In classical supervision (social work) there is the nice phrase “If you don’t define yourself, you will be defined!”. If one would discuss these topics with different houses in the market like Paladin, Greiff capital management, or Lansdowne Partners Austria, an interesting dialogue would result. As in the classic family office sector, the advantages and disadvantages of visibility in the market are assessed differently. Role of networks for incubators and fund initiators Multipliers, investment companies such as Ampega, Hansainvest, Hauck & Aufhäuser, and other service providers can play a more prominent role in this segment. Those houses that, in addition to pure administrative services, manage to offer convincing answers to the seed money question in the long term will have competitive advantages: For talents who have incubators on their side, but also for talents who, so to speak, operate as a “stand-alone solution” without a traditional organization. Parts of the industry are developing in small steps in this direction. Consultants, multipliers, and providers with added value in terms of know-how, network, and services are valued by long-term capital, and long-term capital also requires industry know-how and exchange of knowledge. Funds are long-term projects, as Goethe already said: “Not art and science alone, patience wants to be at work”. Markus Hill is an independent asset management consultant in Frankfurt. His areas of expertise are marketing/sales / PR and manager selection. Hill deals intensively with private label funds, fund boutiques, and the use of public funds (fund selection) for institutional clients. The above text reflects the opinion of the respective columnist. Related Interviews: FUND BOUTIQUES & PRIVATE LABEL FUNDS: Family offices and fund boutiques have many similarities (Interview – Thomas Caduff, Markus Hill)FUND BOUTIQUES & PRIVATE LABEL FUNDS: Stock Valuation, Corona & “Horror Movies” (Interview, Martin Friedrich, Lansdowne Partners Austria GmbH)FUND BOUTIQUES & PRIVATE LABEL FUNDS: Family Offices, Strategic Asset Allocation & Asset Manager Selection (Interview – Martin Friedrich, Lansdowne Partners Austria GmbH) Source: www.institutional-investment.dePhoto: www.pixabay.com

  • Kurhaus Wiesbaden

    Asset Management Consultants often evaluate, select, monitor, and “advise” group-bound asset managers and fund boutiques. Markus Hill spoke on behalf of FONDSBOUTIQUEN.DE with Alexander Scholz, Managing Director of TELOS GmbH, about the breadth of the field of activity in his own company as well as the topics at the upcoming “Wiesbadener Investorentag” (20.8.2020) and the “Alternative Conference” (5.11.2020). Additional topics such as special studies and investment companies, ESG, investor education, and personal publication interests with “question marks” will also be discussed. Hill: What does TELOS do? What are the topics your company deals with within Wiesbaden? Scholz: The fields of activity of TELOS are manifold, but in the end, almost everything revolves around the analysis. Within the scope of TELOS Ratings, we analyse and evaluate asset management companies, master investment companies, custodians, investment processes as well as funds. Qualitative criteria are always in the foreground, although we always take quantitative factors into account, especially in the TELOS Fund Ratings. In our function as consultants, we support institutional investors of all kinds in the selection of suitable partners in the field of asset management and administration (master investment companies and custodians). Here our clients benefit from our more than 20 years of experience in the ratings outlined above. In contrast to rating processes, which tend to be standardized, our analyses in the context of our consulting activities are carried out individually according to the requirements and needs of the respective investor. Our third “mainstay” are various studies and publications. The TELOS Special Fund Market Study or the TELOS Master-investment companies Study are examples. Besides, we have been conducting an annual analysis of institutional investors’ satisfaction with their asset managers for almost two decades. We address current topics in our “TELOS Compendium” series and various short surveys and analyses. We are currently compiling a compendium on the topic of sustainability / ESG, in which various aspects and solutions are discussed and presented. The only thing that does not revolve around analyses is our events. This year, we are organizing the 11th TELOS Wiesbadener Investorentag on August 20. We are responding to the increased interest of institutional investors in alternative investments such as real estate, infrastructure, private debt, or private equity with our TELOS “Alternative Conference”. The conference will take place on November 5th, 2020. Ultimately, with all our services we would like to build the (information) bridge between investors and providers. Alexander Scholz, Managing Director of TELOS GmbH Hill: Which specialist areas do you personally supervise? Scholz: In principle, I cover the entire spectrum of our services. I also take care of our website and our information portal for investors “IMI”. As a shareholder and managing director, the further development of the company and the development of new services is of course also an important element of my work. Especially in the area of sustainability / ESG services, we at TELOS have made a lot of progress in the last few years, for example, the TELOS Sustainability Rating or the TELOS ESG Check. Currently, we are working on a quantitative rating, which is geared to the needs of institutional investors and which will go live in Q4 2020. All in all, I have a very varied and multi-dimensional field of activity here at TELOS, where I can contribute my experience from all my previous jobs. In any case, I will never get bored. Hill: What is the background of the event “Wiesbadener Investorentag”? Scholz: Our events are an essential element of our bridging function. Both the Wiesbaden Investors’ Day and the “Alternative Conference” offer institutional investors a platform to inform themselves about current capital market topics and to exchange information with other market participants in a familiar atmosphere. Asset managers and administration providers address various investment topics in presentations lasting around half an hour each. The event is rounded off by an investor lecture or, as this year, a specialist panel. We always make sure that there is a good mix of both the topics and the lecturing companies. Thus, each topic should not be dealt with more than once. Domestic and foreign suppliers, full-range stores and specialized boutiques, long-standing and newcomers to the German market will have their say. The overall result is an entertaining and varied program. Hill: What is special this time, what topics are discussed there? Scholz: In addition to the specialist presentations by the suppliers, this year’s program of the Wiesbaden Investors’ Day will include a panel of top-class experts on the topic of sustainability / ESG. Participants of the panel are Dr. Kuper from BVI, who will present the current developments from the association’s point of view, Mr. Helfberend from ERK Darmstadt, who will contribute his practical experience as an investor, and Professor Dr. Schäfer, who will cover both the scientific and the advisory side. In this respect, the topic of sustainability will be examined from all angles. We also have various fund boutiques with specialist presentations on-site, such as Carmignac, Fisch Asset Management, MAINFIRST, Rothschild Asset Management, and SIA Strategic Investment Advisors Group. Worth mentioning this year is a special situation due to COVID-19. The Wiesbaden Investors’ Day is one of the first presence events after the shutdown. From discussions with vendors and investors we have learned that despite the active use of webinars and other online formats, there is still a great interest in “real” meetings and personal exchange. In close cooperation with Nassauer Hof, we have taken all necessary measures to ensure that the event is a success and a safe one. Hill: If it’s not about asset management – what other topics are you concerned with? Scholz: I admit that I am not exactly a bookworm. Now I could argue that I have to read vast amounts of specialist literature and documents while I’m working, but that would only be a lazy excuse. When I read a book, the light fare is usually like regional or business crime novels. But, I don’t want to give too much away yet – there

  • Caduff: Mr. Hill, in Germany you have the nickname “Mr. Family Office”. How did you earn this prominence and what is behind it? Hill: As is well known, external and internal perceptions can often diverge. First of all, it should be said that I actually come from the product management area “Capital Markets & Asset Management” and later also worked in fund sales and PR. I have been living in Frankfurt for almost 25 years and work in the financial industry. For the last 16 years I have been intensively involved in fund selection and fund boutiques, 15 years of which as an independent consultant. Fund boutiques are bank-independent asset managers, owner-managed, specialized, and love what they do: Managing funds according to their ideas without any corporate guidelines. As with “normal” entrepreneurs, you will find many top talents here, often with closeness to artists. This is where one finds the middle class, so to speak, the hidden champions of the financial industry. Many family offices like this category of fund managers, and interesting minds are often developed in family offices – as a “boutique in the family office” so to speak. These addresses, who also like to engage in professional dialogue with other family offices, appreciate the fact that they get to know the minds from this segment in-depth, that they also see many interesting managers as a result of fund search projects, and that they are happy to share this information, which is generally not a one-way street. If you are technically deep in a topic, see a lot on the market and receive a lot of information, you will also recognize that there is a real interest in the topic and that the focus is not on a commercial agenda. To cut a long story short: If both sides have a technical topic on which they like to discuss in-depth, then sooner or later they will find more together. My connection to the topic of family offices and fund boutiques has therefore been organic and has developed. I wrote my diploma thesis on “Competition as a discovery process”. I simply did for many years what many fund boutiques and classic medium-sized companies do: Dealing with the topics that interest me personally, of which I like to publish and like to exchange ideas with experts as a moderator or panelist. Markus Hill, independent asset management consultant Caduff: As is well known, the term “family office” is not protected. Does everyone work for families, or is it – as we often hear – good for marketing and you run a normal asset management business? Hill: You will find mountains of literature on the standard forms and the variety of tasks performed by single-family offices and multi-family offices, so I don’t want to lecture presumptuously here. To use your words, there is a real “Mrs. Family Office” in Germany, Prof. Dr. Nadine Kammerlander from WHU Otto Beisheim School of Management. She has a lot of interesting information on the subject, and of course, there are other exceptional, interesting people in the segment with professional depth. To come back to your question: You’re right, of course, the term is often “misused”, although one shouldn’t be more papal than the Pope. Of course, there are classic Single Family Offices (SFOs) that are never perceived as SFOs from the outside, often with good reason. Discretion, trust, understatement are certainly part of the drivers for this deliberately chosen “invisibility”. My explanation for this phenomenon includes another aspect: visibility can be of great benefit to professional work. Especially if you want to discover interesting fund managers or be made aware of interesting investment projects. The communication concept “Aggressive Non-Visibility” (ANV approach) protects the work process in the SFO on the one hand, and of course also for product decision-makers in Multi-Family Offices. Why is it so? No product decision-maker can afford to be in constant dialogue with the salespeople of product providers or to hold discussions with people looking for investors. The view (quote from an SFO representative) that a conversation with Sales is often associated with the term “whole-body herpes” is often expressed at face value. Many salespeople I have spoken to are aware of this fact. Their job in Sales is to turn the square into the triangle for the potential buyer. The most radical strategy here is, of course, foreclosure. This situation – “competition as a discovery process” – often leads to the fact that one only perceives a small section of the market for investment opportunities and is cut off from know-how. I often receive invitations from the family office sector, where people talk about specialist topics in a protected area. There is a need for exchange, for “looking beyond one’s nose”. And this is where the magic happens: over the years, this need has led to an increase in the number of providers of family office events. As a rule, these events have to be financed by sponsoring, a completely normal situation, economically comprehensible. Sometimes, of course, there is the danger of getting into formats where one hairdresser wants to sell a haircut to another hairdresser. If this is known to the participants at the beginning, this is no problem for me, some sponsors might think differently. Especially here you often find the “pseudo-family offices” you described. But here one does wrong to the organizers. They provide a platform for the exchange of ideas. The increasing number of product suppliers for certain formats can lead to decision-makers withdrawing from the “right” family office side and increasingly resorting to small network meetings again. I have often networked people from these segments with each other when I had the feeling that one side could talk to the other side in a technically stimulating way, so to speak, without a commercial agenda – because I look at products myself, I am often introduced to interesting experts who I certainly cannot “hold a candle to”. I have no problem with family offices transparently offering

  • “Time dwells long enough for those who wish to use it” (Leonardo da Vinci). Markus Hill speaks for FONDSBOUTIQUEN.DE with Martin Friedrich, Lansdowne Partners Austria GmbH, about the valuation of stock investments in the current economic situation, risk management, stock market psychology and about supposed monsters on the capital market in corona times. Hill: What is going on with the stock market? Prices are shooting up into the sky, the DAX is already back at 13,000, aren’t we facing the worst economic slump since the World War? Friedrich: Yes, this topic has been on our minds for a while now. There are two ways to explain the share price development we have seen. Firstly, it is not unusual that a recession provides a buying opportunity – recessionary periods have always been the best time to buy stocks. This is because shares are anticipatory instruments. What matters most for the price trend is whether the economy will improve or deteriorate in the future. The status quo is generally already discounted.We have, for example, examined all US recessions since 1970 and analyzed how many months before the end of the GDP contraction equities have formed a bottom. Generally between two and five months before the end of a recession, share prices are starting to pick up again. The only thing that is required is SOME light at the end of the tunnel. To be clear: anyone who waits until the newspapers write about good news has usually already missed the rally. Martin Friedrich, Lansdowne Partners Austria GmbH Hill: What would be the second way to check plausibility? Friedrich: : So far, we have only talked about the direction, but we also have to think about the level. A small digression into company valuation helps here: Just as with an individual share, an entire share index, too, can be understood as the net present value of all future cash flows. This value is determined by two factors: how high will the payments be? And at what rate do we discount? So you can build a dividend discount model for an entire stock market, and that’s exactly what we have done. What we learned from this exercise is that 86 – 87% of the total value of shares are cash flows that are more than five years in the future. This is because, unlike bonds, shares do not have an expiry date. The assumption is that listed companies live forever. Logically, this means that even the theoretical elimination of all (!) corporate profits for the next five years should lead to a stock market slump of no more than 13 – 14 %. Hill: That is surprisingly little compared to the 36 % that the DAX lost from the beginning of the year until mid-March. Why do you think the shares have fallen so much? Friedrich: Well, I was talking about two factors. In addition to corporate profits, interest rates play a major role in determining share valuations. The discounting of future cash flows is always more of an art than a science. It is common practice to divide the interest rate used into a risk-free component and a risk premium. And in a panic like the one we experienced in March, it is mainly the risk premium that is involved. It has just reached very high levels in the short term. With the bold intervention of the central banks and the truly broad-based fiscal policy initiatives, the risk premium then normalized from the third week of March onwards. In addition, the risk-free rate also dropped. In the USA, for example, 10-year treasuries are a full 1.3% lower than at the end of December, while 30-year treasuries are still 0.8% lower. Moreover, there are reasons to believe that the fall in interest rates could be semi-permanent. Hill: Interesting, but if the risk premium can change so suddenly, don’t we have to assume that it will rise again? Given the rising number of cases, isn’t the next stock market crash inevitable? Friedrich: Not necessarily. Of course, it would be crazy to rule out a correction. You can never do that. Nevertheless, I believe that we will not see the lows of March again. A correction of 5 – 10 % would probably even be an opportunity to buy shares. Why? It has a bit to do with psychology and, of course, with our understanding of the capital markets.First of all, psychology: we humans get used to new situations, and the more we learn about the virus, the more it loses its terror. Surely, everyone has seen a horror movie: the monster is always the most frightening one second before it appears for the first time! With that in mind, even if case numbers rise and hospitals fill up again, we need to differentiate between the economic influence of the virus itself and fear of the virus. And it is fear that has by far the greater leverage – on consumer behaviour as a direct fundamental factor, but also on the risk premium as it relates to stock price valuation!The second reason why a renewed bear market is likely to be less severe is the positioning of market participants. At the beginning of this year, most investors were overinvested in risk assets. And then they all had to sell at the same time. Today, the situation is different. Many investors have missed the rally and are under pressure to get invested again. There are hard figures for that. The Merrill Lynch survey of fund managers, for example, shows that professionals are heavily overweight in time deposits and underweight in equities. The survey of the American Association of Individual Investors (AAII) also continues to show a strong overhang in bears versus bulls. This means that the technical starting position today is actually equity-friendly. Hill: What could disturb this positive picture? Friedrich: Well, a lot. If we stay with the film analogy, a new monster could appear on the stock market horizon at any time! After all,

  • Every crisis in recent decades has brought us new insights and has shaken up the fund industry accordingly. But in today’s situation, where exogenous factors without historical patterns prevail, it makes it difficult to plan sales and marketing in asset management. Although the fund industry is in the fortunate position of being able to generate continuous income despite the crisis, albeit possibly at a reduced AuM level, it is difficult to plan on the professional and content-related orientation of sales, support, and marketing. Thorsten Schrieber, DJE Kapital AG Since customer events, trade fairs, and meetings have been reduced to a minimum or are generally cancelled, it became necessary to develop digitization strategies. However, these make it more difficult to differentiate oneself from the market, because the technical possibilities and requirements, whether small or large investment companies, are identical everywhere. The creativity to offer something special to the public is limited and soon a saturation will arise due to the interchangeability of digital formats. Besides, the question also arises as to whether it will be possible to successfully pitch for large tickets on the digitalization path. This will lead to consultants being even more involved in the decision-making processes on the customer side. Appropriate personnel capacities for RfPs and questionnaires must be maintained. To cope with the required flood of data in the 60-70 page questionnaires, many companies require professional data management in the form of a data warehouse to bring together a wide variety of data sources, including risk management, DPG data/GIPS® data, ESG data suppliers, rating agencies, benchmark providers, etc. It remains to be seen to what extent a physical meeting is not relevant at the end of the selection process on the part of the consultants and the client. In the area of sales and sales support, it must be emphasized that the expansion of pure sales staff for expansion strategies may come to a standstill and that in-house sales staff from the support department will actively process the numerous contacts from video and telephone conferences. Of these contacts, 70-90% may be digitally supplied and only 10-30% will have a physical sales contact. But this also means that a completely new type of employee will be needed, who a) is hungry; b) is sociable; c) is eloquent and convincing on the phone; d) and has a higher level of basic technical training. These could be young savings bank or banking business economists with a few years of practical consulting experience who do not want to drive a BMW 5 Series right across Germany – as is the case with classic sales – but who wants to break out of the institutional shackles of the Volksbanks and savings banks. Whether this transmission will be the effective will, of course, depend decisively on the course of the pandemic and whether a “back to normal” as possible. Thorsten Schrieber has many years of sales experience in asset management. He was responsible for sales at Credit Suisse Asset Management (Deutschland) GmbH, Zürich Investmentgesellschaft mbH, and Fidelity Brokerage Services. Between 2001 and 2007, he worked for DJE Kapital AG as well as DJE Investment S.A. as a board member for sales and marketing. After other activities in the field of real estate development in Italy and Austria, he was reappointed as a member of the management board in 2017 and in October 2018 as a member of the board of DJE Kapital AG. Thorsten Schrieber is responsible for sales (institutional, wholesale, retail), sales support as well as marketing and PR.

  • Family offices and institutional investors think in long terms in the investment sector. Markus Hill spoke on behalf of FONDSBOUTIQUEN.DE with Martin Friedrich, Lansdowne Partners Austria GmbH, about topics such as strategic asset allocation and the selection of asset managers. The similarities and differences between the fields of activity of family offices and fund boutiques were also discussed, as well as previous experience as a portfolio manager and last but not least the reference to an interesting book. Hill: You have many years of experience in the field of asset allocation and have worked for a long time in the family office sector. What is your new role with an asset manager? Friedrich: Two years ago I decided to apply the experience I had gained over the past decades in a very special fund. The fund can be seen as a synthesis of everything I have learned in my professional life in the financial sector, which has now spanned more than a quarter of a century. Hill: Your “parent company” is located in England, you work in Austria. What are the current activities of your company in Germany? Friedrich: Lansdowne Partners is a provider of alternative investment funds founded in 1998. This makes it one of the longest established investment houses in the Anglo-Saxon world. In 2009, the Vienna office was added. The logical next step is to consider expanding the investor base in line with the geographical expansion of the operating business. After all, Lansdowne Partners Austria is a 100% Austrian asset manager, fully licensed, and under the strict supervision of the FMA. And with the Endowment Fund, we now have a strategy that we hope will meet with a long-term response in German-speaking countries. According to the BVI, the majority of the net inflows of mutual funds have been going to multi-asset strategies for years, including the Lansdowne Endowment Fund. Martin Friedrich, Lansdowne Partners Austria GmbH Hill: What is special about your concept? Friedrich: The fund differs from most of what is otherwise offered, primarily in its focus on asset allocation. Secondly, we have to talk about very broad diversification. I have rarely seen this in the fund shell. The importance of asset allocation is nothing new in itself. Gary Brinson set the “big bang” with his 1986 study, in which he asserts that 94% of performance is not generated by stock selection but by asset allocation. In contrast, many investors are more focused on “tips”. They want to find the one security that will make them rich quickly, and in this way, they often slide into risks that are too much for them to bear. Hill: This is often the case when investing with private wealthy people. What does this process look like for institutional investors and you? Friedrich: As investment professionals, many pension funds or family offices, for example, have a clear advantage here. They monitor and manage risks primarily at the level of the asset classes they invest in. The first step is to determine a long-term, strategic asset allocation, which serves as a central guideline for the entire asset management process. In Anglo-Saxon, I have also heard the term “central risk portfolio” used for this. In the second step, consideration is then given to the extent to which one deviates from this long-term weighting in the short term. The difference between the strategic and actual weighting of individual portfolio segments is then called “tactical allocation”.Ultimately, each of these segments must of course also be invested. It is only at this point that stock selection comes into play. Large investors such as university foundations, insurance companies, or pension funds often outsource this decision to specialised external asset managers. They decide, to give an example, what percentage of the assets should be placed in high-yield bonds. But they leave it up to a specialist to decide which high-yield bonds to buy because analysing credit risks requires a great deal of effort and a form of expertise that differs greatly from that of the asset allocator.So I have already outlined what my concept is. We want to make available in single security precisely those processes that have proven themselves over decades with such professionals. The most important difference is that institutional investors invest significant parts of their asset structure in illiquid investments such as real estate, private equity, or private debt. The Lansdowne Endowment Fund, on the other hand, is subject to UCITS regulations and is therefore limited to investments that are also UCITS-compliant and can therefore generally be traded daily. Hill: What is the process for selecting individual asset managers? Friedrich: As already mentioned, we first determine the proportion that a certain type of investment should take up in the portfolio and then look for managers in a precisely defined niche that can implement this in the best possible way. So we know exactly what we want right from the start. Then we filter the universe using a database to focus our search. Low fees are very important in this process. Secondly, a strategy should already have a certain history so that we can estimate how it will behave in the portfolio. Only then do we look for the most promising candidates. Those funds that are shortlisted are then checked for their risk and correlation characteristics using our models. Besides, the behaviour that our target funds reveal on a quantitative level must also be qualitatively comprehensible. Hill: How important are fund boutiques in this selection? Friedrich: We have no explicit focus on large or small fund houses. What is important is the expertise in the respective asset class. Boutiques often have highly interesting strategies, which is why we regularly exchange information with many independent managers. In addition to a consistent investment process and a comprehensible strategy, the corporate culture is also important. You always buy into that culture to some extent. Hill: You have held interesting professional positions. As mentioned at the beginning, you worked for a German family office before you became a portfolio

  • Liechtenstein is one of many attractive locations for the launch of funds in Europe. On behalf of FONDSBOUTIQUEN.DE, Markus Hill spoke to David Gamper, Managing Director of LAFV (Liechtenstein Investment Fund Association), about topics such as regulation, general conditions, special advantages of Liechtenstein as a location, as well as the role and importance of associations such as EFAMA (European Fund and Asset Management Association), IIFA (International Investment Fund Association) or BVI (BVI Bundesverband Investment und Asset Management e. V.) for the professional exchange of ideas. The associations in Germany, Luxembourg, Ireland, and Liechtenstein represent many common interests and maintain an intensive dialogue. In this context, the local cooperation of LAFV with local organizations such as the “Liechtenstein Finance” association and with the “Liechtenstein Marketing” agency also appears interesting, for example in the area of event activities in Germany for 2020 (events, webinars). Hill: What topics does your association deal with? Gamper: The design of the legal framework is an essential part of the association’s work. This is very extensive because, in addition to fund legislation, many other laws have a direct and indirect impact on the fund industry. On the one hand, the LAFV (Liechtenstein Investment Fund Association) intends to actively develop these laws further to continuously improve the attractiveness of the fund location, and on the other hand, it must deal with the European requirements. This includes monitoring at the European level concerning EU directives and regulations as well as the guidelines of the European Securities and Markets Authority ESMA. This keeps us up to date on what innovations are coming to the industry, what will have to be transposed into national law in the foreseeable future, and what is directly applicable. Our members are informed about all regulatory developments and those relevant to supervisory practice and, if desired, LAFV also organizes assistance in the form of workshops, training courses, working groups, model documents, etc. The flow of information between the industry and the legislator is also very important. The latter is confronted with so many different topics and needs additional technical expertise in various areas. For example, it consults specialists from the Financial Market Authority, who in turn consult with the fund industry, which is represented by LAFV in this respect. Also, there are regular discussions between the Liechtenstein Financial Market Authority and LAFV to continuously improve the framework conditions of the fund location. In addition to legal topics, the association also deals with tax issues, for example how funds can avoid double taxation based on tax treaties or EU law by reclaiming withholding taxes withheld for the fund investors. David Gamper, Managing Director of LAFV (Liechtenstein Investment Fund Association) Hill: Is there a special feature in the positioning of LAFV in contrast to associations of other fund locations? Gamper: Unique in Europe is that the national association is the official publication organ for the fund industry. On the LAFV website, you will find the necessary information on all Liechtenstein funds that are subject to publication requirements. In the last four years, location marketing has also been developed, because just like Luxembourg and Ireland, Liechtenstein is a fund location from which cross-border business is conducted throughout Europe. However, the advantages of the fund domicile are still far too little known to potential fund initiators. Hill: How does cooperation with other associations look like? Gamper: LAFV regularly cooperates on a national level with other financial associations such as the Banking Association, the Association of Independent Asset Managers, or the Insurance Association. They coordinate their activities and advocate common interests in the regulatory area or the area of location marketing. At the international level, LAFV works primarily with other fund associations. The association is a member of EFAMA (European Fund and Asset Management Association), the European representation of interests of the fund industry, and IIFA (International Investment Fund Association). Almost all fund associations in the EEA and some third countries belong to EFAMA. The German fund association BVI, which I particularly appreciate, is also part of this pan-European organisation. This cooperation is in my view particularly important, especially for a small association like LAFV. Hill: Your core task is the association work for the fund industry. How does cooperation with other “location marketing agencies” in Liechtenstein look like? How do you do networking, do you pass the ball? Gamper: Correct, as already mentioned, marketing is only one of several sub-areas, and it has only gained in importance in the last 4 years.But to get back to your question, to promote the financial center, the financial associations as well as other professional associations that express interest in the financial sector have founded the joint association Liechtenstein Finance. Although it has existed for some time, the association has only had its staff since the beginning of 2020. Of course, I am in active contact with Liechtenstein Finance. We exchange experiences, coordinate our appointments, and provide each other with professional input. Sometimes we also make use of the resources and expertise of Liechtenstein Marketing, which is responsible for tourism and business. Hill: Concerning the fund industry – why can the Liechtenstein location be of particular interest to fund providers in contrast to competitors in the DACH region? Gamper: Legally, the fund center offers a great deal of flexibility within the framework of the European requirements which Liechtenstein complies with due to its EEA membership. This can already be seen in the many different legal forms for funds, but it is expressed above all in many small points that often bring decisive advantages. A very important aspect is the open discussion of the Financial Market Authority. The most important tasks of financial market supervision are the supervisory and protective function, but it is also open to the needs of the market and always ready to talk to market participants and their concerns. This has a positive effect on the processes involved in setting up funds, but also in ongoing fund administration. For example, the processing of a license or a distribution notification usually

  • Independence, an ownership approach, and a high degree of specialisation are key features of fund boutiques. Markus Hill spoke for FONDSBOUTIQUEN.DE with Berndt Maisch, Partner at Tresides Asset Management GmbH, about dividend funds & history, value versus growth, and investor interests. Besides, personal experiences with the topic “Group versus Boutique”, the role of sports and the expansion of personal horizons (“Asia 2030”) were discussed. Hill: How long have you been dealing with the topic of dividend funds? What are your experiences in this area? Maisch: With more than 20 years of experience in the field of dividend-based investment strategies, I can certainly count myself among the pioneers in Germany in this originally Anglo-Saxon terrain. As early as 1999 I was involved in the launch of a mutual fund with a dividend focus at my former employer LBBW. Large asset managers such as DWS, AGI, or fund boutiques such as DJE, which are currently on everyone’s lips with their dividend funds, were far from focusing on this topic at the time and mostly played growth stories from the short-lived TMT boom. With the LBBW fund, which I was solely responsible for managing for 14 years, I not only achieved numerous awards for the performance achieved and a fund volume of over EUR 2 billion but above all gained important insights into the topic of “dividend investing”, from which our TRESIDES Dividend & Growth fund now benefits. The years 1999 to 2006 marked a phase of clear outperformance for dividend funds. They were less affected by the bursting technology bubble and from 2003 onwards they even benefited to a greater extent than average from the recovery on the equity market. By contrast, the ensuing financial crisis had a considerable negative impact on many dividend funds and especially on dividend ETFs. This was particularly due to the far too high proportion of financial stocks in the then still young dividend funds and dividend indices. The years 2009 to 2013 then showed a mixed picture. In this phase of economic recovery, classic defensive dividend sectors such as telecommunications and utilities did not perform well, partly because of the often high debt levels of companies. Dividend fund managers with too high a weighting in these sectors therefore only participated below average in the very positive stock market development. The experiences from this long-term learning curve are incorporated into TRESIDES Dividend & Growth. We focus on European equities with reliable dividends, very solid balance sheet quality, and promising growth opportunities, and always keep an eye on a balanced sector mix in our portfolio. Berndt Maisch, Partner at Tresides Asset Management GmbH Hill: From a press point of view, dividend funds have been very much in the foreground in recent years, there are a large number of funds in this area. You have just described the long history of the somewhat “boring” dividend funds. What do you do differently in portfolio management? Maisch: The basis for our stock selection is our research know-how, which has been recognised for years at the renowned Extel Awards as the quality leader in Germany. The stocks we select are then added to the portfolio, not in the form of overweights or underweights, but weighted according to our degree of conviction and the market liquidity of the individual stock. This leads to an above-average active share in the fund compared with our competitors. We are constantly actively looking for new investment ideas and implement them in the portfolio so that the portfolio turnover is also higher compared to other dividend funds. However, the long-term focus of many dividend funds on highly capitalized defensive standard stocks such as Nestle, Novartis, Unilever & Co. Private investors can make such investments as classic buy & hold stocks in their portfolios without the need for active fund management. On the other hand, our additional “Growth Aspect” also allows interesting structural growth themes to be considered. As a thoroughbred European equity fund, the motto “100% shares without hedging” applies, i.e. the investor must be able to live with market fluctuations. Hill: Which investment style do you pursue – value or growth? Maisch: That always depends on the respective “value” definition. According to the Morningstar classification, we have a lower value bias than our competitors among dividend funds. If the definition of “value” is aimed at low P/E and CFB industries, then we are underrepresented here, as sectors such as banks, energy stocks, or airlines play a smaller role in our portfolio. In contrast, our focus is more on so-called “quality industries”. By this, we mean sectors that are certainly sensitive to economic cycles, but which have good structural growth prospects. Their representatives must also have first-class balance sheets, generate high free cash flows, and be fundamentally well-positioned. We are also interested in stocks from defensive sectors with growth characteristics within the industry environment, such as Deutsche Telekom with its growth driver T-Mobile US. Hill: Which investors are most interested in your approach? Maisch: The focus at TRESIDES is mainly on institutional investors. The high current income from our dividend funds is particularly interesting for foundations, which can use it to finance their foundation projects. But we also see strong interest from pension funds and insurance companies. We have been serving some addresses from these segments as investors for years. Hill: You originally worked in the banking sector. Why did you choose a fund boutique as your employer? What was your previous experience here? Maisch: When discussing the topic “group versus boutique” many points naturally come to my mind. The elimination of rigid hierarchies and a large number of internal organizational meetings makes flexible and efficient work in fund management much easier. I also find short paths for exchanging information with colleagues from the fixed income and commodities areas very efficiently. Also, owner-managed asset managers such as TRESIDES require entrepreneurial spirit. The fund managers can actively participate in the strategic positioning of the company. Our financial participation in the company’s capital and direct investment in our fund

  • Family offices, entrepreneurs and high net worth individuals are currently looking more closely at commodities as an investment. Markus Hill spoke on behalf of FONDSBOUTIQUEN.DE with Urs Marti, Partner at SIA Funds AG, about the assessment of the market cycle in this real asset segment and about the investment behaviour of various investor groups in the market. Additional topics in the discussion were the connections between value investing and investment in commodities as well as the current importance of sports and Hugo Stinnes (“Industrialist & Politician”). Hill: How long have you been dealing with the topic of raw materials? What fascinates you about this topic? Marti: I still come from a time when the future career aspiration was a crane operator. We still played with railways, remote-controlled planes and the village king was the one with the best-cut-up moped. A certain fascination for technology, big ships, trucks, buildings was probably always with me. In general, one seems to have hardly any idea what it all needs until we have a kilo of gold, a filled tank or enough electricity “real” and can use it. In the financial world, I was taught that one should act as anti-cyclically as possible and buy undervalued assets to be able to earn something on the stock market. During the Internet bubble, the commodity industry was the antipode. As a portfolio manager, I later started to invest in hydroelectric power plants, mines, and oil producers. Hill: Which commodities do you pursue more intensively? How do you form an opinion about the market? Marti: We follow the sectors of capital investments.  Commodities have about 10-year cycles. They are supply cycles, which means long pig cycles. In the last ten years, there has been far too little investment in many sectors due to low prices. The availability of many commodities will decline. Urs Marti, Partner at SIA Funds AG Hill: You are a portfolio manager and have many conversations with fund selectors and institutional investors. Do you have the impression of these discussions that the importance of commodities in asset allocation is correctly assessed by your discussion partners? Marti: I have this impression from many of my contacts. There are some specialists with whom I exchange views. Besides, there is often interesting feedback at investor presentations, in one-on-one meetings, or at events. It is probably the most neglected sector. This is always the case when something is at its lowest point, similar to the situation twenty years ago. One thing that struck me in this context: Family offices, entrepreneurs, and many wealthy private investors appear to be more open-minded and interested in commodities. There can be various explanations for this. One hypothesis could be that this group of investors is more interested in real assets (“real economy versus financial economy”) when building up their assets. Moreover, there is a completely different, important aspect of investment behaviour in this segment. Entrepreneurs, private investors, and also family offices generally have very short decision-making paths. Personal responsibility, “skin-in-the-game” and the ownership approach are the most prominent features when selecting investments. Among institutional investors, we still perceive a certain reticence towards commodities. One reason for this could simply be the structures; decisions are often made in committees, and due diligence processes seem more time-consuming. Both approaches have their justification, you simply have to be prepared for them. Hill: Value investing and investing in commodities, is there a connection between these topics? Marti: A good question. Surprisingly, the periods correlate because value outperforms with rising commodity prices. At first glance, there doesn’t seem to be a connection between these two themes. In times of sharply falling interest rates, growth versus value is often outperforming. This is because the discount rates for cash flows decrease. The further into the future the cash flows are, the more their net present value increases. (Often the positive cash flows are infinitely far in the future). Commodities are probably the antipode. One has depletion, the industry loses about three percent of production annually without investment. If you don’t invest, after 20 to 30 years there is hardly anything left to produce. You can’t extrapolate an infinite growth or scale an existing platform. It is “real life”. You have to invest huge amounts of money – it’s difficult, Mother Earth is capricious. But that’s why prices go up and there are very good cash flows, dividends, and low valuations. The commodity sector has never been valued so low in its history. Hill: Commodities and portfolio management are your professions, your passion. What other topics are you currently working on? Which book are you currently reading? Marti: In my free time I like to ski and cycle. I am quite shocked by the rest of society and politics. It seems that you successfully turn everybody against everybody. Right versus left, old versus young, black versus white, east versus west, poor versus rich, south versus north, city versus country, and so on. This is unlikely to improve as the distribution struggles intensify. Politicians often see the citizens and the economy as nothing more than a “cash cow”, admittedly in somewhat polemical terms. The whole thing has long since ceased to be financially viable and now functions only through the money press. Currently, I am reading the biography of the German industrialist Hugo Stinnes (1870 – 1924). Why do I find his life story interesting? Looking back, it is always interesting to see how topics such as central bank policy, inflation, and real assets have developed an interesting economic dynamic in the past. Of course, the comparison with the current situation of the markets limps in partial aspects, but fundamental similarities can be discovered if you look a little closer. Hill: Thank you very much for the interview. FONDSBOUTIQUEN, VALUE INVESTING & ROHSTOFFE (SIA Funds AG) Photo: www.pixabay.com

  • Many funds of funds use fund boutiques for the allocation. Markus Hill spoke on behalf of FONDSBOUTIQUEN.DE with Lars Kolbe, Managing Director of Aqualutum GmbH, about the advantages and disadvantages of using independent asset managers in portfolio management. They discussed the stability of approaches to boutiques, due diligence, and seed money as well as crash prophets, athletics, and Arnold Schwarzenegger. Hill: How long has the topic of fund boutiques accompanied you?Kolbe: I started building up a fund database as a working student in 1991 at a family office. At that time there were about 800 funds in Germany, mainly from the asset managers of the big banks. The only foreign funds at that time were Templeton and Pioneer. Boutique funds were de facto not available. It was not until the second half of the 1990s that this changed with the founding of Ennismore (Ex-Barings Manager) and Thames River, which offered these fund managers an independent platform. The era of German boutiques only began at the end of the 1990s. A pioneering role was played by Dr. Jens Ehrhardt, who launched his FMM Fund back in 1987 via the then BHF Bank. Hill: How do you use fund boutiques for the allocation in the fund of funds?Kolbe: Fund boutiques play a central role in our m4-masters select. The fact that the managers are usually also the founders of the company ensures the stability that is rarely found in the funds of the big houses. There, manager or team changes dominate almost like in the Bundesliga. (German League) Frequent „strategy changes“ – such as recently at a German market leader – also show what these companies prefer to deal with, namely themselves. On the other hand, we appreciate it when we can engage specialists for different markets or segments who only deal with their particular topic from morning to night. On the other hand, if a company is known for value investing in established markets suddenly launches India or biotech funds, we sell immediately. These companies have entered the monetization phase through this unusual „shift“. This is legitimate but without us. It is also important to remember that investment strategy and fund volume should match in fund boutiques. It is precisely here that we have recently seen some glaring cases of mismatch. The performance of funds has been correspondingly weak for some time. Lars Kolbe, Managing Director of Aqualutum GmbH Hill: What lessons have you learned for due diligence of boutique strategies against the background of the Corona crisis? What was different this time, remarkable, possibly „weird“?Kolbe: There wasn’t a lot new adjustment. It was again interesting to observe how isolated crash prophets exert an irresistible attraction in the crisis. Sadly, always an ex-post. And unfortunately, they can never tie in with their „out-performance“. Apart from that, it should be noted that it has become much more difficult to collect seed money as new starters. But that was the case before Corona. But now it hasn’t become easier. Hill: What occupies you intensively at the moment, if you are not dealing with independent asset managers?Kolbe: I prefer to read biographies of successful personalities. This ranges from Arnold Schwarzenegger, whom I hold in high esteem (who was often underestimated by many) to NIKE founder Phil Knight. For a decade and a half, he had to fight against great resistance. Today the company is the world market leader in sport’s shoes and sportswear. Here I can also make the connection to my great passion, the sport. After my own competitive sports career in athletics, I have remained true to sport. Today I train a group of talented young sprinters in my home club. And this is where the circle closes: small against big! Boutiques against corporations. I have always loved this fight. Not without success. Hill: Thank you very much for the interview. *) Markus Hill is an independent asset management consultant in Frankfurt am Main. Photo: www.pixabay.com

  • Fund boutiques have been attracting increased interest from family offices and traditional institutional investors for years. Markus Hill spoke on behalf of FONDSBOUTIQUEN.DE with Oliver Klehn, Managing Director of Paladin Quant GmbH, on topics such as singularity theory, quantitative asset management, and ESG. In addition to these technical aspects, topics such as “permanent employment versus entrepreneurship”, seed money and experiences with fund selectors were discussed. The portfolio manager’s professional impressions are complemented by personal reading thoughts on the topicality of Thomas Chromwell, Brexit, and Corona (“Mirror and Light”, Hillary Mantel). Hill: You have taken an interesting professional path, what exactly did you study? Klehn: I still remember the evening walks with my father. I looked up at the sky with fascination and had many questions. My father explained the world to me, he talked about the finiteness of the universe and about astronauts for whom time in space would pass much more slowly if they moved in space at approximately the speed of light. That the astronaut would only have aged a little, while the people on earth would have been old people long ago. And that all of this would come out of Einstein’s theory of relativity. These answers sparked my interest in science, I wanted to understand things. After the German Army, I began to study mathematics and physics. Since I had to commit myself to a core subject, I decided to study mathematics with physics as a subsidiary subject. What fascinated me about mathematics was the clarity of the methods and the fact that everything has to be proven, but then once and for all it is irrefutable. During my studies, I chose as my main subject a field that is considered to be one of the most difficult and abstract within mathematics, the so-called singularity theory. It is a branch of geometry and deals with places in geometric spaces, the so-called singularities, which conventional mathematics fails to investigate. For example, the Big Bang of our universe is a singularity in physical space-time geometry. The equations of general relativity collapse here because the curvature of spacetime becomes infinite. To investigate singularities, completely new mathematical methods are needed, and singularity theory develops them. What I found particularly appealing about this was the drilling of thick planks and the forging into completely unknown territory. I have a passion for solving difficult puzzles. Consequently, I thought to myself: if you have to do mathematics, then do it right. The most challenging topics were always the most interesting ones for me. It had little to do with finance. But today, as a fund manager, I benefit from the fact that I had to learn in my studies to tackle even very complicated issues with courage and perseverance. However, I had a certain affinity for the financial markets even as a youngster. Even then, I was concerned with the fact that Germans have little to do with financial markets and often regard the stock markets as the devil’s work. I never understood why the Germans did not want to participate in their economy. But at that time, and also during my studies, I had not yet planned to go into the financial sector later on. Directly after my studies, I received an offer from my then-doctoral supervisor to do a doctorate with him at the institute. What appealed to me above all was the fact that I was able to research a comprehensive topic for three years completely independently. However, it was clear to me that I did not want to spend my whole life at the university, but that I would go into business after completing my doctorate. I eventually joined the Market Risk Controlling department of a bank. Oliver Klehn, Managing Director of Paladin Quant GmbH Hill: What made you choose the path of self-employment in the asset management sector after this “secure” employment relationship? Klehn: In the later years of my professional life I went through several stages in risk and asset management. The last one before becoming self-employed was with a medium-sized asset management company. I was asked to develop a product range of purely rule-based funds and to set up a dedicated team to manage them. The focus was on institutional clients. That worked well: the interest of institutional investors was great and we were able to build up the volume very quickly. From then on, however, more and more people wanted to have a say, and it was clear to me that the full potential of the methods we had developed could only be brought to the street under our responsibility. I, therefore, decided to become independent but needed a partner to compliment me. This partner should preferably have a mutual fund with a track record of several years, as well as expertise and infrastructure in sales. In Hanover, distances are short, so I came into contact with the Paladin Asset Management Group. The group emerged in 2011 from the family office of the Maschmeyer family of entrepreneurs. Their equity fund Paladin ONE is a “handmade deep value fund”. After a period of trial and error, we decided to establish Paladin Quant GmbH in autumn 2018, thereby expanding the Group’s offering to include purely rule-based strategies for institutional investors, family offices, foundations, and asset managers. The clasp between what at first glance appears to be very different approaches is that all strategies aim to efficiently manage risk and reduce draw-downs. In autumn 2019, we launched the first mutual fund of Paladin Quant GmbH and were also able to acquire a special mandate from an insurance company. We are in the same boat as our investors: All employees and management are invested in our mutual funds with significant amounts. For example, I have invested all the reserves that I do not need in the short term in Paladin Quant Aktien Global Nachhaltig. Hill: What are the best features of your approach? Klehn: The special feature of our approach is that we efficiently bring together the issues

  • Independent asset managers (fund boutiques) have been the focus of institutional investors in the area of fund selection for years. Markus Hill* spoke on behalf of FONDSBOUTIQUEN.DE with Daniel Knoerr, Head of Product Management & Unit Linked Business at Ampega Investment GmbH, about key issues that are addressed in the design, process, and launch of private label funds. Topics such as the evaluation of derivative strategies, current fund projects, the importance of marketing and sales support for capital management companies, and the significance of ESG in asset management were also addressed. The experience gained in the area of “lived agility” in projects and processes in the Group division also appears interesting. Hill: What exactly is your area of responsibility at Ampega? Knoerr: In my new function I am responsible, among other things, for the acquisition of administrative mandates and for looking after label funds and clients. My other responsibilities include product development and product management. This also includes, for example, the preparation of mandatory publications such as sales prospectuses or (semi-) annual reports. Besides, my team is responsible for the product development of the unit-linked life insurance tariffs of the various life insurers of the Talanx Group. Hill: What do you consider to be the main steps in the PLF concept review? Have you been able to identify some factors for successful concepts? Knoerr: In terms of methodology, when evaluating new projects in the private label funds sector, we orient ourselves very strongly towards the “business model canvas” from a lean startup. This means that the value proposition of the product must be worked out and it must be examined based on various criteria to see whether the realization of the product will deliver long-term value contributions for all parties involved – the investment company, the initiator, or advisor and the custodian. We ask ourselves the following questions, for example, without claiming to be exhaustive: Which investment idea or investment case will be implemented and does the initiator have the expertise and track records?What benefits do our sales partners and distribution channels derive from the product launch?Do we possibly have a competitive advantage? (Example: First Mover-Advantage)What could be the drivers of success? Who supports us? Who benefits from the implementation? (This could be a large anchor investor providing seed capital, for example).What obstacles and expenses could arise on the way to fund launch? For example, can all instruments be mapped and valued or does a new custodian need to be connected?What internal and external resources do we need for the implementation? (External resources could for example be a portfolio / or order management system, which the partner uses and has to communicate with the internal investment company systems. We are very thorough in dealing with these and other more detailed questions. What is important for us here is the interaction between the sales and product management departments and coordination with other important internal and external interfaces. Daniel Knoerr, Head of Product Management & Unit Linked Business at Ampega Investment GmbH Hill: You have a long experience in fund selection, at the beginning of this year you were also on Citywire’s TOP 100 fund manager list in Germany. You were able to view many fund approaches in this function through the “investor’s lens”, an experience that is helpful in due diligence. What is your attitude towards the use of derivatives in fund concepts in the private label fund segment? Knoerr: My previous experience as a fund selector is very helpful in assessing fund concepts in fund boutiques. The use of derivatives is often a component of concepts and must, therefore, be mapped, managed, and monitored. Hedging instruments are used in most cases. If derivative strategies are used, for example, to collect risk premiums, it often becomes more complex. In my view, it should always be considered whether the strategy can be implemented sensibly in the UCITS framework and above all under the current set of requirements (keyword: risk controlling) of the investment company to fully develop its benefits. This year we have already seen some negative examples during the turbulent market phase in March. We try to identify such pitfalls in advance of the launch and would reject the mandate if in doubt.    Hill: What was your area of responsibility before you changed? Knoerr: Before my change, I had various responsibilities within the Group. As you briefly described above, I was a portfolio manager of several mutual funds of funds and portfolio manager of unit-linked life insurance policies. Also, I was responsible for fund selection for the various carrier companies in the Talanx Group and was a project manager and product owner in the ESG project “Capital Investment” in the Talanx Group. Hill: Which concepts are currently being launched in your company? Knoerr: We have now realized the “FAROS Listed Real Assets AMI” in cooperation with the consultant FAROS and launched it a month ago. REITs, which are largely unknown in Germany, offer many advantages for investors who want to invest in real estate. They are often more stable than shares, pay high dividends, and are also very liquid. In the fund, we also offer investors broad access to other real estate investment themes from the bond sector, such as corporates or property-secured bonds. Currently, there are other exciting projects about to be launched, both public and special fund mandates. I am very excited about one fund project: a biotechnology fund which we will implement with the provider LUNIS. Hill: Are you also involved in the examination of fund concepts in the non-liquid sector? Knoerr: We are a full-range provider and offer asset management services for real estate, private equity, and infrastructure investments in addition to liquid asset classes. As a specialist, Ampega Real Estate bundles the entire value chain from acquisition through project development and portfolio optimization to disinvestment in a separate company. One of the biggest growth drivers is the Infrastructure Investments segment. Here the Group has systematically built up expertise and since the beginning of 2014 has

  • “We are very patient” (Jean Marie Eveillard) is a mindset that many fund boutiques follow in the field of value investing. Markus Hill spoke on behalf of FONDSBOUTIQUEN.DE with Stefan Rehder, Managing Director and CIO of the asset manager Value Intelligence Advisors, about the importance of factors such as patience, slowness, risk management, eagerness to learn and the classification of investment styles – interesting minds in this area: Jean-Marie Eveillard, Warren Buffett, Bruce Greenwald, Benjamin Graham. Mr. Rehder also spoke about the importance of “antennas” (macroeconomics, politics etc.) in portfolio management and the role of family offices as value investors. Hill: How would you describe your investment approach? Rehder: I am convinced that avoiding losses is the key to attractive long-term returns on the equity market.  I was influenced in this respect by Jean-Marie Eveillard, one of the most successful global value investors. The implementation of his value-oriented “Slow & Steady” investment philosophy is comparatively challenging, as it demands a great deal of patience from both the fund manager and the fund investor. Moving forward cautiously and at a turtle, speed is not for everyone, especially in bull markets. In the current environment, on the other hand, the sense of what makes sense becomes clearer more quickly. Hill: Where do you see the difference in other value approaches? Rehder: Stylistically, we are at the Buffett end of the value spectrum. We like to invest in quality companies with pricing power and have little fear of growth, as long as it is protected by market entry barriers. Our company analysis is based on the teachings of our mentor Prof. Bruce Greenwald, who taught Buffett’s style of company valuation at Columbia University for more than two decades. Another important difference to other value approaches is the scope of risk management. Organizational theory has shown that companies are particularly resilient when they have numerous antennae in the environment. I interpret the construction of a resilient portfolio in a similar way. For me, macro, sustainability, or political analyses are also potentially important antennas in the context of risk management. Stefan Rehder (Value Intelligence Advisors), Markus Hill – Auf.Den.Punkt, AMPEGA, Cologne, 2019 (Photo MH Services) Hill: In your opinion, has value investing changed? Rehder: Yes and no. Since Benjamin Graham, value investors have tried to strictly separate the value and price of a company. In determining value, they are guided by average future conditions. The challenge of the present is that the world is in a paradigm shift and mean reversion is in many cases no longer a certainty. As a result, the rules of the game are changing fundamentally in numerous industries. At the same time, I argue that the policy of cheap money has had a massive positive influence on supply and demand in various industries. The answer to the question of whether, for example, the profit margins of the last 10 years are representative has become more complex. Hill: Value Investing and Family Offices – what role does this fund selector group play for you and your funds? Rehder: Family offices are our largest investor group, accounting for approximately 40% of assets under management. This is hardly surprising, as the focus on capital preservation is particularly strong here. The clients of family offices are often entrepreneurs who have worked hard for their money. They are less interested in maximum returns than in benefiting from the long-term yield advantages of shares with comparatively low risk. We have been very fortunate to find family offices that trust our approach and think long-term.                                                                                                                                         Hill: When you look back on the founding of your company – what conditions have you learned? Rehder: The nice thing about my profession is that you can learn something new every day. VIA was founded in 2009, the first fund was launched in May 2010. Having previously worked for various banks, I found it a gift to be able to implement a value investing completely independently of the requirements of others. Over the years I had to learn that an approach that makes a lot of sense in the long run, still does not necessarily suit every client. In the meantime I have understood that it takes time to establish our all-weather funds. In the end, not only the process but also the results must be convincing. Hill: What are you currently working on more intensively? Rehder: In my opinion, the current investment environment is very complex and demanding. In this respect, there is a lot of work and comparatively little time to let one’s thoughts wander at the moment. In April, we added another member to our team, which means that I personally have even more time to focus on what I like to do best: Looking for attractive companies worldwide and familiarizing myself with interesting business models. I also spend more time than usual on the top-down perspective. I think we are living in extraordinary times in which economies are undergoing serious adjustment processes that will also have a lasting impact on the corporate level. Hill: Thank you very much for the interview. https://www.edudip.com/de/webinar/stuttgarter-fondsmanagerrunde/149790 FONDSBOUTIQUEN & MÜNCHEN:https://www.via-value.de/de/ Photo: www.pixabay.com

  • Fund boutiques have been meeting with increased interest for years, not only in Germany. In the value investing segment, there are a number of service providers offering training courses, events and webinars. Markus Hill spoke for FONDSBOUTIQUEN.DE with Christian Freischütz from the Value School in Madrid, Spain. In addition to topics such as value investing, family office and investment culture in Spain, topics such as setting up a consulting firm in the pension fund segment, the selection of fund boutiques and skin-in-the-game factors were also addressed. Hill: What does the Spanish market for fund boutiques look like? What role do family offices play here? Freischütz: The Spanish market has been characterized for long time to be a bancarized (I include insurance companies for this purpose as most did bancassurance deals with banks to gain distribution size) asset management sector, with bank branches nearly everywhere (second largest bank branches density per thousand inhabitants of the world just before the GFC). It was very profitable for banks to have lowly paid asset managers which were basically index tracking. The GFC changed little, but as bank branches started disappearing and the banks were involved in quite a number of scandals, life got easier for independent asset managers. A few Family Offices started managing their money independently from the banks at the end of the ‘90s and beginning of the 2000s, between them the Entrecanales (a family with interest in the construction sector back then, nowadays owners of Acciona) Family Office called Bestinver. They hired Francisco García Paramés in 1989 and 2 years later he was running the Spanish equity fund with a Value Investing approach and achieved a very good track record (15.7% p.a. Jan 93-Sep 2014), he gained larger attention from Spanish media as during the Internet Bubble meltdown (Bubble during which he refused to purchase the trendy stocks, he made a strong performance vs a falling market). Other Family related managers (also around that time where Lierde Sicav and La Muza Sicav, related to Mr Alierta and to the Urquijo family) and a few other independent players like Metagestión were created back then. Between the Internet Bubble and the GFC more independent projects were born: Cartesio Inversiones, Belgravia Capital, Solventis Gestión, Abaco Capital… but the larger boom in terms of number of independent projects came after the GFC as performance of the banking asset managers was very poor. Since then we have seen quite a number of new projects like Trea AM, Valentum AM, Invexcel, Equam Capital, Buy&Hold, Lift Investment Advisors… One factor which has made the sector much more dynamic has been the departure of Mr. Paramés and a few other partners / managers from Bestinver in September 2014. Since then a number of projects started from “scratch“ and gave the ecosystem much more depth. End 2015 AZ Valor and Magallanes Value Investors were founded and  in 2016 Cobas AM (Paramés) entered the arena too.  Christian Freischütz,Director Business Development at Value School Hill: The family office segment and fund boutiques seem to be closely related in Spain. What is the relationship with Value School? What exactly do you do there, what is your mission? Freischütz: During his non-compete period, Mr. Paramés re-read the classic investor books, between them Peter Lynch, who got a 29% p.a. performance over 13 years in a row. In his book he stated that NONE of the investors in his fund made this performance as people traded the fund. This was a revelation, if Mr. Paramés was able to compound at 15% p.a. over the following two or three decades, his investors should be able to get the same returns. Thus, people in Spain needed to learn about financial education: that was the basic idea behind Value School. In 2017 Value School was founded and started offering mainly online information and education programmes, investing books were also translated into Spanish to give more options to people. In 2019 we have found a few potential partners to replicate the Value School model in Italy (Value School Italia) and perhaps in Germany with the founders of Value Campus. Other projects  I find interesting are Value Dach and Vadevalor which has also an event together with RankiaPro. Apart from starting quite a good number of online courses to educate people with little or no financial knowledge we (Value School together with me) have also been able to attract in September 2018 Mr George Athanassakos to teach his Value Investing Program in Madrid and have now partnered with the Gabelli School of Business to bring online to Spain a Behavioural Investment Course for end of May 2020! (https://valueschool.es/course-behavioral-finance-fordham). Hill: What would you like to see for the fund boutique segment in Spain? What is your experience with the conference segment in other European countries? Freischütz: One of my dreams is to see a much larger independent asset management sector in Spain. Currently around 7% of AuM are run by independent managers and another 4% would be foreign firms of which some will be independent and some not. The long term aim is that the fund offering in Spain ends up being as diverse as it is e.g. in the UK (70% of money is run by independent managers). In that sense this is how I ended up collaborating with Value School. Our aims are pretty complementary. Since 2015 my wife and me are running the Spanish value investing conference called Value Spain which follows the spirit of the Italian Value Investing Seminar. Other conferences we are supporting as friends are: the Nordic Value Conference in Copenhaguen, Smart Vienna,  the International Value Investing Conference in Luxembourg and the Prague Czech Value Conference. We have attended all European and some US conferences as the: London Value Investor Conference, Value X in Klosters and the Cyprus Value Investor Conference. In Germany we have also been at Mr Stefan Rehder´s VIA Conference and in North America we have attended twice the Berkshire Hathaway Annual Shareholder Meeting (the Cradle of Capitalism as Mr. Buffett puts it) plus the conferences which

  • Many fund boutiques have distinct expertise and passion in the field of value investing: “Pleasure in work makes the work come out right” (Aristotle). Markus Hill spoke on behalf of FONDSBOUTIQUEN.DE with Dominikus Wagner, founder of the Bonn-based asset management firm Wagner & Florack, about the ownership approach, skin-in-the-game and also about the selection criteria of an asset manager when using boutiques in client portfolios. Topics such as balance sheet analysis, the “buffett moat” and the importance of Charlie Munger for value investments were also discussed. Hill: There are many interesting approaches by fund boutiques in the value investing segment. How would you describe your investment approach? Wagner: Concentration on the business essentials. That’s why we need to analyze and understand the business models and balance sheets of companies – both from an entrepreneurial perspective. We take an entrepreneurial and long-term view when investing in the cash flow of strong, steadily growing companies. These companies always earn very well in the long term, even in a recession. It is important to us that the companies have to use little capital, have high reliable economies of scale, and create an outstanding return on capital. And the companies must have robust and stable competitive advantages, i.e. the buffett moat. Dominikus Wagner (Wagner & Florack), Markus Hill – Auf.Den.Punkt., AMPEGA, Cologne, 2019 (Photo MH Services) Hill: Where do you see the difference in other value approaches? Wagner: We call our style “value investing according to Munger”. If a target we want to invest in is available at a price – including a safety margin – below the value of the company, we buy. By the way, low fair value less safety margin seldom means that we buy at supposed or actual lowest valuations, as Buffett’s teacher Graham once did, who was influenced by the Great Depression of the 1930s when many companies were valued well below their balance sheet book values. In his time without Munger, Buffett also often tried to find such (supposedly) cheap stocks. This was rarely successful, as Buffett admitted. Munger, on the other hand, learned from Fisher that supposedly lowest-priced companies are often rightly cheap. World-class companies with always low capital requirements and high economies of scale and therefore robustly high margins and high return on capital, with robust moats, strong brands, and pricing power will always be valued slightly higher or distinctly higher. Nevertheless, the price must be below the value. And sometimes the value of top companies is significantly higher than their price, e.g. in a bear market like the current one, or when analysts are “disappointed” by good business figures because they expected even more, and sell automatic trading systems, traders and anxious people. Munger has made it clear to Buffett that such companies are better investments in the long run than pure “Graham companies”. Value investing, according to Munger, is therefore not Graham investing, but rather focused, long-term investing in world-class quality companies that can be bought at a price below their value, and this price will usually be higher than for rightfully cheap stocks. Hill: Who do you consider to be your competitors or your direct rivals? Wagner: I only know competitive thinking from sport, otherwise it is foreign to me. We concentrate on ourselves. We must continue to do our homework consistently, then the rest will come naturally. Hill: What is “homework” and what do you mean by “rest”? What are your goals? Wagner: Reading annual reports, investor presentations, statements by good managers, then thinking competently about the business and the balance sheets of companies and their competitors.  And both of these things must be done with a critical, entrepreneurial mind. Understanding business models, thinking about the risks of the business, and the moats and understanding how they change. We need to look closely at how a business performs in a recession and what other serious problems may arise. Moats are also changing, so thinking about what the consequences might be is crucial. In quantitative analysis, we only identify and look at those key figures that are relevant from a business perspective. Ultimately, you have to take an overall view of the business model and the entire balance sheet to be able to assess and evaluate a company sensibly. If I do my homework consistently and thoroughly, then the “rest” results – you avoid unnecessary mistakes, create a high level of investment security by investing in companies that always earn good money, and are rewarded with high performance in the long term because the companies not only grow reliably but also strong. Hill: And what are the objectives for the fund in terms of volume? Wagner: We are and remain very down-to-earth. But I would like the grip we bring to the road in terms of investment process and performance to be reflected in the volume. We are currently at a good 75 million after about 30 million a year ago, but so far we have done very little in terms of sales or external perception, but we are in the process of carefully changing that. We have patience in this respect, even if it is sometimes difficult. Hill: The fund is intended to convince investors in the long term, especially in weak market phases; the current phase has been challenging for many value managers. Is it risk management, good timing, or what are the main reasons for success in this area? Wagner: It is not the timing, we were and are fully invested in the corporate funds. And yes, risk management? Our risk management is the constant and thorough completion of the homework mentioned above. And: robust cash flow and a healthy balance sheet is the best downside protection or, in our opinion, the best risk management. Our portfolio companies are also not threatened by insolvency, while a considerable number of listed companies are latently “at risk of bankruptcy” in a harsh to a very harsh environment. We are therefore living up to our own, overriding objective, namely not to lose money

  • “Courage is good. Endurance is better. Perseverance is the main thing” (Theodor Fontane). Whether with liquid or non-liquid fund products – in the search for seed money, it can sometimes take a lot of stamina to reach your goal. Markus Hill spoke on behalf of FONDSBOUTIQUEN.DE with Norbert Wolk from the start-up company Barbarossa asset management about the practical experience in approaching investors, challenges, and the special importance of the factor resilience in turbulent times on the stock exchange. Hill: Which fund project are you currently working on more exclusively? Wolk: We at Barbarossa asset management are planning to launch an endowment fund as initiator and advisor. This fund should be mixed, the returns will mainly come from equities and risk premium strategies, by which the entire investment process will be carried out using a systematic trading model. In contrast to many “new” fund initiators, this model is backed by a manager who already has a long track record and a certain degree of recognition in the industry – it is not a concept based solely on backtesting. During the current crisis, the system has once again proved its worth. As the name “endowment fund” suggests (nomen est omen), it is designed to meet the needs of a foundation. On the one hand, regular distributions are very important for a foundation (preferably quarterly) to be able to fulfill the purpose of the foundation. On the other hand, the focus must also be on risk management to avoid extreme drawdowns. After all, the capital stock should not be attacked. Of course, this applies not only to foundations but to everyone concerned about these issues. Norbert Wolk, CEO at Barbarossa asset management Hill: How would you describe your experience in the current search for capital? Wolk: We have only been in business for 8 weeks, but the approaches, how and in what the fund invests, have been in place for much longer. Rome wasn’t built in a day, so it takes a little longer. Especially the topic of seed money searches is proving to be difficult and time-consuming. It’s not that we don’t have a network, but I still have to say that investors are very cautious. I don’t think it’s because of the current Corona crisis, but it’s probably a general phenomenon. According to the motto: “What the farmer does not know, he does not eat”. Then there are always questions like: “Is there any backtesting?” And then I say: “Well if you want to cover the costs of backtesting, I’d be happy to do so”, for once the basic concept of our fund is based on the practical track record of our manager. We work with risk premiums and if you ask at the stock market what historical data costs, they’re left speechless. It’s not feasible. I would also like to see a little more empathy; by that I mean that as a “seeker” you are also taken seriously and not as an annoying blowfly. For me, this also includes something like replying to an e-mail. This answer can also be very short, but that’s just part of good manners. For example, I have currently written to 97 asset managers, only six of whom have sent me a reply. So there is still a lot of room for improvement. But the good thing about the current seed money search is getting to know new people. Since I am a Rhinelander, it is also in my nature that I enjoy it. But having success once in a while wouldn’t hurt either. Once the fund is up and running, you have of course already done a lot of preliminary work and you will have “warm” contacts. Hill: What do you think are the challenges of your project? Wolk: The challenge in the whole seed money-search process is certainly not to stop. We have such a great product, I am 100% sure that this will lead to success in the end. You just need, as Oliver Kahn said, “big balls”. You shouldn’t get frustrated when you hear the umpteenth reason why it doesn’t work. We also thought about what else might interest a potential seed money funder and so we decided to give up a company share to make the package more attractive. One should always look from the other person’s point of view to be successful in the end. Hill: What are your next steps and expectations in the further process? Wolk: I look forward to getting up every morning and starting the day with a lot of energy. Because every day is a gift from God, and that’s how we should see it. Always think positively. In the meantime, we have also offered a potential seed money funder the prospect of a stake in Barbarossa asset management. I am looking for a reliable partner who is as motivated as we are and recognizes the opportunities we have. Just like Antoine de Saint-Exupery: Don’t just look at each other, but look in the same direction. Hill: Many thanks for the interview. Barbarossa asset management:https://www.barbarossa-am.de Input, ideas, suggestions on the subject of “Seed Money” and fund boutiques in the liquid and non-liquid fund sector are always welcome: redaktion@fondsboutiquen.de More interesting articles: Fund Boutiques & Private Label Funds: Value Investing, “Value versus Price” and the Importance of Family Offices as InvestorsFUND BOUTIQUES, FAMILY OFFICES & VALUE INVESTING: Ownership Approach, Business Schools, Behavioural Finance & more Photo: www.pixabay.com

  • Issues such as ESG, SRI, impact investing and fund boutiques have a long-term character. Against the background of COVID-19, priorities in the current discussion seem to be shifting. Markus Hill spoke on behalf of FONDSBOUTIQUEN.DE with Anton Bonnländer, Advisor for the Bank für Sozialwirtschaft AG, about the current situation and impressions in product development, due diligence, and fundraising in the field of sustainable investments. Topics such as seed money, skin-in-the-game, kite surfing, rock bands, and social distancing complete the current mood. Hill: The current discussion revolves very much around COVID-19, its effects on the economy and society as well as on the world’s stock markets. No one can today grasp the effects of this pandemic. This implies a very monothematic view of our society and economy and also leads to a noticeable decrease in risk appetite in the investment sector. To what extent is the topic of ESG and impact investment still relevant? Above all, is the attractiveness that has just begun, which has also led to many reorientations among product providers, collapsing again? Bonnländer: It is interesting to see how the corona pandemic is currently seemingly effortlessly displacing all other problem issues in the public debate. I deliberately say „seemingly“, because the current emergency is sharpening the focus of many people on other trouble spots: underfunding/structural weaknesses in the healthcare system, inadequacies of the digital infrastructure, deficits in the resilience of supply and delivery chains, the need to rethink transport systems and mobility habits, inconsistencies in the social system – to name just a few of the issues. Interestingly, the „shutdown“ in the major economies leads to an improvement in „environmental quality“, to a different view of the „post-pandemic world“. This state of affairs is accompanied by the question „Can’t the financial resources that are now being used for crisis management be linked to a sustainable investment? I think that the view of the one catastrophe also opens up inventiveness and social motivation as to how other problem areas could be dealt with in one go, so to speak. A great deal of capital is being made available here worldwide, capital that was previously not planned by politicians, if at all, for meaningful investments. This is why ESG and impact investing is a highly topical issue. We will be able to deal with the pandemic; it will subside. The serious ecological, social, and economic issues covered by the UN’s 17 SDGs remain active and want to be resolved. The global impact of the pandemic is perhaps also building the necessary bridges to come together more strongly at the international level. So, first of all – capital will flow, and it will flow into new fields of investment with return prospects. Structural crises have always been opportunities. And secondly, concerning the capital markets, for me as an „investment man“, the crisis offers the opportunity to analyze the resilience of sustainable investment solutions to exogenous shocks compared with conventional, purely return-oriented – and often environmentally damaging – investment opportunities. Initial results show me that ESG investments are at least not falling more sharply than the market; many ESG portfolios lost significantly less. As soon as I have sufficiently verified this, I will make my results available. Anton Bonnländer, Advisor for the Bank für Sozialwirtschaft AG Hill: As a bank, „ESG boutique“, you offer mainly sustainable mutual funds. At the same time, you develop impact investments for the smaller circle, for professional and semi-professional investors. What experience have you gained in this? What advice and tips can you give during the product conception phase? Which mistakes should be avoided? Bonnländer: Stimulating question! Here too, Corona shows, as in a magnifying glass, the already existing necessity to tread new paths. We also see ourselves as a kind of ESG boutique; many fund boutiques in the segment will be presenting themselves in Cologne in the fund selection section. Cleaning the door, visiting large potential investors in the start-up phase of a new product idea to collect seed money, are simply not possible at the moment, and are even forbidden. At the Bank for Social Economy, I was also on the side of the „product decision-maker“ for a few years. There you are swamped with requests for appointments, annoying presentations sent and the roles are usually clearly assigned from the outset. These conversations are usually characterized by „sales pressure“ instead of „interest suction“. Rarely did the discussion partners succeed in reversing this. So digital communication is the order of the day at the moment! With it, I can create „suction“. Draw attention to your own house without immediately falling into annoying advertising drumming. Providing information with added value for the information recipient – that builds competence, USPs, and curiosity on the interlocutor. The more complex the products become, the more important the necessary preparatory work becomes. Pre-market sounding should also focus on the situation of a potential investor. What is my potential partner looking for? Which regulatory requirements does he have to comply with? Which investment vehicle is the easiest for him to invest in? How much administrative energy does my product idea cost the investor? How can I facilitate his new product process? What arguments can I provide for the in-house product discussion? Does he need the 17th bond fund investing in the euro area? Even the honest identification of product disadvantages in certain market phases shows transparency and creates trust. Other confidence-building measures include own „skin-in-the-game“ or national or supranational guarantors that reduce the investment risk. Also of interest is information that is not related to the product, which shows commonalities in the company’s philosophy, which underpins special competencies, track records with other products, the identification of positive changes in own processes. Information-on-demand and non-product-related calls-to-action also form proximity and thus the basis for successful personal discussions. At present, these take place more in webinar format or via video conferences. I am curious to see when we will finally be able to hold roundtables, face-to-face meetings, conferences, and customer events again. That’s

  • Fund boutiques have gained in popularity over the years. Markus Hill* spoke on behalf of FONDSBOUTIQUEN.DE with David Gamper, Managing Director of the LAVF Liechtenstein Investment Fund Association, about the launch of private label funds. The interview also covered the importance of German fund initiators for the financial center as well as topics such as AIFM, tax transparency, and strategy. Hill: What advantages does the Liechtenstein location offer for the launch of private label funds? Gamper: The biggest advantage is the fast processes. This is almost a matter of course for providers due to the high level of service orientation, but it is also a given for the Financial Market Authority. If necessary, fund management companies, AIFM and also fund initiators, can meet within lesser days, allowing many questions to be clarified in advance before implementation. This makes it easier to work both when launching funds and in the ongoing administration. In contrast to other locations, the Liechtenstein Financial Market Authority appreciates these clarifications, since it enhances less work to the written applications. Since the legislative reform on 1 February 2020, alternative investment funds (AIF) no longer have to be licensed; it is sufficient to notify the Financial Market Authority. Nevertheless, AIF is supervised and audited, and Liechtenstein does not wish to deviate from this quality standard. If an AIF is distributed, a distribution notification is required, which the Financial Market Authority generally confirms within 4 to 5 days. This ensures a very short time to market. It should certainly also be mentioned that funds in Liechtenstein are exempt from all taxes. The investor therefore only has to take into account the taxes in his home country. Hill: How attractive is the German market for Liechtenstein? Gamper: Germany is the most important and attractive market for the Liechtenstein fund industry after Switzerland, which uses Liechtenstein as access to the domestic market. The share of German initiators of private label funds has increased disproportionately, especially in the last 3 to 4 years. It is interesting to note that in the current COVID-19 crisis one or the other fund project has been postponed, but also many new inquiries are coming in, with some providers even more than before the crisis. Generally, these projects refer to material assets such as real estate. Photo: DAVID GAMPER, David Gamper, Managing Director of LAVF Liechtensteiner Anlagefondsverband Hill: Liechtenstein as a financial center – how has the picture changed over the years? Gamper: When it comes to taxes, Liechtenstein has changed completely. For more than 10 years the country has been pursuing a consistent tax compliance strategy, and that pays off. The Global Forum on Transparency and Exchange of Information for Tax Purposes (OECD) has already given Liechtenstein good marks in its country assessments in 2015 and assessed it as a „Largely Compliant“. In terms of tax transparency, Liechtenstein thus has the same classification as, for example, Germany and Great Britain. Liechtenstein has also been involved in the automatic exchange of information from the very beginning and has joined the Early Adopter Initiative of the G5 states (Germany, France, Great Britain, Italy, Spain) for the earlier introduction of the AIA. Liechtenstein’s financial companies have experienced a considerable upswing in recent years and today score points above all with outstanding services. Hill: Which book are you currently reading? Gamper: I have just read two books again after a long time. „Fish! An unusual motivation book“ by Stephen C. Lundin, Harry Paul, and John Christensen and „The Max-Strategy“ by Date Dauten. Hill: Thank you very much for the interview. —— Markus Hill is an independent asset management consultant based in Frankfurt am Main. Contact: info@markus-hill.com; website: www.markus-hill.com David Gamper is Managing Director of LAFV Liechtensteinischer Anlagefondsverband, (Liechtenstein Investment Fund Association) the official representation of interests of the Liechtenstein fund industry. LAFV’s mission is to promote the development of Liechtenstein as a fund center and therefore further improve its attractiveness for fund providers and investors. Association LAFV: https://www.lafv.li/DE/Home/Dash Source: www.institutional-investment.dePhoto: www.pixabay.com

  • Frankfurt-Skyline-Sunset

    „Even today most of us find it impossible to really know more than 150 individuals, no matter how many Facebook friends we show off about“ (Yuval Noah Harari, 21 Lessons for the 21st Century).Xing, LinkedIn, Facebook and more – the economy of attention also applies to the asset management industry. Does digitalization represent the future communication in this area? Fund boutiques and mission Entrepreneurs in the asset management segment who are independent of the Group are often referred to as fund boutiques. Special characteristics of these asset managers are usually independence from group interests, a high degree of specialisation and „skin in the game“ as well as the characteristic of authenticity: These entrepreneurs are conviction-mongers, „burning for their cause“. They love what they do – a bold statement at this point: Many of them are by no means primarily motivated by pecuniary interests, monetary compensation is more a form of hygiene factor – in the sense of: „An excellent job is rightly exquisitely rewarded! Digitization and Information Overflow Social networks are a good way to stay in touch personally known and unknown market participants (fund managers, sales, investors). However, they do not replace personal contact interaction.This fact is perhaps sometimes emphasized a little too little. One can exchange contact data, stay more or less in „passive“ contact with a large number of people over a long period of time through postings and other activities. One can get the impression that in an additional complex services the term social selling can lead to a „imbalance“ in communication. Why? Content with specialist information is often seen as an offer, of course with the option of „disregarding“. However, if this type of selling is done via the „dumping of product promotion“ channel, expectations are often inevitably disappointed. As the platforms in this area grow, the providers of promotions often „scream” themselves down, as the channels with sales information cramping investors, who have neither the time nor the energy to cope with the information. „Back to the roots“ – opportunities for the analogue world In the area of roboadvisor providers, the initial euphoria seems fairly to have subsided. Meanwhile the desire for personal connection   in consulting is back. Apart from disappointment in the area of performance, the market appears too fragmented. This fragmentation also exists in the area of fund boutiques. One strength, the non-standardization, the heterogeneous range of personalities, investment approaches and asset classes offers a wealth of content of a professional nature, which is often perceived as enriching by investors: At investor events and manager meetings, the following still applies: people currently still prefer to communicate with people rather than clicking through menus. Perhaps this behaviour will change in the future. However: The alternative to digital neutralization in the area of social media as well as in the area of mailings is for many providers still personal contact with the investor, with the disadvantage in terms of scalability: Relationships cannot be established at the push of a button. Investment companies as „communication hubs Event formats of investment companies (Ampega, Axxion, Hansainvest, Universal Investment etc.) show that personal contact becomes increasingly important in times of digital saturation. Digital formats are helpful, but appear limited by the need for convenience and the capacity limits in the information intake by customers. Houses that creatively promote the dialogue between fund initiators and investors also create negotiating power for fund projects („added value“). Both worlds complement each other, but do not replace each other. In the sense of: There is still nothing like a cultivated personal exchange of ideas! Source: www.institutional-investment.deFoto: www.pixabay.com

  • In commodities, too, many fund boutiques are sought-after contacts for investors as active managers. Markus Hill* spoke for FONDSBOUTIQUEN.DE with Urs Marti, partner at SIA Funds AG, a value boutique from Switzerland. Urs Marti and Alex Rauchenstein will give a joint presentation on this topic on 29.1.2020 in Mannheim (Fund Selectors – INVITATION ONLY format). Hill: Mr. Marti, 3 years ago, after a long break, you decided to manage a commodity equity fund again. Are you satisfied with the results so far? Marti: Actually, I am. It’s very similar to the way it was 20 years ago. Analogous to the tech bubble, nobody is interested in the sector, although most commodity prices have already passed the low point since the end of 2015 and are showing a positive development. The companies are healthy, debt has been reduced, nice cash flows are being generated, dividends, share buybacks, etc.  Well-known countercyclical value/distressed/macro/long-term investors are also entering these sectors. More and more investors are contacting us. Our events are again well attended, and the topic is increasingly meeting with a positive response. Our fund is well-positioned and now ready for the next phase. Hill: What distinguishes the Long Term Investment Fund Natural Resources from competitor concepts or a passive product? Marti: Our focus is clearly on medium-sized companies in the industrial metals and oil sector, agricultural companies, and other sectors. We are no friends of the big energy companies who see their future in the energy turnaround rather than in the oil business. We like companies that benefit from rising prices, that do not have defensive cash flows – and we do not like exploration companies. We also do not own gold mines. This is because gold mines are always more expensive than base metal mines. Besides, there are already some good gold mine funds on the market. I would even strongly recommend investing in these funds. To put it more bluntly, we invest in the type of companies that have benefited the most from 2001 to 2007. Almost all our companies have one thing in common. They have completed the peak of their investments and will reap the rewards in the coming years. For many commodities, we expected a decreasing availability due to underinvestment since 2011, and thus deficits that will persist in the coming years. From this point of view, our companies are in what we call the „value bracket“, i.e. we are in a position to acquire these companies at very favorable terms. For example, our larger companies trade on an EV / EBITDA of 4-6x and the smaller ones between EV / EBITDA of 2-3x. Valued based on current spot prices. Hill: That all sounds very plausible. What do you think could happen that your expectations for the fund are not met? Marti: For one thing, the timing of a physical shortage is difficult in the short term due to unknown commodity inventories. But in the longer term, supply correlates with investment, as you have to replace 3 to 5% of production each year due to „depletion“. Probably the greatest risk is that central banks will be too restrictive and cause the global economy to collapse. But that is not our scenario. On the contrary, we expect increasing fiscal measures and a continued very expansionary monetary policy. The commodities sector anticipates that the global economy will stagnate forever and that from today’s point of view the consumption of commodities will only stagnate or decline. Virtually all other asset classes discount very strong economic growth. Either there is one or the other as a perspective. One can imagine the consequences of an eternally stagnating global economy for the real estate market, the tea sector, government revenues, venture capital, private equity, high-yield bonds, and so on. In summary, we find our commodity equity fund interesting, as the expected return for us is 21% for the next few years. Hill: Thank you very much for the interview and wishing you and Mr. Rauchenstein successful discussions in Mannheim. I am looking forward to the moderation („MH bias“) and I am curious about your presentation! *Markus Hill has been accompanying events of SIA Funds AG (sponsor) for many years. He is an independent asset management consultant in Frankfurt am Main. (Transparency: See also the imprint of the independent site FONDSBOUTIQUEN.DE). FONDSBOUTIQUEN.DE will be dealing more intensively with the topic of fund boutiques and commodities in succeeding articles. In this area there are many interesting fund boutiques (Stabilitas, Tresides, Commodity Capital, etc.): Input is always welcome here). FONDSBOUTIQUEN.DE does not give any investment recommendations, of course, the active managers compete here with passive concepts Source: www.institutional-investment.dePhoto: www.pixabay.com

  • Frankfurt-Skyline-Night

    The “Private Wealth Germany Forum” conference will take place in Munich on 16th October. The independent industry expert Markus Hill will moderate a panel there. He will talk to decision-makers from family offices, private banking and the fund industry about trends and tendencies in the due diligence of products in liquid and non-liquid asset classes. The selection of alternative investments will be the focus of the discussion. One of these topics is also closely related to the topics of the MH Roundtable “Cologne & Sustainability” on November 6. As at the LRI Investment Summit and FundForum events in Copenhagen in the first half of the year, topics such as product selection, product management and critical aspects in areas such as ESG and impact investing will be discussed intensively. IPE D.A.CH editor-in-chief Frank Schnattinger spoke with him about the panel, further conference content and current topics in the fund boutique and service investment company sector. IPE D.A.CH: Which topics will be addressed at the conference “Private Wealth Germany”? Hill: I’ve had the opportunity to host a family office Panel in 2017. The focus is on private wealth management, asset management, “dependent” and independent. It also offers roundtables with product providers, where individual topics are further deepened. Few topics which are also interesting for family offices and HNWIs. Current topics this year will again be developments in the family office segment, asset allocation for liquid and non-liquid assets, due diligence criteria and the outlook in the respective market segments. IPE D.A.CH: Which points will be taken up and discussed with your panel? Hill: Regarding the content in particular, I will not pressure my panelist. The title of the panel is “Emerging and Opportunistic Alternative Investing”. Participants will be Marcel Müller of HQ Trust, Antje Biber of FERI, Daniel Kerbach of Merck Finck, Jürgen Blumberg of Goldman Sachs and Martin Heimes of responsAbility. How will HNWI consultants view expected returns in areas such as currency, private equity, real estate, hedge funds and credit? How are new investments in alternative investments assessed and how could their significance be in the future? Keywords: Cryptocurrency, agricultural investments, water and more sustainability themes and products in ESG, SRI and impact investing. How should we look at ETFs in this context? What opportunities and risks exist here in the area of asset allocation and product selection? The time is limited but I hope for an intensive dialogue with investors and product providers in the audience. The conference provides itself a forum for constructive exchange of ideas. Family offices, private bankers and HNWIs also like to discuss topics such as asset allocation, product selection, fund boutiques and sustainability. IPE D.A.CH: What other topics and product fields will be addressed at the event in Munich? Hill: Two years ago, I moderated a panel on family offices and governance, trends in the field. That will take place again this year. One of my former panelists, J. Christian Stadermann, will be moderating it. I’m looking forward to the discussion on this topic, personally speaking a bit biased. Of course, topics such as global investment outlook, strategic and tactical asset allocation, portfolio construction, artificial intelligence (AI), value investing, fixed income, equities and the role of ESG, ETFs and Smart Beta will also be intensified and discussed at various panels and roundtables. For one are the topics at such conferences fascinating along with an additional joy to discuss with speakers, investment companies and investors. Last year I attended as a guest and was impressed to have had an engaging conversation. IPE D.A.CH: Which topics are you currently intensely occupied with? Hill: At the moment I’m intensely looking at fund managers for two different search mandates. One concerns fund managers in the ESG, SRI and impact investing theme segments. Due to the current “press hype” it is already more difficult to separate the wheat from the chaff. On single family office (SFO) segment it is the selection of interesting fund boutiques in the field of value investing. On the one hand, I closely monitor well known addresses, and on the other hand, I find the range of boutiques from the second row quite interesting. There are a variety of managers, for example, who have interesting, impressive track records, but are hardly known, so I also speak with many selectors, as an exchange of ideas often bestowing me interesting hints. I am frequently approached by providers in the segment, not only the DACH region, which corridors to beneficial communication. To my surprise that many good addresses are barely visible, therefore I am grateful for any hint from investor as well as provider side. Constantly I am monitoring a lot but to 97% feeling is “technical not convincing”. Keeping on mind that I have to pass the shortlist to my client, which means I have a personal reputation risk for my recommendation of asset managers (“skin in the game”). Honestly speaking on this point, I personally know many of the boutiques and would like to advertise to stay in focus on the selection process for the shortlist where factual argument plays a vital role. Another topic, which is indirectly related to the first search topic – I will be organising and moderating a MH Roundtable in Cologne on November 6, 2019.Last year, Warburg-Invest kindly supported me in an event with Reiner Konrad from FOCAM and Manfred Gridl from Gridl Asset Management. This year, I am supported by Anton Bonnländer from the Bank für Sozialwirtschaft (BfS). An interview with him at IPE D.A.CH with me is also there. I had him as speaker this year at LRI Investment Summit on topic of impact investing and the social economy. At the FundForum in Copenhagen and at the LRI Group event, my family office panels were about same topics mentioned above. On the upcoming event “Cologne & Sustainability” I’ll briefly explain the results of product search in this segment and the current discussions. Anton Bonnländer will talk about topics such as due diligence of funds in the ESG & SRI segment (liquid products), as well as current

  • „There is no freedom without mutual understanding“ (Albert Camus). In modification of this thought, one could also say that the freedom to make good investment decisions should go hand in hand with an understanding of people and concepts. Many independent asset managers (fund boutiques) have been using various event formats for years to present what makes them and their concepts special. These events vary in size, scope, time and orientation. Which formats are available? Which target groups should be addressed? Which approaches can be considered more in the direction of increasing brand awareness (visibility, brand building), which approaches come closer to business development? Fund industry and industry events Formats such as the Institutional Money Congress and the BVI Asset Management Conference, including the BAI Alternative Investment Conference, often provide a platform for dialogue in the fund industry. Characteristics of such formats are often the strong media presence (specialist publications) and the different focuses and objectives. Without evaluation – there are formats here that focus more on brand awareness among established asset managers and there is a different weighting in the participant groups. Similar events like the ones mentioned above exist in a large number nationwide. Some have a stronger character of „industry talks to industry“, others are more in the direction of „industry talks to investors“. For fund boutiques that have already reached a „noteworthy“ size (AuM), these events can be used to increase brand awareness among institutional investors or to raise visibility in the specialist media. An interesting effect for the fund industry from asset managers of „noteworthy“ size (fund boutiques and affiliated asset managers) is that their sponsorship of such formats still generates positive spill-over effects from an economic perspective: Dialogue within the industry is promoted, there is, so to speak, an additional diffusion of knowledge within and outside the industry (investor education etc.). Investment companies, fund boutiques and investor dialogue Various investment companies have specialised in the launch of private label funds for bank-independent asset managers (fund boutiques). Examples include companies such as Universal-Investment, Ampega, Hansainvest, Axxion, IPConcept, LRI Group and Hauck & Aufhäuser. Many of these companies offer various forms of marketing and sales support for their fund initiators. This support can take the form of increased brand awareness (public relations) or increasingly business development („sales component“). Formats in the event area can be designed differently here: 1. the investment company can offer its own events Using its own distribution list (investor contacts) and in combination with increased PR activities). 2. the investment company or fund initiators themselves can invite investors together with other investment companies. 3. the investment company can use external service providers or refer fund initiators (sponsoring, partial sponsoring, etc.). Fund boutiques and the dialogue with investors In the fund boutique sector there are many small houses, some funds start with fund volumes of five to ten million euros, whose „fund managers“ (fund advisors) are often not very well known at the beginning and who, for business management reasons, are unable to set up their own sales force at the beginning. Here, direct contacts with investors are helpful in addition to public relations (media). If the investment company has its own sales force (examples: Universal-Investment, Ampega etc.), the network can be very valuable for the boutiques. Of course, investment companies can only provide selective support here. The large number of fund boutiques in the individual houses alone means that this is where the focus must be. Investment companies and its sales department can also only concentrate more on the fund initiators, who for example have a very interesting „story“ (topic, track record, personality and history of the fund initiator, level of awareness, etc.). In addition, many of the fund boutiques will sooner or later have their own sales staff, and placement agents are also used in individual cases („third party distribution“). If internal models, existing or planned, are provided with pricing models for support at investment companies, the process of customer protection, „ticket allocation“ etc. will also begin. This is the key point in the communication with investors: Due to the variety of boutiques, investment companies in this case offer platforms which, due to the wide choice of invitations to events, meet with increased interest among investors – whether in their own formats or formats in conjunction with external service providers (examples: Auf.Den.Punkt. as Ampega format, UI-ChampionsTour at Universal-Investment, Asset Management Days at houses like Hauck & Aufhäuser, Hansainvest etc.). We should also mention here individual formats at fund boutiques themselves (DJE, Flossbach von Storch etc.), where different initiators come together, fund requirements often at different investment companies. In addition, there are a large number of events organised by the fund initiators themselves, often using other external organisers. Fund boutiques and „Hidden Agenda“: Public Relations versus Business Development? Usually most investment companies offer active PR support for your fund initiators. This increases the visibility of heads and concepts. In the industry, there are also a large number of platforms and external service providers in this area which investment companies can access directly or which are often recommended to fund initiators. A very interesting fact can be observed in the industry: many fund boutiques speak of PR and visibility, but often actually mean the area of business development in the sense of sales, the direct contact to the investor. Background: The experience with the classic area of PR is that of course the pure writing and publishing of articles in the media has a large scatter loss compared to direct sales efforts (point-of-sale contact). To be fair, it has to be said that this is in the nature of public relations and that the chain „publication-immediate-ticket-from-customer“ does not exist. However, there are many small houses where the areas of long-term thinking in the field of communication and direct sales can still show conflicts (optimisation potential). Why? Every distributor also has a hard time presenting unknown or little known products or heads – the distribution of fund boutiques often resembles the area of „artist

  • Frankfurt-Skyline

    „Everything clever has already been thought, you just have to try to think it again“ (Johann Wolfgang von Goethe). As in many other industries, the fund industry is said to be a water-based industry. If one follows the current intense struggle for the interpretation of definitions in areas such as ESG, SRI and impact investing, one can come to an interesting conclusion: As with the topic of crypto-currency (Libra & Facebook), this appears to be a fruitful prelude to „competition as a discovery procedure“ (Friedrich August von Hayek). As long as not all aspects are set in stone by regulation, very interesting aspects can still develop in the open discussion. What role do family offices, fund boutiques and investment companies play in this context? How is the role of associations to be assessed? ESG – Medium and long-term thinking Without starting a comprehensive discussion about terminology: sustainability thinking corresponds very strongly with the way SMEs, family offices and fund boutiques think. Owner-managed structures such as those mentioned are an important factor for an economy – key words: openness to competition, flexibility, speed. ESG, SRI, SDG and Impact Investing – on the product selection and product offering side (independent asset managers, proprietary products in family offices), all “Middle class“ companies want to survive in the long term, without the pressure of quarterly reporting and the usual hectic pace. The prerequisite of being „driven“ by content in this field of activity and of engaging in a constructive competition of ideas appears to be ideal. Crypto currency – innovation and transparency Fintech, Blockchain, Artificial Intelligence and the topic of crypto-currency – a lot of industry is currently discussing this with industry or industry with the press. It is a completely different matter whether this discussion is really intensively perceived by investors (!) at the end – often also criticism from product suppliers regarding the media coverage, not only for complex topics. It should be noted that many players in the „digital industry“ appear to be more active than average in the area of social media; the importance of the topics there need not correlate with their real importance for the investor side. Information overflow, economy of attention, or in this case simply the degree of complexity of these topics thus can play a role. The positive aspect of this phenomenon is that, as with sustainability issues, the industry is almost exemplary in its approach to investor education. Technical information can be regarded as a „debt to be collected“ on the investor side, but can also be constructively supplemented by high-quality content from providers, the press and multipliers (consultants, associations, investment companies etc.) through the aspect of „debt to be collected“. From an economic point of view, this is a welcome driver in terms of the diffusion of knowledge at the level of society as a whole! Investment companies and associations Associations such as BVI (Germany), ALFI (Luxembourg), LFAV (Liechtenstein), but also associations such as VuV (Verband unabhängiger Vermögensverwalter) in Frankfurt are intensively accompanying the topic of sustainability as established multipliers. Investment companies such as Universal-Investment, Ampega, Hansainvest, LRI Group etc. also fulfil a valuable function here. They can be considered a „knowledge hub“ in the field of independent investment expertise. Many fund initiators in this segment look after interesting fund concepts. Every investor can find what he is looking for when searching for investment ideas. Perhaps the investment companies will become more active in the future in the area of seeding of fund concepts besides the function as product provider and multiplier. Something new could arise here in the next few years. Family offices and other independent asset managers are already very creative and active in the above-mentioned topics. As the motto from – Helmut Glaßl : we do not need a competition of lobbyists, but a competition of ideas. Source: www.institutional-investment.deFoto: www.pixabay.com

  • From the 25th to the 27th of June, the Fundforum International will be held in Copenhagen. The independent industry expert and IPE D.A.CH author Markus Hill will host a Family Office panel discussion there again this year. This panel will discuss topics such as due diligence of products, fund boutiques, real assets, trends in the family office segment and apparent “hype” issues such as ESG, SRI and impact investing. Enlightening discussions arose on the subject of sustainability at the LRI Investment Summit on 5th June in Frankfurt (pictured), where he served as the summit´s moderator. Aspects of the discussion will be briefly discussed in the following, matching the excursus “Frankfurt for Beginners” (book) and networking. IPE D.A.CH: At this years’ FundForum International, you will moderate your Family Office panel discussion on Due Diligence, ESG, SRI and Impact Investing. Last year you discussed a similar topic at FundForum International in Berlin. Similar topics were also covered at the LRI Investment Summit. What will you discuss in Copenhagen this time? Hill: Since 2013, I have been supporting panel discussions at the FundForum International Panel on topics such as fund boutiques, family offices, product management and fund selection. Regardless of the topics chosen, every panel is fundamentally different or a new panel, given the different combinations of panelists. In Copenhagen, I am looking forward to another challenging discussions with Marcel Müller (HQ Trust), Christoph Kind (Marcard, Stein & Co.), Florian Schmitt (Schmitt Group) and Frederic Guibaud (AlphaBet Asset Management). This year it is interesting that the perspective of single family offices is being discussed more actively. Of course, I will not anticipate the input of participants here. Topics that are always available are the selection of products, the range of liquid, non-liquid investments and the fields of direct investment versus “packaged products” like funds etc. The traditional investments will also be discussed. In terms of: What is currently interesting for family offices? Which topics are currently in the foreground? In which products are family offices involved in managing products, offering their own solutions? The importance of club deals and co-investments were also discussed last year in Berlin, as well as at the LRI Group event in Frankfurt two weeks ago. Of course, the topics ESG, SRI and Impact investing offer a spark to discuss the general developments, markets trends, hype vs serious trends – actually, this is not that crucial. In my opinion, these topics have a positive effect on the dialogue between investors and product providers, because the topic of long-term thinking is increasingly becoming the focus of discussion. A core issue, which has been a major focus since 2004, though the theme bank, fund boutiques, independent asset management and family offices – keyword ownership approach and value investing (Prof. Carlos Jarillo, Acatis, Shareholder Value and more). Private wealth, entrepreneurs and even millennials act as catalysts for a fruitful dialogue with a stronger focus on the common good. As a studied economist, I watched this discussion with great enthusiasm. Regulation too, works sustainably in this direction, so to speak. IPE D.A.CH: What were your impressions of the Investment Summit regarding this topic? Were there differences, other focuses of the discussion? Hill: In Frankfurt various topics were discussed. In the first session of the event, short presentations were given by Frank de Boer (LRI Group), Prof. Dr. Martin Hellmich (Deloitte) and Anton Bonnländer (Bank für Sozialwirtschaft) with regard to topics such as Investment Market, Artificial Intelligence (AI) as well as ESG, SRI and Impact investing. While topics such as Luxembourg as a hub for the fund industry, the importance of AI for the measurement of carbon risks in securities portfolios and the topic of measurement criteria in the areas of ESG and SRI were discussed in greater detail. In the second part of the event, there was “my” Family Office panel with Dr. Thomas Rüschen (Deutsche Oppenheim Family Office AG), Ralf von Ziegesar (FOCAM AG) and Christian Stadermann (Logos Patrimon). The topic fund boutiques, which for years has been increasingly interesting for independent asset managers was also discussed. Regardless whether the discussion revolves around liquid or less liquid products, the clash for many decisions seemed to be “Ownership structure” for both investors and providers. In a nutshell: The Family Office view: Entrepreneurs understand entrepreneurs and like to invest in entrepreneurs. The seeding of products on the Family Office side was not explicitly excluded but viewed very critically. For example, investing in a venture capital fund that seems tangible and understandable to the investor from the underlying (real economy), rather than a liquid fund made up entirely of “abstract” financials, futures and options, etc. As LRI Group also had a number of fund initiators represented in the audience, the quality of the pitching papers for seeding and distribution was once again discussed. Konstanze von Ziegler (KPMG Luxembourg) subsequently presented a panel on real assets, trends, tendencies and outlook for this segment. Participants in her panel were Dr. Alexandra von Bernstorff (Luxcara), Tobias Giesser (Partners Group) and Dr. Ralf Schnell (Siemens Fund Invest). Again, the tenor of the discussion was that in addition to the interest in the major players in the market, the investor side is increasingly looking for offers of boutiques in the private equity sector. Topics included the increasing duration of investment holdings as well as the growing importance of technology in the development of the Private Equity investment segment, as well as the growing demand for debt finance. The panel of Dr. Ziegler additionally intensively discussed sustainability. The discussion was animated here by the remark of Dr. von Bernsdorff, that perhaps many players in the market do not know enough about the importance of the transformation of the energy market; perhaps they also do not understand exactly what is relevant in the area of ESG. In the previous panel, this issue was less emphasized. “What are we talking about here, every medium-sized entrepreneur thinks sustainably!” as spoken by Anton Bonnländer. The impression arose that perhaps technical discussions should be fought even more intensively to the

  • Frankfurt-Skyline

    Private equity and alternative investments are increasingly becoming an important asset class for family offices and high net worth individuals. Difficult market access and increased regulation make successful investments just as difficult as the question of whether investments still make sense at current valuations. Markus Hill spoke on behalf of FONDSBOUTIQUEN.DE with Rainer Herber, responsible for the investment division of Deutsche Oppenheim Family Office AG, about the current challenges for investments, product selection, and professional networking. Hill: How would you summarize the past year concerning private equity shortly and explicitly? Herber: The private equity year 2018 was the year of superlatives! Hill: That is a statement! What do you mean by that? Herber: In 2018 we have seen record-breaking numbers of private equity transactions due to, among other things, missing interest rates and the flood of capital from central banks. One example of this is the sale of the heating cost meter reader Techem, which Macquarie sold in May for EUR 4.6 billion to a consortium consisting of Partners Group, two pension funds, and Techem management. At the same time, there were record inflows – financial investor EQT raised EUR 10.75 billion for new buy-outs. And this further underlines the boom, especially in investments in German SMEs, are the openings of German offices of many private equity houses, most notably KKR and Oakley. Hill: Hence, all the signs are pointing to profit? Herber: The asset class is showing a positive performance, which is associated with high risk, meaning that despite the continuing positive trend, there have been a few unpleasant surprises. Emeram lost the well-known fashion company Bench. The British parent company had to file for bankruptcy in May. The fashion industry with its seasonal business and highly fluctuating cash flows also contaminated the portfolios of other private equity houses in the year of the summer of the century. EQT, for example, lost patience with fashion house CBR in February after eleven years and sold it to British restructurer Alteri. The reluctance of private equity to invest in this line of business is noticeable, despite the sharp drop in company valuations of fashion labels. Likewise worth noting: The Franconian yacht builder Bavaria is probably the most famous crisis case and had become a symbol of the private equity bubble during the financial crisis. After heavy losses, Bain sold the highly indebted company to the two hedge funds Anchorage and Oaktree. This was not successful. In April, Bavaria Yachtbau company went bankrupt after ten years of crisis. Hill: What does that mean for investment management and your clients? Herber: Well, the economic forecasts are clouding over, the investments were bought at a high level. A constellation in which investments in private equity or alternative investments are generally based on experienced partners who have already proven their ability to manage in past poorly performing cycles. Also, a focus should be placed on diversification in general and the maturities of the individual funds in particular. This smooths out valuation peaks in a PE portfolio. Hill: How do you proceed here? What do you offer clients of Deutsche Oppenheim Family Office? Herber: First of all, I would like to say that the area of equity investments is particularly challenging due to the tightened regulatory environment. On the one hand, the area of alternative investments is dominated by institutional investors, which makes access for private investors even more difficult in addition to the regulatory requirements. Deutsche Oppenheim also offers investment advisory services in the area of alternative investments, albeit for a significantly restricted investment universe focusing on private equity buyouts, residential real estate, and infrastructure. As one of the leading multi-family offices, we have geared our services in the area of equity investments to the initial situations of our clients. Here we often see the difficulties of accessing an extremely untransparent market or historically grown portfolios without a defined strategy. The consequences may be that market opportunities are not taken advantage of in the first place or that there is an increased risk of loss. In addition to highly selective investment advice, we have focused on a „best-in-class“ network in the area of investments. All in the spirit of a platform concept. This enables us to bring our clients together with tested, first-class partners for the strategic orientation of a new or existing portfolio on the one hand, and with partners with a concrete product range on the other, and to grant exclusive access to this interesting asset class. Deutsche Oppenheim complements all this with individually tailored investment reporting and controlling. Our clients benefit from working with Deutsche Oppenheim in the area of investments because they can be sure that they are working with proven partners, that they have exclusive access to products and markets, and that our investment reporting provides them with an efficient tool for managing their investment portfolio. Hill: Many thanks for the interview. Rainer Herber is a business lawyer and has been responsible for fund and partner selection and investment advice for alternative investments at Deutsche Oppenheim since November 2017. Source: www.institutional-investment.dePhoto: www.pixabay.com

  • “The great events of the world are not made, they are found” (Georg Christoph Lichtenberg). Of course, the real experience of supply and demand in the field of investments in the fund industry deviates from this ideal. Even in the field of complex services, one rarely finds this ideal setting. An interesting phenomenon in the investment sector is that there seem to be different markets for offers, which are in the area of conflict between push and pull marketing. It can be concluded that a large part of the fund industry is in the more push-marketing mode. Many products do not convince the investor at first sight. Are there market segments or fields where this is perhaps less the case? Are there additional factors that invite suppliers and buyers to engage in dialogue? Is digitalisation or are transparency, platforms, etc. a solution to this problem? Illiquid investments – off-market deals and trust One example of many markets that seem to elude the common scheme of push marketing can be found in the real estate sector. When investing directly in real estate, so-called off-market deals are often concluded, usually under the official radar of the industry. In terms of the total market, this share seems to represent only a small part of the total market. The key point here is that precious, rare items are “coveted” by investors (family offices, foundations, insurance companies, etc.) and that they find one another on a deep basis of trust. What’s more, the motivation can even be that you want to work with certain parties and perhaps exclude other market partners from the outset. There is a basis of trust (“trust capital”) with investors who are, so to speak, the first in the chain to be offered the interesting properties, and subsequently, platforms or brokers can also become involved. One advantage is that one avoids a beauty contest that is difficult to control with the corresponding price increase potential. Interestingly enough, however, the price argument is not always decisive. In certain cases, an offer from your own, familiar network may well include a price premium. What could be an explanation for this? Filters are upstream, the partners know and trust each other, time is saved, the due diligence of the properties may already have been carried out by someone who is investing himself (club deals and co-investments). Precious, sought-after goods find their buyers quickly since the mutual trust that is established greatly reduces transaction costs, and price premiums due to increased quality of the offer are considered justified in many cases. A distinction must be made between these cases where, so to speak, valuable goods, in this case, real estate, should not be aggressively marketed. This can be an important factor, especially for family offices and their clients, as this type of product offer can harm the company’s reputation. This factor can also play a role for traditional institutional real estate providers and investors – discreet communication is required between parties who have often known and appreciated each other for a long time. Liquid Investments – fund boutiques, fund industry, and push marketing In contrast to the conditions in the real estate and off-market deals mentioned by way of example, the classic area of the fund industry is strongly characterised by push marketing. The market entry for a fund manager, for small amounts of seed money, in the liquid sector often appears to be quite easy. To be precise: The market entry, not the retention or growth of the funds. In contrast to the off-market example, the market here is heavily occupied, with far more hunters (providers) than the game (investors). In contrast to illiquid investments, the fund managers here still have to struggle hard with the “whip of transparency”. In the area of mutual funds, performance results are published continuously. There is competition for attention, each of the providers in this segment is under permanent pressure to justify themselves. While a natural “shame period” prevails in the venture capital and private equity sector (time of exit), the fund manager in the liquid sector is under increasing pressure to communicate with the investor or the public. For the managers who beat the index every year, this compulsion to communicate is not a challenge. These managers are almost impossible to find and the managers who do get to them are almost always confidentially recommended between investors, as these funds often reach the volume limit (soft close). Especially in the fund boutique sector, excellent managers can sometimes be found who have no sales pressure. Digitisation, start-ups, and platforms The facts described above can be summarised: 1. Some products and services do not require aggressive marketing. 2. there are overstaffed markets where there is pressure for intensive communication. 3 There are also overstaffed markets in the fund sector that offer “treasures”. One can discuss whether the following dilemma could not be solved by the progressive digitization: In extreme cases, investors will not learn anything about products that they “really” need, because the interesting offers have already been marketed, in the sense of “communicated in confidence”. The investor learns “too much” from products that are often interchangeable or whose benefits can only be discovered through very long discussions with the product provider. To be fair, it should be noted here that the executing organs of this process (sales, marketing, etc.) cannot be seen as the origin and causer of this state of affairs; competition as a discovery process (Friedrich August von Hayek) is an expression of our economic system. It remains to be seen whether the progress in the field of digitalisation will provide perfect transparency in the area of “investments”. Of course, there are many approaches in the niche sector of start-ups (keywords: fintech, blockchain, AI, etc.), which are working intensively on models to solve this problem. However, the current platform solution does not seem to cover the market at all or only very inadequately. As long as “cyborgs” are not the only thing to be found

  • Frankfurt-Skyline-Night

    The topics of SRI, ESG, and impact investing are being intensively pursued by family offices and foundations. Institutional investors such as insurance companies, pension funds, and pension schemes have been dealing with investment concepts and regulatory issues in this area for years. Markus Hill spoke for FONDSBOUTIQUEN.DE with Anton Bonnländer, Head of Investment Management at Bank für Sozialwirtschaft AG (BFS), about the current challenges for impact investors, sustainability in product design and product selection for own investments. Hill: What exactly does the Bank for Social Economy do? Bonnländer: We focus entirely on business with companies, associations, foundations, and other organisations that are active in the social sector (senior citizens, disabled persons, children, and youth welfare), health, and education. Our focus is on non-profit institutions and foundations. Here, the focus is not on maximising profits, but on ensuring the provision of services. The Bank for Social Economy (BFS) offers the banking services that make up a specialized universal bank, i.e. financing, investments, and special payment transaction services – such as fundraising for our clients in the social sector. We see ourselves as a kind of family office for the social and healthcare sector. Sector knowledge and networking are what make BFS what it is – we offer business management consulting as well as social market analyses, location and potential analyses in which we make the opportunities and risks of investments transparent. The BFS has an office in Brussels, to take up the coming impulses from Europe early on or to make use of special EU funding packages. In the financing and investment sector, this thinking outside the box is highly appreciated by our clients. The core task of the FSO is to make money from the social economy available for the social economy. Also, the bank itself has investment needs in the investment sector and also offers special solutions for institutional investors. As a “Trusted Advisor,” we are very aware of our responsibility in the development or selection of products and the assessment of the associated risks. Hill: What are the special features of your business model? Bonnländer: Everyone is talking about sustainability today. SRI, ESG, and topics such as impact investing have accompanied the Bank since its foundation by the charities in 1923, although these terms did not exist at that time. If you like, we are one of the classic pioneers in this field in Germany. BFS is very specifically positioned within the industry, if only because of its funding structure. This can also be seen in our customer groups. These include outpatient and inpatient care facilities, hospitals and special clinics, medical care centers, health insurance companies, social insurance carriers, workshops, and residential homes for people with disabilities, residential and daycare facilities for children and young people, independent schools, and other educational institutions. The Bank is deeply rooted in the “ecosystem” of its customers. We live sustainability, especially with a focus on S (Social) and G (Governance), whereby the ecological side of ESG is always part of our daily business. In financing projects, for example, the ecologically efficient planning and equipping of buildings and operations are taken into account (energy use and consumption, careful use of resources in architecture and operational processes, waste avoidance, digitalisation, etc.). Hill: What topics are you dealing with in the investment area? Bonnländer: Our investment clients are risk-averse and distribution-oriented. That is a very relevant point. In its product ideas and due diligence, BFS combines value quality with stable distributions. I know both sides very well in my function as the person responsible for the selection of my investments and product concepts. Foundations need cash flows to fulfil their purpose. Non-profit organizations can achieve all the more, the better continuous income flows. An absolute no-go is investment opportunities that simply contradict ethical and ecological principles. Furthermore, investment management is intensively engaged in the synthesis of economic and social-ethical sustainability in investment solutions. In the meantime, the term sustainability has also reached the mainstream, and the ecological dimension of sustainability, in particular, is being intensively discussed. We see it as our mission to make meaningful investment solutions available and to close gaps. For example, BFS was the first credit institution to launch a mezzanine fund for the social sector. The product design was rather secondary, the effect, the impact was important to us: the supply of capital to non-profit enterprises via this vehicle. Every euro you consume or invest has an impact. We want to create a positive impact. This is the focus of our investment management. The idea of sustainability is in the foreground. We are also familiar with this concept from our personal experience. I enjoy water sports, travel a lot in nature, and have my thoughts, also about sustainable tourism. While kiting I feel the environmental changes on my own body, especially the shifts in the wind maps. Nature is already giving us signs: since 2018, everyone has suddenly experienced what happens when inland waterways suddenly stop operating completely due to record-low water levels, when food in the fields withers. What will the world look like when these phenomena become permanent? Impact Investing is not do-gooders, it is the order of the day. We are not alone in this, but few other credible financial institutions besides ourselves implement this consistently in their advice. And with commitment and authenticity! Hill: Which topics are you currently dealing with more intensively? Bonnländer: So far, the bank has launched sustainable retail funds for its institutional clients. In the future, BFS would like to bring these public funds into the focus of private investors. Private investors cannot become our customers, but they can acquire the bank’s investment philosophy through our public funds. Our goal is to make capital from the whole of society more available for the social economy. In the area of product design for institutional investors, we are currently working on the topic of private debt. A credit fund is a tool for reconciling the interests of investors and capital seekers. In its credit

  • Frankfurt-Skyline

    Investments in real estate continue to meet with great interest among institutional investors. Especially in the area of foreign real estate, an overview of special know-how is required. Family offices and law firms have been positioning themselves for some time now as a source of inspiration for professional dialogue at a high level. IPE-D.A.CH editor-in-chief Frank Schnattinger spoke with independent asset management consultant Markus Hill about the „10th Annual US Real Estate Forum 2019“ organised by the law firm Mayer Brown LLP and Urban Land Institute (ULI Germany) in Frankfurt am Main and about the „Second German Real Estate Forum“ event organised by Deutsche Oppenheim Family Office in Cologne. IPE-D.A.CH: Which topics were addressed in Frankfurt at the „10th Annual US Real Estate Forum 2019“? Hill: The event took place at the end of January and has a long tradition. The law firm Mayer Brown and the Urban Land Institute (ULI Germany) had organized and invited me. I got to know them last time through Charles Kingston of REFIRE, who was again the moderator this time. The name says it all, the focus was on investments in US real estate. Dr. Joerg M. Lang from Mayer Brown LLP and Stefanie Baden from ULI Germany gave a short introduction to the topic. Paul E. Meyer from Mayer Brown LLP gave a very market-oriented insight into the structure and current developments of the US market in a lecture and the following panel. Accompanying him, Ulrich Steinmetz of DWS Grundbesitz supplemented many of Mr. Meyer’s remarks from the perspective of a „big player“ in the industry. These remarks were rounded off by the view of a „small“ investment boutique of Thomas Gütle of US Treuhand. IPE-D.A.CH: What did you notice most about the event? Hill: The presentation of specialist topics in the lectures at such events can usually provide a good map of the area. This was the second time I took part in the series of events in Frankfurt. The interesting part for me is often rather the Q & A after the presentation or after the panel discussion. The view of the multipliers Mayer Brown and ULI was interesting, if only because of their independent status. So that I am not misunderstood here – independent in the sense of „eagle’s eye view of the industry“, not independent of economic interests. As long as all this is transparent, an added value of information is created for the participants of such formats. A law firm lives from satisfied clients, an association lives from satisfied members. The view from „helicopters“, which so to speak hover over the industry, is often enriching. A plus of such formats is also that the composition of the audience, that very competent professionals ask specialist questions. Besides, interesting focal points are sometimes formed in the discussion. General market information, impressions, trends, etc. are a field that offers enlightenment, and the first part of the event has done good preparatory work in this respect. After the panel, a question from the audience led to a small, intensive exchange of ideas on the topic of US real estate, family office thinking, and the importance or only relative weighting of the decision relevance of topics such as currency risk and currency hedging. Here, a „product representative“ from a well-known family office spoke about aspects of product development, risk appetite, and entrepreneurship, based on direct experience from the fast track client service and „skin in the game“ position. As is so often the case, these interesting topics could be discussed after the event in a pleasant atmosphere. IPE-D.A.CH: What were your impressions at the Family Office event in Cologne? Hill: The Real Estate Forum of Deutsche Oppenheim Family Offices took place for the second time last November. It was introduced by Dr. Thomas Rüschen of Deutsche Oppenheim Family Office and its advisory board, Jürgen Fitchen. At the first event last year, the topic of US real estate was addressed by the investment boutique German American Realty (GAR), represented by Dr. Patrick Adenauer. This year, the topic was again taken up by the consultant Brad Olsen of Atlantic Partners Ltd., who explained his view as an independent on the structures and particularities of the US market in the area of residential real estate and letting. Deutsche Oppenheim Family Office combined this perspective on US real estate with a market overview for German real estate investors under the motto: „Boom without end or end of the boom? Jochen Möbert of Deutsche Bank Research spoke about the macroeconomic market environment in Germany and a recent in-house study on residential real estate. The event was given a special additional facet in the direction of real estate, family offices and US real estate by the fact that the move of Dr. Christoph Pitschke from Deutsche Oppenheim Family Office AG to the investment boutique GAR of Dr. Patrick Adenauer at the turn of the year 2019 was announced with regret, but also with heartfelt congratulations. The theme quiver from Cologne was rounded off with presentations on the German real estate market by Dr. Christoph Pitschke, Thomas Krahl (Deutsche Oppenheim Family Office AG), and Thomas Meyer from the investment boutique Wertgrund Immobilien AG. An impression that I picked up after the events in Cologne and Frankfurt: Family offices think independently and value the expertise of multipliers and fund boutiques! IPE-D.A.CH: Is there a common feature of these event formats? Hill: The two events are representative of a certain category of formats or product offers. To be fair, one has to say that of course, other institutions are also on the way in terms of „Adlerblick“ and „added value information“. DVFA, BVI, BAI, Frankfurt School, IMC – clubs, associations, universities, think tanks, event organisers, etc. They all have their touch in terms of topics, networks, formats. Also in the family office sector, many companies are active in the field of domestic and foreign real estate – HQ Trust, Feri, Tresono FO, Kontora FO, and many others. ULI Germany is perhaps

  • The Fund Congress will take place in Mannheim from 30 to 31 January. In addition to popular speakers with lectures with a product focus, this event offers an interesting range of specialist lectures and roundtables. Also in this year again well-known investment companies and further service providers, like depot banks and adhesion roofs as well as a multiplicity of fund boutiques are to be found at this meeting. Just like a Baader Bank conference in 2018 with panel topics such as „How can investment companies support the portfolio manager in fund distribution“, this congress also gave fund boutiques a wide range of topics for discussion. IPE D.A.CH editor-in-chief Frank Schnattinger spoke with independent asset management consultant Markus Hill about the congress, the role of investment companies, current specialist areas of interest, and the moderation of a round table on commodities in Mannheim. IPE D.A.CH: Which topics will be addressed at the Funds Congress in Mannheim? Hill: In contrast to the upcoming Institutional Money Congress in Frankfurt in February, the Fondskongress in Mannheim is strongly focused on semi-institutional fund selectors. As a special feature, I would say that as a format for the exchange of ideas between product providers and investors, it is a central communication platform in this segment. It is true that from time to time it is still criticised that its roots are traditionally in the independent financial services sector. In my opinion, however, a change is slowly taking place here in the sense that more and more other investors from the „semi-institutional“ sector are also gradually becoming interested in a pleasant professional exchange of ideas with the product providers. All kinds of topics are represented at the congress. Marcel Fratzscher, Thilo Sarrazin, Friedrich Merz, fund boutiques, Value, Growth, Smart Beta, AIFs, SRI, and more – the funds‘ congress offers a pleasant variety of topics. If you study the organizer’s program, you will always find specialist areas that are of interest as a lecture or roundtable. Of course, there are formats with a strong product orientation. But here, too, one should remain fair: many brokers of financial products also demand such preparation, direct product information. Also, there are many non-product-related events and, in general, the congress as a platform for a cultivated exchange of professional ideas. Even if it is not a classic event for institutional investors, for one or the other the variety of topics and providers always offers a professional „entertainment value“. The transparency of mutual fund providers can sometimes lead to managers being found who perhaps do not meet classic requirements at first glance; many fund boutiques are often worth a second glance. Even if they are not eligible for a special fund for some time yet – mutual funds for institutional investors is a field that has developed excellently over the years. IPE D.A.CH: What do you find interesting here in Mannheim? Hill: I have been following the topic of fund boutiques and private label funds more intensively since 2003, it was by no means mainstream back then. At that time, many traditional asset management consultants initially had a „compassionate smile“ for this complex of topics. Last year, three representatives of well-known capital management companies discussed the topic of „How can an investment company support the portfolio manager in fund distribution?“ at an event organized by Baader Bank. Marcus Kuntz (Universal Investment), Andreas Hausladen (Hansainvest), and Winfried Stürzbecher (Ampega) discussed this „niche topic“ with great commitment. These addresses are also represented at the Funds Congress (alongside many other service providers). Some of these addresses offer independent asset managers a platform for direct talks at the stand, lectures, and speed dating with fund selectors. A luxury problem at the Funds Congress is that there is a supply of information that is hardly manageable. You can study the program thoroughly, choose the „right“ fund boutique, the fund advisor, from these service providers and you can seek direct contact. These small, often less well-known addresses very often offer interesting approaches and know-how, and the exchange of ideas is worthwhile. This is simply because, in addition to the investment approach, the entrepreneurial personality, portfolio manager with a „skin-in-the-game“ factor, offers added value in the conversation. To be fair, it should be noted that this does not mean that there are not also corporate managers who offer a similar „entertainment value“. There are a large number of such addresses at the Fund Congress. Light and shade exist in both segments, risk diversification is the order of the day! IPE D.A.CH: What other topics are you currently working on? Hill: The area of AIFs and real assets, off-market segments, I am currently observing intensively, also the topic „Sensibility and non-sensibility of sponsoring formats in the asset management area“ (topic area: „distance marketing concepts“ versus direct investor contact, fund boutiques, seed money, etc.) Input, ideas, and suggestions on this topic area are always welcome. Value Investing, Family Offices, and Private Equity thinking are still interesting, probably in April, an event will take place again in Frankfurt with MH-Kurzintro. To come back to Mannheim: The Funds Congress has now developed its ecosystem. Over the years, many events have positioned themselves around the congress itself, many of the exhibitors communicate with their „fan groups“ through various channels. In some cases, other formats are already running at the same time or shortly before the congress (example: 29.1., Fondsfrauen summit). I will be kind enough to host a small roundtable on 30.1. by SIA Funds AG on the topic of commodities (Urs Marti, Alex Rauchenstein). By the way: The Funds Congress also offers professional input from many companies in this area. I believe that this ecosystem of congress offers a special added value to many participants and sponsors. The variety of local service providers in the area of boutiques, investment companies, custodian banks, placement agents, and liability umbrellas is also not often found. If one takes some meaning pregnancy from the formulation of the sociologist Markus Mirwald, one could perhaps find a motto for

  • Frankfurt-Skyline

    Institutional investors are increasingly looking for attractive opportunities in the field of real estate investments outside Germany. Investment boutiques have been attracting great interest from family offices and traditional institutional investors for years in the area of real assets. Markus Hill* spoke on behalf of FONDSBOUTIQUEN.DE with Dr. Patrick Adenauer, Managing Partner of the BAUWENS Group and German American Realty GmbH („GAR“), about the success factors for investments in US real estate. Topics such as market attractiveness, market outlook, and market segments were addressed. Factors such as interest rates, currency, equity, and mezzanine are also discussed. Hill: Many institutional and semi-institutional investors are looking for investment opportunities in the real estate sector at home and abroad. Many of your clients also come from the family office sector. Why do you currently perceive an increased interest in US real estate investments? Adenauer: There are several reasons for the increasing interest of German real estate investors in investments in the USA. On the one hand, positive geographic diversification effects can be achieved through real estate investments abroad. The foreign share of the real estate portfolios of family offices averages 10%, for institutional investors, it is often even lower. Geographical diversification is therefore a key motive and for German investors, there is still considerable potential for real estate investments abroad. On the other hand, real estate investors are looking for desirable returns. When entering the German real estate market, only low returns can be achieved given the current price level of existing apartments. Besides, the long-term outlook in Germany is characterized by an aging society and a less dynamic population development, in contrast to the USA. Hill: In your opinion, what are the long-term advantages of the US economy? Adenauer: We have confidence in the American economic culture, which is characterized by sporting competition, professionalism, and transparency. Also, we value the American entrepreneurial spirit and thus we do not rely on the short-term, but rather on fundamental characteristics and long-term trends. With a 25% contribution to global GDP, the US is the world’s largest economy. Its economic dynamism is sustained and sustained over the long term by a population growth rate that is dynamic compared to Europe. The total population of the USA, currently 328 million, will increase to around 360 million by 2035. This corresponds to an annual growth rate of around 3 million inhabitants. The success of investments in residential real estate is largely dependent on the number of households and demanders. For this reason, we focus our purchasing activities on metropolitan regions with strong economic fundamentals and correspondingly positive population forecasts. In the USA there are around 50 metropolitan cities with over 1 million inhabitants. The population forecast for many of these cities is between 30% and 75% by 2035. For example, the population of the Dallas metropolitan area will rise from the current 7.1 million to over 10 million by 2035. For Germany, the IW Cologne forecasts that Munich will experience the strongest population growth of all German A-cities by 2035, amounting to 20%. By way of comparison: the economic power of the Dallas metropolitan region alone is roughly equivalent to the gross domestic product of Belgium. We are thus investing in individual economic areas within the USA. The USA has the world’s largest investable real estate market with high transparency, liquidity, and legal security. Demographic growth till 2035 in comparison Hill: Which type of property, which market segment, do you find attractive and valuable? Adenauer: We are focused on the acquisition of multi-family houses (Multi-Family) and entire apartment complexes. About one-quarter of the US real estate market is in this investment segment. The demand for apartments, especially in metropolitan areas, is increasing and the trend towards renting instead of buying is still intact. For example, the homeownership rate has fallen from 69% to 63% over the past 10 years. Demand for rental apartments has risen accordingly – and this trend towards urban living is intact. For investors taking their first step into a foreign real estate market, investments in rental apartments offer the lowest level of risk. Housing is a basic need that is relatively independent of economic cycles, and our focus is on well-connected existing housing estates for middle-income groups. Ideally, these show a need for revitalization and repositioning. We leverage value enhancement potential through active letting management and continuous upgrading of the apartment complexes together with our joint venture partners. Even in an economic downturn, we consider this type of use to be safer than, for example, luxury residential or commercial properties. Also, the demand for residential space is largely resistant to the megatrend of digitalization and other disruptive changes. Hill: Will the rise in long-term interest rates in the US perhaps lead to a cooling of the housing market? Adenauer: A rise in long-term interest rates and the associated increase in the cost of borrowing should lead to an increase in initial yields or cap rates. However, we are convinced that the negative impact of a possible further rise in interest rates will be more than offset by the long-term positive fundamental data on the US residential real estate market. A further rise in interest rates is likely to cause the US economy to entice global capital flows, thereby increasing the value of the US dollar. Hill: Aren’t the currency risks „incalculably“ high? Adenauer: Investors investing with us have a very specific desire to be invested in US dollars, also to diversify assets across different currency areas. After all, the US dollar is the most important and fungible global currency. A foreign currency naturally entails exchange rate risks but also opportunities to the same extent. However, investors should only invest capital for US real estate investments that are not needed again in euros in the short term. Hill: Your activities are primarily in the area of direct investments. Apart from this type of investment, are there other alternatives that allow institutional investors to participate in the growth of the US real estate market? Adenauer:

  • Frankfurt-Skyline-Night

    The conference „Germany Institutional Forum“ will take place in Frankfurt am Main at the beginning of December. The independent industry expert Markus Hill will moderate a panel there. Within the topic, Opportunistic Alternative Investments, topics such as investments in hedge funds, private equity, and commodities, and „miscellaneous“ will be discussed. IPE Institutional Investment Editor-in-Chief Frank Schnattinger talked to him about the panel, other conference contents, about Frankfurt am Main and about the moderation of the MH Focus Roundtable „Fund Boutiques, Family Offices and Absolute Return“, which will take place shortly before in Frankfurt on November 27. At this event, the topic of „Family Offices and Manager Selection“ will be discussed closely in connection with the topic of Liquid Alternatives. IPE Institutional Investment: Which topics will be addressed at the conference „Germany Institutional Forum“? Hill: The conference takes place annually and is aimed at institutional investors. A wide range of topics are addressed in lectures and panels: Convertible Bond Market, Macro Outlook, Asset Allocation, Factor Investing, Real Assets (Real Estate, Energy, Infrastructure), and Global Fixed Income. Topics such as opportunistic alternative investments, investments in emerging markets, and the integration of ESG criteria in the investment process for institutional investors will also be discussed. My experience on my panel last year on „Passive versus active management, the edition of an old debate“ is that it can be very controversial. IPE Institutional Investment: Which specific points are taken up and discussed in your panel? Hill: As in the previous year, I do not want to anticipate the content of my discussion and the interests of my panel members. The topic „Opportustic Alternative Investments“ will be at the center of the discussion. Participants will include Trutz Rendtorff, Chief Financial Officer of the Karg Foundation, Marcus Storr, Head of Hedge Funds at FERI Trust GmbH, and Tara Moor, Managing Director at Guggenheim Partners. My experience from other contexts is that the topic offers many starting points for discussion. I experienced Dr. Thomas Rüschen of Deutsche Oppenheim Family Office AG as a moderator at the Private Wealth Forum of the Markets Group in Munich in October. He had discussed the topic more with a focus on semi-institutional investors and HNWIs. Our panel in Frankfurt will focus on the question of which alternative investments can still generate attractive returns for institutional investors in risk-adjusted terms: What role does private equity play in a diversified portfolio? What alternatives are there in the area of hedge funds and commodities? Are there investment alternatives that are perhaps often only accessible with increased due diligence effort and a special know-how network? In the current low-interest-rate environment, the tension between a liquid and non-liquid alternative investments is perhaps also worthy of additional consideration. The role of product packaging could also be an issue. Real assets – direct investment, AIFs, listed equity, these topics could also be of additional interest. In due diligence, one often finds different perspectives in family offices, foundations, and classic institutional investors. IPE Institutional Investment: Do you have a specific opinion on the panel’s topic area? Hill: No, the panelists have their area of knowledge. I can only make suggestions. What I notice again and again is that nowadays the area of liquid and non-liquid products, including direct investments, is viewed much more „holistically“ on the product selection side of institutional and semi-institutional. This can be seen, for example, from the fact that the area of equity investments – especially venture capital and private equity – is also found in combination with the selection of direct investments in the area of real assets (real estate, etc.), for example, and that the specialist areas of investors are also involved in an intensive exchange of ideas within the organisation. An indicator for this could also be that these topics and the experts are often no longer strictly separated from one another, even at specialist conferences, and that there is a greater willingness to discuss them on an „interdisciplinary“ basis. Family offices and foundations, but also pension schemes and consultants, represent a special area here, with „soft“ demarcation from insurance companies or pension funds. Perhaps this impression of this site is also since 2015. I have accompanied small events twice a year with Prof. Dr. Carlos Jarillo as a moderator. As the author of the book „Strategic Logic – The Sources of Long-Term Corporate Profitability“ and manager of a value fund, one of the topics has been frequent before semi-institutional investors: Value Investing – differences, advantages and disadvantages of liquid fund management approaches (classic, more liquid mutual funds) versus non-liquid product solutions (private equity). At the last meeting in Munich, interestingly enough, in connection with my panel topic at the German Institutional Forum, the connection between value investing, sustainability, and the selection criteria of commodity investments were also discussed. IPE Institutional Investment: In the run-up to the German Institutional Forum on November 27, you organized a separate event in Frankfurt on the topic of „Fund Boutiques, Family Offices, and Absolute Return“. What is the focus of your event? Hill: This MH Focus Roundtable is an investor event on a very small scale, which will be held at the premises of MM. Warburg & Co. in Frankfurt. Reiner Konrad from the Multi-Family Office will give a presentation on „Family Offices, Fund Boutiques & Manager Selection“. Dr. Björn Borchers from Warburg Invest will give a lecture on „Liquid Alternatives – Volatility as an alternative source of return“, Manfred Gridl from Gridl Asset Management will give a lecture on „Our response to the ECB interest rate policy“. (See also attached photo). I will give a short intro and moderate the event. It will be a breakfast exchange of ideas in a small group. IPE Institutional Investment: Why did you choose this topic? Hill: Since 2013, I have always been able to accompany panel discussions with fund selectors on the topic of due diligence of funds (liquid and non-liquid). I am also familiar with the field of fund selection from my work, as well as

  • Frankfurt-Skyline

    When it comes to selecting asset managers, family offices, in particular, have been showing an increased interest in fund boutiques for years. Ownership approach, „skin in the game“ and specialisation in this manager segment often meet with a great response from this investor group in particular. Markus Hill* spoke on behalf of FONDSBOUTIQUEN.DE with the Senior Portfolio Manager Reiner Konrad from the Multi-Family Office FOCAM AG in Frankfurt about manager selection and the selection of special talents. Topics such as quantitative and qualitative criteria for the selection of portfolio managers in the boutique sector were addressed. Many of these points will also be presented and discussed in greater depth in Rainer Konrad’s presentation „Family Offices, Fund Boutiques & Manager Selection“ on 27 November 2018 in Frankfurt during an exchange of ideas. Hill: What is the process for selecting asset managers in your company? Konrad: First of all, a brief introduction to our philosophy. In our opinion, there are fund managers for many segments who offer added value and that is also why we like managers from specialized fund boutiques. We only invest in strategies that we can understand and that remains true to their style. When selecting managers, we have no specific minimum requirements for the fund volume. In certain exceptional cases, we also invest in strategies that have a shorter track record than three years, for example. As a rule, we start based on a quantitative pre-selection. The basis for this is the right peer group and the appropriate benchmark. This is then followed by the qualitative process, to which we attach great importance. Hill: Which quantitative factors are important for you in the selection process? Konrad: We look at various criteria. Historical returns over different periods, preferably over one, three, and five years. With this system, we weight shorter periods more heavily. Performance compared to the peer group and the benchmark also seems important to us. Consistency of performance is also an important factor in the selection of managers. Interesting and important with the fund is also the behaviour in different market phases, as well as the upside and downside capture. As risk indicators we use for example active share, tracking error, Sharpe, and information ratio. Hill: Which qualitative factors are important for you when assessing asset managers? Konrad: The investment philosophy and the actual course of the investment process. Who decides in the end? What is the reputation of the company? Who are the leading heads in the company, owners, and also managers? What are the settlement processes and the fee structure? What is the relationship between volume and fee structure? Is there a high degree of style in the management of the fund over time? Of fundamental importance to us are the persons acting, i.e. the fund management. These people are ultimately responsible for the performance of the strategy. In our analysis, we are also concerned with building up a „feeling of well-being“. This positive feeling is very important because we delegate part of our responsibility. We, therefore, look more closely at the education, background, and professional experience of the fund manager and team. How long have we been working together? How is the team made up? What is the division of roles? Who contributes their strengths and how? Hill: Do you make a difference between large established houses and fund boutiques? Konrad: Basically, we do not make a final, hard exclusion in the quantitative pre-selection. However, we do like boutiques, as they usually specialize in certain segments and the access and service are very good. We would like to understand the people behind the strategies. Personal contact with the manager is very important to us here. The boutiques are often backed by fund managers who have already had a successful career with a larger firm and therefore have many years of experience. However, we do always find interesting managers and management teams even in larger houses. I think it’s the mix that makes it special. Like many other family offices, we think that there are a lot of really good fund boutiques in Germany with interesting strategies and very talented fund managers. Hill: How do you use ETFs in your company? Do they represent competition for active asset managers? Konrad: As tactical management of equity quotas, we like to use ETFs in areas where no suitable managers appear on the radar screen. Alternatively, we use them in the transition phase until we have found an active manager for the segment that offers added value through active management. In some cases, it can already be seen as competition. Especially in the large and efficient markets. Added to this are the currently still falling costs and the price war in ETFs. In more inefficient segments, ETFs should be less competitive. We are also keeping a close eye on the „Smart Beta ETFs“ segment. There are some interesting approaches here. Hill: Which topics are you currently working on more intensively? Konrad: We are looking for good bond managers in an environment of rising interest rates. We are also interested in interesting strategies in the liquid alternatives segment. A special segment where we are looking for talents are managers in the area of convertible bonds. As I am very interested in the fund boutiques segment, I will accompany your event in Frankfurt am Main on November 27 with a short presentation on this topic. Thank you in advance for your invitation and the intensive exchange of ideas on this topic in the run-up to the event. Source: www.institutional-investment.dePhoto: www.pixabay.com

  • “More hunter than game” or “to see and to be seen” – these statements often reflect the more or less derogative verdicts of critics at national and international conferences. Frequently, one of the arguments presented is that the “concentration of investors” at many events is too small. Another claim is that both active and passive participants simply utilize these venues for self-marketing: they seek contact with personnel consultants and competitors. These are the less constructive aspects of this critique. What is typically forgotten though are that these events have existed for years and, despite prophecies of doom, provide benefits for participants. The following discussion point seems noteworthy: What advantages do national and international gatherings of the asset management industry offer? What can and what can’t one expect from these formats? Selection: National and International Events Examples of large-scale conferences within German-speaking countries are, among others, the Fund Congresses in Mannheim and Vienna or the Fund Congress in Switzerland. Interesting from an international point of view is also the FundForum International. Event types overseas offer even more interesting formats. Terrapinn, Financial News, Marcus Evans, and others are among the well-known providers for this. All providers, even those in Germany, can be characterized based on quality, scale, and market penetration. Among a group of experts, the reputation can be perceived quite differently as well. In addition, one can identify a large number of national and international providers, including “in-house events” of asset management firms and consultants. IPE, for instance, is an example of a cross-country approach that is sometimes locally known as IPE Institutional Investment. This is merely a small sample selection and is by no means comprehensive in its nature; but, it does show how seemingly “unnecessary” formats continue to thrive. Conference Objectives Similar to scientific and academic conferences, many national and international conferences simply set out to disseminate knowledge within a particular industry. In addition to media, internet, and the likes, these sorts of events can certainly generate an exchange of ideas, discussion, and knowledge. However, over the years, different objectives have started to emerge so that new foci—even combinations of such—become possible: conferences to gain leads for the sale of investment companies. Other objectives could be the maintenance of brand awareness and customer retention. Differences in Expectations: “Professional Visitor” versus Sales Visiting events such as the Fundscongress or the FundForum International, one may be able to draw a first conclusion as to why misplaced expectations can lead to hardly justifiable, negative judgments. If an event organization widely announces that its goal is to bring together national and international industry, it is not too surprising that primarily industry representatives attend the meeting. Any plus of investors’ shares should clearly be seen as an added value to the event. Examples: At a national event, industry primarily meets industry. At an international event (FundForum International) similar structures exist, but what stands out is that over the past years, more and more investors attend the event. Every participant and sponsor must decide for himself or herself what constitutes the optimal mixture of providers and investors. I can only speculate here, but that one or another critic of this sort of event was not aware of this matter in the beginning. Fund Boutiques: The Added Value of International Events for Providers and Investors When one examines, for example, the settings of an international event (“Monaco”), it stands out that interesting individuals or groups from Germany who wish to participate often come with a certain degree of market significance. If firms have departments or divisions for international business development, interest in participation is more likely. (The personal experience of the author addressing numerous domestic fund selectors regarding panel discussions in foreign countries seems to underline this issue.) Companies such as Union Investment, DWS, and Deka observe these events and show their interest. Companies like Universal-Investment in Germany (private label fund launches and sales) and other investment companies such as Hauck & Aufhaeuser or IPConcept could discover, in terms of content, a large network of asset management providers and asset managers who promise interesting subject-matter discussions. These specialized investment companies would, in turn, offer foreign asset managers added value in regard to market entry in Germany—administration or direct sales support. As an alternative to the classical concept of placement agent, the discussion of market processing strategies certainly seems appropriate. Many providers, even in Germany, are not aware of the potential that Europe or “the globe” can offer; for each excellent niche player, opportunity exists—and not just on a national level. In light of border-crossing sales, good times have come for providers and fund initiators. Excursion: Optimizing Potentials and Similarities: Asset Management Companies, Consulates, and Economic Chambers The primary goal of conferences or symposiums is the exchange of ideas within the industry, and ideally, this includes the chance to make business connections. Yet, this depends on the actual number of investors at the event. The typical event structure often reflects the settings found at events organized by consulates or economic chambers: they bring people together through a common topic. These institutions also want to foster business connections, but know the format’s limitations due to resources. In the end, one can lead a horse to water, but one can’t make it drink. Focused approaches to establish contact typically occur through classic sales activities or through bringing suitable providers in. Outlook There are interesting national and international event formats that are credible. Obviously, many asset management companies evaluate the efficiency of event sponsorship. In addition to conferences, this also holds true for special event formats (road shows, investor conferences). However, what seems really important is that there is no “best conference” format; the productive competition among event organizers promises positive change. Valuable though is the clear positioning of the individual formats: industry meets industry, industry meets investor, or a combination of both. A good event should positively contrast from the sort of event about which critics sometimes rightfully say: This event is only about a hairdresser who wants

  • Frankfurt-Skyline

    Specialization in asset management, „skin in the game“ and independence in investment decisions are factors that make fund boutiques interesting for many institutional investors. Family offices, insurance companies, and pension funds often look at different talents in different asset classes. Markus Hill spoke for FONDSBOUTIQUEN.DE with the author of the book „Strategic Logic – The Sources of Long-Term Corporate Profitability“ Prof. Dr. J. Carlos Jarillo about value investing, liquid fund concepts versus private equity, investments in commodities as well as investor dialogue and the SRI factor in investments. Some of these points will be discussed more intensively by Prof. Dr. Jarillo in his lecture „Strategic Investing“ on October 16, 2018, in Munich. Hill: You are the author of the book „Strategic Logic – The Sources of Long-Term Corporate Profitability“. Which topics did you deal with in more detail there? Jarillo: I look at the world of companies and fund management through the eyes of a teacher and practitioner with an ownership approach. Strategy and long-term thinking are factors to which I have always attached particular importance when evaluating corporate concepts. The book contains my accumulated experience as a former professor and holder of the Chair of Corporate Strategy at the University of Geneva. I have also taught at IMD in Lausanne, at the IESE Business School, the University of Navarra and the Instituto de Epressa in Spain. The formative years for my thinking can be found in my time as a Senior Research Associate at Harvard Business School with Michael Porter. Many of my thoughts on the evaluation of business concepts, competition analysis, and also on the topic of „Economic Moat“ and Value Investing can be found in a condensed form in my book. It was important for me to use many practical examples, especially since I was also active in management consulting for many years. Hill: What were your next steps after you became a professor and author? Jarillo: The step from theory to practice came about when I became the founder and managing partner of my company „Strategic Investment Advisors“. My conviction has always been that a good corporate strategy has a long-term impact on the profitability of a company. In 2002 I launched the „Long Term Investment Fund Classic“. Since then, the fund has generated an average performance of 9.2% p.a. Admittedly, one reason for the launch was also that I was somewhat frustrated by the behaviour of many of my students, who, after my lectures, were given a good basic framework for building a successful corporate strategy, but often „forgot“ many of the theoretical things again after entering the real world. With my fund, I wanted to prove that my considerations are also relevant and feasible in practice. Two years later, co-manager Alex Rauchenstein, a former participant in my MBA executive courses, also joined my team. Especially with projects like these, it is important to retain the right people in the company. Over the years it has been very interesting for me to see how my thoughts and conclusions from the book can be transferred to portfolio management. Hill: How would you describe your investment approach? Jarillo: We would describe our approach as Strategic Value Investing. We are clear bottom-up stockpickers. The current stock market situation is not very important for us. We think long term, we evaluate business concepts, strategies and look for special stocks with expected high returns at moderate or low risk. For this purpose, we have our own system with risk levels. Over the long term, we aim to generate a performance of between nine and ten percent per year. If you manage to filter out the right companies over the long term and, as with private equity investors, ignore the daily, often irritating „noise“ of the stock markets, then these results can be realistically achieved on average. We live the ownership approach in the fund, so to speak. In contrast to classic private equity funds, we benefit on the one hand from the daily liquidity in our mutual fund, although we view investments in companies in a similar way to a private equity investor. In contrast to classic private equity fund managers, however, we feel the „whip of transparency“ here in a timely manner. Hill: Your team also manages a commodity fund. Value investing and commodities – how does this unusual expertise come about? Jarillo: We look at business models that are designed for the long term. In our value fund, for example, we have also had oil production stocks for some time now, after consideration by our risk management system. Some time ago Urs Marti from asset manager Felix Zulauf joined us with his expertise in commodities. With our team, we can bring our special expertise in commodity stocks, which are also included in the Value fund in small quotas, to bear even more strongly. I am also supported here by Alex Rauchenstein and Marcos Hernandez. The fund (Long Term Investment Fund Natural Ressources) is currently ranked 4th out of 139 commodity funds by Citywire for 5 years and has 5 stars by Morningstar. At SIA Funds we are always looking for opportunities to pool our expertise and networks. We have been in good contact with Urs Marti for many years and had a fruitful exchange of ideas, sometimes certain things come together. Long-term thinking is in the foreground. After all, we are invested in our fund with our own money. Hill: Are there investors who particularly appreciate this rather patient investment style? Jarillo: We have investors in various groups. Pension funds, banks, foundations, insurance companies would be those with a more institutional view. There are also value investing fans here. Our most loyal clients are often family offices, and we have noticed this more and more over the years. Perhaps this is due to our long-term thinking and our affinity for entrepreneurship. This is also where we come full circle with our company. We are also characterized by the ownership approach: a personal commitment of employees to the

  • Frankfurt-Skyline-Night

    “Little by little, the bird builds its nest.” The expression probably reflects an experience all too familiar to many asset managers and other fund initiators when it comes to collecting seed money. Knocking on people’s doors in connection with a possibly high rejection quota seems part of the business. Similar to the areas of project financing or venture capital, this “uphill grind” appears mandatory, regardless of whether it deals with open or closed funds. Clients (family offices, banks, etc.) often find it difficult to recognize the direct use that is largely a result of the efforts involved. Markets are satiated and talented fund managers exist only in finite numbers. Newcomers have a difficult time and well-established firms frequently require great measures to buy investors’ interests in particular product concepts. Happy are those fund initiators who have done their homework—others must travel rough roads. Failure and high costs are not excluded. Product development—does one often put the cart before the horse? Investment companies such as Universal-Investment, IPConcept, or Axxion are typically a first point of contact for fund initiators in the area of open public investment funds. These usually offer great sites of know-how in terms of product conception. But the German Association of Independent Asset Managers (VuV) is also a good, first point of contact. Investment companies execute product checks prior. Here as well, salt is put in the wound: Is there one or more initial investor for the fund proposal? The product idea seems often primarily driven by the excitement of fund initiators over new income possibilities. Consciously or subconsciously, investors’ interest appears to take second place. This reality often catches up to asset managers and fund initiators of closed fund areas during road show events for seed money search. Not only is the fund industry dominated by this mechanism of product development, but products and thus also fund products are typically sold rather than bought. Institutional investors and retail investors aren’t easily fooled in the short or long run: current discussion on the quality of certain absolute-return approaches or the strong growing number of “fund duds” (keyword: flat rate withholding tax conjunction) emphasis this situation. Asset managers: Focusing on core competencies Experience in seed-money search shows that slowing project or projects that last a long time have some points that certainly warrant a closer look: Were investors involved in conception? Does one even have added value for investors in this context? An asset manager can offer excellent services for private clients and still be considered a mediocre fund manager. The total package counts. Private banking units of some well-established firms showcase it—whatever the client perceives as useful counts. Should the same asset manager show interest in income possibilities in the field of institutional investment and express the desire to enter the fund initiation adventure world, unpleasant experiences in terms of increasing frustration tolerance level and the ongoing facing of project management stumbling blocks are seemingly preprogrammed. The sheer number of fund projects with funds that hardly any investor finds appealing or whose concepts are deemed interchangeable document this odyssey. The grass isn’t always greener on the other side of the fence! Impatience, opportunism, “tinkering around”: Belief in magical contacts Fund ideas typically mature slowly; all too often, they are brought into the world too quickly. One current trend (flat rate withholding tax, UCITS-Umbrella, sustainability, etc.) is identified—“We can do this too.”—and immediate action taken. Seed investors must be found. What does this look like in practice? Just like what happens in regular sale circumstances, one addresses personal contacts first. Acquaintances, family members, or friends are next, and they in turn address additional friends and associates. Next, a time of disillusion sets in and a phase of opportunistic lookout for potential investors begins. Consultants are contacted; if these are respectable, they characteristically point out that fund initiators are “beating a dead horse.” Nobody likes to hear this, and it obviously hurts one’s pride. Isn’t there a magical man somewhere in this industry who has all desired contacts and can immediately fill the fund’s volume on the basis of an excellent network? Doing your homework is half the rent—patience, budget, and fortune Experiences based on successful seed processes show that many factors work hand in hand. Possible hygiene factors are management expertise, infrastructure, and network. Much more important is the timely development of new networks in terms of subscription period; ideally, this should have happened to the start of the fund project. Nothing vanishes faster than a seed money confirmation before the end of the subscription period; having a plan B ready is certainly an advantage. As it happens in life, “hot” projects often get “caught on the fence” and lose steam. Projects that are deemed successful are typically characterized by a realistic timetable in combination with a well-thought out, creative multiplier or networking strategy. How do I identify investors in a given time period who appreciate the conceptualized project and are willing to invest? Successful seeding candidates practice one virtue uncompromisingly: systemization in combination with the art of drilling thick boards! Source: www.institutional-investment.dePhoto: www.pixabay.de

  • Frankfurt-Skyline

    Renewable energy, agrarian investments, forestry and various other real asset components (“tangible assets”) have meantime assumed mainstream character in daily reporting. Controversial discussions on the so-called energy transition in Germany take place every bit as regularly as discussions in the specialized press about attractive investment possibilities and about adequate product packages. The industry provides attractiveness points for investor groups. A group which appears to be one of the more attractive is the Family Office. A question which arises: Do we barge through open doors with vehemence in the product presentation of real asset products on the part of the product provider from home and abroad? Situation regarding Decision Investment fields such as renewable energy (wind power, solar energy, bio fuel, etc.), infrastructure, real estate and forestry and investments in the agrarian sector are so designed that they generally remind us of project financing or, respectively, direct investment, when less attention is paid directly to the well-known SRI investment instruments such as stocks, pensions and funds (advantage in transparency: databases, research – disadvantage: discussion on criteria). In summary: in the case of complex investment structures and where there is a lack of industry know-how, many product deciders from Family Offices regard this as a kind of black box: If I invest in one project or in a bundle of projects, then the investment is often “entrepreneurial” with an additional component of illiquidity (at least on a temporary basis). The management qualities of domestic and foreign product providers must be evaluated. Industry-related characteristics must be taken into account. Product packages must also be rated. A reduction in complexity in the product selection process appears to be necessary. Family Offices and Risk Management In discussions with representatives of Family Offices in regard to classic investment products or apparently new real asset product variations, it quickly becomes clear that long-term orientation in the investment policy, “moderately realistic” yield expectations and more consideration given to risk management form the core of the product selection process. Assets already generated are to be retained. This does not necessarily contradict the growth target. It is possible to agree on a value which equals the real inflation rate and the factor “x”. Growths stemming from operative activity at a hectic pace in decisions on allocation or blind allegiance to products are both out of place here. For the responsible administrator of his client’s assets, the motto here is: strength is born of calmness! Regulation and Risk Management Current trends in the field of regulation are completely in line with the priority in risk management in Family Offices. Catchwords here are: AIFM, closed-end funds. Many of the aforementioned real asset investment offers are currently offered under the product heading of closed-end funds. As a result of the AIFM guideline, fields such transparency, outsourcing, organization, safekeeping and equity capital are found at the center of discussion. Product providers in this field currently have to check their own business model. In future, classic investment companies such as Universal Investment, Hauck & Aufhäuser, Union Investment, etc., will gain in importance in this particular sector. As a result of the current density of regulation in the investment company sector and as a result of their experience gained at numerous funds locations together with their know-how in regulation and reporting in the real asset field, investment companies qualify to an ever-greater extent as suitable discussion partners for institutional investors such as, for example, Family Offices. Outlook: Constructive wait-and-see attitude and the process of discovery Domestic and foreign product providers in the field of real assets currently appear to be stimulated to greater activity through earnings pressure in the case of certain circles of investors and in product provider circles. In communication setting in Family Offices and providers it is often forgotten that product deciders, too, are only people who also have to deal economically with the factors of time and communication. This can lead to frustration on both sides. Product sales requirements often stand in contrast to the needs of the investors. As the range of product variations in “real assets” also represents a discovery process in regard to know-how and the selection process (e.g., internal or external?) a variation favoring a gain in time can be chosen for the mandates of some Family Offices: investments in real assets – “constructive wait-and-see attitude” as the path to the organic development of know-how! Source: www.institutional-investment.dePhoto: www.pixabay.de

  • Frankfurt-Skyline

    “What is the truth? A flexible army of metaphors. There are no facts, just interpretations.” (Friedrich Nietzsche) Perhaps it is a daring statement by Friedrich Nietzsche, but perhaps it is, occasionally, also a status description of the areas of investment market projection or portfolio management. Those people, who label the study of national economics as a “pseudo science,” point toward the financial market crisis and the significance or non-significance of investment market projections. The Golden Mean – Not Always the Wrong Approach Realistic expectations can do wonders at times. Between damnation of investment market projections or market assessments in the area of portfolio management and indiscriminating faith, other points of view exist. As much as the banker is not the guarantor for the outperformance of all client portfolios, the projecting analyst is not the keeper of the truth and wisdom grail either. Both professions know their trade, methods, and utilize particular “thought constructions” – no more, no less. Constructively viewed, enlightenment, risk management, and asking the right questions could be a demand for the profession. And, of course, there are good bankers and good financial analysts, despite all the bad press. Frankfurt Impressions – Round Table and Presentations What can lower expectations of financial analysis and portfolio management lead to? The institutional investor, for example, may lose his or her illusion that a third party’s assessment and projections can actually replace his or her own investment decision-making process: decision making, defining asset allocation, and developing one’s own (!) market prognosis. Based on personal experience with panel discussions, presentations, and based on direct “project exchange of thoughts” with investors, it is amazing that many market participants increasingly realize the value of “research,” market projections, and trend analysis of independent asset managers. Fund boutiques private label fund initiators of investment companies such as Universal Investment, Hauck & Aufhäuser, IPConcept and many others will have to face this challenge. Next to the performance criterion, an interest in alternative sources of investment market observation exists for investors. Creativity is called for; know-how adds to customer retention; opinions are important: “Where nothing is true, anything goes” (Friedrich Nietzsche). Source: www.institutional-investment.dePhoto: www.pixabay.de

  • Frankfurt-Main-Skyline

    Decision-making structures in consulting, investment and asset allocation in the family office sector are viewed with great interest by product providers and investors. In the market segment Multi Family Offices, too, know-how is being continuously expanded in the area of liquid and illiquid products. Markus Hill spoke on behalf of FONDSBOUTIQUEN.DE with Dr. Christoph Pitschke, Head of Real Estate and Investments, Deutsche Oppenheim Family Office AG, about the in-house advisory process, strategic asset allocation (SAA), asset reporting and topics such as real estate investments. In addition, topics such as the selection of products such as liquid funds, private equity and venture capital, club deals and the current development and increasing importance of ESG, SRI and impact investing were also addressed. Hill: How does Deutsche Oppenheim take illiquid asset classes into account when advising families? Pitschke: As a multi-family office, we advise our clients with a cross-generational view of their entire assets. For us, the central instrument of asset management is the so-called Strategic Asset Allocation (SAA). This divides the investment universe into different asset classes with their respective desired investment volumes and risk/return profiles. By simulating expected values for individual asset classes in terms of risk and return, asset allocations are determined for the entire portfolio together with the client families. Based on the SAA, a dedicated strategy can be defined for each asset class, which we implement together with our clients. The basis for cross-generational asset management is efficient asset reporting. This is our core service with which we primarily reduce complexity, which is more or less pronounced in the case of large assets. One of our strengths lies in the fact that our real estate and investment reporting also allows us to precisely depict illiquid asset classes in our total assets. Experience shows that ongoing reporting provides the right framework for strategy implementation and efficient real estate management. The individual consulting segments are available from us in their entirety, but also individually, i.e. as modules. Figure 1: Modular consulting and service approachSource: Deutsche Oppenheim Family Office AG In regular discussions on strategy and asset reporting, we have repeatedly received requests from our clients in recent years to invest in tangible assets and especially in real estate. With a portfolio share of around 20%, high net worth individuals are much more heavily invested in real estate than most institutional investors and they continue to buy rather than sell. Hill: How do you select real estate objects in-house? Pitschke: Crucial for successful real estate transactions is an understanding of the client’s initial situation and target system. As is also usual in institutional business, we first try to define the defined strategy together with the families, quasi as “investment guidelines”, and also write it down. Here, our aim is to determine exactly where the property should be located, what type of property is being sought and what investment size will be involved. On this basis, a targeted search for the right property is possible. This enables us to select incoming offers in a structured way and also to contact potential sellers. When acquiring individual, directly held properties, however, it must be questioned to what extent efficient diversification is possible at all when building up a property portfolio. In this context, we discuss with our clients again and again whether a diversification or a focusing strategy makes sense. Our experience is that many families do better with a focusing strategy on one or a few locations and on one sector than with a multi-sector and multi-site strategy. However, the premise for this is that the locations on which one concentrates should offer long-term value stability, e.g. through sufficient population growth and attractive micro and macro locations. Similar to the structure of a securities portfolio with individual securities, each individual direct investment raises the question of the risk and return impact on the overall portfolio. According to modern portfolio theory, diversification can reduce the so-called unsystematic risk, whereby the market risk (systematic risk) is given and cannot be eliminated by diversification. The asset class of real estate is characterised by the above-mentioned characteristics and is therefore characterised by a higher, unsystematic risk. Fisher/Lorie have shown for equity portfolios that a reduction of unsystematic risk, measured as the annualised standard deviation of the portfolio, of approximately 95% can be achieved with just 20 individual stocks. By contrast, building a well-diversified real estate portfolio on the basis of direct investments requires a significantly higher number of individual securities. The development of a directly held real estate portfolio is associated with a direct real estate management task. This can be provided from the personnel resources of the foundation administration itself by setting up its own administrative apparatus or purchased externally. The development of a directly held and managed real estate portfolio is always associated with effort and corresponding costs. It has been shown that direct investment in individual properties is often less suitable for most private investors and foundations, both in terms of diversification and cost/benefit aspects. In this respect, I am happy to quote the US real estate economist Anthony Sanders: “Holding a poorly diversified real estate portfolio is more costly than holding a poorly diversified stock and/or bond portfolio”. To avoid cluster risks and to achieve efficient risk reduction, an alternative investment path is the indirect investment path via involvement in alternative real estate investment funds. Indirect real estate investments can be used to achieve efficiency benefits through economies of scale and better capital allocation due to information and specialization advantages. This has been observed among private and institutional investors and it can be observed that fund solutions have also regained in popularity and trust after the comprehensive new regulation. It can be observed, for example, that funds regulated by the KAGB and also Luxembourg fund solutions, such as the new RAIF (Reserved Alternative Investment Fund), are being well received in order to better diversify property assets. Hill: How do you proceed when selecting investment funds? Pitschke: We also use our modular approach

  • Frankfurt-Skyline

    “Reality is what it is. We do not create reality, yet we can still try to discover and transform it.” At first glance, this highly disputed quote by philosopher Hans Blumenberg may sound simple and understandable. An examination of regional and national network structures of providers and investors within the asset management industry can lead to interesting conclusions. Studies and case observations can often provide first clues as to why many product providers are either successful or fail. If, for example, one looks at private label funds and fund boutiques, more such interesting conclusions can be drawn: Should only the cold, hard facts count during the selection process of service providers or managers (fund advisors)? Asset Managers and Communication The aforementioned phenomenon is also applicable to the selection of the proper investment company for one’s own fund selection or for the selection of the “right” sales employee, consultant, or external service provider. Social relationships and networks affect selection behaviors—this point is frequently forgotten during trade discussions. The asset management industry is dominated by numbers, and there is a clean process that results in the selection of ideal products and service providers—or so they say. In reality though, on a small or large scale, things may look different. In all likelihood, the fund industry is not strictly ruled by computers or “robots in human disguises,” but has rather fine nuances. Human meets computer, but human also meets human—communication is the grease that keeps things running smoothly. The existence of media, conferences, and personal contacts seems to suggest that less calculable factors also play a role in the selection process. Private Label Funds and Investment Companies Obviously, hard facts such as market position, cost structures, and measurable service packages are key factors for the selection of investment companies for private label fund launches. The chosen approach of fund initiators for the launch of a new fund can vary: if one has previously satisfactory launched a fund, the same, “old” investment company (e.g., Universal Investment, IP Concept, Hansainvest, etc.) could be approached for the new fund mandate. If sufficient experience is missing, the popular way of getting cost estimates and selecting the “cheapest” companies for further interviews is typically chosen. Based on personal experience, I wish to point out that the seemingly most cost-efficient provider is not necessarily the best fit for the fund initiator and his or her project. The shock and clean up (maybe even change of mandate) or quiet acceptance of one’s personal bad decision is an all too common experience in practice. Another possible way, but also a very resource intensive one, is the systematic “inquiry” of the investment companies’ service packages—not in terms of mailing questionnaires, but in the sense of systematic investigation of the answer to the pertinent question: Is the investment company a good fit for me personally and my skills as fund initiator? Staff Quality and Staff Motivation: The Often Underestimated Factor During the systematic process (quantitative, technical, and qualitative), a key point is frequently forgotten: the quality of staff of the investment company. The account manager is pivotal for the fund launch in this context. For example, if the account manager is familiar with different asset management approaches, and if he or she is highly motivated, he or she can work out fund launch approaches that seem rather “complex” at first. A potentially important, sale-related technical point is whether the account manager has personal experience and communication with fund-of-funds managers, private banks, and family offices and can quickly determine the product potential. Here, the “human touch” is at work—soft factors so to speak. At this point, the fund initiator’s capability to gain internal and external experience with different firms counts, so that unwanted surprises are warded off. This factor is also relevant to other, even technical or administrative, issues. Conclusion In addition to simply inquiring about estimates with investment companies, some potential fund initiators could benefit from some basic homework before their fund launches: the selection of the relevant investment company based on qualitative, soft factors. In hindsight, this approach often pays off—the “cheapest” provider does not have to be the best. In the end, getting to know one another better brings not only joy but can make a big difference; this is especially true in light of the fruitful client-provider context. Source: www.institutional-investment.dePhoto: www.pixabay.de

  • Macro-economic forecasting, value-investing and asset management are often seen as distinct fields by DACH region institutional investors. Carsten-Patrick Meier, managing director of Kiel Economics and former head of the German economic forecasting unit at the Kiel Institute for the World Economy, thinks comprehensively about these areas. On behalf of FONDSBOUTIQUEN.DE, Markus Hill discusses portfolio management, Big Data, expectations formation and risk management with him. Subjects such as quantitative investment strategies, beauty contests, financial valuation ratios and statistical methods are also touched upon as are the pros and cons of rule-based investing. Hill: What is the role of asset management in the economy? Meier: Professional asset managers direct capital from savers to investors, i.e. from where there is a surplus to where it is scarce, not unlike banks do. They continually obtain information and, on this basis, decide which investment projects their capital is allocated to. Additionally, they provide liquidity to markets: For instance, when savers want to sell off shares after a crash in order to adjust their portfolio to their personal risk preference or regulatory requirements, asset managers take up the other side of the deal. By buying these assets, they allow these transactions to be carried out. For this provision of liquidity, they are compensated by the market via higher average returns. Thus, in the economy as a whole, more capital can be utilised which increases productivity and, in addition, wealth can be transferred to the future in a profitable, diversified, and liquid way. Hill: As an applied business cycle researcher, do you have a distinct view of the financial industry? Meier: The macro-economy and financial markets are related via corporate earnings. In the long term, stock prices can only grow to the extent of overall nominal GDP growth. In the short term, modern capital market theory holds that the price level in the stock market is determined by corporate earnings multiplied with the “stochastic discount factor” that depends on the state, the world is currently in (e. g. risky or not-so-risky). The business cycle affects both of these terms, earnings and the stochastic discount factor. In business cycle forecasting as well as in capital market strategies, an essential building block are predictions about macroeconomic phenomena and the decisions which follow from those predictions. In applied macroeconomics these decisions relate to the policy choices of central banks and other economic policy makers. In active asset management they are trading strategies and trading rules. The theoretical foundation is largely the same in both disciplines as are the statistical methodologies. The data do differ along some lines but not fundamentally so. A major difference is that risk management plays a much larger role in asset management than in applied macroeconomics. Hill: Is a good business cycle analyst automatically a good capital market strategist? Meier: Yes and no. Yes, because business cycle analysts with an academic background are always “quants”, too. The quantitative skills that currently make freshly graduated econometricians attractive for Google and Facebook are also applicable in the classic “big data” field of capital market analysis. Adding to this, business cycle researchers are sensitive to the intricacies of macroeconomic data. Which data are available, how and since when have they been collected, how often and at which frequency are they being published and revised, etc. Hill: And why not? Meier: Because a macroeconomic world view does not automatically translate into a valuable assessment of capital market dynamics. This notion can already be found in chapter eight of Graham and Dodds’ “Security Analysis” of 1934 and it is just as relevant now as it was back then. Markets are typically ahead of the overall cycle of the economy. For this reason, future market movements that have not yet been priced in can only be derived from a macro prediction about an even longer forecast horizon – which is, of course, even more uncertain than the more short-term predictions. Additionally, the co-movement of the macro-economy and stock prices are not that close. In Germany since 1950, the highest correlation between the yearly DAX return and the nominal growth rate of GDP can be found with a lead (!) of the DAX before GDP by one year, with a coefficient of about one third only. Hill: Why is that? Meier: Keynes explained this with his game-theoretic parable about the “beauty contest”. In a competition, a prize is awarded to the person who chooses from a number of photos the one selected by most of the other participants as the most beautiful. The winning strategy in this game is not to choose the photo according to your own taste, but according to the presumed taste of the majority of participants. It is similar with regards to the correlation between economic forecasts and capital market predictions: In order to forecast the trajectory of the market, it is more important to anticipate what the majority of market participants believe about the development of macroeconomic production, price levels, corporate profits, etc., than to know the actual future development of these variables. In short: expectation beats reality in the forecasting of asset prices. This is the subtle difference between business cycle research and macroeconomic capital market analysis. Hill: What does this mean for the choice of market strategy? Meier: It means that the focus must be on variables that reflect the expectations of the different capital market players. Surveys of market participants like the Sentix survey in Germany or Gallup or Duke University’s CFO survey in the US can be used as direct indicators of expectations. In addition, there are surveys on the broader economy, such as those of ifo, DIHK, or GfK, but also macroeconomic forecasts – although the market opinion ought to be more important than the one’s own assessment. Furthermore, classical valuation ratios such as the price-earnings ratio, the price-to-book ratio and other ratios derived from balance sheet and investment data, calculated for the market as a whole, are also suitable for market timing. Hill: How do you deduce market dynamics from valuation measures and expectation indicators? Meier: Here, time series come in useful. For example, if

  • “One should not search for anything behind the phenomena. They themselves are the message.” (Wilhelm Meister’s Journeyman’s Years, Goethe). On many occasions, many initiators of funds can hardly believe their eyes when some time after initiating their fund the situation is as follows: set up fund, employ marketing man and scarcely any growth in volume. A typical reaction in a development of this kind is to immediately replace the marketing employee or a make a hectic change in marketing strategy, for example, “from tomorrow on we will concentrate more on the institutional customer segment”. Another reaction could quite well be to examine our own approach critically, even going as far as to rethinking our own business model. For example, there are relatively large numbers of fund managers, family offices and other initiators of funds who may have found a successful strategy limited to the private customer sector – or who have quite simply followed a simple and possibly boring path to success. Investment Companies and the Bottleneck Factor Many initiators of funds regard investment companies such as Universal-Investment, Hansainvest, Axxion and others as being the first place to contact in the conception and introduction of a private label fund. Here, however, a critical bottleneck factor is often the subject of seed money and that of marketing. These are often areas which are incorrectly regarded as being too strongly related with one another. If we take the first step of regarding the subject of seed money as being solved, then the marketing question arises for the initiator of the fund – and this is the area in which we start flailing about. On the one hand, the dialogue with the “service units” of various investment companies can be started (for example: Universal-Investment/UVS, Axxion in “special cases”, etc.). On the other hand, work is often undertaken in developing our own marketing apparatus. In many instances it is worthwhile discussing the sense and purpose of this development. Marketing in the case of funds boutiques – three possible questions Areas such as marketing and the role in the marketing mix can be broadly discussed. At this point we can ask three simple questions on the subject of marketing:1. Does the initiator of the fund have the right man for marketing?2. Does it make sense to expand marketing?3. Is there an alternative way of promoting marketing? Something to note: in the funds boutique segment it is often forgotten that three major factors for success are depicted by the parameters of performance (risk adjusted), marketing and PR. It is also interesting to note that many initiators of funds like to talk about hard factors for marketing success (number of telephone calls, number of appointments, etc.) or the PR success (articles – where and how often published, etc.). The performance factor which is relatively easy to measures is freely and tolerantly discussed especially in the case of “marketing blockades”. As stated in the quotation from Goethe above, it is often the case: the market has often reached its verdict on the manager, but he does not want to hear it. Perhaps it easier to save face by placing the blame on marketing. On a long-term basis, however, this approach is perhaps far less than optimal. Myth of Marketing “A good marketing man can sell anything” – a statement of this nature should be examined more critically especially in institutional/semi-institutional marketing. If investors orient themselves on hard facts (performance/volatility/track record) then even the best marketing man has no easy life. “Appointments, appointments, appointments” means that for a fund with insufficient performance the marketing man is a good relations manager and gets any number of discussions over a cup of coffee. It is by no means certain that the resources will automatically flow for the fund initiator as a result. On the contrary, – when “sales” is too penetrating this can result in the marketing employee landing in the investor’s drawer for “sales with footsore products” and is no longer put through the next time there is a telephone call. Sometimes we really have to admire the courage and the stamina of some marketing men. A possible subject: in the case of numerous supposedly unsuccessful marketing staff what we end up with is – that it is in fact really the case of a “bad” product. For this reason, it is often more the case of figures and benchmarks than the appearance and quality of the new lounge suite! A lot helps a lot – or it simply fizzles out Funds with insufficient quality (i.e., average to poor manager performance) will nevertheless prove successful under certain circumstances in the retail sector when entering large marketing networks, depending naturally on their definition. When a “small” fund initiator expands his marketing team then this ends generally only in a development in cost structures. It often happens that we continue consequently along this wrong path. The complete opposite – successful, established funds boutiques in the institutional market: product quality is good to very good, funds initiators among the institutional are presentable, and, in optimum cases, there is a high degree of attractiveness for the media as a result of the expertise available and an above-average interest in communication. A possible assumption: a lot helps a lot – but only in the case of those who have a lot to offer! Alternative Paths Many initiators of funds who wish to enter institutional marketing to a greater extent with “good” products should begin by asking themselves the question of whether they are long-distance runners or whether they are sprinters. Simple things are often quite good: before deciding on whether or not to expand marketing activities, we can begin (internally or externally) by speaking to an appropriate number of investors. As a rule, a typical widespread questionnaire action by specialized companies does not replace the personal discussion with and the feedback from potential investors. Research can make sense, but nevertheless it has its own particular place in the process chain. It is always surprising

  • From the 11th to the 13th of June the FundForum International will take place in Berlin for the third time. The independent industry expert and IPE Institutional Investment author Markus Hill will be hosting a panel discussion this year again. The topic he will be discussing is of asset management, due diligence in connection with the areas of ESG, impact investing and asset allocation with decision-makers from family offices. He will also host a panel of family office representatives in Frankfurt on June 19, 2018 at the funds excellence. Here, too, the topics of asset management, risk management and portfolio management know-how are discussed as in practice. Already in April of this year he moderated an event with Professor Dr. J. Carlos Jarillo („Strategic Logic – The Sources of Long-Term Corporate Profitability“) on the subject of value investing and private equity, which also discussed one of the central issues of ownership-based approach to fund boutiques and family offices. Editor-in-chief Frank Schnattinger spoke to him about these current topics, their connection and topics that could be discussed more extensively while keeping in mind of past or future events at family offices and Asset Managers. IPE Institutional Investment: In June, you will moderate your panel discussion on family offices and due diligence in the asset management sector in Berlin and Frankfurt. Which topic will you address in Berlin this year and who are the participants? Hill: FundForum International will be held in Berlin for the third time this year. In the last three years, I moderated panels with fund selectors in Monaco. Like in the past years the topics of due diligence, manager selection and product selection will be addressed again. In 2017, topics such as impact investing, fund boutiques and co-investments as well as the topic of club deals were discussed. To be noted at this point that the discussion is increasingly distancing from pure liquid products towards more not liquid approaches, up to direct investments. I say this on the fact that the FundForum International is indeed one of the largest fund-related events worldwide, covering liquid funds. I have observed the product world in the last years and keeping this in mind, we will once again address topics such as due diligence, ESG, SRI and impact investing this year. The intensity at this point is to be discussed together. How do I choose a liquid product? How do I choose not a liquid structure, like a direct investment? Where do similarities exist in the process, what are the differences? What are the consequences for asset allocation? To be fair, one should also say that in the areas of ESG and SRI, also impact investing, many product selectors themselves are in a search process. To the question: Are we talking about fashion or mainstream? I am looking forward to the discussion with Thomas Rüschen (Deutsche Oppenheim Family Office AG), Antje Biber (FERI Trust), Christoph Kind (Marcard, Stein & Co.) and J. Christian Stadermann (Logos Patrimon). IPE Institutional Investment: After the FundForum in Berlin, what topics will you be addressing at the panel in Frankfurt am Main at the funds excellence? Who will discuss with you in Kap Europa? Hill: In Frankfurt, we will discuss topics like portfolio management, risk management, product selection and transparency. Specifically, the question will be in the direction of: Are family offices the better asset managers? Of course, a daring presentation, knowing that it’s a total challenge. At least the topic can be discussed in a structured way, allowing a discussion as to, what customers expect from a good portfolio management. In addition to the point, if family offices – pro and contra – can and should use own products for customers. What are the advantages, what are the disadvantage of „skin-in-the-game“ in family offices? In general, it is also about how to operate a portfolio manager / customer expectations, how to select products and, of course, we will also talk about fund boutiques. Ownership approach, family offices and independent asset management – there is always a common connection with the discussion. An interesting point, not yet voted on, could be: How do family offices become aware of interesting independent adresses? But I do not want to prejudge the discussion here. It is also always important to me that the panelists feel comfortable with the topics. Participants in Frankfurt will be Beat Guldimann (Barometer Capital Management), Dr. Ing. Dirk Rüttgers (Do Investment AG), Matthias Jörss (Landert), Christoph Weber (WSH Deutsche Vermögenstreuhand GmbH) and Cyrus Moriabadi (Martagon Family Office AG). IPE Institutional Investment: Starting from the topics of the panels mentioned above, do you see any other issues that could be discussed? Hill: The time is very limited during panels. Often a constructive stripe of thematic fields, one cannot really discuss in depth. In my opinion, this is not the purpose of such events and to over claim it. For the past years, I have been moderating various panels with family office representatives, where I have received ample feedback on fund concept. The exciting thing for me is usually the exchange of ideas at the professional level with the panelists, in front of the panel, or often afterwards. I noticed that there is a lot of knowhow on the family office side. Their approach for selecting products and managers is cautious and astute. Many a times one finds a very pleasant, sympathetic form of humility. What do I mean by it? It is often openly admitted that in some areas not everything is covered. Many of the representatives in the product selection area have to cover different areas for the principal, in this case, of course, this is very pronounced in the field of single family offices. Often, the selection of target investments is not considered in isolation. In the real sense, it does not hurt to look out of the box. Liquid funds, AIFs, other types of securitization but also direct investments are not considered as a completely separate area. Club deals or co-investments are not so much a technical, issue but often

  • Frankfurt-Skyline

    “It is good to rub and polish our mind against that of others” (Michel Eyquem de Montaigne). Frankfurt am Main, as a city, always offers sufficient reason for rubbing and polishing. On the one hand, against the background of topics such as Brexit, ECB policy, and the financial industry, the importance of the business location is given priority; on the other hand, the city is often wrongly accused of lacking attractiveness in areas such as culture and quality of life. Controversial views invite dialogue, so far so good. Frankfurt’s qualities as a central location and multiplier are undisputed when it comes to topics such as financial communication and financial industry events. In addition to well-known formats such as the BVI Asset Management Conference, Institutional Money Congress, or formats such as the German Equity Forum, there are a large number of lesser-known, smaller events. What are the differences between certain formats? When and where in spring will value investing fans enjoy and enjoy the exchange of ideas in the Main metropolis? Formats of events 1. education & networking Some events serve the exchange of ideas from industry to industry. Here the focus is more on expanding know-how and networking with participants from the financial industry. Especially for sponsors of such events, it is important at the beginning to sort out the exact character of these formats. Otherwise, the normal impression is created here: “More hunters than a game”. An investor then sits, so to speak, between three sales employees of product suppliers. A dialogue-free of compulsion and open to results often cannot develop here. One feels the intention and is upset. This is one of the reasons why many “real” investors increasingly stay away from such formats. A problem that many classic event organizers, not only in Frankfurt, have to struggle with. It is an unfortunate trend, as many of these formats offer very high-quality lectures and panel discussions. For sponsors who like to exchange ideas in the industry or who are looking for more visibility, these formats offer a good platform. The professional audience can be grateful if a “public-interest” task (diffusion of knowledge) is taken on by financial market players here, so to speak. A disadvantaged group of sponsors is often foreign companies that have not thoroughly screened the market here and in the end unintentionally spent a substantial part of their marketing budget on large-format educational events, although they wanted to invest in business development. Visibility and market research seems to be less in demand for many of these addresses. What seems more interesting to these providers is the targeted, direct contact with investors, who are expected to sign “tickets” in the foreseeable future, once a relationship of trust has been established. This is a purpose for which many of the large events are not actually intended and with which the organizers can generally be overburdened. The support of “formats with a high scattering loss” is no problem for major players from abroad, companies with boutique character will lack the sustainable financial strength after a while to be able to pursue a market entry strategy in the long term. To be fair, it has to be said that most organizers of this event category emphasize the educational character and pure networking orientation of the event, at least in marketing materials. Perhaps one explanation for the suboptimal selection of formats among suppliers can simply be that the sales and marketing departments have not yet been sufficiently coordinated. The objectives of marketing / PR and sales managers do not necessarily have to be the same for structural reasons (example: criteria for measurability of success – internal discussion: press clipping, page impression versus “tickets”, sales, business development). 2. education & business development Small, specialized events are a popular format for developing direct investor contact. These are organized by the product providers either internally or with external support. These formats are often invitation-only and participants are pre-filtered. In contrast to the above-mentioned “educational events”, which have a greater scattering loss with a purely business development objective, these events usually pursue the purpose of maintaining existing customers or acquiring new customers. Of course, there is always a core educational element and also the goal of gaining multipliers for your concern (business development). For many investors, the charm of such formats lies in the fact that you will find many professional colleagues at these events, with whom you can then exchange views on specialist topics on a small scale. All participants are also aware that the speakers want to present products or services. However, since it is often known from experience that here investors also exchange ideas directly with investors in a pleasant atmosphere, this is gladly accepted – as long as the sales staff of the product provider show sufficient tact in communication. Spring 2018 – Value Investing, joy and the cultivated exchange of ideas Examples of different formats dealing with Value Investing in spring: Prof. Dr. J. Carlos Jarillo of SIA Funds AG covers the topic “Strategic Investing, Value Investing & Fund Boutiques” on 19.4. (Transparency – MH-Kurzintro, “bias”). Topics such as the differences between private equity funds and classic liquid investment funds and family office long-term thinking will also be discussed. Dr. Hendrik Leber and his team from ACATIS Investment will organize the ACATIS Value Conference, a classic for value investors, on May 25. Frank Fischer from Shareholder Value AG will give the keynote speech at the Equity Forum spring conference (14.-15.5.), quoting the format: “Listed companies present their current business figures and outlook for the following financial year to selected investors, analysts, financial journalists, and other capital market players”. It is interesting to note that in the value investing sector, many product packages/approaches often complement each other, that there are variations, different worlds come together: The areas of the liquid and non-liquid investment world have many common intersections, at least at the “edges” (decision-making processes of investors, product selection, asset allocation, etc.). The Value Investing Meeting of value DACH

  • The real, good has never been fashionable, but it is alive (Hermann Hesse). Fund boutiques have now established a sustainable position in the fund industry. Regardless of current positions in performance hit lists: the special qualities of this type of entrepreneur are appreciated by many semi-institutional and institutional investors. It is not only family offices and asset managers who appreciate the special expertise. What are typical characteristics of fund boutiques? Why should a classic institutional investor perhaps increasingly seek professional dialogue? USA approach – quality and long-term thinking Independence (U) An independent position is a classic feature of fund boutiques. Due to their personal motivations, many founders in the boutique sector in particular have turned their backs on „large companies“. Autonomy in decision-making and the decoupling from pure profit thinking are often cited as drivers. In the meantime, many intermediate forms have emerged and the market is developing. Of course, there are also the „boutiques within the group“. Here, one can often observe that there are also movements to strive for independence in pure culture again in the end. Many models, although a great deal of competition is welcome. Specialization (S) Many of the independent asset managers are characterised by a high degree of specialisation. Investment styles, asset classes and investment approaches and their „personal“ combination by the manager determine what is special. With all the advantages and disadvantages – being true to one’s own style can also mean crossing deep valleys. The value manager, who remains consistently committed to his cause, is reminiscent here of the classic German medium-sized company („hidden champions“), who thinks in long cycles. Authenticity (A) Owner-managed fund boutiques are happy to do what they do, and in the best case also excellent. The decision to be independent is often comparable to the motivation of many classic start-ups: to do what they are convinced of. This conviction goes hand in hand with the belief that one can also survive in the market in the long term, as one’s own specialisation forms an „economic moat“ (value investing) or a USP (competitive advantage), so to speak. In the investment sector, the special situation here is that the „whip of transparency“ is at work in the liquid fund sector. Fund owners have the daily right of redemption for fund units if they are not satisfied. The sense and nonsense of this short-term thinking can be discussed in depth and in a productive manner elsewhere. Consequences – family offices and „boutique patronage Visibility and communication are closely related to the exchange of ideas and the intellectual pleasure of „professional growth“ together. The players on both sides of the industry – product suppliers and investors – can be recommended to seek contact time and again. Contact here does not mean on the part of the product provider: „Shoot fact sheets into my mailbox and then bombard me with calls“. Very few people, in this case investors, like to be seen merely as a means to an end. Due to their specialisation, fund boutiques without great earnings pressure can urge themselves as ideal discussion partners for institutional investors through competence. To be fair, one can get the impression that many fund boutiques could expand their investor communication. Conclusion The Family Office has for years been very receptive to the needs of independent professionals. It is not without reason that many of these investors are themselves involved in launching their own funds or in the seeding of new fund concepts. The „little ones“ find a hearing here in a very constructive way: Many years of expertise are recognised, the exchange of ideas is appreciated and also financially recognised: Supply and demand find each other in a pleasant way! Source: www.institutional-investment.deFoto: www.pixabay.com

  • “It’s a great advantage in life to make the mistakes you learn from as early as possible.” (Winston Churchill) The psychology of development knows the concept of existential learning. You can tell the child not to touch the hot plate. When the ceramic hob glows such a beautiful red, he might put his hand on it after all – and then learn something with every fiber of his body that the purely cognitive instruction by his parents was not able to achieve. The investor may have often heard that all knowledge about the markets always remains imperfect and limited and scattered positions are therefore elementary. If the investment story sounds so plausible and the leverage is so nice and cheap, then you will make the bet that is far too big – and then, with the tactile experience of a big loss, which can even lead to physical symptoms such as insomnia or sweating fear, you will learn that risk management is not a purely academic discipline. Ray Dalio has had this kind of painful experience frequently and very distinctly at the beginning of his career – and learned from it. Over the years, the firm he founded, Bridgewater Associates, has become probably the largest and most successful hedge fund of all time. With around 1500 employees, it manages assets of well over 150 billion US dollars, mainly for institutional clients. Dalio condensed his learning processes into “Principles” and initially gave them to new employees as compulsory reading. As a book, he has now made the general part of these principles, together with a description of his career, available to the public. A second volume with the investment principles is to follow. An interview conducted with him in 2011 by the “industry chronicler” Jack Schwager and published in his book “Hedge Fund Market Wizards” (Wiley, 2012) already offers an important insight into this. Dr. Carsten-Patrick Meier is managing director and owner of Kiel Economics In the course of the disinflation phase in the USA under Federal Reserve Chairman Paul Volcker in the early 1980s, Dalio learned that it is certainly possible to correctly assess a macroeconomic situation in many aspects and yet not correctly anticipate the market reaction – for example, because important aspects were not taken into account in the assessment or because the fundamental assessment gives you little information about the timing of the market. His intensive pain experiences have made risk management the focus of his investment strategy from now on. For him, this means, on the one hand, taking precautions to ensure that Bridgewater’s assessment of future market developments is as rarely wrong as possible. On the other hand, it means ensuring that if the assessment turns out to be wrong, the company will not lose more than a manageable amount. In essence, this describes the added value that any type of asset management should be able to deliver: Anyone who actively manages assets – be it for themselves or others – should have thought about these two aspects before investing in the first euro. Dalio’s answer to the first aspect is learning, and this requires a systematic approach that allows the investment decision to be constantly compared with the investment result. Only the feedback between action and (market) reaction allows the activation process to be improved. In a somewhat more general context, this has recently been confirmed by the study on “Superforecasting – The Art and Science of Prediction” by Philip E. Tetlock (Crown, 2015): laypersons can learn to deliver better forecasts than experts with exclusive access to certain information – if they are intellectually open and the environment gives them constant feedback so that they can adapt their processes accordingly. At a time when computers were far from being in every office and spreadsheet and charting programs were just invented, Bridgewater was already experimenting with computer-based investment control systems. They were used to systematize how changes in fundamental data were reflected in investment decisions. Using backtests using historical data – in some cases data that went far back in time and included turbulent times such as the global economic crisis – these rules could be examined and optimized in terms of the risk/return profile before they were tested live. What is now the standard tool of any quantitative-systematic investment process was then an uncharted territory, both technologically and conceptually. And since Daliu’s investment style is fundamentally motivated, these rules were not based on past asset prices as is the case with trend forecasters, but on fundamental data such as economic concepts or balance sheet information. The result was a strictly rule-oriented fundamental investment process – certainly a novelty at the time and not so common even today. The solution to the second challenge in Dalio’s risk management considerations – not to lose too much if you get it wrong – is (of course) diversification. The “Principles” contain an analytical chart, where the standard deviation of the portfolio return is plotted on the vertical axis and the number of assets in the portfolio on the horizontal axis. The connecting function has a hyperbola-like progression, i.e. the portfolio risk falls very sharply with the transition from one to two assets, still sharply with the transition from two to three assets, but slightly less, and converges from around the sixth to the tenth asset to a low value, whereby the portfolio risk is further reduced with each additional asset, but less and less. The lower the correlation between the returns of the individual assets, the lower the value against which the portfolio risk converges. Dalio rightly describes this correlation as the “Holy Grail” of asset management. For him, it is a guiding principle: Bridgewater should always hold a highly diversified portfolio, with the largest positions relating to at least 15 to 20 different assets. Besides, the individual positions should be as little correlated as possible. A typical equity portfolio, for example, would not be a good choice, as the correlation between the individual stocks is high

  • Fund boutiques, value investing, and economics of meaning – many investors on the family office and entrepreneurial side often make their decisions within this special economic triangle. IPE Institutional Investment Editor-in-Chief Frank Schnattinger spoke with independent asset management consultant Markus Hill about this connection as well as the role of absolute return approaches seeding of fund concepts, long-term thinking, and risk management. He also addressed some of these topics in a short intro to the presentation “Strategic Investing – Investing like an entrepreneur” by Prof. Dr. J. Carlos Jarillo on 29.11.2017 in Hamburg. IPE Institutional Investment: Value Investing and long-term thinking among institutional investors are topics that will always accompany you in terms of content. Where do you see the special connection here? Hill: Marcos Hernandez Aguado, a colleague of Prof. Dr. J. Carlos Jarillo, recently said in “Finanz und Wirtschaft” from Switzerland that value investing should currently give investors more pleasure again. I am biased. His statement caught my attention, as I was able to accompany smaller investor events with Prof. Jarillo on several occasions. Of course, Mr. Aguado is not the first to underline this fact. The possible current trend here seems advantageous. Convinced value investors often feel little affected by this kind of tailwind in their investment behavior. Analyze, evaluate, decide, invest – that is often predominant with this type of investor. Of course, positions are held and exit is also considered. Seen through the eyes of the person who has done his homework and rather thinks: the strength lies in calm. Procyclicality is less common here. Nevertheless, such trends can lead to certain investors becoming more involved in value investing. IPE Institutional Investment: Are there perhaps certain groups of investors who might have a particular affinity for this investment style? Hill: Particularly in the area of entrepreneurs and family offices, it is often found that entrepreneurial, independent thinking is well suited to this investment style. Economic independence often leads to a hectic and careless reaction neither in the financing nor in the investment area. Entrepreneurs who invest their own money go to great lengths, especially when it comes to the due diligence of investments, with attention to detail. The interesting thing in the value area is that many of the approaches are very communication-intensive. Whether I proceed here in a very “unconstrained” way or more bound by rules: For the investor to gain confidence in the approach, he must know very precisely how the fund manager thinks and acts. I am deliberately not talking here about smart beta approaches to ETFs or extremely highly automated processes. There is a segment in the value manager sector that naturally uses hard facts when selecting securities and also employs its processes, automatisms, and filters. However, a match is often found here between managers on the fund side and investors on the other side, the more their own know-how, market knowledge in niches and network are available in a less scalable form. Perhaps scalability is not the core factor, one could rather say that the head of the manager is, so to speak, the factor that forms the moat, Economic Moat. These managers, often with strong “business glasses”, do not compete with large companies and their product range, as niches are covered. It can be the strategy professor, the fund manager from the investment area, the analyst from certain industries, or even the portfolio manager from an established company with a strong urge to work independently. Precisely because you have to be able to mentally endure periods of drought in terms of performance over time, you will find many very independent minds here. People will criticize me, but still: these personalities often remind me of “artists” with a solid background in craftsmanship! IPE Institutional Investment: For example, are there many of these “artists” in the fund boutique sector? Hill: There are a lot of interesting minds with different approaches in Germany. Hendrik Leber, Frank Fischer, Marc Siebel, Johannes Ries, Raik Hoffmann, Christian Funke, Stefan Rehder, and many more, the list can go on. Without weighting, without conclusively evaluating the products – the managerial personalities, biography, approach, and philosophy are the interesting part. Many of these heads can be found in the product offers of specialized investment companies such as Universal-Investment, Hansainvest, Ampega, and other interesting addresses. Multipliers for the promotion of the value investment idea can also be found at custodian banks such as Berenberg, Hauck & Aufhäuser, and other companies. Liability umbrellas such as BN & Partner, NFS Netfonds, etc. also support the many independent asset managers in this field through their activities. IPE Institutional Investment: Where do you see connections in risk management, absolute return approaches, and value investing? Hill: Absolute return approaches are often more strongly positioned in the area of cash or bonds by investors. It is interesting to note that new approaches seem to be developing. Managers of value boutiques often invest their own money. In many cases, especially where there is a strong connection to entrepreneurship, Friends & Family are involved in the seeding process of the product. The constellation can result in the investment process being specially designed purely from a risk perspective. Although equity products, risk management can be carried out through different levels of risk in investments alone. The one or other investor who thinks strongly in the categories of small and mid-caps may be irritated in individual cases at the beginning when managers with great “niche expertise” suddenly invest in Unilever & Co. Many value managers may see their strength in these stocks rather than in elaborate cash and bond management. Other managers have the confidence to do so but then run into the problem that certain groups of investors say: “I didn’t give the money for this, we do asset allocation ourselves”. There are managers who, with or without bond expertise, take the first steps with a corset of thoughts in the form of value investing, so to speak, but with the handbrake on. This can also be

  • Decision-making structures in the area of fund selection and asset allocation in the family office sector are viewed with great interest by product providers as well as investors in the fund industry. The know-how in the family office sector is also being continuously expanded. The importance of scientific methods in the investment process has become increasingly widespread, and the classic conflict between active and passive products is often viewed with greater composure by investors. Markus Hill spoke on behalf of FONDSBOUTIQUEN.DE with Jakob von Ganske, Head of Investment Consulting and Risk Management and member of the extended management board, Deutsche Oppenheim Family Office AG, about the in-house fund selection process, strategic asset allocation (SAA) and optimization potential in the area of due diligence (long-only managers, emerging markets, absolute return, ETFs, etc.). Hill: How does the fund selection process look like in your company? von Ganske: The strategic asset allocation is also the first and most important step in our fund selection process. It defines the benchmark against which the added value of our active management will be measured – without SAA no objective measurement of active added value can be made. We then proceed with the actual fund selection in four steps: the first step is a very detailed analysis of the respective peer group and a compilation of the shortlist. The second step involves the analysis and selection of individual funds from this shortlist, whereby several active funds are always selected simultaneously for each asset class. The qualitative analysis as a third step serves to find “deal breakers”, i.e. problems in the investment process of the respective candidates which, despite good quantitative results, lead to the fact that we do not invest. The fourth step is then portfolio construction, in which we create an optimally diversified portfolio based on a risk weighting of the respective alpha sources. Hill: So qualitative analysis in your company is more like searching for problems? von Ganske: That is correct. We specifically look for “deal breakers”, because in our opinion a qualitative analysis can only be neutral or negative. It should never be the basis for positive decisions because a qualitative analysis is much too dependent on the subjective impressions of the analyst. With this approach, we differ strongly from the approach of other fund selectors in the market. Jakob von Ganske, Head of Investment Consulting and Risk Management and member of the extended management board, Deutsche Oppenheim Family Office AG Hill: In our last interview in February 2016, you mentioned that quantitative analysis is a very important part of your fund selection process. Has anything changed since then? von Ganske: Quantitative analysis has become even more important. Specifically, we have invested a great deal of development work in assessing the respective peer groups, i.e. step 1 in our investment process. The goal was to achieve maximum diversification already when the shortlist was created. Risk management is already the main focus during the preparation of the shortlist. What is meant by this? Well, the basic academic assumption regarding active management is that all active funds have more or less uncorrelated alpha sources. All managers invest independently and all investment processes are significantly different from each other. This would mean that a fund selector only needs to buy enough active funds to get a diversified fund portfolio. Unfortunately, however, this assumption can be empirically refuted – many fund managers have similar investment philosophies and will, therefore, show very similar performance against the benchmark in certain market phases, both in a positive and negative sense. We eliminate most of these cluster risks through our investment approach. A wonderful example was 2016 in Emerging Markets equities: several active funds, all of which had generated outstanding outperformance in previous years, also all produced a high level of underperformance in 2016. For the most part, the funds had the same source of alpha, i.e. the same yield-driving factor – in this case, a factor that can be interpreted as growth. Hill: How do you know which driver will be the profit driver in the future? von Ganske: We simply do not know. It could be the US dollar – or momentum, value, size, sustainability, commodities, a combination of these, or some other factor not yet observed. Besides, many of the factors mentioned above are also correlated with each other, so it is not possible to make a clear distinction between the factors. Unfortunately, the quantitative fact is that most return drivers are not observable, i.e. cannot be interpreted reliably. A risk management approach must therefore explicitly take into account that neither the factor nor its influence is known. An analysis of the equities in an active fund is therefore not sufficient to say which drivers are the source of alpha and therefore, cluster risks lie dormant. Purely qualitative analyses or simple quantitative analyses are rather useless here, as in many other cases, especially as the fund universe contains a lot of funds in individual segments, i.e. there are hundreds of thousands of possible portfolio combinations. Thus, a fund selector has the additional problem that he has to apply some kind of filter to narrow down the universe – here, mostly “by eye” or using databases that provide star-based preliminary rankings. Unfortunately, today’s 5-star funds are usually tomorrow’s 3-star funds. Hill: What is your proposal to solve this risk management problem? von Ganske: There are concepts in the field of statistics that explicitly assume that the factors driving returns are neither known nor observable. Thus the first problem can be addressed. Some of these concepts come from the field of Big Data algorithms and are therefore also excellently suited to deal with a large number of active funds. We use one of these methods. Hill: What does that look like in concrete terms? von Ganske: We use the entire fund universe for one asset class, let’s say European equities, and only sort out funds that do not achieve too little volume, a too-short data history or other relatively unrestrictive

  • Frankfurt-Skyline

    “Only pessimists strike while the iron is hot. Optimists trust that it will not cool down” (Peter Bamm). If one assumes constructive pessimism among institutional investors in the form of professional risk management, the consideration of complementary views from other investor circles can appear enriching. What are the viewpoint of family offices and independent asset managers? Are there approaches where additional aspects of investing can play a role? Tasks Traditional institutional investors as well as family offices and independent asset managers accompany similar tasks. Examples: Asset allocation, product or manager selection, risk management. To what extent and to what extent active management for clients or principals is carried out can differ here. Another special area is the use of in-house products (e.g. “entrepreneur funds”, group-owned managers at insurance companies, etc.). The boundaries between “allocation only”, active and passive management often appear to be blurred here. Time horizons Institutional as well as family offices and independent asset managers (“fund boutiques”) generally pursue a long-term investment approach. At the very least, this approach results from the task at hand. Due to decision-making structures, this long-term thinking can often be lived differently. One example: decision-makers in larger organisations are more often restricted in their decision-making scope than small, “streamlined” units due to regulation and other internal and external requirements. Extreme example: Principally with a single-family office versus an investment committee with an insurance company. This says little about the ultimate quality and professionalism of the decision – an influence on the speed and flexibility of investment decisions can be assumed here. Risk attitude and skin in the game Family offices and independent asset managers take on additional risks when making certain investment decisions, which are often compensated for by long-term thinking. One possible reason is that multi-family offices and these asset managers often offer investments to third parties in the form of their products (family office funds, entrepreneur funds). This situation influences the due diligence process of investors. Additional freedom can lead to a higher risk. Inviting co-investors with your own money (skin in the game) can lead to risky decisions. However, if one starts from the groups of investors that are often found in the family office sector or fund boutiques with classic asset management characteristics, one can come to different conclusions: Owner-managed companies as investors have acquired assets that should now also grow and be maintained with an appropriate return on investment – by investing their own money, they send out a signal by using their reputation and their resources. Conclusion Flexible decision-making processes and increased risk appetite in investment decisions are not the only factors for investment success. It may be worthwhile for the classic institutional investor to increasingly look at the expertise of independent providers with skin in the game expertise. Whether in-house products from family offices, entrepreneurial funds, or the classic fund boutiques – a personal exchange of ideas with these investors is worthwhile and provides additional inspiration, in keeping with Goethe’s motto: “If you don’t discuss it, you don’t think about it”. Source: www.institutional-investment.dePhoto: www.pixabay.de

  • Frankfurt-Skyline

    “Nothing can strengthen a person more than the trust that is placed in him” (Paul Claudel). This insight also continues to apply to the field of fund management. Especially in fund management, market entry barriers for new portfolio managers are a critical factor in seeding and subsequent distribution. Many feel as spoken here but only a few are chosen. Are there constellations that enable certain fund managers (“fund advisors”) to launch their funds more quickly? Are there perhaps different motivations for certain types of fund launches? What are the growth prospects for certain concepts – push versus pull?Different motivations can be distinguished more or less precisely when launching fund concepts. These basic ideas are of central importance for the process of searching for seed money at the beginning and also for the subsequent sales process. 1. motivation – launch with “conventional” fund boutiques, own product and performance Owner-managed, independent asset managers have been very successful in recent years in launching and distributing investment funds for private and institutional clients. Asset managers often pass through various stages: Direct investment support, standardized asset management, fund asset management, and finally the launch of their fund. Mixed concepts can also be found, the transitions are often fluid. In most cases, the asset manager will refrain from stocking the client’s accounts exclusively with his products. Only the variety of investment goals and investment preferences of the customers ensures diversification. The central motives in this area are often standardization and the scalability of processes. In the end customer sector, this concept is generally accepted if the manager is within a certain performance corridor compared to competitor products. Especially since in many cases, the asset managers are also invested in the fund with their own money in smaller parts. The relevant market here is the common concepts of market participants such as savings banks, Volksbanken, fund asset management companies, and commercial banks. A strength here may be that many of the fund buyers value the relationship with the advisor and have come to the conclusion that there is no such thing as the perfect portfolio manager who beats the market every year. Many of these “smaller” concepts often find it difficult to gain access to semi-institutional and institutional investors, as the selection process here largely ignores the classic relationship aspects (beauty contests, RFPs). It remains to be seen whether the results of this more objective process will always exceed the “average” results from an overall portfolio perspective. (This point also applies to the concepts discussed below in the area of family offices/entrepreneur funds). 2. motivation – a requirement for family offices The battle for the sovereignty of interpretation in the area of family offices continues. There is a wide range of approaches here, from the “noble asset manager” and some multi-family office concepts (group-bound and independent) with a strong interest in promoting their services and products to the single-family office without proprietary products. As long as all economic interests are presented transparently in the client meeting and the external appearance, this variety of concepts has the charm of creating a constructive competitive environment. Here, too, many of the fund initiators invest their own money in their concepts and make their performance verifiable through the “transparency whip” of the mutual fund industry. Even for products that are not directly advertised to the general public, the question of comparability with publicly advertised competitor concepts arises at the latest when fact sheets of fund data are published. 3. motivation – entrepreneurial funds and positioning in the universe of fund initiators The transition from entrepreneurial fund concepts to the area of family offices or the area of independent, conventional asset management concepts is fluid. On the one hand, there are concepts where the fund initiator is not or hardly ever invested with his own money in his product. Here there is a need to step up the sales offensive to ensure the profitability of the fund concept. A conflict may arise here if the incentive structure in management remuneration leads, consciously or unconsciously, to the taking of greater risks. In fairness, it should also be noted at this point that, with transparency and appropriate information, the customer has the choice. Entrepreneurial funds, seed money and the “concept of invitation There are entrepreneurial fund concepts that may differ in certain aspects from the categories mentioned above or from the entrepreneurial fund concepts without “own contribution” of the fund initiator. This “deviation” becomes apparent when one looks at the process of seed money search and distribution policy. An example: The entrepreneur has sold his own company and managed his own money for years. To use his know-how in a concentrated way in his management of family money, he sets up his fund. In the beginning, this fund is mainly endowed with its own seed money. In further steps, the so-called “Family, Friends & Fools” often appear. This expression from the business angel sector is meant in a completely value-neutral way. Basically, in this case, the fund initiators monetize the trust that they enjoy in their closest environment. Gradually, external investors often join in. Why can this fund concept often be of interest to certain investors even if they do not have their fund management history? Entrepreneur meets entrepreneurs in conversation. Entrepreneurs with funds have “skin in the game” and strongly signal that they believe in their skills and experience. Since he has made his money by taking entrepreneurial risks, there is motivation to generate performance for his portfolio. However, a central aspect here will be the area of risk management in combination with long-term thinking. If one takes a closer look at the above-mentioned facts, one can conclude that there is a central difference to common, sales-oriented concepts: In the initial phase of a fund’s history, it is possible to proceed prudently – the power lies in the calm. Also on the buyer’s side, many family offices, asset managers, HNIWs appreciate these concepts. This market is less transparent, more communication-intensive, and is

  • Frankfurt-Skyline

    On 16 November, ESOFON conference “Global Impact Investments” will take place for the first time in Geneva. The independent industry expert Markus Hill will participate in a panel discussion. Together with decision-makers from family offices and other market participants, he will discuss product selection, due diligence, and market trends in the field of impact investments. IPE Institutional Investment Editor-in-Chief Frank Schnattinger spoke with him about current topics. IPE Institutional Investment: Which topics will be addressed at the conference “Global Impact Investments”? Hill: At the conference, Impact Investments will discuss trends, growth prospects, and portfolio management. In particular, the perspective of investors from the family office sector will be considered. The topics SRI and Impact Investing will also be intensively discussed. In this context, the areas of real assets, agricultural investments, and product structures will also be discussed. It seems interesting to me that one topic deals strongly with the area of conflict between private equity, the contrast between liquid and non-liquid investment structures. Asset allocation in the mentioned areas as well as risk management, reporting, and measurability criteria for impact investments are also discussed. IPE Institutional Investment: Which specific points are taken up and discussed by your panel? Hill: The panel will discuss product selection at Impact Investments. The topic is interesting because even before the discussion starts, there is still a lively debate about the definition and measurability of such concepts. SRI, ESG, philanthropy, social impact investing, infrastructure investments, and more – many topics often converge here. At the very least, there is an attempt to take more account of issues from the conventional asset management world in this area. What is the significance of the track record? How is it to be measured, which criteria are to be applied here? How can products be structured? Market prospects and sales prospects in this field discussed in a larger group. IPE Institutional Investment: Are there any specific points within the conference or panel that might be of additional interest? Hill: As mentioned above, the battle has started in the area of impact investing interpretation. Different groups, expressed in a completely non-judgmental way, are trying to define their role, function, and identity in this area. These discussion groups are often reminiscent of other terms such as family offices and also the fund boutique sector. Admittedly, at Impact investments, there are, due to the involvement of large organizations, tangible criteria for inclusion, and exclusion of certain products. Last year I had the opportunity to participate in a panel on impact investing at the Goethe University in Frankfurt at the invitation of Karen Wendt – author of “Responsible Investment Banking”. I am currently involved in a project with her in this area. It is a great pleasure for me to exchange ideas with Ms. Wendt. She has given me some good ideas for Geneva. In the past and current discussions with her and with family offices and foundations in this field, I have noticed that people often forget that there is still a form of market division in certain areas. There are liquid and non-liquid investments, “communicative-complex” and “communicative-simple” product approaches and approaches to issues for investors. What does this mean for the area of impact investments in the current discussion? In the case of non-liquid approaches, due diligence very quickly brings me into the operation of product testing for private equity, venture capital, start-ups, and direct investments. Pure “number crunching” only helps me to a certain extent at this point. Why can I possibly reach a limit as a selector here? One explanation could be that, due to the lack of market transparency, it is not possible to simply use comparative values. As a selector, you strain to go into more depth in terms of investment content: The importance of unofficial networks is increasing here – the classic area of family offices, HNWIs, entrepreneurs with specialist knowledge, etc. – and the importance of the investment process is growing. This situation is often found in a modified form even in more liquid areas, such as fund boutiques: In all these processes, the quality of the players involved is at the forefront: it’s all about brains! IPE Institutional Investment: “Number Crunching”, unofficial networks and minds – what significance can this have for the impact investing sector? Hill: Here the topic of scalability of industries is addressed, similar to the FinTech area. Scalability in the sense of process optimization and growth potential sometimes inevitably reaches its limits in certain areas. Specifically in the case of impact investments: If the eye of the needle is good investment opportunities and the comparability of these does not prove too easy, this has an impact on the type and quality of the selection process on the investor side. If this bottleneck cannot oust out, then a striking educational, advisory, and product provider landscape will develop for a while, which – in the long run – will be difficult to maintain through subsidies and product provider sponsoring. So that you don’t misread me: I have always regarded my studies of economics more as a well-founded study of politics than a classical social science. I find things like orientation towards the common good, philanthropy, and economy of meaning to be enriching aspects in the discussion of economic issues as well. I only point out this one possible path of development – my words are not set in stone. Far wiser minds than mine are thinking about this in much greater depth, perhaps even to the contrary. I am happy to be taught about it. The danger at the end cannot be overlooked if a mountain circles and give birth to a mouse. Funds need target investments – no amount of advice, literature, and conference can replace them in the end. Even with projects in the real estate and renewables sector, which I was able to accompany, it was often a central insight: the good things are already gone, where do we still get acceptable investment alternatives from the second tier?

  • Frankfurt-Skyline

    Frankfurt is the central location for the professional exchange of ideas in the fund industry in Germany. Events such as the BVI Asset Management Conference on the 6th of October are offering this year again the opportunity, to stay informed of all the current developments in the industry. Markus Hill spoke in the name of FONDSBOUTIQUEN.DE to Thomas Richter, CEO of The German Fund Association BVI, about the conference topics, current affairs and as well about the special “charm” the city Frankfurt has to offer as a venue. Hill: Mr. Richter, on the 6th of October the BVI Asset Management Conference takes place in Frankfurt. What distinguishes this industry event from other formats? Which topics are this years priorities? Richter: The BVI Asset Management Conference is meanwhile an industry gathering/networking of the year. It gives an overview on current developments at the capital market and about the regulatory and strategic challenges the industry is facing. It is not a trade fair, rather a non-commercial platform. This year, among others ex-constitutionalists Udo Di Fabio, Head of Asset Management at the European Commission Sven Gentner and Consumer Protection Chairman Klaus Müller are among the guests. The topics range from the current challenges in Europe about the risk management of pension funds right up to cyber security and digitalization trends in fund sales. Hill: Frankfurt is an attractive location for sharing and exchanging expertise in the fund industry. Many fund companies have their headquarters here. What is it in your eyes that makes the “Main metropolis” so attractive to many industry peers? With the BREXIT in mind is there still additional potential for this location? Richter: Frankfurt can build on many strengths. The city plays an important role in Europe in regard to the monetary policy and financial market regulations. It has evolved in recent years to the home of national and international financial organizations and regulatory agencies such as: ECB, Federal Financial Supervisory Authority (BaFin), German Central Bank and the EU insurance supervisory EIOPA which all are already here. Whether Frankfurt attracts more financial companies from the Thames to the Main after the BREXIT, remains a question. The density is already high: Nowhere else in Germany are more companies from the financial industry located than in Frankfurt. For the fund industry Frankfurt unlike Luxembourg is the location par excellence especially for product development, fund management and distribution. Hill: At present which topics are your main focus? What is the focal point of your activities in the next 12 months? Richter: The topics on pension plan and retirement arrangements are highly up to date. After the summer break the Federal Ministry of Labour and Social Affairs (BMAS) intends to submit a pension policy concept. That should be exciting, because for the promotion of occupational pensions, BVI receivables such as the opting out or the target pension are currently being discussed in politics. At EU level, the financial market policy MiFID II and the PRIIPs-Regulation are perennial favorites. Source: www.institutional-investment.dePhoto: www.pixabay.de

  • Frankfurt-Skyline-Sunset

    The FundForum International will take place from 6 to 8 June in Berlin. The independent industry expert and IPE Institutional Investment author Markus Hill will again moderate a panel discussion this year. He will discuss with decision-makers from family offices on the topics of asset management, due diligence, and also fund boutiques. Already in April this year, he moderated an event with Professor Dr. J. Carlos Jarillo (“Strategic Logic – The Sources of Long-Term Corporate Profitability”) on the subject of Value Investing and Private Equity, where one of the central discussion points was the ownership approach for fund boutiques and on the investor side. Editor-in-chief Frank Schnattinger talked to him about current topics that could be discussed more intensively, also against the background of previous or future events at family offices and asset managers. IPE Institutional Investment: In June you will hold your panel discussion on the topic of family offices and due diligence in the asset management sector in Berlin. Which topics will you address this year and who are the participants? Hill: FundForum International will take place in Berlin for the first time this year. In the previous three years, I had moderated panels with fund selectors in Monaco. I am curious to see how Berlin is perceived by the visitors of the event compared to Monaco. Of course, I am also pleased that Germany as a location for the asset management industry is being upgraded internationally as a result. In Frankfurt, there will again be a similarly broadly based BVI (BVI Asset Management Conference) event in October this year with a strong Frankfurt networking character. The panel in Berlin on June 8th will again focus on the topics of asset management, due diligence in fund selection, and fund boutiques. The panelists this time are Marcel Müller (HQ Trust), Christian Hammes (ETA Family Office), Jacob von Ganske (Deutsche Oppenheim Family Office AG), Antje Biber (Feri Trust) and Magnus von Schlieffen (Breidenbach von Schlieffen & Co.). IPE Institutional Investment: Are there any specific points within the panel that might be of additional interest? Hill: Of course, topics like selection criteria for asset managers are usually discussed. Also about differences and similarities in the selection of affiliated and independent asset managers. We have noticed time and again that various providers would also like to know how it is easier to come into direct contact with family offices. The usual experience often seems to be: “Don’t call us, we call you! An interesting aspect here can be the behaviour of product providers and sales in different market phases. Success factors and failure factors in fund boutique setting can also be discussed critically. Active versus passive, rule-based versus non-rule-based, the role of sustainability and impact investing, roboadvisory, and family offices – these topics are also worthy of discussion. Many of these topics are generally found among tied and independent asset managers: differentiation, discipline, transparency, and visibility. In previous years in Monaco, these topics were also controversially discussed. Other points of interest included the differentiation between liquid and non-liquid fund concepts and the role of the product’s packaging: What skills do you need as a selector for which product design? However, I do not want to anticipate all points of the discussion in detail at this point. Each of the panelists brings in his or her mark here: Origin, interests, know-how, and network. IPE Institutional Investment: You have been intensively involved with the topic of fund boutiques for years. What topics are currently in your focus here? Hill: Recently I had the additional opportunity to deal with the topic of value investing even more intensively. On the one hand within the scope of a selection mandate, on the other hand, I had the opportunity last year and this year to accompany various events (Frankfurt, Cologne, Hamburg) with Prof. Dr. J. Carlos Jarillo. In his lectures and publications, he has for many years been strongly involved with topics such as strategy, positioning, and competitive analysis. Of course, he spoke about his fund as a sponsor at the investor events, but in my opinion, this was not the in-house aspect of the events. I liked the fact that I was also allowed to talk about some competing products or competitor approaches in advance – as someone who speaks from an independent, commenting position, my motto: “Diversification through the use of many smart people in the portfolio”. If you look at the industry with somewhat more neutral glasses, so to speak, there are of course a great many interesting approaches in the value area. Some seasoned entrepreneurs manage funds. People with a more scientific touch, experts who come from larger companies. Or, in this case, a person who, unlike a manager from the financial sector, tends to look at companies through the eyes of a strategy professor. All approaches, ideally, find their justification with fund selectors, if only from a risk management perspective. IPE Institutional Investment: Are there other topics that have come to your attention more strongly in the current discussion? Hill: In general, there seems to be pressure in the market to at least examine more closely the tendency of riskier investments. This applies to fund products on the one hand, but also to direct investments – irrespective of the asset class. Family offices also often admit in discussions that there is still room for expanding their know-how, especially in the segment of investments that tend to be rather illiquid. Here, for example, in the area of real assets, AIF area, etc. You had just taken up this topic in your breakfast seminars. This year, among other things, I had stronger points of contact with this area because I spoke to many investors in Germany, Switzerland, and Austria about the interest in the US real estate market for a family business from the USA, in combination with a real estate developer – often typical family office set-up in such areas. Some family offices and other investor groups were also interested in personal contact

  • Frankfurt-Main-Skyline

    “Our time is partly robbed and partly cursed, and what is left is lost unnoticed” (Seneca). As is well known, time is a key factor in the discovery of independent talent in the asset management sector, including family offices. The impression is often created that this factor is not given sufficient consideration in communication with potential investors. What are “hygiene factors” for a successful approach? Where is there potential for optimization for independent asset managers? Time and standard information factor The process of quantitative and qualitative due diligence in the fund boutique segment for family offices has become more professional in recent years. Standard information such as peer group comparisons, performance, volatility, etc. is available in a wide variety of forms. Intensive reporting supplements these quantitative factors. Many selectors use this information for pre-filtering. Using individual databases or various databases in combination is standard procedure. Here many addresses write their handwriting, so to speak. Even in this seemingly simple procedure, however, the first “predetermined breaking points” in fund analysis are already apparent. Usually, some independent asset managers complain that in certain cases they do not feel they are in the “right” category by analysis houses. In some cases, this feeling corresponds with the information from selectors that they take a critical view of the classification of asset managers at analysis houses. It often seems helpful to develop a feeling for what the individual approach is comparable to in direct conversation with the manager. This also provides opportunities for asset managers to highlight their strengths and differentiating features in family offices. Sympathy for independent asset managers in family offices A problem for many smaller fund houses is that often only limited resources are available for marketing. Now there are different approaches to this. On the one hand, family offices can be approached with a “spreader box”. Every fund selector on the family office side (multi-family office as well as a single-family office) is used to being contacted by a large number of providers. As the majority of the discussions are very likely to focus on product promotion, there is often little interest on the part of the selectors in spending too much time on initial contact with due diligence by telephone: “Send us documents and we will get back to you if necessary” is an answer that is often given. Here, valuable opportunities are often lost in the first contact. If it were determined in advance whether there is any interest at all in the fund manager’s approach, both sides would save a lot of valuable time here. Value, growth and expertise potential Expertise at a high level is recognized by many of those responsible in family offices. If a deep specialization exists as a distinguishing feature, for example in the areas of value or growth investing, even “small” houses often meet with increased interest. Regardless of current performance figures, in one case or another, there are approaches to talks that can lead to the in-depth due diligence of the provider. One reason for this may be, for example, that the family office is also heavily involved in the value investing concept in other investment areas. Subject areas that are occupied by providers also send signals. Value investing and long-term thinking are often equated – the thinking for the principal in the single-family office is subject to a similar rhythm. In addition to this, the research know-how of houses in the growth area of small caps appears to be interesting if the selectors in the group are also interested in the areas of venture capital and private equity. The transitions here appear to be fluid; value investment interest and private equity activities can also go hand in hand. Many value investors in the liquid sector appreciate it if investors remain in the fund for the long term; more or less temporarily illiquid product concepts can also be found here. Communication and the time factor Fund selectors are people, people do not want to be seen as a mere means to an end. A fact that is always reflected in the dialogue with the family office representative, as mentioned above, to the point: Is my counterpart also interested in my interests in the long term, or is this just about the purely opportunistic “unloading products”? In cases where more complex, communication-intensive products, services, or approaches come into play, this aspect gains additional importance. Space for communication – openness, time, and trust are typical elements of this ongoing process. Independent asset managers with direct private customer contact are familiar with this factor. Interestingly, this insight is often only partially taken into account when it comes to the area of mutual fund sales to family offices. Besides, there are also complaints from providers that decision-makers on the family office side allegedly take too much time to make a decision. To be fair, it has to be said that the above-mentioned situation also appears to be partly transferable to sales in general. Communication appears to be more difficult when, at the beginning of the discussion chain, so to speak, “square things should be talked triangularly”. If the first time I get to know you, the main focus is on the opposite side giving me money – as soon as possible, of course – then this can by no means be entirely conducive to a tension-free, pleasant atmosphere in the conversation! Due diligence, capital management companies, and fund boutiques Expertise in direct contact between fund boutique and family office can be a bridge to communication. If a provider has this resource, the question arises as to whether this expertise will also be used by the family office in the next step. Another is the use of multipliers in the fund industry. Media, placement agents, and advisors of various kinds can play a role here in communication with the fund selector, not only in the family office sector. It is often forgotten that many capital management companies also have distinctive expertise in the field of fund

  • Decision-making structures in the field of fund selection and asset allocation in family offices are being viewed with increasing interest in the fund industry. In recent years, many institutions have increasingly expanded their know-how in this area. The importance of scientific methods in the investment process is growing, and the classic conflict between active and passive products is also being intensively discussed. Markus Hill spoke on behalf of IPE Institutional Investment with Jakob von Ganske, Director Investment Consulting and Risk Management, Deutsche Oppenheim Family Office AG, about the in-house fund selection process, strategic asset allocation (SAA) and optimization potential in the area of due diligence. Hill: What does the asset allocation process in your company look like? von Ganske: Strategic Asset Allocation (SAA) is the first and most important step in our investment process because this is where the big mistakes are made or avoided. Academic studies show that on average more than 90% of ex-post performance depends on the SAA. The SAA also defines a long-term benchmark against which added value through active management can be measured. Without SAA, no objective measurement of the added value of asset managers or funds can take place. Experience is required to provide SAA advice. In several successive meetings, the client’s individual earnings target and risk tolerance are determined together with the client. Higher profit targets are only compatible with a higher risk, that is the principle. Once a long-term risk/return profile has been found that optimally matches the investor’s risk/return preferences, the second step is to select the individual investment components that best reflect this profile. Only from this point does the actual product selection in the form of funds, asset managers and ETFs begin. This process guarantees a consistent investment decision that is transparent for the client. To determine the risk/return profile, we use a modern and academically sound model that realistically depicts the short and long-term opportunities and risks of a portfolio using Monte Carlo simulations. The distributions of the simulated returns of our asset classes show empirically proven “fat tails” and thus – but also in various other aspects – go far beyond the familiar but outdated Markowitz model. Hill: What does the fund selection process look like for you? von Ganske: It depends on the right balance between quantitative and qualitative analysis. Quantitative analysis is complex and involves a lot of statistical craft. It is about more than just taking a look at the performance figures. First of all, it has to be determined whether the funds under review are providing the “right” benchmark, i.e. a benchmark that also corresponds to the investment universe. Often this is not the case; this is known as a “benchmark mismatch”. It must also be investigated whether a fund has generated outperformance because it is strategically defensive (beta less than 1) or offensive (beta greater than 1). Other risk premiums in the area of investment styles – such as value or small-cap for equities – must also be extracted. In a third step, it must then be statistically determined whether luck or skill is present relative to the “true” benchmark created above. Ultimately, the question is: Is the fund performance really due to the manager’s skills? Or was it perhaps luck, a “benchmark mismatch” or even a systematic skimming off of risk premiums. In this case, the same fund performance could perhaps have been bought by the investor at a much lower price using exchange-traded funds (ETFs). Hill: Then what happens next? von Ganske: Qualitative analysis is the fourth and last step in the process and is extremely important for identifying weaknesses in the investment process. We specifically look for “deal breakers”, because in our opinion a qualitative analysis can only be neutral or negative. It should never be the basis for positive decisions because a qualitative analysis is far too dependent on the subjective impressions of the analyst. With this approach, we differ strongly from the approach of other fund selectors in the market. To institutionalize the process described here, we have established certain basic rules, i.e. “axioms”, which define the framework of our analysis. First, every active fund needs a benchmark. For us, not naming a benchmark is equivalent to assuming that the fund cannot produce relative added value. The benchmark must reflect the investment universe. For example, a US fund that has 20% European equities and only measures itself against the S&P 500 is considered by us to be non-investable. A fund that measures itself against the MSCI world and holds gold, convertible bonds, EMBI bonds, etc. in its portfolio is not rateable and therefore not investable either. The exception is absolute return funds that measure themselves against an absolute benchmark (e.g. money market + 2% p.a.) and we have strict criteria when a fund is “absolute return” and when it only pretends to be one – keyword “market neutrality”. Secondly, the fund must, as mentioned at the beginning, fit the SAA. Thirdly, the spread of bets is fundamental. A fund that only takes “stock market up or down” bets has no diversification effects and is not investable for us. Fourth, the active added value of the fund manager must be consistent over time. In this way, we avoid funds that have only once or twice in their history made a large successful bet and have been “dumbed down” around the benchmark before and after. The financial market crisis in 2008 serves as a good example because funds and managers were washed to the surface of all rankings that allegedly “foresaw” the financial market crisis and have not generated any active added value since then. Hill: Why is it important to see asset allocation and fund selection as a process that builds on each other? von Ganske: Because this is the only way to make risks and potential returns transparent. Knowing the risks of his portfolio is elementary for an investor if only to avoid panic reactions – in the worst case, the investor will otherwise sell at

  • “Hence, see who commits himself eternally” – alternative asset classes are in demand among institutional investors against the background of the low-interest rate phase. The area of infrastructure investments is currently being discussed particularly intensively. According to various studies, but also according to ongoing reports on this asset class at investment companies and other firms, the asset management industry is engaged in discussing it. The areas in which investments can be made are diverse: Listed Infrastructure, Debt Funds, Real Assets, and Renewables – all topics that promote a fruitful dialogue are welcome to the industry. The opportunities for long-term portfolio management appear promising. The challenges for providers and investors are great. Know-how, risk management, and communication are the focus of providers and investors. Possible fields of investment in infrastructure investments Cities must be built, power grids expanded and water dammed: Private and public investors are needed. In addition to the above-mentioned fields, the opportunities for infrastructure investments are broadly diversified. Roughly speaking, for example – without claiming to be exhaustive – the fields of communications (cable, radio), transport (rail, ship, roads), supply and disposal (waste, electricity, water) and social affairs (education, culture, health) can be considered as projects or companies as corresponding investment objects. The seemingly trivial character of this list is deceptive because the investment field (“project financing”) will in many cases be subject to a variety of risks: Regulation, input/output, the role of government and politics as well as operational risks, transfer risks, etc. increase the complexity of decision-making for institutional investors. Despite the “longevity” of investment objects, which is often encountered, it is by no means always possible to speak of safe investments, an impression that can arise during some investment discussions at conferences or in the trade press. Entrepreneurial investment decisions, regardless of packaging aspects, are by their very nature subject to risks that can be successfully managed in many cases. The industry is working on making these risks “investable” for investors in a responsible manner (optimization potential: due diligence, risk management). Providers and investors in infrastructure investments In Germany, the range of funds on offer has been developing positively for years. Investment companies are also increasingly taking advantage of the trend towards securitization. Luxembourg is often regarded as the first port of call for structuring, and the discussion in the field of Public-Private Partnerships (PPP) is also picking up speed. The private equity industry is also in an intensive discussion phase, regardless of the size and cost discussion (the complex area of direct investments is not the main focus at this point). Established industrial addresses, as well as many medium-sized to “small” providers of products, are lining up, as are providers from traditional infrastructure markets: Australia, USA, Canada, Great Britain. Classic institutional investors such as insurance companies, pension funds, and corporates (Networks) are currently heavily involved in building up know-how internally or make use of external consultants. One can perceive a division of the market in parts: Investors such as certain family offices, foundations, and pension funds are interested in infrastructure investments and also have some internal know-how. With certain sizes and professional networks, certain “club deals” can also come about. Due to the diversity of investment opportunities, some investors tend to take a form of “attention”. In short: Because the effort for due diligence currently seems too expensive, time-consuming, or unmanageable, we wait and see. In particular, if one moves from the investment level of funds to the investment level of direct investment, the degree of complexity in the examination process increases (keyword: investment regulation). Certain investors are currently unable to maintain these auditing capacities or are still looking for solutions. Although this process is not a core trend, the reluctance of some investors may also be caused by the fact that in certain phases the supply of attractive target investments for the funds may become scarce. Opportunities for portfolio management Long-term, stable earnings and portfolio diversification are often seen as potential opportunities for institutional investors at portfolio management. Similar to the discussion in the hedge fund sector in the past, the current discussion on infrastructure investments may serve to identify “red flags” in the due diligence of investments as early as possible, correct misconceptions, and successfully manage the promising asset class in their portfolios. Diversification and risk management Risk diversification is one of the core tasks of portfolio managers on the provider and investor side (selection) for fund solutions in the infrastructure sector. Similar to traditional asset manager selection, internal and external know-how (consultants) is used to select specific funds. Single and fund of funds solutions are being examined. The fund solutions must fit into the investor’s overall strategy (e.g. insurance). The right balance between “over-diversification” and “under-diversification” must be found, all embedded in the construction of the investor’s overall portfolio. Factors influencing risks can be, for example, cash-flow profile, regulation (AIFM, KAGB, ELTIF, Solvency II, etc.), regions (Europe versus the USA?), economic indicators, operational characteristics of the investment universe, currency and financing model. Forecasts as well as cluster risks in the selection of funds (within and outside the fund level) must also be taken into account. This is a finding that contradicts many common market opinion. If you look at all these points, it becomes obvious that entrepreneurial risks in investments require constant monitoring and reporting and that one cannot per se expect stable long-term returns from every infrastructure investment. This does not contradict the general assumption that infrastructure investments have a positive risk/return profile with stable returns. Fund management: the importance of due diligence and know-how management Providers and investors in the field of infrastructure investments are currently engaged in intensive dialogue. Due to the complexity of the offers and the time-intensity of the due diligence process on the investor side, there may be many “frictions” in the hoped-for growth process. Standardization of processes, transparency of decision parameters (regulation, risk management, etc.) is development paths that can be positively influenced by all industry players. Possible questions, without claiming to be

  • Frankfurt-Skyline

    “Don’t you even have an idea?”, “We only need 5 million euros, then the fund can start” – this or similar is how the statements of fund initiators on seed-money searches often sound. Many steps in the search phase for seed money when funds are set up are reminiscent of the search for start-up financing or fundraising in the field of conventional sponsorship. The situation is different from the classic search for seed investors when existing products and services are used to approach investors. What types of fund managers are looking for seed money? What do investors think about due diligence and communication offensives? Which stumbling blocks might need to be cleared? Types of seed money seekers If one takes a closer look at the structure of seed-money-seeking firms in the asset management sector, one can distinguish certain types (very roughly):1) Established product provider with an organically grown network in the investor sector.2) Established product provider with the organically grown distribution network and selectively grown seed investor network.3) Non-established product provider without a well-developed distribution network with opportunistically designed seed-investor communication. It seems interesting that in certain companies the degree of awareness and the distribution network is hardly related to each other. Under certain circumstances, contact strength in the sales area can even be a hindrance to the seed money approach. Many investors reject the continuous “aggressive” approach for seemingly unrivaled, unique new fund concepts. Possible stumbling blocks in the search for seed money Established product suppliers with established networks generally have fewer problems convincing seed investors for the existing product range and new concepts. The seeding pipeline is running like clockwork. Apparently because here, too, the engine can sometimes start to stutter when new types of investors need to be approached. Network and product range only coincide indirectly. With established product providers – which also include “small” fund boutiques – with only a continuously and selectively expanded seed investor network, it can be seen in many cases that a form of first, successful “lucky strike” was achieved with the core product at the beginning of the company’s history, so to speak. Here, too, one encounters the phenomenon that it is very difficult for the respective address to seed new products. The third group of seed money seekers is increasing to be found in the area of “fundraising”. The size and communication strength of the providers are not necessarily directly related here either. Of course, there are often concepts here that, no matter how strong the communication efforts (direct approach to investors), have such glaring weaknesses that it would be necessary from a business management point of view to obtain a definitive “no” from potential investors as quickly as possible. Opportunities for attractive concepts In the current phase of low-interest rates, many seed investors have become noticeably more interested in convincing new concepts for funds. Even asset classes for which disinterest was shown in earlier times are now being given the chance, at least in a first step, to be subjected to a due diligence light at all. Many fund initiators often forget that dealing with more complex approaches means a considerable expenditure of time for every seed investor. This expenditure of time and the opportunity costs involved in receiving “sales calls” often lead to a rather unfortunate process of rejecting or not taking up interesting investment opportunities. Many of the seed investors understandably hold back in the direction of their visibility. Certain family offices keep their profile low. Many other groups of investors who seed regularly are even often overlooked in the market and are not initially approached. In direct discussions, it is even occasionally regretted that certain projects do not find their way to this group. From an information-economical point of view, this position seems at least worth considering. To be fair, however, one must admit that the optimal investment is usually not available. Rather, many of the providers are involved in the seeding process, whose concepts are relatively promptly included in the investors’ “relevant set”. If the essential parameters are met in the due diligence process, B and C solutions may also be used. Many A concept in the fund launch area may never have come to fruition because, on the one hand, one spoke too late with relevant investors or, on the other hand, one communicated too long with the wrong kind of potential seed money providers. Investment companies – administrator and contact platform Many of the investment companies such as Universal-Investment, Ampega, Axxion, and other specialized service providers in the private label fund sector are considered the first point of contact for planned fund launches. Of course, these companies earn money by providing administrative support for fund requirements, and certain institutions also offer sales support for existing fund products. The concept of review competence in these houses is often forgotten. In individual cases, a seed investor contact may be established, but this is not the core service of these know-how carriers. What is decisive is that many concepts would be viable if the time and cost schedule of the fund initiators were accompanied by a stringent strategy. Successful concepts usually become known to providers and investors themselves through their implementation. What is less talked about? With the many “suffering” or “dying” concepts, certain basic craftsmanship principles may have been given too little attention right from the start. Often there is no match between pure desire and professional goal. In the end, the principle of hectic activism rather than a strategic approach applies. Potential seed investors have often developed a feeling for the desperation, frustration, and time pressure the fund initiator has to deal with. Similar to the situation when starting up a new business or selling a company: time pressure and financially tight margins are often bad prerequisites for a successful search for seed investors. Relaxed dialogue is required Many investors are looking for interesting investment concepts. Even concepts with a solid technical background – track record, team, the personality of the manager, etc.

  • Frankfurt-Skyline-Night

    Frankfurt is the central location for the professional exchange of ideas of the fund industry in Germany. Formats such as the BVI Asset Management Conference on October 1 will again offer the opportunity to find out about current developments in the industry. Markus Hill spoke on behalf of FONDSBOUTIQUEN.DE with Thomas Richter, Chief Executive of the German fund association BVI, about conference content, current topics, and the special “charm” of the city Frankfurt as a venue. Hill: Mr. Richter, the BVI Asset Management Conference will again be held in Frankfurt on October 1. What makes this conference different from other events? Richter: The BVI Asset Management Conference has developed into the industry meeting of the year. It provides an overview of current developments in the capital market and of the regulatory and strategic challenges facing the industry. It is not a trade fair and as a non-commercial platform, it regularly convinces with its programme and speakers. This year, for example, ECB Chief Economist Peter Praet, BaFin President Felix Hufeld, Hessian Economics Minister Tarek Al-Wazir, and EU Member of Parliament Burkhard Balz are among the participants. We are expecting 500 participants again. Hill: Frankfurt is an attractive location for the exchange of ideas in the fund industry. What do you think makes the Main metropolis so attractive for many colleagues in the industry? Richter: Frankfurt can build on many strengths. In recent years, the city has developed into the home of national and international financial organizations and supervisory authorities. Whether ECB, BaFin, Bundesbank, or the EU insurance supervisory authority EIOPA – Frankfurt plays a decisive role in Europe concerning monetary policy and financial market regulation. Nowhere else in Germany are there more companies from the financial sector than in Frankfurt. In 2014, around 200 banks were based here, plus 34 representative offices of foreign institutions – not to mention Deutsche Börse as one of the world’s leading exchange and settlement operators. The investment companies are also strong here. More than half of the BVI members are based in Frankfurt. Over 70 percent of the 2.6 trillion euros that the fund industry manages for customers in Germany are managed from here. In contrast to Luxembourg, where funds are launched, Frankfurt is the location for product development, fund management, and sales. Hill: What topics are you currently working on intensively? Richter: The investment tax reform, Solvency II and MiFID II are the current topics. The latter regulates, among other things, commission consulting. The debate on systemic relevance is also a constant issue. Indeed, FSB and IOSCO have now realized that the business of asset managers is more relevant than their size or that of their funds. But the issue will remain on the regulatory and political agenda. Hill: Thank you very much for the interview. Source: www.institutional-investment.dePhoto: www.pixabay.com

  • In July of this year, an intensive exchange of ideas between investors and product providers took place at FundForum International in Monaco as part of a panel discussion on the topics of family offices, due diligence, and fund boutiques. Marcel Müller from HQ Trust in Bad Homburg, one of the family office representatives, was one of the panelists and addressed issues such as track record, decision-making processes, active share, and the topic of career risk in the area of manager selection. Moderator Markus Hill* spoke on behalf of FONDSBOUTIQUEN.DE with the fund selector following the intensive expert discussion. Hill: At the Fund Forum Panel in Monaco we had the opportunity to exchange views on the topic of manager selection in family offices. Every house has its due diligence criteria. What is your approach to the selection of fund managers? Müller: At HQ Trust we have a very stringent and systematic selection process. In the first step, we carry out a quantitative screening, which first gives us a good overview of the risk behaviour and performance of the peer group. Key figures such as volatility, upside capture, downside capture ratios, and active share play a greater role here. However, for us, this is initially only a tool for generating ideas. The focus of the selection process at HQ Trust is strongly driven by quality. Why qualitative? We believe that asset management is a people’s business and that the quality of portfolio management has a significant impact on fund performance. And this requires a detailed qualitative due diligence of the fund managers and their teams. It is therefore extremely important to interview the people involved and to visit them on site. We also send out very detailed questionnaires, some of which can be up to 100 pages long. The evaluation of the questionnaires is especially important for the preparation of an on-site due diligence appointment. It is important to understand why a fund manager has achieved good results in the past and whether this can be systematically repeated in the future. This cannot be done purely quantitatively via a fund database. We, therefore, analyse the fund managers’ investment processes very closely and pay particular attention to competitive advantages in the analysis and processing of information. What sources of idea generation and how many potential alpha sources does a fund manager have? Do these ideas find their way into portfolio construction and ultimately into the portfolio? How high is the quality of the risk management system or is it applied at all? Can the fund manager explain his performance at any given time and does the investment process fit the investment philosophy? Conclusion: It is more important for us to understand a track record than to buy a good track record. Marcel Müller from HQ Trust in Bad Homburg Hill: Interesting point. What exactly do you mean when you talk about buying a good track record? There are also managers in the market who show weak phases in their performance. How do you deal with this? Is decision-making processes in the team often more difficult in this case? Müller: I think one of the biggest misconceptions in our industry is the belief in the possibility that “past performance” can be bought. Although everyone knows that this is not possible, a great many market participants seem to succumb to this misconception. In most cases, past performance-focused fund selection leads to disappointing investment results. However, the fact that this historically focused approach is predominantly practiced and can be seen simply from the fact that funds with a good history of returns grow relatively strongly in fund volume as a result. These funds then often become too large and are restricted in their investment universe. The result is then usually worse results than in the past. I think some investors are sitting on this mistake. It is of course much easier and more pleasant to buy a fund with a good track record or to recommend such a fund to analysts. You need much better arguments to recommend a fund if it has not performed as well in the past. It also involves a certain degree of career risk for analysts. If you recommend a fund that has performed well over the years and the manager is very well known, then it is insignificant if the fund performs badly. With an unknown manager and possibly not so good performance history, you have to justify yourself more firmly. But the question is what ultimately leads to better investment results for our clients. We firmly believe that past fund selection is inferior to qualitative fund selection. Hill: Would you see a difference in manager selection between the due diligence process of fund boutiques and the selection process of established, corporate managers? Müller: We follow a structured and disciplined selection process for all funds invested for our clients. However, there are certain differences in the level of detail of due diligence for fund boutiques compared to one of the large global asset managers. Let me give you an example. A few years ago we selected a fund boutique with 4 employees. Several days were required for the on-site due diligence at the manager’s premises. On the one hand, we wanted to have the entire IT infrastructure (e.g. trading systems, risk management systems) explained to us and to understand exactly which portfolio tools were being used. Besides, it was important for us to get to know the people involved in the transaction and to obtain the opinions of existing customers, business partners, and former colleagues on site. It is also important to analyse the ownership structure as well as the stability and intensification of the investment team in detail, as the personal risk is usually much higher in boutiques. All in all, it can be said that in a boutique we tend to turn over every stone twice rather than just once. We think that this thoroughness pays off for our clients in the long run. Hill: Many selectors

  • Frankfurt-Main-Skyline

    The FundForum International took place in Monaco from 29 June to 2 July. The independent industry expert and IPE author Markus Hill moderated a panel discussion there again this year. He discussed with decision-makers from family offices about the complex of topics of fund boutiques and due diligence. Before the event, he also moderated a panel discussion on “Fund Management – Man versus Machine” and “Fund Selection for Foundations”. Editor-in-chief Frank Schnattinger talked to him about current topics, which were also increasingly discussed against the background of previous or future events at family offices and asset managers. IPE Institutional Investment: In July, you had your panel discussion on family offices and due diligence in Monaco. What did you notice most about the discussion this year? Hill: In addition to the standard topics such as quantitative and qualitative selection process, I found it exciting this year to see how the areas of group decision-making and on-site visits to independent asset managers were also addressed. One of the panelists remarked that one could of course lean out of the window to give even unknown, excellent managers a chance for a “ticket”. However, as a member of a team making selection decisions, one should be aware that one could be taking a career risk in case of an emergency: In the majority of cases, you have to be right in such actions to afford this luxury for decisions under increased risk. The importance of the “house culture” also appeared to be crucial: Are independent decision-makers valued as selectors for independent managers? Is it known about the added value of such employees? A final visit to the manager by the family office was discussed. After going through all the preliminary stages in the selection process, there are cases where even a several-day observation of actors and processes on-site can ultimately be decisive for an investment decision. IPE Institutional Investment: Shortly before your Monaco appointment, you moderated a panel in Frankfurt on the topic of “Head, gut, or machine? What was the focus of the discussion here? Hill: The consensus in the panel of product specialists and fund of funds managers was that people do not believe in the victory of machines over people in the foreseeable future. Topics such as “Fintech hype” and Robo Advisory are being closely followed by fund managers. In the end, it seems that humans make final decisions in portfolio management or provide the content for programming and optimization and take over the monitoring function. Topics such as active management versus passive management were also intensively discussed by the participants. As is so often the case with many of these discussions, one comes to the conclusion: You cannot passively pursue passive management. The decision to be passive is also actively made. At the product level, including in fund of funds management, this means at some point in time, a manager decides on a certain allocation at one or more points in time. Even when selecting rule-based systems, it is the human being who determines in which direction such systems intervene or how such systems are developed further. IPE Institutional Investment: Thank you for the brief snapshot regarding these two fund selector panels. What topics are you currently working on? What developments are you following more intensively? Hill: For a long time now, I have been working more intensively on the topic of “Value Investing and fund boutiques” as part of a project. The current round of the 2nd Frankfurt Funds Boutique Panel also partly supports the formation of opinion in this area. This September, a series of lectures with Prof. Dr. J. Carlos Jarillo will once again provide an opportunity to exchange ideas on these topics and the subject of corporate strategy and competitive advantage. As in Frankfurt this May, there will again be an opportunity to hold a critical discussion with fund selectors. The subject area is by no means only a topic for the investment process for liquid products. During various technical discussions on the topics addressed, it seemed interesting to note that many investors – regardless of the product packaging – often deal with similar questions: Is the “corporate concept” of investing in companies, stocks, or funds correct? How vulnerable are concepts to attack by competitors? What are the real barriers to prevent competitors from entering the market in the long term? Remarkably, some of these aspects are often found in the selection of fund managers: How quickly can a fund concept be copied? What constitutes the elementary, unique competitive advantage of an independent asset manager? What are the risks associated with concepts and players? Open-end funds, private equity, and direct investments – all areas where similar approaches lend themselves to an in-depth discussion of these fields. IPE Institutional Investment: In addition to fund boutiques and manager selection, you will deal with topics such as real assets, direct investments, and sustainability. Family offices, foundations, and many other traditional investors are closely observing these market segments. How do you see developments in this area? Hill: These areas cover a very wide area. Against the background of a panel at the Goethe University in Frankfurt in October of this year, I am also increasingly concerned with the topic of impact investing and sustainability concepts in investments. The event is organized by Professor Dr. Rainer Klump and Dr. Manuel Wörsdörfer, in cooperation with Karen Wendt (Responsible Investment Banking). It seems interesting to me that there is an increasing openness for concepts in the context of investor discussions, at least the topic of sustainability seems to be moving in large steps away from the pure “fashion corner” – many people are talking about even less investing concretely. Trends in the market, including regulation and investment distress, seem to bring productive pressure to the discussion. One can only hope that this welcome trend will continue. Detached from the topics mentioned above, one thing seems to be positive for the asset management industry in 2015 – the strong inflow of funds is

  • “Hang a golden collar around a pig, but it will remain a pig”, this or similarly, many measures in the marketing of funds can be aptly characterized. Although there is far more interest in facts in the due diligence of investments, especially among semi-institutional or institutional investors, many providers of “mediocre” asset management products still seem to believe that “the sales department will do it”. Where are the weak points in such an assumption? Does a lot help a lot? Must one continue to wander well-trodden paths? Business models of independent asset managers Independent asset managers have gained great popularity among private and institutional investors: Fund boutiques and independent asset management are on everyone’s lips. “Small” providers are now attracting increased media interest. Many addresses have managed to position themselves well with private investors in the long term. Reputation, trust, and customer proximity are often arguments that can make a difference in the battle for the customers of established banks. As a rule, many of the successful providers have not followed the path of pure “performance marketing”. Customers who “only” enter the market in the short term because of outstanding performance often quickly leave the customer relationship even if performance is unsatisfactory in the short term. A certain group of fund boutiques that are successful in the private customer business often try to score points over a long period with their products in the institutional or semi-institutional investor segment. There are successful players in the market – for example, Acatis, Flossbach von Storch (FvS), and DJE. It is often forgotten that the success of these companies is based not only on their long-term performance histories but also on professional structures in investor communication. Long-term thinking, “clean” processes, employee qualification – all these factors play together here. Competitive advantages for fund boutiques with “medium” visibility “Don’t you know anyone who might be interested in our approach”, “We have no competitor and are unique in the marketplace”, “Don’t you even have an idea?” – these are some of the typical inquiry patterns you hear from independent asset managers who are still looking for their position in the market The content of these statements does not necessarily say anything about the quality of the asset managers. Of course, many addresses will always have difficulties in the long term in approaching institutional investors in the open field with full performance visibility. In contrast to this, there is a large pool of currently not so well known “emerging managers” who are unable to quickly build up large fund volumes, for example, due to a lack of marketing infrastructure or simply because of the current phase in the corporate cycle: With a promising address, it may simply be that the three-year track record has not yet been reached. This simple fact often results in longer periods of stagnation in the growth of the fund boutique. The leap from the first five million to ten million and more fund volumes often seems very difficult and “tough”. Reasons for this can be the asset manager and his skills, but also simply the lack of access to funding boutique-affine investors. Another aspect may be: The “emerging manager” convinces the institutional investors through his performance in the special fund mandate, and here too, a great deal of effort is required in the area of investor communication. Even a “small” mutual fund licensed for public distribution can often serve as a showcase for investors. Competitive strategies in asset management Michael Porters, “competitive strategy pope” from the USA, input for competitive advantages can be briefly and concisely applied to fund boutiques, with all the weaknesses that have to be taken into account from product-oriented marketing approaches for the service sector. Cost leadership does not appear to be at the forefront of orientation in the fund boutique segment. Differentiating features can also be increasingly presented in communication. Assuming a satisfactory level of performance, management expertise, the investment process and the network are of course potential differentiators. The niche strategy is discussed intensively. Opportunities and risks are close together. Depending on the degree of specialization in an asset management segment (e.g. product or approach), many “small” providers lead a comfortable life here. With one proviso: If the segment, style, etc. is not running, or if the product class is not fashionable at the moment, then there must also be the willingness (time, resources, etc.) to be able to bridge major periods of thirst. The situation becomes critical when there are no permanent competitive advantages. Like Porter, Carlos Jarillo (“Strategic Networks”) and Hermann Simon (“Hidden Champions”) also emphasize in their works the importance of the existence of permanent barriers to market entry for long-term competitive success. The thoughts of the Harvard Business School are reflected in this thinking just as much as the “down-to-earth” thinking of Warren Buffett and other, classic value investors (“Economic Moat”). A large number of independent asset managers are waiting for the big breakthrough that may not come, overlooking many other opportunities in the market that could be seized with a little creativity. In the end, this would mean taking a critical look at their business model. Investment companies focus on market development. Many of the investment companies specializing in private label fund launches have been promoting the growing fund boutique segment for years. Universal-Investment, Ampega, LBB Invest, and many other addresses often also provide support in marketing the funds. Caution: here too, active marketing is carried out with promising candidates. Even the own arm of the sales support team cannot work miracles with a five to ten million “heavy” fund. As a rule, these houses also prefer funds that have a proven track record, performance, and name. This is understandable; part of the grassroots work lies in the first stages of distribution with the respective fund boutique itself. In this case, the investment company itself has a natural interest in the fund initiator also supporting the distribution of its products efficiently. Outlook There are no patent remedies for “up-and-coming”

  • Frankfurt-Skyline

    “And just as water has no stable form, so too in war there are no stable conditions” (Sun Zi). The words of a well-known strategist seem true-to-life and understandable – economic parameters change, markets, correlations, and other parameters are constantly changing. Whether head, gut, or machine: hardly any fund selector can do without the existence of an “apparently” systematic, comprehensible investment process when selecting talent in fund management. Family offices, for example, have their own “glasses” when it comes to selecting fund boutiques for mandates (due diligence), and the approaches of different houses are often similar. Which factors often appear interesting in the selection process? Which factors are perhaps over- or underestimated when discovering talent? Fund selection – neither Rocket Science nor trivial 1 – “Hard” factsAs with other groups of fund selectors, family offices, which have developed a strong interest in independent asset managers (fund boutiques) over the years, use many of the common filters for selecting fund managers, for example, track record over several years – performance, the risk taken, behaviour in market phases, tracking error, costs and fund size are all areas that are addressed. Quantitative factors can be used as a good preliminary filter for further qualitative considerations, at least at the beginning. Benchmark or absolute return? Maximum drawdown? These seemingly “hard” facts are naturally taken as standardizable, measurable, comparable, and easy to integrate into process structures during due diligence. A dilemma: performance, correlations, volatilities – all facts viewed through the rear-view mirror – but the selection of the manager should produce success in the future. 2 – “Soft” waysManagement approaches are discussed just as intensively as transparency and systematic, comprehensible investment processes. Man and belly versus machine? Discretionary versus rule-based? “Artistry”, “dice” versus unimaginative numeracy? Ambiguities in the definitions often meet here together with prejudices and the fund selectors’ preferences – to put it positively: If fund management should mean art as well as science, then there are perhaps many roads that could lead to Rome. Of course, there is no such thing as a management style that is successful across all market cycles. It is also often forgotten that family offices represent a certain clientele and due to the origins of many assets, have a certain resistance to stress in “lively” stock markets – the time factor is crucial. The intensive discussions about active, pseudo-active, and passive approaches show that many things are not always clear on firm ground, even in the fact-based financial world. 3 – “Spongy” processesMalicious tongues claim that too much communication about processes heaps up to cover up a lack of talent. The stories of brilliant processes in funds with more than mediocre results are often found. To be fair, however, it must be said that there are also a large number of apparently talented, less rule-based fund managers who are not even able to convince with their results. The one investment process that guarantees success does not seem to exist. Assuming that it can nevertheless be more than useful to be able to understand a manager’s investment process, the following questions may arise:*Does the manager do what he claims in his descriptions of the process?*Don’t many fund managers know what fund selectors want to hear?*Is the investment process presented by the fund manager consistent with the process explained in the fund company’s marketing materials? By raising such questions, which could offer interesting links between family offices and the professional dialogue, one might conclude that the search for talent among specialized managers is perhaps more similar to the “truffle search” than a systematic, purely quantitative search process with results that can be repeated at any time. Solid housekeeping and conventional trial-and-error heuristics in combination with a gut feeling, intuition, experience, etc. are required. Databases for pre-selection are important, research is the core factor in basic work. Knowledge ManagementNetworks have also formed in the family office sector. Fans of boutiques are coming together. Practice shows that there are a large number of enthusiastic selectors whose heart beats for independent, specialized asset management. If you talk to family office representatives in different countries, similar structures become apparent: Interestingly enough, if the selection processes are very similar, it repeatedly becomes apparent that not all addresses can be lumped together: Although seed money donors, for example, are supposedly hard to find, there are a large number of addresses that see themselves as “sponsors” of talent. Even more surprising: Fund sizes are relative. There are also houses for which a minimum track record of three years, for example, is not a minimum criterion, and even backtesting concepts find open ears, at least with a smaller number of houses. OutlookIf one is in exchange with other groups of selectors, at least one thing in common with many family offices is noticeable: Networking within one’s group is frequent, and the various groups seem to engage in intensive dialogue with each other less frequently: Family offices, foundations, fund of funds management, private banking, etc. Perhaps this phenomenon is somewhat due to the lack of visibility in the family office sector. Collectively, the heterogeneous mix of fund selectors and analysts is more often found at houses specializing in fund boutiques, such as Universal-Investment, Axxion, Ampega, and many other providers. Fan circles come together, for example, at investor events, but also at events that go beyond the usual industry meetings. In short: professional exchange of ideas in fund boutiques is appreciated – content before sales: the fund companies that offer added value here are knocking on boutique fans’ doors! Source: www.institutional-investment.dePhoto: www.pixabay.com

  • Frankfurt-Skyline

    Institutional investors have been observing the increased appearance of independent asset managers (“fund boutiques”) for years. The value investors among these owner-managed companies often have a very unique view on the selection of investments. Markus Hill spoke on behalf of IPE Institutional Investment with former strategy professor Dr. J. Carlos Jarillo of SIA Funds AG about topics such as competitive analysis, strategy, and the patience factor. Hill: You have a profound international academic background with teaching practice and have been successfully managing equity funds for many years. Which area did you originally deal with intensively in theory? Jarillo: I have always had a keen interest in all issues that touched on corporate strategy. This was also one of the reasons why I did my Ph.D. at Harvard Business School. Harvard stood out in this field, and Michael Porter’s lectures on competitive analysis had additionally strengthened my interest at the time. There was one question that kept me very busy at that time: How is it possible that a company A can be more profitable than company B, even though both are in the same industry? It was interesting to be able to work out over time exactly what the “recipe for success” of company A could be. In the course of my later career, I discovered that this information can be very valuable when managing portfolios. Hill: What conclusions have you drawn from your academic time for practical application? Jarillo: During my time as a professor of corporate strategy, I have always maintained an active dialogue with companies from a wide range of industries. One insight from the intensive exchange with “practitioners” was that often one thing is said and the other is done. Particularly when you look more closely at topics such as mergers, financial incentive systems for management and profitability, you can come to interesting conclusions. Things that are officially announced to substantiate business decisions with great implications for the future of companies can sometimes deviate from the unofficial views of decision-makers. If you have observed such things frequently, you, as a value manager, also look at the world with different eyes. The topics of competition and profitability are becoming increasingly important, for example, often going far beyond the classic thoughts on “economic moat”. If you leave well-trodden paths, you may come to alternative investment decisions. At the time, these thoughts also motivated me to switch to the real world. Hill: In your book, which is a review described as a practice-oriented supplement to Michael Porter’s standard work, you emphasize the term “strategic logic”. What exactly does the conclusion from “strategic logic” to the maxim “strategic investing” mean? What is the relationship between entrepreneurship and investment? Jarillo: My idea was that the strategic investor needs to distinguish between strategically well-positioned companies and strategically badly positioned companies in advance. If a value investor is now in a position to buy such a well-positioned company at a very attractive price, I call this “strategic investing”. It is important to see oneself mentally as the owner of this company and not as a speculator. For me, this mindset is the “ownership approach”, which can be found in a pronounced form with entrepreneurial investors or with many family offices. This approach can also be viewed separately from the investment shell. Direct investments, participations, or even fund variants that differ from classic, liquid investment funds can be assessed similarly. Long-term corporate profitability is the main focus of the investment decision, not the daily published share price: from “casino investor” to classic value investor! Hill: Portfolio investments in long-term attractive companies are a cornerstone for convincing performance, risk management is another success factor. How important is portfolio diversification for investors in the field of value investing? Jarillo: In my opinion, there is often a misunderstanding among some investors. One would perhaps have to look at two levels of motivation here. On the one hand, as an investor in a portfolio, I spread my risks, for example, on active funds, passive funds, and liquidity. This is already a risk management level. The normal case is that it is difficult to predict which of the two management approaches will “win” in any given year. On the other hand, investors should be aware that they often encounter very concentrated portfolios in the area of value funds. Risk management here is often carried out within the fund by following one’s own few values very intensively, “in a more concentrated manner” and reacting promptly if action is required. At the overall portfolio level, investors are well-advised to spread their investments across different value funds with different management approaches. As with the “race” of active vs. passive, one does not know who will be ahead at the end of the year. Hill: Casino mentality and greed versus patience, calmness, and long-term thinking – are value investors the successful investors in the long run? Jarillo: My opinion is that value investing does not work without a long-term entrepreneurial approach. The short-term volatility in various value funds alone shows that great conviction and patience are required. If the fund manager succeeds in attracting more investors to invest in a “quiver” of excellently positioned companies, a foundation for success is laid. If it is communicated that the current, volatile stock market valuation does not signal the need for action daily, then calm and composure are often the result for the investor. This calmness characterizes many investors who are successful in the long term. Astonishingly, investor behaviour is quite common in the real estate investment segment. I am not saying that fund managers should immunize themselves against new information situations. What I am saying is that the new information is evaluated according to whether the original valuation of the investment still corresponds to the original fundamental valuation and whether there are also new, temporarily undervalued “bargains” on the market. Against this background, I have to say – as a value manager, admittedly biased – that value investors are ahead in the long run!

  • Frankfurt-Skyline

    “Those who are said to be dead live longer”, according to the current press, the death of active fund management is often postulated. Robo Advisor ante portas, the popularity of passive funds, as well as the often controversially, discussed results of actively managed funds, give rise to a need for discussion. Additional irritation is caused by “pseudo-passive” approaches such as so-called enhanced indexing. If everyone looks at the costs and the opinion is that machines, rules, and top performance in asset management will set the tone in the future: Where is the niche for the asset manager who does not want to or cannot participate in this race? Family offices and asset management Private clients want to feel well looked after by their asset managers. This commonplace can be filled with meaning: Simply put, a clean stock-taking should be carried out, approaches to solutions should be discussed and outlined in terms of investment policy and products and decisions should be made and implemented – a mandate is given by the client. Risk management should be carried out, results should be documented. Besides, it should be possible to demand flexibility from the asset manager if the client’s life circumstances or personal financial history change. These services are usually combined with the skills of a good tax and legal advisor. The transitions in the areas of family office services and asset management are often fluid. One often wonders in the public debate, but the majority of clients – whether HNWIs or average wealthy individuals in need of investment advice – are unlikely to expect an investment guru or performance winner for three, five, or ten years. Last but not least, the existence of traditional private banking shows that long-term customer loyalty is “multi-factorial”, so to speak. The performance of advice provided by family offices and asset managers may sometimes be drawn at the crossroads from pure advice to their product range. This specialist discussion is still controversial and committed – especially on the family office side. It is often forgotten that, in addition to asset managers, many multi-family offices are also dependent on the same type of acquisition when the dynamics in the area of “client referrals” diminish. Active management and transparency “Pseudo-passive” approaches often do not clearly show for many investors that passive investments need the active helmsman again. It represents already an active decision to deviate from the pure path of the exclusively passive Investments, one enters like with the overlay management in the reason an additional bet. When buying Exchange Traded Funds (ETFs), it is often forgotten that these must also be actively allocated as product components. Likewise, an active element in the world of apparently passive investment, often little considered in the discussion: A computer or rules are used to control quotas or macro-economists change opinions based on data. When programming or estimating, “derivative” so to speak, heads, talents, opinions are used again. The more this insight becomes clear to investors, the more the service element of advice and education in the management of assets comes to the fore again. This point sometimes gets lost in discussion: No active manager can give a performance guarantee, but neither can a rule or computer program. And purely passive investment in a combination of markets does not seem to be an acceptable solution for every investor. As is often the case, the truth can lie in the middle, perhaps it is the healthy mix of approaches that does it – diversification is trumps. Mutual funds and independent asset managers As mentioned above, no unilateral position should be taken here for active or passive investment concepts. This is the task of the scientific discussion. However, if one wishes to discuss the raison d’être of asset management in a more balanced way, one can conclude that many asset managers and family offices have perhaps positioned themselves disadvantageously in some cases or could perhaps position themselves more optimally today. In this case, this refers in particular to those addresses that have their mutual funds managed by specialized capital management companies such as Universal-Investment, Ampega, Hauck & Aufhäuser, and other providers in this segment. The annual “greyhound race” to continuously win the top ranks in the performance hit lists is often hardly possible. Only very few asset managers convince over many years. These are usually successful with institutional investors and often have little to worry about positioning. Often forgotten are the majority of funds, which are relatively small or unknown, show average performance, and yet can still be an interesting addition to the portfolio for the investor – for family offices as well as for asset managers. A thoroughly controversial aspect of advice can be that the client recognizes that the advisor’s products can mean that the manager makes himself transparent and vulnerable and engages in dialogue with the client. Under no circumstances does it have to mean that these products are massively used in the client portfolios. In addition to the use of third-party products, a diversification principle can mean that by purchasing a small, appropriate quota of the advisor’s product, the client obliges the asset manager or family office to exercise increased “attentiveness”. Asset Management, Communication, and Confucius Many of the parts mentioned above can be found in advisory services for private clients and high net worth individuals and cannot be easily transferred to institutional clients. Should independent asset managers and family offices increasingly define themselves through their core competencies of advice, know-how, and network, the demand on the client-side will be there. Many large family assets and foundations also live for many years with moderate, appropriate performance. The opportunity for the asset management sector lies in the creation of greater visibility for clients of their original performance as advisors, coaches, and risk managers. The client must feel understood, performance is only one of many factors for a successful long-term client relationship. The saying goes: “If you disagree on principles, you cannot give each other advice” (Confucius). Source: www.institutional-investment.dePhoto: www.pixabay.com

  • Frankfurt-Skyline

    “If asset managers are trending towards the average over the long term, then I can buy the index directly”: This is an opinion you will find again and again when you talk to certain investors, including foundations. This point of criticism is often taken note of with a shrug of the shoulders in combination with helplessness (“resignation”) by representatives of investment companies of actively managed funds. Of course, this discussion is not over, active and passive product worlds are still struggling for interpretative sovereignty. The death of temporary market inefficiency (active investment opportunities) is by no means a foregone conclusion, professional expertise in low-interest phases is in demand: active fund management remains a constant in the investment sector, briefly commented: What can asset managers and family offices achieve? Where could misunderstandings arise? Why don’t the trees grow to the sky? Success factors for cooperation Foundations are faced with an extensive universe of product variations: Direct investment, endowment funds, mixed funds, asset management funds, etc. If one puts aside the discussion about marketing concepts of asset managers and assumes sufficient database supply (ratings, rankings, “hit lists”): If the majority of asset managers tend towards average (performance) in the long term, other factors may perhaps play a role in the selection of service providers and gain additional weight: *Confidence*Interests*know-how It is interesting to note that these aspects often take a back seat to the pure consideration of common manager selection procedures (“beauty contest”) due to the lack of quantifiability. Of course, the consultant is on the safe side if he has to rely heavily on the figures: performance, volatility, drawdowns, and many other points. Of course, processes, team, risk management, etc. are also considered. It is often forgotten that “small” foundations, in particular, cannot afford these elaborate procedures – the usual procedure “heuristics” then often consists of following the house bank philosophy. (The core question can be: Is the house bank solution the only target-oriented solution for “small” foundations or are there other approaches that can be used or supplemented?) Trust Lawyers, tax consultants, and auditors live on the trust of their clients (“Trusted Advisor idea”). Due to the diversity of providers in these segments, competition is very tough, as in the asset management sector. The services are often regarded by clients as “commodities”. Due to the complexity of the service (How do I recognize a good lawyer? What makes a good asset manager?), the final evaluation of the service appears difficult to many clients. In these areas, the relationship of trust, in addition to sympathy, is very important. Specialist knowledge is considered a “hygiene factor”. It seems interesting to note that asset managers and family offices, for example, may have difficulty “measuring” the quality of lawyers. Foundations are often faced with a similar issue: How can I tell if I am receiving good legal advice or how can I tell if my house bank always offers the best advice? Either the above-mentioned specialists look after your mandates on the basis of tradition (willingness to change often less pronounced with clients) or recommendation by third parties. In addition, some providers actively engage in public relations work – “discreet” professional visibility very often facilitates initial contact and arouses interest. (By the way: it is not easy for lawyers either to “measure” the quality of family offices and asset managers – recommendations can create a reputation risk). Excursus: Trust – capital management companies (KVGen) and fund boutiques Many asset managers have set up funds with KVGen such as Universal-Investment, Alceda, Ampega, and other companies. Price competition in this area is intense – although comparisons often lead to the conclusion that price cannot be the only criterion. Where the “core services” (pricing, reporting, etc.) are roughly the same, it is often the customer service and the respective client advisor who are the central added-value components at the end. Since for many asset managers and also family offices the mutual fund serves as a kind of “showcase” for new customer acquisition, KVGen can provide targeted assistance if the quality of the staff is appropriate, an example: In case of doubt, this can also mean – in a very trust-building manner – that potential customers are advised not to invest in a fund! Interests The interests of banks, asset managers and family offices in the servicing of “small” foundations can perhaps be briefly discussed by looking at the poles of “turnover orientation” and “portfolio orientation” (mixing ratios are equally valid): *Is my bank, independent asset manager, or family office – example: manager of FO public funds – heavily dependent on “selling products” as often as possible or are there forms of remuneration that prevent a focus on this “support strategy”?*As a foundation, do I have the feeling that my counterpart – beyond the mere sale of products or services – enjoys and is interested in foundation topics (“affinity”)?*Does my advisor give me the feeling that I am an interesting client even as a “small” foundation? Know-how In the case of asset managers who have been successful for many years, one should be able to assume that know-how in the specialist area is available. When buying mutual funds from asset managers (banks, family offices, etc.), you can use the relevant information – databases, ratings, rankings – to help you. In many cases, a “small” foundation can use this as an efficient means of making a selection even without consulting. Provided, of course, that the decision-maker at the foundation has a certain level of investment knowledge. In the current phase of low-interest rates, many mutual funds with mixed approaches (diversification) will of course continue to be a standard investment instrument for “small” amounts. Knowing full well: “hit lists” only show the past, manager 1 from 2014 can be manager 25 in 2015. If one assumes that many “small” foundations, in particular, do not have full-time investment specialists, this results in an interesting field of consulting for many independent asset managers. The current phase of low-interest rates could mean

  • “Diversity beats simplicity” – so often the relevant, mostly misunderstood slogan in the diversity discussion in the media. The concept can also be transferred in part to the area of the professional composition of committees, advisory boards, and other institutions. If one observes the professional composition of these “entities” (investment committee, etc.) in practice, the impression can be created that hidden potential can still be tapped. Which key points would be interesting for a “dynamic” discussion? Interests: Status quo and potential for optimization Criteria for the appointment of investment committees, advisory boards and other forms of bodies can be – without claiming to be exhaustive:*Appointment due to “friendly” ties*Cast based on professional expertise*Cast based on the degree of awareness (“multiplier”, reputation, etc.)As a rule, there are combinations in the motif location. Depending on the design and nomination, different discussion areas arise. Neutrality, conflicts of interest and potential risks Of course, one can argue that bodies with a purely advisory function should be set up under regulations and not be considered as “core management bodies” in the practical implementation of investment decisions. To comply with the regulations, it would appear desirable to minimize the potential for conflict at investment committee meetings. If every portfolio management decision were to be questioned with commitment, resources could be tied up excessively. If the purpose of committees is seen in control, risk management, and optimization of processes, then an alternative stance can also be taken: The more independent, subject-oriented and non-interested expertise is built up in the committees, the greater the potential for optimizing decision-making processes. The whole area of product vendor-related committee composition could be worthy of critical consideration. Where are there conflicts of interest in individual cases? “Friendly” ties between committee members, combined with a high level of expertise, can be advantageous if potential conflicts of interest can be addressed openly and discussed constructively. A high level of recognition and an impressive CV can but does not have to be accompanied by in-depth professional expertise. An interesting question for identifying the need for action Assuming that purely advisory bodies should bring their full potential to bear in optimizing decisions, “test questions” could sometimes provide an enlightening impression of the depth of substantive commitment and interest of investment committee members. It might be interesting to discuss a question without “prediction”, such as Who are the relevant competitors of the fund manager who is currently answering questions at the investment committee meeting? Source: www.institutional-investment.dePhoto: www.pixabay.com

  • “In tranquility lies strength”: Investor education and the appeal to the patience of investors are not always the focus of sales activities at some fund companies, as is well known. Various products or approaches are often marketed very cyclically. According to the motto: “What’s going well right now?”, “1st place in a 1-year comparison” etc., the marketing activities of some fund companies are often very cyclical. The fact that there are other ways of doing things is demonstrated, for example, by many representatives of value approaches in the fund sector. Whether an independent or group asset manager: long-term thinking in the field of communication is paramount since it is like things. In which areas can this approach and communication strategy still be observed? Who appreciates such long-term thinking? Where are the opportunities and risks? Sympathy among investors – identification of islands of interest The art for many providers of value approaches is to identify the right investors for seemingly “boring” and long-term oriented investments that require explanation. As a rule, this cannot be achieved through pure performance advertising or trend argumentation. Qualitative and quantitative value approaches, the idea of risk premiums (“margin of safety”) and the ongoing communication of “the bet hasn’t worked out yet” – there is a community of loyal followers in this area. Many of the private and institutional investors appreciate these approaches, which require explanation, regardless of the product cover (in addition to funds, also investment companies, direct investments, etc.) Investor education in the form of events, commentaries, know-how transfer is particularly appreciated by this group of investors. Family offices and independent asset managers Investment concepts in need of explanation (time horizon for investment) are, for example, often appreciated by investors who themselves have a long-term investment horizon or by customers who think long-term. This is often accompanied by a certain sympathy and a pronounced understanding of entrepreneurially oriented investments. Certain wealthy private clients, family offices and independent asset managers can be included in this category: Belief in one’s continued existence for many years to come, continuity, equanimity and independent action without seemingly hectic, cyclical activity are increasingly found here. As soon as investments are made for third parties, concentrated communication measures are necessary in case of short-term lack of success. On the one hand, the investor and his client must understand what he may have in his portfolio and for how long, and on the other hand, a continuous flow of communication from the provider to the “buyer” of the investment (family offices or asset managers for their respective clients) is required. As indicated above: those companies that manage to maintain the patience of investors with qualified information (as opposed to “factsheet terror”) in addition to satisfactory long-term performance will be ahead in the long term. Sales and marketing for fund boutiques There are a large number of “small”, independent houses that have successfully expanded their “fan circle” in the area of value investors for many years. Many houses from the Anglo-American area dominated the discussion years ago, and increasingly, continental Europeans are also becoming awake and successfully active (Scandinavia, France, DACH region, etc.) Long-term thinking in sales can be the recipe for success. Contrary to popular opinion about sales and opportunism, the success of these companies shows that there is another way. A salesman who has to communicate a long-term story over a long period usually has a different profile (mentality etc.) than the classic old-school salesman. Many independent asset managers manage to establish a “new” culture of sales. It would be interesting to see how “big” corporate-linked houses react to this trend. Independence or not: Of course, some addresses offer attractive value products. Know-how and communication for value investors Sources of information in the form of conferences, events, business breakfasts, etc. In the value sector, there are various offerings (Value Intelligence Conference, ACATIS Value Conference, etc.). Specialized capital management companies such as Universal Investment, Ampega, Hauck & Aufhäuser, etc. often offer interesting funds with a value approach, also with the Verband unabhängiger Vermögensverwalter Deutschland e.V. (VuV), one can identify various providers. Similar to asset management approaches, a variety of approaches can be found there. The fact that independent asset managers are meeting with increased interest among investors was also confirmed by the 1st Frankfurt Funds Boutique Panel in 2014: More than three-quarters of all participants surveyed (asset managers, fund of funds managers, family offices) emphasized that they consider the importance of independent asset managers to be “increasing” in 2015. Conclusion Diversification is also important for investment approaches. Value investment is one approach among many in the universe of asset management – of course, other approaches can rightly find interest among investors. Value investment thinking tends to open doors for investors who, due to their origins (independence, entrepreneurship, small and medium-sized businesses, etc.) have freedom in their investment policy anyway and are not under constant pressure from third parties to communicate “performance victories” to their clientele every quarter. Many companies operating in this environment are working on building and expanding the fan community for long-term oriented investment – similar to the BVI in Germany. The cross-cycle way of thinking and communicating deserves more intensive discussion in the fund industry as well – between the poles of sales pressure and “greed” on the part of investors, the value investment sector may once again provide interesting thought-provoking impulses for regaining investor confidence: As is so often the case, a profitable investment can simply mean drilling thick planks of wood: Investment opportunities do not fall from the sky, the virtue of “invest and wait patiently” is often a classic way to success! Source: www.institutional-investment.dePhoto: www.pixabay.com

  • Frankfurt-Skyline

    “Old wine in new bottles”: Asset management approaches in the fund sector have become increasingly popular in recent years. This trend appears interesting, as clear definitions are still being fought over – as far as the precise content of these approaches is concerned. Similar to the terms fund boutique, endowment fund and family office, the battle for the sovereignty of interpretation continues. Some basic aspects, which were clarified by the Association of Independent Asset Managers Germany e.V. (VuV) into the discussion years ago may help in a discussion. Where can one find links to asset management practice? What can pure “product modules” achieve and what should make a good asset manager? Where are the opportunities and risks? Possible discussion criteria for asset managers and family offices The design of products and services can be discussed using many criteria. If we take the VuV concept, these aspects could be briefly mentioned:1. investment in more than one asset class2. suitability as a basic investment3. aiming for a risk-adjusted return4. fund management free from conflicts of interest A special aspect of the topic “asset management approaches” can be the discussion about own products and the self-conception of tasks and demarcation of areas of responsibility in family offices. Similar to the asset management approaches, these areas – providers of family office services and also on the client-side – are currently the subject of intense discussion. When talking about asset managers below, certain forms of family offices with their fund products could be included in the discussion. 1. diversification of risks Swiss banking rule: “Money is like shit, you have to spread it around”. The classic task of an asset manager should be risk management. In which product packaging he does this can be a secondary aspect in the first instance. Individual mandates indirect investments and fund shells are and have been common. Cost aspects, technical manageability, or simple communication in customer talks, also investor knowledge, play a role here in the selection. What the asset management approach 2.0 can achieve here, so to speak, after the classic mixed fund, is currently the subject of intense discussion, because here too expectations have been raised by the industry that has only been partially fulfilled. 2. basic investment and trust As an investor – both private and institutional – caution is advised when using the term “basic investment”. A lot of trusts has been lost in sales due to the extensive use of this term. In case of doubt, endowment insurance policies, as well as closed-end funds and pure equity funds, were offered under this label in the past. The industry could benefit from a more differentiated use of this term. In the end, the question arises: How many “eggs in a basket”, development potential, and how many correlation opportunities and risks do such a fundamental component in the portfolio form? 3. risk-adjusted return Asset management, regardless of the packaging, should put risk management in the foreground. Calculated risks can of course be taken. A large number of the commonly mixed funds and the funds that operate under the label “asset management approaches” emphasize this claim. The variety of parameters used in fund management (asset classes, instruments, strategies, etc.) theoretically offers the opportunity to often meet the demands of private clients and institutional investors. Much has been promised, but often the promised has not come true. Similar to the banking crisis and the issue of trust: Less marketing, more education is needed. There is no doubt that the asset management industry offers many good approaches – miracles are rare. A convergence towards mediocrity can be observed. A constructively communicated “expectation management” could perhaps put fund managers or asset managers in a more positive light: Generating positive returns without a continuous uncorrelated relationship is an art. Few managers stand out – none can honestly claim to know the winner on 31 December of the year. If clients knew this too, many seemingly “mediocre” asset managers would not be forced to produce pro-cyclical activism to be at the top of any “racing lists”. In this case, one can almost claim: the fund industry with its pure asset management thinking has managed to pull the classic asset manager on the ring in the nose, so to speak! Fund management and conflicts of interest Independence is a precious commodity. All owner-managed asset management companies and also certain categories of family offices thrive on attributes such as neutrality and “vendor distance”. Many excellent fund managers (“fund advisors”, fund boutiques) in the area of mixed funds and asset management approaches can be found at specialized capital management companies (KVG) such as Universal Investment, Ampega, Hauck & Aufhäuser, and various other companies. Independent asset managers are becoming increasingly popular. In the 1st Frankfurt fund boutique panel survey conducted by the author of these comments, this trend was identified as the “basic tenor” based on responses from various asset managers, funds of funds managers, and family offices. This is gratifying. But, as mentioned above – does good asset management ultimately consist merely of good performance on racing lists? How do I differentiate myself as independent, even though various group-linked managers can offer excellent performance in certain phases? (Even if independents may often be ahead of the pack – is this race conducive to long-term client relationships?). Perspective: opportunities and risks for asset managers and family offices The discussion about the definition of the so-called asset management approaches is still in full swing. Many fund results are perhaps sobering. “Disillusionment” must be formulated with care, not necessarily in terms of disappointment. There are learning curves in every industry. Perhaps the following question could be more important in the future: What is the role of an independent asset manager or a family office? The supplier of product modules that can be changed daily or the client’s advisor and risk manager? A question that perhaps cannot be answered with “either-or” alone. In combination with portfolio management know-how: This type of advisors, trusted advisors, and “long-term thinkers” are

  • “Too much analysis leads to paralysis” (Unknown). Foundations currently have an interesting or difficult position in the fund industry – depending on your point of view. The low-interest-rate environment forces this group of investors to look for solutions beyond the world of bonds. It can be interesting for the specialists there to build up more know-how by approaching product providers. It can be difficult to deal with the information overflow problem that may arise. Consultants are often called upon in the industry, also in the mutual fund sector. External help is not always necessary. Bringing owls to Athens has very often not been worthwhile. Where is a good information base available? Where can blind spots lie in the selection process? Are there internal and external solutions? Quantitative factors in fund selection As is well known, mutual funds suffer from the “whip of transparency”. The basic information can usually be found on the so-called factsheet. Performance, drawdown, fund currency, costs, etc. There are a large number of data providers where mutual funds can be compared and analyzed according to a wide variety of formats. Large foundations can engage external consultants for the selection of products or set up internal departments with experts. Medium-sized to small foundations are often denied this option. One consolation may be that increasing the complexity of the information gathering process may not necessarily lead to better decisions. Very many of the institutions that cannot initially secure external support are doing quite well with tools from the world of mutual funds (databases, etc.) to identify suitable managers or funds. Financial information on key figures such as Sharpe Ratio, Tracking Error, Treynor Ratio, etc. is publicly available. In a condensed form, there are also often professionally comprehensible presentations and explanations on fact sheets and from database providers. Admittedly, it does not hurt to have studied finance/capital market theory. At least for the interpretation and classification of these figures. Another question is whether a good selection of fund managers, purely in quantitative terms, always represents the optimal solution. Reporting, controlling, documenting fund manager services – many service providers in the market can work well and efficiently with figures (past!). It is up to each foundation to build up internal or external solutions. Qualitative factors in fund selection The mutual fund represents a transparent structure for the public presentation of the fund manager’s performance. The performance of large, group-linked asset managers or asset managers is often already known due to large marketing budgets. Many small to medium-sized, independent asset managers are currently actively seeking greater visibility with foundations. On the one hand, one can find oneself in the above-mentioned databases, on the other hand, one often learns about many addresses by word of mouth. There are even houses that manage “billion-dollar” assets, but they are by no means on the radar of many investors. In addition to the quantitative factors on the factsheets, other information such as fund category, fund structure, etc. can be found. A so-called “transparency report” can provide additional information in a specially prepared format. Topics such as equity quota and investment structure, investment instruments, and certain quality criteria are prepared here by external specialists if the foundation does not have the know-how itself to create such a form of reporting tools. This information can also help select managers or products. A special example in the foundation sector: To what extent are sustainability criteria taken into account by the fund management when making investment decisions? The eagle’s-eye perspective: social worker (“supervision”) and trusted advisor In the field of social work, there is an area of supervision. This term coaching is often associated, rightly or wrongly. If one wants to bring the new German term “Trusted Advisor” into play, then one judges the information gathering topic of the foundations at least once on a meta-level. In other words, the eagle’s perspective can often help to set up efficient decision-making processes. “Supervision (Latin for an overview) is a form of counseling for employees, including those in psychosocial professions. Supervisions are led by a supervisor, who usually has an appropriate qualification or additional training. In supervision, individuals, groups, and organizations learn to examine and improve their professional or voluntary activities. To this end, the participants agree on goals with the supervisor” (source: Wikipedia). By no means does this instrument aim to define the economy as “sick”, rather this reflective approach is being re-introduced into the economic sector under the label of coaching. Also, foundations generally do not need a trained supervisor for the topic of manager selection. However, it is possible to build a bridge to the role of the Trusted Advisor through this professional approach. Trusted Advisor – by no means a scientific term: One can understand this term for example as a “neutral advisor”, as a coach, as a classical advisor. Often one finds also institutionalized forms of support by the term of the “Stiftungsoffices”, following the term Family Office. This role, of advisor, can be assumed by various functionaries. From family offices, from asset managers, from classic consulting service providers, also from classic institutional asset managers. It seems crucial that certain neutrality is maintained in the Foundation’s advisory process. “A certain neutrality” does not exclude that these Trusted Advisors may offer their products or services. The client, in this case, the foundation, should only be given a transparent picture of the possible interests and fields of conflict of interest and then be able to make a free decision. If internal resources should not be sufficient for issues such as manager selection, external support can be purchased here under certain circumstances. The market for foundations and “trusted advisors” as potential contractual partners is growing increasingly. Bundling, processing, creating transparency is a need for some investors. There is enough information for the decisions, what is needed is probably a kind of “chief editor” who can assess and weight the information professionally to optimize decisions. Investment companies as Trusted Advisor Investment companies can also be used in part as an

  • “Speak, that I may see you” (Socrates). This or something similar could be the motto under which the asset management industry and investors frequently meet in Frankfurt. This autumn seems promising. Interestingly, the voice of the independent will be heard more often: Family offices, asset managers and foundations are entering into a fruitful dialog, three examples of many: “Management Forum Asset Management” (Frankfurt School of Finance & Management), “Frankfurter Dialog for Family Offices and Asset Management ” (Heuking Kühn Lüer Wojtek) and “trend forum and Asset Management” (portfolio Verlagsgesellschaft). To be fair, one could also refer to the Düsseldorf event “German Asset Management Day” (VuV – Verband unabhängiger Vermögensverwalter Deutschland e.V./ VuV Association of Independent Asset Managers), which is organized from Frankfurt and will also take place in November. What interesting topics are discussed in Frankfurt, for example? What are the interesting keywords for the dialog partners? Low-interest phase Plant emergency – whether explicitly in the meeting program mentioned or by lecture and discussion to expect: Under these keywords, one can summarize many of the meeting elements, which concern themselves with the range investment and products. Whether institutional or semi-institutional investors or private investors – solutions are sought. Procyclic versus risk management – flight from bonds into risky investments? Is the next foundation for a financial bubble now being laid or will there be a constructive, know-how-based adjustment in the investment behavior of investors? Family offices and asset managers Not only this autumn, but these target groups will also be strongly courted by the product supplier side. It is interesting to note that family offices – often forgetting the “pseudo-scientific” use of the definition of the family office – also want to increasingly promote their products. If the client has done well with this in the past and there is transparency for their clients regarding possible conflicts of interest, the request appears legitimate. As long as there are still many different forms and intermediate forms of family offices and no clarity of terminology exists, the smooth transition between asset management and consulting, controlling, and reporting will remain an interesting area of discussion. Family offices offer asset management, asset managers offer family office services – may the target group-oriented solutions be revealed in competition as discovery processes (F. A. von Hayek). Untouched by this, neutral, equally independent family offices “without” products will continue to look after their clients. Foundations Asset emergency and product solutions move foundation decision-makers. A relativization may be allowed: Perhaps there is no lack of product offerings, but perhaps a lack of time and know-how in some foundations? Due Diligence needs time. Foundation size and volume in the investment area can create a bottleneck in terms of personnel resources for the examination of the diverse offerings in the market. The financial industry may be overestimating itself, or perhaps it has learned that the world is not just about capital investment for foundation decision-makers. Mission Investing – the smooth transition between fulfilling the foundation’s purpose, fundraising, and sustainability in the holistic sense of the foundation’s mission are also points that are intensively discussed at Frankfurt events. A positive trend: Foundations will gradually discover which product providers not only pursue short-term sales interests but also have a longer-term partnership based on a competitive product offering. Regulation AIFM, MIFID, KAGB, and various other abbreviations of the wide world of regulation will have room for discussion at many events in Frankfurt. Many of the KVGen such as Universal-Investment, Hansainvest, Ampega, and other well-known addresses are well known among independent asset managers, family offices, and foundations. For independent asset managers questions of consulting liability can be in the foreground. Fund advisory, fund management and club deals (e.g. real estate) are topics of discussion that meet with a positive response from all three target groups. The VuV and also many law firms in Frankfurt have an expertise advantage here due to the “regulatory dynamics” (interpretation etc.) in these fields. Independence and trust Of course, there will always be the group-bound world of product suppliers. Banks and capital investment companies of various sizes offer recognized solutions for the target groups. This class of providers is addressed in part by the events. The not group-bound, independent product offerers stand however clearly in the foreground of the “Frankfurt autumn”. The author of these lines has carried out his survey of this group of investors (in addition to funds of funds management, family office, and private banking) as part of the “1st Funds Boutique Panel” – interestingly enough, independents often like to buy independents. An unambiguous interpretation should be deferred here – in addition to the element of performance, the element of trust in the areas of specialization and long-term thinking can also play a role. Competitive performance is naturally assumed here. Conclusion Frankfurt is an excellent location for the professional exchange of ideas at a high level. National and international suppliers and investors meet here. The networking of different providers and target groups is increasing – product packaging, asset classes, and customer segments are losing their discriminatory power in the discussion. The banking crisis has led to controversial discussions, but perhaps a second, “holistic” level is developing in the culture of discussion alongside the established product and event-level – the dissolution of the rigid target group philosophy on the provider side: perhaps from “Who can I sell my product to?” to “With whom do I want to build a good business relationship in the long term? Established industry and the “independents” would sustainably pursue location marketing! Source: www.institutional-investment.dePhoto: www.pixabay.com

  • Frankfurt-Skyline-Sunset

    “A lot helps a lot” is the common sales philosophy of many independent asset managers. The more calls, the more appointments, the more tickets – this is often the unspoken acceptance of this approach. The result is a high density of appointments combined with a large number of minutes of conversations reveling in the greatest hope: “Pension fund shows great interest in our approach. Resubmission in three months. New appointment in October” etc. The question arises whether this philosophy fits all fund boutiques. It is often forgotten that an average performance, no matter how “penetratingly” communicated, is by no means of interest or favor with most investors. The sales employee can hardly be reproached here, he is part of the system: sales targets, deadlines, reporting, conditions for bonus payments are different factors that play a role here. What could have been overlooked in this approach? Are there perhaps alternatives to the well-trodden paths in sales? Asset Manager and Consulting The complexity of the product and service offerings differs for many companies. There is often nothing to be said against the “mass approach” mentioned above if you are the market leader in your segment or can often offer outstanding performance. How many providers are there in the market, permanently? Every investor would be happy to receive a virtually unrivaled service (portfolio management, consulting). The question arises in all clarity: As a manager, do I have “average” to good skills – how do I draw attention to myself? Usually – partly insinuation, partly practical experience – this is often thought of in the context of the usual product orientation of fund managers: The more calls I make, the more page-long comments and fact sheets I send to investors, the more likely they are to become aware of my strengths. (A question in passing: How many of the investors or prospects read the mass sent fact sheets in your mailbox?). For managers who, in addition to solid performance results, offer added value in advising investors, this path to visibility can be a very long and rocky one. Fund boutiques – undiscovered pearls and formats of investor dialogue Many independent asset managers seek dialogue with their investors. To be fair, dialogue can mean three things: 1. “Dear investor XYZ, I listen with interest to where your problems lie. Then I will always suggest my product as the perfect solution at the end of the dialogue”.2. Dear Investor XYZ, I am interested in the content of your current topics. Let’s work together in the sense of a portfolio management mandate or we can create another, customized solution for you”.3. Dear Investor XYZ, I would like to enter into a dialogue with you to improve my range of services, and we both benefit from an exchange of ideas. Approach no. 1 leads in practice to the reason why many investors do not necessarily like to have an “open exchange of ideas” (Hidden Agenda) with the salesperson. The added value of the offer is often missing. Time is precious. Approach No. 2 can appear quite attractive as a dialogue offer if the corresponding fund boutique has excellent know-how – for example in the areas of risk management, asset allocation, of course in addition to good performance results in mandates. If these skills are visible to the investor and there is also a know-how bottleneck on the part of the investor, the fund advisor has a very good opportunity to present his strengths. Be it by accepting to accept a presentation appointment or at least by permitting to provide additional information, with the permission to contact him/her by phone first. Approach no. 3 represents the “top class” in sales, so to speak: As a supplier, I am aware of my strengths, my know-how. I offer added value in the dialog. My counterpart opens up his or her perspective to me in a very “relaxed” and relaxed dialog. You present your expertise. If all the parameters are right for both sides, there is usually also a greater interest on the part of the investor to take a more detailed look at the strengths and “problem-solving skills” of the fund boutique. If there is still a fund with a convincing performance there anyway, there is an increased chance of receiving a mandate – fund or advisory, etc. – in the longer term. Of course, none of these approaches guarantees a reliable result according to the provider’s expectations – for some investors, “small” fund boutiques often only appear on the radar from a certain size upwards. Another issue worthy of discussion is which players in the field of sales or business development think in the long term. NB: There is no question of whether the players are at fault or not; a market overcrowded with products builds up its form of pressure and short-term thinking, both among providers and investors! Digression: Core problem of the industry Many “ingenious” marketing ideas in the asset management industry often come to nothing in the medium to long term. The market is overstaffed. There is a small percentage of excellent portfolio managers. A lack of performance can be concealed for a while by marketing actions. In the long run, at least in the institutional business, the figures speak their harsh language about the manager. This is a challenge the industry has to face. Good figures are a hygiene factor. The constant, cyclical advertising of various investment topics cannot hide the fact that the industry is at a crossroads. Classic asset management appears to be a low-margin business. Every euro spent on marketing/sales is important for overall profitability. The following old model should be questioned: “I set up funds because market entry barriers for portfolio managers are low and pass the hot potato to the salesman”. Know-how, complexity, and visibility Performance is a hygiene factor in asset management. All dreams of the “super-salesman”, who can sell even the most average product to institutional investors, are rather the result of wishful thinking and underestimating the intelligence

  • Frankfurt-Skyline

    Currently, many institutional investors are concerned with the topic of infrastructure. The current situation should perhaps be viewed less in terms of short-term thinking and procyclicality on the supply side. After all, the low-interest rate phase will accompany the industry in the longer term, and know-how in the infrastructure segment will be gradually expanded internally and externally on the investor side. Markus Hill* spoke on behalf of IPE Institutional Investment with the lawyer Jochen Terpitz (Simmons & Simmons) about the challenges that providers and investors have to face. Hill: For some years now, there has been a lot of talk about the fact that capital accumulation points such as insurance companies, pension funds or pension schemes would be ideal investors in infrastructure – why is it not yet common practice for insurers to finance the energy turnaround and for pension schemes to finance the construction of new roads and fiber-optic networks? Terpitz: To a certain extent, this investment activity does indeed take place, but perhaps not always to the extent and in the places that interested parties from politics imagine or that are particularly effective in terms of publicity. Investments in Germany’s high-voltage electricity grids, in offshore wind farms such as London Array or infrastructure funds with stakes in PPP projects, show that very different projects can be marketable. Hill: Where are the difficulties? Terpitz: Infrastructure investments often involve much more effort for investors than investing via the capital markets. In addition to individual project assessment, there are also many small pitfalls to consider. Regulation per the AIFM directive, equity capital backing by Solvency II, and then there is the regulation of the target project itself, whether in the energy market, transport or telecommunications. And one must also realize that there are very different investment possibilities and that each investor must bring the investment into line with his risk profile and his own investment rules. The learning processes take time. Hill: Which different investment possibilities exist and are market standards developing? Terpitz: A generally applicable classification is difficult. First of all, there is a wide range of target projects, from highways, prisons/city halls, telecommunications and power grids to railroad cars, port terminals, and then the entire power plant sector with its large and small, centralized or decentralized plants. A relevant distinction can certainly be made between, on the one hand, investment in infrastructure companies (e.g. power grids and water supply), which retain personnel, reinvest regularly and still have a value even after decades, and, on the other hand, investment in individual infrastructure projects, which are amortized over a fixed period and are to be valued at zero or a certain residual value at the end of the investment period.Another, also risk-relevant, the distinction is made between equity investments and debt investments, whether in bonds or directly in loans; however, there are also many investors, especially in the case of medium-sized investments, who provide the entire capital requirement as equity.Ultimately, the market can still be differentiated between projects in which individual investors invest individually and cases in which additional capital and investment decisions are concentrated via intermediary fund structures that are open to several investors. This is where specialized asset managers become active, who can make their know-how available to many investors in this way. Hill: Does this create an additional asset management segment? Or who, as an investor, can do this themselves? Terpitz: In our experience, infrastructure assets require a level of support that requires specialist know-how that probably only the largest companies in the industry can build up within their organization; this is much more expensive than buying bonds. In many cases, even ongoing reporting and information transparency are not exactly as expected by investors; occasionally, as can now be seen in offshore wind projects, many staff are also built up within the project companies to provide investor support, but often such services are provided by external asset managers.After all, it is not only the proximity to the actual infrastructure project that counts, but the asset manager must be able to follow and implement developments in the area of investment regulations or Solvency II. Besides, the AIFM directive and the KAGB (German Investment Management Act) place demands on the managers, which makes it rather difficult for them to manage the project themselves. A good asset manager can probably also help to permanently reduce the “perceived investment risk” in the infrastructure sector: the more competently the investment form is explained and accompanied, the less reluctance there is to expand investments here.One level above this, each investor must then check-in which quota the investment can be classified and how much equity capital is required to back it. That is individually completely different from the different insurers or pension funds, and to that extent, there is also none for each “Solvency II optimized” plant product. In some cases, the insurance supervisory authorities also require every investor to provide proof of specific know-how concerning project risks, which the asset manager then helps to build up. Hill: Keyword risks – are infrastructure investments not particularly safe? Terpitz: Investments in power plants, roads, pipelines, or railroads naturally have the advantage that these assets do not get lost so easily and that they promise a steady return over a long period. However, the higher returns expected from these forms of investment compared to government bonds are associated with a different risk profile than that of German government bonds. Yields may be delayed, or subsequent investments may be necessary. Often these infrastructure investments are very long-term. On the one hand, this is advantageous for investors who also have to invest capital on a long-term basis. On the other hand, the longer the investment horizon, the more uncertain forecasts become. Such uncertainties can relate to infrastructure demand or user volumes but also changes in the political environment. Hill: What approaches to risk limitation are there here? Terpitz: There are various approaches to limit project uncertainties in infrastructure investments. On the one hand, one can try to contractually

  • “There is hardly anything in this world that someone cannot make worse and sell a little cheaper, and the people who are guided only by price are the rightful prey of such machinations” (John Ruskin). Service providers such as family offices and asset managers charge customers for their services. It is like many services that there is still a need for discussion on measurability. This is a phenomenon with which public service providers (schools, social work, etc.) are also intensively concerned in society. If, for example, one considers the starting point of private customer care and private banking as the nucleus of many business models in wealth management and wealth controlling, the “soft” relationship component compared to performance – apparently a hard factor – often seems to take a back seat in the discussion. It is often ignored that a large part of the actual portfolio management performance is hardly or with great effort made visible – a classic problem of the private banking field, in contrast to regular mutual funds, which very often show a satisfactory degree of transparency. If performance is a “hygiene factor” – which topics are still worth discussing here? “Cheating” Family Office and Asset Management? Similar to the term fund boutiques, the term family office is currently being discussed in the media and among experts. The clear winner of the sovereignty of interpretation has not yet been determined: research and teaching, media, and the industry itself are in a search phase. Single Family Office and Multi-Family Office: demarcation, definition, etc. – the process is underway. Perhaps one interpretation will prevail, perhaps different interpretations can “coexist”. The discussion of deception in the family office area often fails to take hold because concepts are still in the educational process. Asset managers can be seen as pure service providers for wealth management, with active involvement in portfolio management, possibly with their products (“fund boutiques”). If one puts aside the pure fixation on asset management for families and HNWIs, one can see some similarities in certain service packages. Representatives of the pure “doctrine” discuss intensively here – where exactly is the demarcation between “noble asset managers” and classic family offices? At this point, a “fuzzy” view should be deliberately presented, aware of the shortcomings of the discussion approach. Service providers, most of whom want to differentiate themselves from one another, are deliberately considered comparable in parts of their service packages – with largely different target group orientations. For clients or prospects of family offices and asset management companies, transparency about the services offered seems to be a suitable factor (of many!) for the selection of the service provider:*Family offices and asset managers – do I want to focus on consulting and controlling?*Family office and asset manager – is the active management of my assets important to me?*Family office and asset manager – who offers services that can be clearly distinguished from each other? Consulting and Controlling It is a clear positioning to say that you exclusively advise the customer, make suggestions, and at the end of the process, the customer decides on the type and scope of the investment. If the customer can understand these decision papers professionally, he has received what is suitable for him as a service. The clarity in the presentation of services appears to be the top priority. Examples of ambiguity can be found, for example, in parts of classic asset management consulting: If the consultant “actively” manages a multi-manager mandate – what exactly is the “active” part of his service? In rule-based rebalancing, which is fixed in writing beforehand? Against the background of the price discussion mentioned at the beginning, this point seems comprehensible. Pricing for consulting and controlling is usually deliberately different from the pricing for active asset management. It is interesting to note, for example, that auditors, tax advisors, lawyers, and management consultants also keep a very close eye on potential barriers to market entry in the family office sector and position themselves accordingly. Active asset management Passive management, “Smart Beta”, active portfolio management – all services that are the subject of lively discussion among experts. Does my service provider offer active management in asset management? Can I measure this activity quantitatively? Does the manager participate in success? Is he allowed to use his products? These issues are discussed intensively by family offices as well as by asset managers and of course also on the client-side. Is there a conflict between advice and active portfolio management? One of the key points in the discussion is the fact that the ideal relationship manager (family office or asset manager) does not always have to be the optimal portfolio manager. Is the client, including the institutional (example: foundations), aware of this? As mentioned at the beginning – both provider categories have distinct strengths in the areas of confidence-building, relationship management, long-term thinking: Can it not be the case that in certain cases the client is with the “wrong” family office or asset manager in certain areas due to these “soft” factors? In certain cases, this is probably the case. Here it is often forgotten that one is in the service sector. If “mediocre” performance services seem sufficient to the client (or “mediocre” professional skills, know-how, networking of service providers, etc.), then this convenience factor is accepted as added value in the case of doubt, and the search costs for the “ideal” portfolio managers, who also change temporarily, may appear too high. All in the interest of the customer – if he is aware of this fact. Demarcability of services To come back to the term “cheating package”: Science and experts are currently working intensively on definition criteria for Single Family Offices and Multi-Family Offices in distinction to service providers in the field of independent asset managers. The area of Group-related family offices is deliberately left out of the discussion. In its function as a central service provider for certain families, the family office cannot, of course, be equated with the pure function of an

  • “Why is it taking them so long to make your decision?” is the lamentation of independent asset managers when, after presenting their funds, family offices and foundations seemingly fail to make a decision. Many of the thoughts on this topic can also be applied to the decision-making behavior of other investors. It is often forgotten that it is already an initial success to be allowed to present oneself as an independent address. Especially if the volume in your products seems manageable at the beginning. A first hurdle has been taken. In the decision-making process, the testing phase was initiated. What could be the reasons why testing processes are very time-consuming? Why can there be a yes or no at the end? Which simple findings are perhaps often ignored? The time horizon for decision-makers Family offices and foundations are the custodians of the interests of third parties. A great responsibility rests on the fund selectors. Both categories of selectors want to preserve capital, and foundations in particular want to generate a regular payment stream to promote the foundation’s purpose. Hectic decision-making processes seem counterproductive. Many product providers often seem unable to understand this relaxed attitude on the part of the selectors. Besides, they forget that selectors can also be subject to career risk. If the decision is made to go for a less well-known or high-volume fund provider, then a risk position is taken, so to speak – one could have chosen DWS, Union Investment, or Templeton, for example. Suboptimal performance results with better-known addresses can be better justified at internal committee meetings, for example – being at odds with the masses hurts less. Every independent, less well-known asset manager should perhaps ask himself at some point: Why should the fund selector take the rap for me? Performance and the time factor If one speaks with certain fund managers, one is always surprised by the filter through which their performance can be viewed. Much of what the fund manager seems to be convinced of his abilities can sometimes simply be attributed to a lack of market knowledge. This is at least the opinion of various selectors. How many of the asset managers conduct intensive competitive intelligence? Perhaps this would be something for research in the asset management sector. Sometimes it is hard to explain otherwise how managers, for example, with one lucky year and two weak years, try to convince investors that they are not justifiably mentioned in the top group. It is also sometimes overlooked that certain selectors evaluate past performance with great caution. Learning Curves and “Youth Research Investment processes should appear stringent. They should be predictable, making behavior in certain market situations predictable. This is also because the decision-maker at the family office or foundation itself often has to deal with the issue of portfolio construction, diversification, and correlation. Unpredictable outliers – in extreme cases a change of investment style every month (would also be a fund concept) – should be avoided. All the more interesting the following phenomenon, which can often be found not only at independent addresses: funds were selected, funds have performed poorly on a sustained basis. The following proud insight of the portfolio manager: “Everything will be different starting tomorrow. We have learned! From a human point of view, this is understandable and worthy of respect – but in portfolio management, it is a fact that can be discussed controversially: Is the task of family offices and foundations to be a testing ground for immature fund concepts? How many “wisdom cycles” of this kind can the selector sell to his client? Finally, at the end of the day, the selector is also assessed by his client. This phenomenon is intended to further illustrate why the apparent risk aversion and the seemingly slow decision-making process may well be partially explained by certain investors. Remember: A burnt child shuns fire! Awareness and Performance Top performance (risk-adjusted) helps, but does not sell itself. And it is also only one part of the due diligence process. Quantitative factors often create a, perhaps deceptive, feeling of security. Qualitative factors such as manager personality etc. are of great importance, especially in the fund boutique sector. If there is a collective conviction that active management brings added value, then evaluation processes must be in a place that goes beyond simply managing databases. The fact that there are still many decision-makers on the investor side shows the need for qualitative expertise. And this factor can help independent managers to slowly get on the radar of these decision-makers. An independent, non-product-oriented white paper on an investor-relevant topic can often generate more attention than the constant “bombardment” with fact sheets and follow-up calls. At least that is the experience of some successful fund boutiques – solid results that are communicated with staying power. And by results, by no means does it only mean monthly performance. Know-how – investment companies show the way The hygiene factor for success with institutional clients is solid to outstanding performance results, at least as a door opener. Specialized capital investment companies show the way – Universal-Investment, Hauck & Aufhäuser, Axxion, and Hansainvest – communication counts. Especially in complex services with a tough price war, I have to score points with know-how, service orientation, and networking. Surveys, press work, in individual cases also sponsoring or sales support – what counts is differentiation and the occasion for communication. Simply to get or stay in contact with customers. Many of the fund boutiques could learn something if you look at the strategies of these “big houses”. For example, how these investment companies market their independent asset managers. In the end, it all boils down to this: staying in dialogue with the customer on issues! Outlook For many independent asset managers, the decision-making process may be too lengthy for trust-oriented selectors such as family offices and foundations. The question is whether one is perhaps knocking on the wrong doors or moving forward with products that are not directly in the focus of

  • Frankfurt-Skyline

    “The strength lies in calm” versus the strategy “We’ll put it off for a long time” – fund projects often operate within this area of conflict. Many fund initiators often underestimate the time factor in the project stages of conception, structuring, seed money search, and sales. What are the typical phases of a fund project? What are the often unrecognized costs of entrenched behaviors? Fund projects and the time factor The time factor in fund projects often appears less in focus than the concentration on technical or administrative issues. It is often forgotten that extra resources are required in all phases of the potential project (launch of funds and other product covers). Many projects often drag on “like chewing gum” over a long period. One reason for this is a lack of resource allocation – personnel, know-how, budget, time, etc. On the other hand, the day-to-day business may take such a toll on the fund initiator that his or her project can only progress in stop-and-go mode. An exception is projects where it is not clear at the beginning whether, for example, a fund or a solution can be in the area of direct investments (examples real assets, infrastructure, etc.). The search phrase for an optimal solution is often simply more time-consuming in another form: More experts, providers, and investors have to be approached until the solution becomes apparent: *What is already on the market?*What is the strength of your concept – seen through the eyes of investors and experts?*What gaps in the product or project universe can be filled?*Are there regulatory pitfalls in the “packaging topic”?*With which investor do I open doors with my expertise?*What is a realistic time frame for the fund project? Phases in fund projects and time commitment Roughly speaking, one can perhaps distinguish the following phases in a fund project, which often merge into one another: a) Idea / Conceptb) Structuringc) Seed Money Searchd) Distribution / Fund Management First one can say that experts from the Portfolio Management and/or very “staff near-thinking” coworkers (product management, marketing, etc.) with fund initiators in many cases naturally strongly concern themselves with the phases a) and b). The strategic bottleneck factor capital commitment for the project “yes”, “no”, “maybe” or even “maybe later” as investor feedback may receive too little attention here. Time management – idea, structuring, and seed money It is noticeable that many fund projects are “cooked” internally for a long time conceptually. What does that mean in extreme cases? A lot of time was invested in developing the “perfect” concept. A lot of energy – preliminary talks, market observation, provider selection “administration” – is focused on one of several project stages. Although potential target investors are systematically approached in certain cases, the number and quality of the prospect selection often offer the potential for optimization. One quickly loses a year and has nothing else in hand except three soft, non-binding seed money commitments. Experience shows that “when the going gets tough – nothing melts away as quickly as a seed money commitment” (expert quote). The problem is well known in the market, but many fund initiators, who do not usually see themselves in the role of “communication” and “sales”, are often in limbo: a lot of dry practice, a lot of time spent, and in the end a long, arduous journey in search of investors. Of course, other ways of proceeding could slowly gain acceptance in the market: streamlining the idea and structuring process in combination with promptly obtaining investor feedback – what is often forgotten here is that those investors who are involved in the product management process at an early stage may also be potential target investors for convincing concepts. Opportunity costs of self-chosen passivity – sales and fund management Seed money search is a phase – who gives the starting signal to move from the dry run “conception” to the practical fund management level? With contentwise basic concepts – speak: the quality of the fund manager or fund advisor convinces – the factor sales are treated now and then somewhat stepmotherly. Unfortunately, it is not the case that every good or excellent performance convinces itself. Here the eye of the needle often lies in the thinking: word-of-mouth propaganda is enough, why pay time, money, and personnel for sales. In short: Non-visibility in the market only leads to an influx of potential customers who simply happen to come across the fund manager by chance. Forget the high opportunity costs of this passivity, expressed by way of example: If I actively approach 100 investors with the convincing concept within two months, this can be more profitable (in terms of inflow of funds or awareness of new fund projects) than waiting for randomly incoming investor inquiries without action! Trivial solutions in this area are obvious but are often only activated with the handbrake on due to different priorities in the company: Establishing and expanding internal or possibly external sales activities. That time can be bought with money often seems unclear to many initiators. Many a recommendable fund concept would be allocated by investors if it were only discussed once. Too many of the competitors drum in the market – certainly worthy of discussion – with success. Serious appearance, communication frequency, and of course excellent performance in combination is the common concept for success. Excursus: Fund initiator – portfolio manager or entrepreneur? A question, which one could ask with a new fund project: Would it not be an advantage, if the fund initiator should not understand itself rather as Vetriebler and entrepreneurs, less than pure Portfolio managers? Not in the practical function – everything can be developed and/or bought internally and externally – but with the mental approach perhaps mentally different paths would result in the project management, which one could go. More momentum, more focus with promising approaches, and, even in extreme cases, the courage to “stamp out” a beloved project promptly when it is recognized after a certain time that a project cannot be

  • “Money is like fertilizer, which is worthless unless you spread it. (Francis Bacon). Foundations are currently in the interesting position of looking for alternative investment opportunities in a low-interest-ratelow-interest environment. This includes looking for alternative ways to advise or manage their funds: The search for external know-how, expertise, network, and, if necessary, the search for the optimization of performance potential. Are there any alternatives or additions to the usual advisory services for foundations by house banks or banks? Which “soft factors” play a role in the decision-making process? Consulting and performance Many foundations are advised by so-called house banks. Due to the history, for example, account details and possibly advice during the foundation’s founding phase, these facts are understandable. From time to time, various foundations ask the question of whether neutral advice will be given in any case or whether there might be a risk that the focus might be on in-house products. Regardless of the final answer to this question, the further dimension of this issue is overlooked: Every private investor and institutional – whether affiliated or not with a group – has the problem that the portfolio management quality can only be analyzed in detail on January 1 of the following year. Perhaps this realization leads to the fact that one can mentally take something out of the hunt for the “perfect” portfolio manager and rather exploit optimization potentials when expanding risk management. A simple insight from this process is: In addition to diversification in the area of products, asset classes, investment styles, etc., diversification in the area of consulting can also be useful. family offices Many family offices successfully advise foundations. The advantage is that they often have an excellent network of know-how and portfolio management expertise. The disadvantage is that these addresses shy away from the public. Perhaps also because of the idea that the existing client base ensures that you don’t have to chase after every business. Various houses have a good track record, whether in the selection and management of individual investments or the management of their investment funds suitable for foundations. The advantage – assuming that the family office has an affinity for foundations – can be that the house philosophy is usually geared towards capital preservation + x anyway. Capital preservation alone is not enough, distributions must be generated – taking into account the inflation rate. The thinking is decisive: capital is available from which one would like to draw profit for a long time to come, and the purpose of the foundation should be pursued with calm. Asset managers – independent asset managers (“fund boutiques”) Here it is recommended to look closely. Typical questions from suitable candidates for cooperation are*Does the independent asset manager only serve private clients?*How wealthy are the private clients on average?*Do the asset managers primarily sell their products?*What are the qualifications and “affinity” to the field of foundations? The first three questions can usually be answered quickly. It often seems more difficult to work with soft factors such as “affinity for foundations”, foundation know-how, and foundation network. Does the asset manager understand the thoughts, concerns, and needs of the decision-maker on the foundation side beyond his professional “asset management glasses”? Does he feel that he is in good hands there, in addition to “appropriate” portfolio management services? The scanning and checking of these more soft factors often take time. If investment pressure prevails, then the time factor appears to be decisive: Quick identification of a new, independent advisor, getting to know him, “warming up” (building trust), practical testing of the cooperation, checking the results – final judgment: added value? Alternative to the house bank or supplementation of the foundation’s advice by the asset manager? Be it by supplementing the staffing of professional committees, advisory boards, or by mandating direct investment mandates and funds. The description of this process also includes the realization that at the beginning a decision is made under uncertainty. To be fair, it can be said at this point that asset managers of foundations can also be replaced or supplemented by “additional candidates” after a thorough examination. Investment companies as a pool for the identification of specialist expertise Many of the investment companies specializing in independent asset managers, such as Universal-Investment, Ampega, Hansainvest, and many other firms, can provide initial indications of their expertise in endowment funds – or in funds that are suitable for endowments (mixed funds, asset management approaches). Also with the Association of Independent Asset Managers Germany e. V. (VuV) also provides further information on the field of asset managers and foundations. This preliminary research often helps as one of many preliminary filters to enter into direct dialogue with potentially suitable candidates. Ideally, the manager (fund advisor) with a good inflow of funds – whether in the fund or with direct mandates – could be so well networked that he or she could even help foundations directly or indirectly with fundraising for a good cause. Excursus: Fundraising and low-interest phase Foundations are currently suffering from the low-interest-rate environment. In the asset management industry, the news is not so frequent: Years ago, there were complaints about the Neuer Markt, the financial crisis, or too low equity returns. All of these are environments that are difficult to influence indirectly through portfolio management – it is difficult to see into the crystal ball. In the areas of marketing, public relations, and sales (here also fundraising), there may be the subjective impression that additional funds can be raised directly by using additional intelligence in the approach, as well as by increasing the “beat rate” (activity). There is a lot of expertise from the fund industry that could be used. Whether funds are to be raised for a mutual fund or sponsors are to be convinced for a good cause – the approach is very similar. If these worlds were to come closer together, solutions (in the sense of “inflow of funds” in the case of foundations) could perhaps emerge that are not yet being

  • Frankfurt-Skyline-Night

    “A chain always breaks at the weakest link” – many projects in the investment industry can be characterized by this simple statement. As soon as projects are planned, factors such as personnel, networks, and capital play a role, and the discussion about bottlenecks begins at the end. Whether it is club deals in the family office sector or the launch of funds, where many other groups of initiators are active beyond family offices – the discussion often remains similar: Do I move along traditional “paths” or do I look for opportunities to optimize the progress of projects? New experts? New ideas? New investors? These are questions that are often discussed intensively by the players involved. Is there an optimal approach in this area? Club deals, network, and costs Many family offices and HNWIs take advantage of the opportunity to make direct investments from their closely defined network. If one considers the organization of such a venture as a project, one finds many successful investment projects of this kind in the market. The advantage is, for example, that the acting actors know each other and have confidence in each other. It should not be underestimated that with this approach, attractive constructions can also be chosen in terms of the cost structure. The private equity industry must face competition too. A downer in the club deals of qualitatively and professionally high-value investors that were mentioned can be that a lot of optimization potential is often wasted. Existing deal teams often arise from grown connections that cannot be criticized on their own. It is regrettable that one often meets many exceptional investors or can have a very fruitful exchange of ideas with them, or unfortunately, they have not heard anything from the other investors, although in many cases a good master team could have been created. Luckily, solutions in this area for the industry are emerging in parts. In some cases, certain types of neutral multipliers in the market have taken over this function. Fund launch and fund initiators Various fund initiators plan their fund as a project, so to speak. Quite consciously the author does not speak at this point in the many successful fund projects in the industry, since these were successful probably apparently from own strength and/or due to optimally activated “network” and perhaps capital resources, see an above-mentioned group of investors. A large proportion of these potential “fund managers” with non-optimal initial capitalization for an optimal fund launch project are initially approaching houses such as Universal Investment, Ampega or Hauck & Aufhäuser, etc. to obtain initial information about the private label fund sector. A large number of the project fails here already “fortunately” if the investment companies do a good job of informing the customer. In the run-up to the project, it often becomes clear quickly enough that the quality of the management and the given personnel will most likely not be able to compete in the fund world. Mostly these two bottlenecks are often still connected with a lack of budget to support the own fund project over a longer period. Happy is the fund initiator who was able to pull the emergency brake early enough. More pitiful appear the candidates, who put a lot of effort into the selection of the allegedly “optimal” investment company and during which month after month (up to years) hardly or no talks with real potential investors take place. This type of project exists in large numbers on the market. They often remind us of the image of the seemingly ingenious painter who “shuns” public exhibitions for a long time. It is precisely this practical feedback that would be very valuable at the beginning of the fund project because fundamental mistakes in this process could perhaps still be corrected. The technically perfectly designed fund does not begin a very promising investment story without investor interest in the sense of seed money! Outlook – perfect solution, not insight According to the study of an English consulting firm, there is allegedly insufficient communication in “rich families”. Apart from simple disputes, this lack of communication culture can also be found to some extent in the investment industry. One reason can be that one “over-looks the edge of one’s plate, often not with bad intention, perhaps rather unconsciously, since alternatives are hardly known or time and other resources are missing. Of course, it is also possible that external know-how is not in demand due to lack of budget – legal advice, consulting, etc. Whereby it should be noted that external know-how is often not necessary. With a little creativity, own network and know-how sources can be developed. Club deals, fund requirements, and other forms of “project work” can have the most diverse packaging as their object – closed or open fund variants, direct investments, etc: Optimization potentials may not yet be fully exploited in the area of communication, network, and know-how. Future-oriented appears the question, how the industry solves the confidence problem – if to a large extent product offerers are not accepted as adequate partners for the technical exchange of ideas with investors and fund initiators – how do technically interested market participants find formats of communication, with which selling thinking stands in the background. The most diverse parties in the market seem to be in demand: press, product providers, investors, neutral multipliers in the market. Who can deliver formats that go beyond “simple” product sales and bring together people who should get to know each other to advance the entire industry? Source: www.institutional-investment.dePhoto: www.pixabay.com

  • Caduff: Mr. Hill, what services do you offer? Hill: “Investment concept check” for planned fund issues, manager selection, identification of potential investors or seed money providers, presentation of products and services to decision-makers – with the proviso that you maintain your independence and arouse interest in long-term contact with your counterpart through professional exchange of ideas. In short: Activities where, in addition to purely conceptual work, support is also required for the first practical steps – where conception, communication, and implementation are intertwined. I often write about topics that I have had or have a practical connection to in the past or present. Due to my many years of experience in the fields of marketing, sales, and PR (not always motivated by financial considerations), I like to make contact with people and things when I see a good “match”. Example: Many investors often like to participate in panels or lectures themselves or write professional articles themselves – I often like to make recommendations to organizers or journalists. Conversely, many people have also been very helpful to me in this way. Of course, there are sometimes constellations that can lead to projects. There are of course limits to this “charity approach” – if someone is willing to invest large sums of money for events, PR, or direct mailing campaigns without follow-up activities, then a common business intersection can arise because of the efficiency of the approach could perhaps be increased. This is an interesting experience that I have made with not so “every day” project designs: Many clients appreciate strict confidentiality for certain types of projects (e.g. in the family office area). Caduff: What do typical work steps look like? How do you see the role of content and interest in investor topics in establishing contacts and for the professional exchange of ideas? Hill: Be it topics, services or products – many market participants want to know quickly and briefly from the decision-maker side (investors, etc.): Content interesting for decision-makers – interest is given: “Yes”, “No”, “Maybe” – to be able to take further steps in market development. Operational support can also be provided for some time for business development. Without being put into the sales drawer at the counterpart. If there is a clear lack of interest (“No”), one can talk to the other person about “10 other topics” and ask what is interesting or what is being sought. If there is something that fits, you can start a new dialogue. Or I have met a new speaker or author who can be recommended with conviction. Maybe you can also find an interested, qualified feedback provider for projects – not a one-way street, by the way. The investor side knows that I and my team also see many things and are happy to give our assessment. The support for me is also important because in well-budgeted projects you can find out certain things faster if things are filtered well in the first contact. Many decision-makers are interested in technical matters – technical expertise and market knowledge seem more attractive than “flooding” with product and service information, even at the initial contact, due to the numerous feedbacks. Caduff: In June you will moderate a panel on the topic of family offices and manager selection at the International FundForum in Monaco. How did you get this mandate? Hill: Due to various projects (including “manager search” for institutional clients) I maintain frequent and intensive exchanges of ideas with investors, vendors, and other market partners. Sometimes these practical discussions result in suggestions for professional articles, columns, and lectures on behalf of third parties. I am increasingly in demand by organizers, who appreciate “industry multipliers” and independence. Since I also have various practical interfaces to the topics of independence and asset management, fund boutiques, and family offices, it probably seems attractive for international organizers to take up such topics as well. The year before I had a panel on market entry to Germany, fund boutiques, and selection criteria. In the fall, the Family Office Forum in Zurich focused on family offices, asset allocation, and due diligence. Caduff: Back on home ground. Frankfurt is the financial center of Germany. How is the exchange of ideas going? What networking opportunities are there? Hill: There is a variety of events and formats – expert lunch, hedgework, institutional money as examples or investor breakfasts, evening events, and also the possibility of short official channels in Frankfurt – coffee or lunch with industry colleagues or investors. Due to the central airport, Frankfurt has an interesting international component. Many consulates and associations offer exciting events where there are interfaces to the financial community. There is an interesting network of service providers such as law and tax firms and, for example, media representatives. It is important to approach specialist events with the right expectations – purely professional exchange of ideas with colleagues or roadshow discussions with investors? Specialist presentations, a tight program requiring a high level of concentration, or a relaxed, casual evening program? The transitions here are often fluid. Caduff: And how do you get involved? Hill: Roadshows based on projects, participation in various invitations to investor events (“product scouting”), lunches, or coffee with industry colleagues and investors are typical formats where you don’t get “dumber” by talking, so to speak. Especially since ideas for practical comments often arise in this way. Appearing on panels, whether as a moderator (last year, for example, “Roundtable Infrastructure”) or as a panelist (as an independent representative of the fund industry on foundation panels) also helps to maintain a good overview of the market. Visibility in the market often leads to meeting many interesting people and services etc. because they are actively introduced. I have had a good experience with small, non-commercial specialist formats, for example, two foreign and two domestic family offices discuss investment opportunities over lunch or coffee – without any sales motivation. Frankly and freely said at this point: Of course there are formats with a sales and PR orientation that

  • “They just want to sell us something”, is the statement of some foundation representatives when it comes to consulting, banks, and family offices. Often not without good reason: Consultants offer many services that may not be suitable for individual foundations. Many banks have positioned themselves well in this area, and admittedly certain foundations are often not fully aware of the potential opportunity costs of this solution. In the family office sector, this “sales approach criticism” was often less noticeable. What could be possible reasons for this? To what extent is caution justified here, and to what extent might one throw the baby out with the bathwater? Classic Asset Management Consulting and Family Offices Many foundations use established consultants in the market. Manager selection, reporting, risk management, etc. are typical fields where external consulting can be usefully employed. The large “gaps” in the market seem interesting. Larger foundations make use of external know-how for a fee and can often define quite precisely where their optimization potential can lie. Many foundations below this size move less quickly when it comes to deciding on external support. With good reason: consulting is largely know-how- and network-driven – if it were a purely mechanized process, not only would many consultants be without contracts, but also many specialist departments at institutional investors would offer the potential for staff reductions. (A topic that would offer a lot of food for discussion). Topics such as “fiduciary management” could be discussed much more intensively if topics such as control, know-how build-up, coordination, and risk management were to become more important to decision-makers in the foundation sector. The fact that this topic is controversially discussed, that the interpretation of the term “fiduciary management” often seems to be in flux, does not contradict the constructive idea of providing consulting on a “meta-level”, so to speak, for certain investor groups. Often the term is also used synonymously for classical investment consulting. The area of regulation presented externally: Family offices often carry out similar activities on another level for their clientele. With all the advantages and disadvantages, as the current discussion on “Family Office Prospects” seems to prove. The core problem here too: Foundations, which could often gain a great deal in efficiency and know-how, are often the ones that find it difficult to find suitable providers in the market due to a lack of know-how and due to a lack of market transparency. Excursus: In-house products and fund boutique approach Various family offices have already set up funds with companies such as Universal Investment, Ampega, Hansainvest, and other specialized investment companies. Various consultants have also taken similar steps in the past, in some cases, or were considering the topic of “proprietary products”. The above discussion becomes more interesting when these facts are taken into account. To what extent does a family office make itself vulnerable to customers when its products are offered? Is this a disadvantage, an advantage or is there a possibly differentiated approach? It is a fact that transparency can also offer the potential for criticism – a family office that offers funds with mediocre to absolutely inadequate performance can, under certain circumstances, increasingly expect problems of acceptance from clients. For HNWIs as well as for institutional clients – even consultants in the institutional sector may find themselves on black ice here under certain circumstances: selection, cutting-edge management, reporting, and risk management (also to safeguard decision-making bodies, the consultant as an “insurance strategy” for committee decisions, etc.) are established services – insufficient performance can have a disruptive effect on client acquisition. The other side of the coin could be: “We don’t just advise theory, we put it into practice! If this assertion is underlined by satisfactory to good performance, discussions with clients can also receive new impetus. The argument diversification or the “sparring portfolio” issue can also provide valuable impulses for discussion. The fund boutique approach at least provides support in positioning providers – if the portfolio management performance is right, the approach can be helpful. This is a path that naturally not many providers can take, or admittedly do not want to take. Trends are often played out in the fund industry. The current real asset and private equity discussion among institutional investors due to the current low-interest-rate environment promise exciting times. Expertise in these areas is being expanded – many similarities to the classic asset management area can be seen, for example in terms of talent management. It seems interesting that in these segments many bridges between provider and investor could still be built. Example: What valuable input can a foundation receive from a family office or a consultant in this area? Why do certain family offices possibly have more distinctive expertise than many a consultant or provider in this segment? How could these groups engage in a more fruitful exchange of ideas? Family Offices and Foundations – Dialog offers added value Many family offices would be the ideal fiduciary managers for foundations of a certain size – if these foundations were to take a closer look at these family offices or if contact was sought with emphasis. Unfortunately, one often knows nothing about the other, the established banks may be pleased. Networks, know-how, interests – similar to those in the private equity industry and family offices – speak for a more intensive dialogue between these groups. As soon as the discussion deviates from the pure product provider level, a business can, so to speak, not take place because of but perhaps even despite products and services! Source: www.institutional-investment.dePhoto: www.pixabay.com

  • Frankfurt-Main-Skyline

    “No consulting without a concept” – so often the frightening response of consultants to inquiries from customers for projects. Justified prejudices or unfounded criticism, that remains to be seen: In this case, the service provider may not be directly accused of not simply wanting to work into the blue, but rather of wanting to deal intensively with customer questions and customer interests beforehand. This fact is often transferable in a similar way when initiating business or in search procedures in the asset management or financial industry: no investment or fund issue without a concept. One side knows or does not know exactly what it is looking for or where the journey should take it. The other side may find it difficult to see the customer problem as their problem. What examples can there be? Which settings appear “inefficient” for both sides? Is there a direction for possible solutions? Investor conferences – manager selection and “product scouting Conferences in the asset management industry can perhaps be roughly divided into “exchange of ideas conferences” and “business initiation conferences”, the transitions sometimes appear to be fluid. Conferences, like publications, need to raise sponsorship money to take place. It is not always guaranteed that the “best” vendors are also the ones with the largest marketing budgets, which most investors are aware of, as they do enough of their research. The media partners or the event organizers usually do a good job, since it is often underestimated, how complex bringing together offerer and investor is. A small percentage of C-Liga sponsors provide “cultural sponsoring”, so to speak so that the entire event takes place. Similar to advertisements, this is widely accepted, an established concept. What can be the positive value of such a constellation? Databases, research, and know-how are available to many investors who attend these conferences. However, certain specialist providers (“fund boutiques”), for example, are drowned out by the information noise of the industry. This does not only apply to classic asset managers, for example but also many offers in the real assets sector (infrastructure funds, etc.) are often only on the radar screen of certain investors by chance. To pick up on the consulting topic from above: Why are some sales representatives often not interested enough in the investment concepts of the investor? Constructive interjection: If the classic “contacts-contacts-contacts approach” were to be modified, one would get away a little from the classic “tonnage thinking” in the minutes of meetings, the dialogue between sales and investor would often be more efficient and more satisfying for both sides. The question of whether every investor knows exactly what to look for in the broad investment universe in the current low-interest-rate environment will not be discussed further at this point – even if there is a temporary hint of ignorance, an exchange with vendors and professional colleagues at conferences can perhaps help a small step further. Selection of investment companies – private label funds and fund conception Fund launch projects need to be administered, supported, and technically “secured”. Regulations change, certain concepts may require different solutions – up to the realization that for certain projects only certain investment companies or certain companies with certain heads and networks should be shortlisted for fund projects. Universal Investment, AmpegaGerling or Union Investment, DWS, and many other companies that can support fund requirements in a wide variety of ways – what is the specialization? How big do I have to be as a fund initiator to build up a fruitful business relationship with these addresses? Are costs sensibly the decisive factor for the selection of providers or can there not be even more decisive factors in the selection? Typical settings for fund requirements can be: standard funds, the track record is available, own distribution network is available and seed money is not the problem. If an attractive fund volume is moved, the fund initiator can start a fairly relaxed search process for a provider. The alternative option for many fund initiators: special segment (real assets, etc.), project not well thought out (white spots or “craters” in the conception phase), little or no track record, no distribution network – not hopeless if various factors are added positively (network, know-how, internal or external support, perhaps family office in the background for seeding, as an example). Similar discussion points as with concept consulting – the customer does not know exactly what he wants and expects a solution from the service provider, which then perhaps does not have to be the most effective one, because neither time, budget nor other resources are brought into the search process by the customer. According to the motto: “I don’t know exactly what I want, but tell me what it costs”. Many investment companies, lawyers, consultants, etc. meet from time to time. As spoken by “clients” that they have little or no pleasure in doing so. A constructive solution approach could be: Fund initiator still falls in love with his idea, but it’s budgeted with time and personnel.  If this is not possible, then at least over time one learns the precise distinction between a wish (“My dream fund”) and a concrete goal (fund launch). This need not be viewed negatively. Once a fund initiator has gone through this loose, uncoordinated search process without a result, a new project often involves the concrete deployment of resources with conviction. Conclusion – communication, conception, networks It would be presumptuous to say at this point that the phenomena mentioned above would disappear into thin air by any patent solutions. Many of the above mentioned general topics customer – the contractor can be transferred to – consultants, asset managers, lawyers, service providers in the most different industries. In the end, it is all about communication, finding familiar interfaces, conception, and maintenance of know-how networks. Projects (scope, duration, costs unclear by nature – can be partly transferred to investment decisions) will always be drivers for growth and change of industries. In the financial sector, for example, certain “consulting designs”, investment companies, law

  • The International Family Office Forum will take place in Zurich from 5 to 6 November. The independent industry expert Markus Hill will moderate a panel discussion with decision-makers from family offices on the topics of asset management, asset allocation, and due diligence. IPE Institutional Investment Editor-in-Chief talked to him about current topics that are increasingly being discussed by family offices, also against the background of the event. IPE Institutional Investment: Mr. Hill, what topics will you discuss in your panel in Zurich? Hill: The topics asset management, asset allocation, and due diligence will be discussed. I do not want to anticipate the final question at this point, concerning the panelists. In the run-up to the panel discussion, I have discussed certain potential issues regarding asset allocation and due diligence with various family offices and other market participants, independently of the panel question. What was interesting on the one hand was the openness of the discussion, on the other hand, I was amazed at the different facets of the answers. As the event in Zurich is internationally oriented, I had also spoken with foreign industry representatives. My impression was that the topic of “Cross-border networking” in the sense of professional exchange of ideas between family offices was more on the agenda. So to speak, the topic: What can we learn from each other? Where can we cooperate? IPE Institutional Investment: That means concretely? Hill: I have been asked by investors on several occasions to play more of a “neutral” role, if necessary repeatedly pointing out a critical trend in interviews or comments: The industry should perhaps look for creative solutions on how to promote the professional exchange of ideas with decision-makers without individual decision-makers feelings being oppressed by “aggressive sales behaviour” of certain sponsors (example: O-Ton, family office in Southern Germany). On the investor side, this can lead to the fact that even professionally high-quality events are sometimes no longer attended. This phenomenon has not only been addressed by family offices, but also by foundations and other investors. My impression is that many product providers are already dealing intensively with this topic, as the dialog between investor and provider can be fruitful for both sides. IPE Institutional Investment: You have been talking to fund selectors and product specialists from different areas for many years. What role do the topic of family offices and product providers play at the event in Zurich? Hill: My impression is that the industry is slowly developing different segments at events. Events, such as the IPE Investors’ Breakfast, which has a strong decision-maker focus, are taking place alongside events that are developing a more networking character for the industry. The current panel discussion in Zurich is dominated by decision-makers on stage and in the audience, who want to discuss specialist topics with each other at “eye-level”. Similar to Frankfurt, Zurich offers a good mix of “decision-makers” and industry meeting events. Both formats have their justification, and it seems important to me that transparency is guaranteed. IPE Institutional Investment: Which topics are still being discussed in Zurich? What do you find additionally interesting? Hill: A detailed overview of the topics can be found in the agenda on the Internet. There are different strands of topics. The international orientation of the event stands out, the organizer has successfully organized similar events in Germany. I take part in various events of this kind, nationally and internationally, one compares different “event designs”. To keep it short: Family offices from different countries discuss topics such as asset allocation, due diligence, real assets, social impact investing, risk management, etc. I am pleased that one can meet certain industry colleagues there again. Dr. Thorsten Querg from FOCAM, who participated in my panel at FundForum International in Monaco (topics included fund boutiques, selection, market entry in Germany, etc.) will, for example, moderate a panel entitled “How do German Family Offices invest in Germany? It is a pleasure for me. IPE Institutional Investment: What other topics are you currently working on? Hill: In addition to the usual “product scouting” activities, I am currently increasingly concerned with the topics of fund boutiques, independence, and real assets (infrastructure, etc.). This also leads to the fact that one should talk to investment companies like Universal Investment, Hauck & Aufhäuser but also houses like DWS and Union Investment, just as an example. It seems interesting to me that, as in the area of fund boutiques, there are many less transparent areas and “positive grey areas” in these fields. During discussions with investors, I notice again and again who does not know whom and who does not talk to whom, even though a great deal of solution competence would be available (products or services such as consulting). There is no ill will on either side, the “islands of ignorance” just find it hard to find each other. At the extreme: asset managers do not find investors, or investors find it difficult to push real asset projects because internal know-how would have to be supplemented by external know-how (example “renewables”: fund concept, project management, evaluation, etc.) A situation you may also know from your journalistic experience. By researching articles and attending the many investors’ breakfasts, one may often see the “red threads” between areas and players in the industry that do not seem directly obvious to others. IPE Institutional Investment: Thank you very much for the interview. Source: www.institutional-investment.dePhoto: www.pixabay.com

  • “So see who binds himself eternally” – Investments in real assets are currently in demand due to the low-interest-rate environment. The trade press, providers, and investors are dealing with this topic intensively. The financial industry communicates strongly with the financial industry, many areas of the real asset world are often left out. Various questions are increasingly appearing in the discussion. As in the field of classic asset management – group-bound and independent asset managers (“fund boutiques”), there are different markets for expertise. What can be special features in the assessment of real asset projects? Is there a consulting market for each area? Are new structures perhaps emerging in consulting? The feeling of “uncertainty” among various institutional investors Although the above-mentioned topics seem to be highly topical for investors, there are some stumbling blocks in the valuation of investment properties from case to case. Which pension fund, an insurance company, or family office has “specialist teams” for the valuation of infrastructure investments? “Large companies probably have the know-how, while medium-sized to smaller units may find it more difficult to assess direct investments or use fund solutions in the real assets sector. Indirectly, of course, this also has an impact on “investment networks” in the sense of club deals. Here, a form of barrier to market entry for certain investors can actually exist due to a lack of know-how or a lack of a network. Where does a small pension fund or a smaller family office get competence in assessing certain direct investments in infrastructure (transport, aircraft, energy, etc.)? The question arises whether sometimes good investment opportunities cannot be seized simply because neither know-how nor capacities (time, personnel, budget) are readily available. Examples – Renewable Energies & Agricultural Investments (“Commodities”) In recent years, Germany has experienced a boom in the field of renewable energies. Many of these projects, direct investments or investments in fund shells, have been given the labels Real Assets and Infrastructure. In the field of solar and wind energy, a whole number of projects have developed which have been brought to institutional investors, also due to governmental support – at present, it is getting “turbulent” in this area. The market appears to be mature. At the same time, the consulting industry has also developed. If one takes a look at the biomass sector (“renewables”, known in professional circles due to the controversial “tank versus plate” discussion), similar structures seem to be forming. At this point, the technical sheet on the areas of agricultural investments or the area of investment in forest land appears interesting. Areas are to be planted, managed, and, if necessary, combined with investments in renewable energies (combined heat and power plants, power stations, wind turbines, solar areas, etc.) Commodity markets are to be observed and understood, weather again plays a role in investments. Regulation (renewable energies, feed-in tariffs, etc.) flows, so to speak, into real asset investment decisions, chains such as agricultural investments – biomass – power generation arise, in many such fields with many interfaces internal or external field competence is required. Even “big” investors (pension funds, insurance companies) are committed to project management in order to define the right interfaces for such investment projects and to bring together the appropriate experts. Consulting and know-how networks – special features theory versus practice Research is justified in many subject areas as one of many means of obtaining clarity about investment alternatives. A further step is to connect with certain other know-how networks as an investor. Investment objects or investment categories that have not been researched as much or are not transparent can often be developed more closely in small steps in this way. The market for independent asset managers (“fund boutiques”) can be better categorized, for example, by contacting specialized investment companies such as Universal Investment, AmpegaGerling, or IPConcept. Many of these houses deal with commodities (agriculture, forests, etc.) and renewable energies. Associations in the asset management industry also provide orientation. Providers and associations in the field of commodity investments and renewable energies (solar, wind, biomass, etc.) are also established. With regard to transparency and decision-making reliability in investments in real assets, a special problem arises due to the complexity of the investment opportunities: neither a pure theory consultant (“PowerPoint consulting”, in extreme pure concept production without interest in practical implementation) can provide direct assistance in many cases, nor is a pure financial specialist (investment banking, structurer, etc.) always suitable to conclusively assess the economic viability of investment alternatives in this area. This is a shortcoming often found in other areas (e.g. social work, politics, etc.): There is a lack of field competence. (There is no doubt that the concept is justified and valuable; this is not about “consultant-banking-bashing”, but about tailor-made solutions for the evaluation of investment alternatives in fields that have strong technology components in addition to finance). Outlook – Consulting in a potentially “ideal” way The assessment of purely financial ratios in the evaluation of investment alternatives in real asset projects (direct investments, funds, etc.) seems to have “jumped too short” in a large number of cases. Of course, there are decision-making situations for investors with professional know-how that require little or no external support in the decision-making process. There are, for example, many pension funds and family offices that have themselves become centers of competence. These often also have excellent national and international networks that can be used for due diligence. Expertise can also be found with many PE and VC investors. Be it in direct investments or in the fund area. What do small to medium-sized investors do who neither have large budgets nor extensive “feedback networks” for real asset investments? What would an ideal consultant in this area look like? Ideals are difficult to realize, but they can outline a direction. You can always cut corners, adapting requirements to real events and resources. Real asset investments include fields such as regulation, conception, profitability calculations, and project management. It would be obvious that a good consultant would also practically “master”

  • “The only thing we have to fear is fear itself” (Franklin Delano Roosevelt) Many foundation decision-makers, but also other experts in the field of fund selection could understand this sentence of the then US president, deliberately taken out of context, differently: The selection of endowment funds can be carried out with a reasonable amount of research or investigation, without necessarily requiring external support for this process. The “do-it-yourself process” is not inconsistent with the fact that in many cases it would make perfect sense to involve external asset management consultants – but many small to medium-sized foundations often lack the budget for this increase in professionalism in the selection of asset managers. Certain questions, as mentioned below, could arise for example for decision-makers when selecting funds for foundations. The following questions have arisen from project experience as well as from the intensive exchange of ideas with providers, investors, and committed trade journalists (“interview requests”). Practical experience in the selection of asset managers often shows that the use of certain sources of information or the use of professional networks provides approximate solutions for good, satisfactory problem-solving. What is an endowment fund? Contrary to the official, narrow definition in the field of foundations, the term “foundation fund” is normally used to refer to a public fund that makes it possible, for example, to support the foundation financially in the pursuit of its purpose through distributions. The investment guidelines contain information specific to the foundation. The term is often also used in connection with distributing mixed funds or with the term asset management approaches. What distinguishes an endowment fund from other funds or fund categories? The investment guidelines and fund information explicitly refer to the area of foundations. Security, risk diversification, and distributions are emphasized, i.e. the target group of foundations is addressed in a focused manner. Of course, other mutual funds serve similar purposes. However, these are initially more difficult for a foundation decision-maker to identify. What category do endowment funds most likely fit into? Officially, the focus is very much on the areas of asset management or defensive. Sometimes this can be somewhat misleading because an equity fund for second-line stocks with intelligent risk management and well-thought-out diversification can also have an asset-managing or defensive character and generate distributions for foundations. However, selection is not an easy task. However, a decision-maker who concentrates heavily on bonds or very defensive concepts in his selection may be missing out on interesting portfolio components with a good diversification effect. Let’s stay with the selection. What approaches are there for endowment funds? Roughly speaking, one finds approaches with a focus on bonds, equities with bonds, and equities. Some foundations are also interested in concepts with, for example, a stronger money market orientation in combination with sustainability aspects over the longer term. However, it is questionable whether each of these funds is suitable for a foundation. What foundations should do is to look beyond the German horizon. Some foreign providers also do a good job and offer foundations funds for their respective profiles. Independent asset managers are the ones with whom foundations may have a natural congruence of interests. Correspondingly, their so-called private label funds could be an idea to approach fund modules outside the endowment fund universe, at least in a first step. Is endowment funds always designed to distribute dividends? Ideally, they should be. The vast majority of them are distributive. Anything that reduces the number of decisions to be made by those responsible for foundations and reduces complexity in the process can be helpful. Regular distributions in the area of endowment funds can be regarded as a kind of “hygiene factor”. Is an endowment fund cheaper than a conventional fund in terms of costs? Since the promise of returns is usually calculated conservatively in the case of distributing, rather defensive funds, and since the capital markets often do not offer much upside here either, these funds should generally offer a low-cost alternative to investing for oneself. The price structures are to be regarded as rather moderate. Whereby here it should be stressed: The task of a good asset manager should rather be to generate in his fund, for example, one percent additional performance above market than to show in his fund in the cost area 0.1% advantage for the fund selector. Where can I find information about endowment funds? On the websites of investment companies that offer special foundation products in addition to many other funds (e.g. Universal Investment, IPConcept, AmpegaGerling, and many other companies). There are also information portals such as these company’s platform, die-stiftung.de, websites such as fondsweb.de, or service providers such as MMD, which make the characteristics of funds in general and endowment funds in particular visible. With intensive study, good tips can also be obtained from the trade press, and it partly contained data overviews on funds. It is important to note that one categorizes precisely in specialist information and “advertising prose”. Larger foundations have experts or call in consulting firms for the pre-selection – not only for public funds but also for the allocation of special fund mandates. However, this is a path that “small” foundations cannot take. Therefore, a cost-efficient, creative approach to fund selection (“information gathering”) is essential. Associations with specialist circles, member products can also be the first points of contact, such as the Association of Independent Asset Managers Germany, e. V. How do I recognize a good endowment fund? It is probably a broad bouquet of information that a foundation should look at. Factual criteria with measurability character can be Low drawdowns (“outliers to the bottom”), a steady, risk-adjusted performance that is satisfactory from a risk-adjusted perspective, volatility, short recovery periods, costs. These are all criteria that also play a role in regular fund selection. For foundations, the quality of fund management, processes, and staff turnover can play an important role. Foundations should attach importance to a certain consistency in this respect. It can also be notified if an endowment fund is managed

  • Frankfurt-Main-Skyline

    “One should not carry owls to Athens”, in the figurative sense of the fund industry, this would probably mean that many news items would have no news value. More than new products, there are more frequent investment rates, a return of the familiar in a new outfit. Interestingly enough, fund sales and communication often move in similar directions at home and abroad. Many phenomena from the fund industry could be easily transferred to other industries with a little abstraction, a possible conclusion: If you have a product with “bad” to “mediocre” features, you will have difficulties in communication and sales! (“mediocre” and “bad” are to be considered value-free, simply as a governor for “added value” for the institutional investor that is continuously difficult to convey in sales – many customers approaches, much justification argumentation, pronounced, long-term disinterest on the part of fund selectors). A simple truth, which also applies to the asset management industry, where it is well known that not only excellent fund managers determine the market – which is also like things. To be fair, it should be noted that the whip of transparency in the fund business, for example, makes life difficult for providers. Does affected domestic and foreign asset managers often draw consequences from their positioning in the highly competitive market in terms of business strategy or the area of communication with investors? Hooks and loops in sales – problems for affected asset managers Fund boutique and group-linked asset managers are struggling with the problems of transparency, fixed cost blocks, and the distribution problem of the “resource above-average portfolio management skills”. These topics have different weightings in different organizational forms. Institutional investors can often sit back and relax and use various sources of information (hit lists, rankings, ratings, consultants, databases, etc.). Many of the activities that are currently practiced in the sales area at investment companies would probably be reconsidered (“zero-base budgeting”), if perhaps some irrelevant considerations were not also indirectly effective in maintaining existing structures. Why should a larger staff still be involved in sales when the days of “short-term performance sales” are overdue to transparency and selector professionalism? If, as a provider, I am not to be found in the top 10% or do not have the potential to catch up here in the medium term – what topic could I usefully discuss with an institutional investor? Typical pitfalls for domestic and foreign portfolio managers a) “Don’t call us, we call you!”If you talk to institutional investors directly (“product feedback”) or at industry events at home or abroad, there are hardly any differences in the perception of management expertise. Houses with excellent performance and an interesting approach (continuity!) – a welcome starting point for direct dialogue. Houses with “mediocre” to “poor” performance and expertise – tough dialogue, hardly any added value in conversation, in parts when directly approaching investors through sales as “annoyance, nuisance, waste of time” (original quotes: Family Office, pension scheme, private banking fund selection): “Don’t call us, we call you! – an attitude of some investors, which does not make life any easier for the distributor of a product with foot problems. Without fault, Sales gets here the beating for the fact that the fund company perhaps did not do the homework with the product conception and/or that the manager has not only short to medium-term a weak phase. An element that communicates with people may be found here: The domestic and foreign salesman go through the same pain! b) Continuity in “mediocre” to “poor” performanceIt is understandable, as in many industries, that organizations develop their own life. When a sales apparatus has developed a certain size, it needs to be utilized to its fullest. It is often forgotten that there are excellent salespeople who cannot turn water into wine even with the best network and investor goodwill. If the product, the manager, the performance does not add any value at all in the dialogue with institutional investors, then the salesperson will get many courtesy and coffee conversations, but no tickets. Fairly one must say that many clients with the tonnage ideology “dates, dates, dates” on the one hand can load the folder network institutional investors far too much. Up to the effect that one or the other decision-maker says already when contacting the corresponding sales employee or when hearing the name of the asset manager: “Please do not put through, that’s the one who always comes with the foot sick products! Contrary, this can lead to a boomerang for the asset manager: The own sales force produces nice, many interview transcripts that seem to promise great potential for the employer – with ongoing salary payments, the employee can take his time during this phase to look for a new employer with more attractive performance/expertise, where a bonus payment might also come within reach. An interesting question at this point, assuming that products of competitors in the same category are definitely “bought”: For example, if a sales employee contacts 200 investors in a certain period and receives consistently negative answers – who is responsible here? The portfolio management due to “mediocre” performance? The manager or the company owner who hired the sales employee and after these 200 attempts suddenly seems to feel the insight that the employee does not have sufficient sales skills? How should an employee “sell” the message to his employer that his product is unattractive to institutional investors? A topic that certainly offers a lot of content for dedicated and controversial employee discussions and sales team meetings. The ability to communicate, teamwork, and also the ability of managers and specialists to deal with criticism can find a good testing ground here. c) “Homework market entry” – indirect approach and lack of efficiencyMany missteps in market preparation by domestic and foreign asset managers often have simple reasons. A product has been designed on a “greenfield site”, now the sales department has to live with it – and possibly also the completely disinterested investor. Unrealistic expectations in the fund

  • Languages can build bridges, languages can separate: A realization that can often also be gained in the field of asset management. Trade journals, specialist publications, and experts do not always speak the language that seems appropriate for the desired target group. Many foundations have investment needs, many foundations attend specialist events and seek to exchange ideas with industry experts. Private asset managers could be good advisors and product suppliers for many foundations – why do both parties sometimes have a hard time establishing a long-term partnership? Communication level – interests and long-term character As a rule, foundations and asset managers should primarily think long-term. The foundation because you want to fulfill the purpose of the foundation, the asset manager possibly because he pursues an entrepreneurial vision that is tied to his person or organization. Owner-managed companies do not usually think in quarters. However, the similarity of interests does not mean that the foundation tolerates all problems in the field of asset management. As in the field of consulting, the asset manager must fit the client (foundation). Especially with smaller foundations (assets from 0.5 million euros and upwards), investment in so-called asset management approaches in the form of mutual funds is often an option. Transparency about approaches and performance is given here and is a decision parameter besides the so-called soft factors. Product transparency in mutual funds is a good prerequisite for advisors, clients, and products to come together. Possible “soft” criteria for asset manager selection Many small to medium-sized foundations, in particular, are interested in personal, tailor-made advice. The core of the dissatisfaction with current advice can be, for example in the banking sector, that the fact of providing cost-effective or cost-neutral advice on setting up a foundation does not have to go hand in hand with the delivery of “inspiring” performance in asset management. It remains to be seen whether an investment advisor always makes the right choice of investment products. At the very least, it seems desirable that he is offered the right products that are suitable for fulfilling the purpose of the foundation. Direct feedback discussions with foundations suggest that there is also the potential for optimization in this area. It takes time to find the right asset manager. Three simple questions to the asset manager through the foundation could be helpful during the initial interview:a) Is he or she interested in managing “smaller” sums?b) Does he listen, does he not immediately present a product?c) Is he interested in the use of funds and projects of the foundation? Interest, understanding, and added value for asset managers The investment volumes of foundations represent a critical factor for the quality of advice. Asset managers as well as banks must think economically. Understandably, some providers often offer standard solutions. This does not have to ignore the needs of small and medium-sized foundations. What should not happen, however, is, for example, the constant “bombardment” of the investment decision-maker at the foundation with a large number of product proposals that may prove inappropriate in retrospect. Less is often more. Dealing with foundation goals, the subject of distributions, and perhaps also with topics such as attracting sponsors can make the dialogue with the foundation interesting for the asset manager. Some independents even offer the service of providing direct or indirect support for the acquisition of sponsors for foundation purposes – a real added value compared to pure product sales. Information – Investment companies, associations, and “networks Being courted by a large number of product suppliers at a foundation event can offer advantages – or only lead to a random result in the selection of the consultant. The first point of reference for identifying asset managers for “small” foundation assets can be investment companies such as Universal-Investment, IP Concept, or AmpegaGerling. A good overview of advisors can also be found at the Association of Independent Asset Manager Germany eV (Verband unabhängiger Vermögensverwalter Deutschland e.V.) – as well as among independent journalists, consultants, and many other market participants who are intensively seeking a professional dialog with asset managers. A non-sales-driven exchange of ideas often leads to interesting insights. Conclusion “Small” foundations have an interest in know-how and advice from independent asset managers. Perhaps in the long term, the above-mentioned will result in a kind of optimized decision-making process, so that it does not have to be said: “They were like royal children, they did not find each other”. Source: www.institutional-investment.dePhoto: www.pixabay.com

  • Foundations and other institutional investors are looking for investment alternatives in the current low-interest-rate environment. Markus Hill* spoke on behalf of FONDSBOUTIQUEN.DE with portfolio manager Dr. Stefan Tilch, Deutsche Oppenheim Family Office AG, about the current conditions on the capital market and possible investment approaches. Hill: Many institutional investors are very insecure. Bonds are often seen as “safe” investments. What led to the significant price losses across all bond segments in May and June? Tilch: The first half of the year was relatively positive on the bond side until the end of May. Although there was always negative political news such as the Cyprus crisis or the turbulence surrounding the elections in Italy, the bonds were on the whole moving in calm waters. This changed abruptly at the end of May. The chairman of the US Federal Reserve (Fed), Ben Bernanke, announced somewhat surprisingly on May 22nd a paradigm shift in monetary policy, namely that the Fed will gradually phase out the purchase of securities starting this year until mid-2014. What market participants failed to realize was that this announcement was linked to several economic conditions, the achievement of which is by no means certain. Nevertheless, this had far-reaching consequences for the global bond markets. There was an unexpectedly strong sell-off across all bond classes. The yield on 10-year US Treasuries rose from 1.6% to 2.6% within a few weeks. The yield on 10-year German government bonds reached its annual high of 1.81% at the end of June. Hill: “This situation led, for example, to price losses of 3.5% for 10-year German government bonds at the peak. Especially foundations that plan with annual distributions were badly surprised here. Tilch: I think most market participants were caught on the wrong foot by the sharp rise in interest rates. By the end of June, the situation had eased somewhat, so that most bond portfolios probably ended the first half of the year with a “red zero”. Even the Fed was somewhat surprised by the market reaction and verbally rowed back in the following weeks. After all, an excessively rapid rise in interest rates cannot be in the interests of the US Federal Reserve, as otherwise there is a danger that the economy will be stalled again at an early stage, especially in the real estate sector. Nevertheless, this event also had its good points, as bond investors had become somewhat too complacent in the first half of the year. Institutional investors, in particular, rushed into new issues, and most of these bonds achieved price gains, some of which were incomprehensible. Issuer or liquidity risks were largely ignored. Hill: What are the developments in the bond markets? Tilch: We expect the bond markets to recover slightly in the coming weeks. In our view, there is a whole range of reasons that speak in favor of declining yields. First, the US economy is struggling with some challenges. The automatic debt brake on national budgets has only had a full impact on the economy since the second quarter. There is still a hidden reserve of unemployed people who had resigned themselves to the labor market and are now looking for work again with improved economic prospects. This year, the global economy is developing more weakly than initially forecast. In China, in particular, growth remains well below expectations. In Europe, most indicators are pointing to a bottoming out, so that a slight economic revival may occur in the coming months. However, above-average growth rates are still a long way off for Europe. This has prompted the European Central Bank to announce that it will leave interest rates in the eurozone at the current level for a longer period. These factors speak in favor of falling bond interest rates and price recovery in most segments. However, this does not change the fact that the US Federal Reserve has initiated the turnaround on interest rates and that rising interest rates can be expected in the next 6-12 months. Hill: But won’t corporate bonds then be even riskier than government bonds? After all, corporate bonds have lost even more value in recent weeks… Tilch: The announcement by the US Federal Reserve also led to significant price declines in the global markets for corporate bonds. Corporate bonds were hit twice: firstly, prices fell due to the general rise in interest rates, and secondly, the widening of credit risk premiums caused an additional loss in value. This development is worrying because in 1987, 1994, 1999, and 2005, sharply rising interest rates led to a reduction in credit risk premiums and thus to a relative outperformance of corporate bonds. In the past, the decisive factor was how quickly interest rates rose. In contrast, an abrupt rise in interest rates such as this year hits corporate bonds twice as hard, as illustrated. If, on the other hand, a moderate rise in interest rates is expected in the second half of the year, corporate bonds will become more attractive again. Hill: In the current market environment, are exchange-traded funds for corporate bonds an alternative to individual securities for institutional investors? Tilch: ETFs offer a broadly diversified bond portfolio with a low-cost structure. But there are also some disadvantages. Most ETFs are still so-called synthetic replicas of the benchmark index. From the investor’s point of view, this means that in addition to the credit and market risk of the ETF, he also takes on counterparty risk, as the index replication is usually done via swaps with third-party providers. Their creditworthiness remains hidden from the ETF buyer, who is also unable to assess the associated risks. ETFs with physical replication/sampling of the reference index are therefore preferable in our view. Another risk factor is the so-called “Survivorship Bias”. It means that insolvent securities are removed from the benchmark index, thereby oversubscribing the return of the index. There is also another phenomenon that makes the ETF riskier than single stocks. A new study by the EDHEC-Risk Institute on the subject of “Corporate Bond Indices” shows that

  • The FundForum International conference, which is known throughout the industry, will take place in Monaco from June 24 to 27. The independent industry expert Markus Hill will moderate a panel discussion of German-speaking fund selectors on the topic of fund boutiques. IPE Institutional Investment Editor-in-Chief Frank Schnattinger spoke with him about the current situation of the fund industry in Germany. IPE Institutional Investment: Mr. Hill, what topics will you discuss in your panel in Monaco? Hill: First of all, the situation in Germany will be briefly outlined, market growth and current developments in the fund boutique and private label fund sector. Secondly, topics such as selection criteria, strengths, and weaknesses of independent asset managers will be discussed. The situation discussed for example: How interesting are fund boutiques from Germany? How interesting are fund boutiques from abroad? What can a foreign manager do to attract the interest of German fund selectors? There also seems to be a need for discussion on the topic of fund or manager research. From various discussions with German family offices, one idea seems to be to increase international networking. Just this week, the topic came up again during a telephone conversation with a family office. How can an English or American family office help a German family office select English and American boutique managers? Of course, this is not a one-way street and also allows conclusions to be drawn about cooperation ideas from other investor groups: What can German fund selectors learn from foreign investors? IPE Institutional Investment: You talk to fund selectors. What is the role of asset managers or product providers in your panel? Hill: At FundForum International you will find the international representatives of the industry. In addition to investors, there are many professionals from the fields of marketing, sales, business development. Many of these experts are now looking at Germany through rosier glasses – Germany as a “hub” in the middle of Europe can become increasingly interesting for market entry, alongside Luxembourg. Despite all the Europe bashing and the Asia hype, there is also the trend that Germany is seen by foreigners as a “Great Switzerland”, admittedly, as a Frankfurt resident, I have to be considered biased with this opinion. The location is attractive, centrally located, and has an excellent infrastructure, also in the area of the fund industry. IPE Institutional Investment: …and Luxembourg? Hill: Many of the German investment companies also have subsidiaries in Luxembourg. Fund launch combination with direct sales support in German-speaking countries may be an option. In general, investment companies from Germany and Luxembourg benefit from their central location, unlike London. Houses like Universal-Investment, IPConcept, Hauck & Aufhäuser, and many others will optimize their business models fund launch and sales support. This trend has been emerging for quite some time. IPE Institutional Investment: How do you see the value of conferences? What can be a realistic expectation of these events? Hill: I see mainly the value in the professional exchange of ideas. It depends on the event format – there are renowned specialist conference formats like in Monaco and specialist congresses in Germany. In July, I will participate in a foundation panel in Frankfurt, which will focus on topics such as investment options in the low-interest-rate environment and independent asset management. These kinds of specialist discussions, similar to the one in Monaco, will allow one actively to engage in dialog with investors and product providers. The investors needs and expectations of the fund industry is conducted without a “sales climate”. As an industry expert who talks to many market participants, one is often surprised at how many communication barriers there are in some market segments. But other formats focus purely on investors. When I look at products and managers for clients frequently, I notice a difference in the atmosphere of these events, completely value-free. Such formats as business breakfasts or events by asset managers for investors and consultants often appear to be more “limited” in their scope. It is to the advantage of one or the other visitor – as you already remarked, it depends on the expectations. If you don’t expect the “fast ticket” at specialist conferences and investor events, the exchange of professional ideas can broaden your horizons considerably. IPE Institutional Investment: Thank you very much for and good luck with your panel, also in Frankfurt. Source: www.instutional-investment.dePhoto: www.pixabay.com

  • Frankfurt-Skyline

    The opinions of investors and other investment experts on investor surveys fluctuate: harassment, high expenditure of time against a gain of knowledge – what outweighs? How can surveys provide orientation? Between initiators, participants, and the media, a “window of communication” opens up, which is sometimes used more, sometimes less, despite all criticism. What reasons could there be for this? One can, without claiming to be complete, identify different initiators of surveys. The degree of penetration of the target group, the scope of the surveys, and the objectives often differ from case to case. a) Investment companies In the asset management industry, surveys are a popular tool for target group dialogue – determining one’s position, an attractive means of communication (investors, media, etc.), and highlighting industry trends are some of the keywords in this context. Last month, the investment company Universal-Investment published a fund manager survey with independent asset managers (asset allocation, “real assets” etc.). In the previous year, there were various investor surveys here as well as by Union Investment, DWS, and others. Whether real assets in connection with renewable energies as a target investment or real assets in the form of shares – in general, the trend towards investments in tangible assets seems to be in the foreground. b) Consultants Surveys of asset management consultants (Feri, Mercer, etc.) often focus on investors as direct “prospects” for their services and also serve as a means of dialogue and contact with existing customers. The investment climate, asset allocation preferences, and many other topics are typical questions. Studies are often freely available, sometimes only available for a fee. The cost question usually says little about the quality of the survey; “data cemeteries” with pie charts can be found in many different forms, as can first-class surveys. c) Media & Associations Member surveys, reader surveys – the range of possible topics is large, perhaps sometimes a little broader in terms of potential. “A member company survey members” can mean, for example, that not the investor is surveyed, but only product suppliers. Criticism of the general informative value could be expressed under certain circumstances. Media with a strong reference to investors, for example, often produce interesting studies or short surveys that can reveal industry trends. The point of discussion is often the extent to which one can cleanly separate “public opinion” on a topic from “published opinion” on a topic. Associations such as the federation of german investment companies (Bundesverband Deutscher Investment-Gesellschaften, BVI) or the association of independent asset managers (Verband der unabhängigen Vermögensverwalter Deutschland e.V., VuV) often produce surveys that are followed with interest in the media. Surveys – communication and further development of industries Irrespective of whether the above-mentioned potential initiators have a wide range of survey quality, this communication instrument serves to diffuse knowledge, opinions, and trends. Very few surveys meet the requirement of representativeness. Perhaps one makes less high demands on this dialogue instrument. It can be seen as a snapshot, as a trigger for discussion. Some survey results may be pure trend updates or just pressing trivialities into pie charts. In comparison to a “pure opinion”, additional material for expert discussion results. And progress in industries is generally the result of a free exchange of opinions, no matter what the trigger is (event, article, survey, etc.). Panels – a more or less fixed group composition in surveys – offer an almost ideal opportunity to sketch and discuss mood developments over the long term. Criticism and further potential in industry dialogue Usual points of criticism in surveys concern points such as the number of respondents, the composition of the interviewed group, the question posed (open, closed); the list can be continued at will. If you talk to domestic and foreign investors, other points seem equally important: What are the advantages of participating in surveys? What is the quality of the preparation of the results? How much time and effort is required to process the questionnaire? Many surveys, regardless of the format (short survey or comprehensive study), are criticized, for example, because apart from the presentation of cake slides and “…x percent have said, …y % have said”, the initiators put little additional effort into the preparation and discussion of the results. Besides, the topic has often discussed that results are often “explained” too little, not in the sense of an all-encompassing, satisfying scientific justification but more in the sense of a continuous “hypothesis formation”: Why do the participants of the survey think like this and not differently? What might be the reasons for this? Admittedly highly speculative questions, but also questions whose processing by the respective survey initiators or by independent experts could offer a great added value. Outlook: Independent asset managers – indicator and contra-indicator Independent asset managers, so-called fund boutiques, benefit greatly from the efforts with the above mentioned CISA survey formats or consultant surveys. Since they often do not have a powerful PR apparatus themselves, any help from the industry or associations (VuV, etc.) is helpful. Surveys that repeatedly address the motives, performance, and trends in this area appear constructive. On the one hand, the independents can be a productive “thorn in the flesh” of the industry, so to speak, if they separately highlight or even form trends in the industry. Critically one can also say that a clear opinion (survey results) in a delimited segment can at be used as a counter-indicator for investment decisions. This additional positive side effect of surveys is often overlooked: The “mass” is by no means always right! Source: www.institutional-investment.dePhoto: www.pixabay.com

  • Frankfurt-Skyline

    “You can fool all people some time and some people all time, but not all people all time” (Abraham Lincoln). A president does not have to be so wrong in his thoughts, which in this case can also be applied in part to public relations (PR) and asset management. Many independent asset managers or domestic and foreign fund boutiques employ their staff in PR or use external service providers. Conflicts are sometimes pre-programmed, sentences such as: “I can’t buy anything from publicity alone to “With this article, we will increase the sales of fund x” underline that public relations work is often under or overestimated by the client. What are the reasons for this? What can an independent asset manager realistically expect in addition to “normal” market communication? PR – service of capital investment companies Many independent asset managers have launched their funds with investment companies such as Universal-Investment, LRI Invest, or AmpegaGerling. All of these investment companies, and of course many other competitors as well, maintain PR departments. Press distribution lists are maintained and used. Fund information, press conferences, specialist publications – all these communication instruments promote the CISA product range and generate a constructive “background noise” in the market. Comparable to the press work of associations such as the Association of independent asset management (VuV) and the Federal Association of German investment companies. Apart from the use in the media range parts of these arrangements or contact causes (among other things also investor questionings) find use in the selling range of the societies. Many private label fund initiators also like to use the services of these service departments. Special case – communication and the fund initiators Independent asset managers use PR support for their market presence with internal or external assistance. The critical factor here is often the size of the fund and of course the product quality (keywords: performance, processes, relative comparability). If the fund is small, the manager unknown, and the performance temporarily unsatisfactory, PR work often appears expensive and inefficient. Market adjustment effects often clarify the situation. With a stable inflow or stock of funds, many independents think about long-term image cultivation, positioning themselves. Media and investors are possible target groups. Many “medium-sized” fund initiators (including foreign fund boutiques when entering the market) see PR as an additional component in addition to the classic function (press, media, perception, etc.), which can point more in the direction of the investor. Perhaps three potential myths in the industry could be discussed more intensively: 1st PR myth: “We turn water into wine! Internal and external PR specialists, including the employees of KAGen, cannot work miracles: a fund with a sustained poor performance can be promoted PR-like for a long time with a lot of budget input, but in the long run media and investor interest disappears. This is by no means a fact that is clear to all fund managers or independent asset managers. An additional aspect of this can be that one formulates expectations, which cannot fulfill these so to the media. If an article, a press release, announcement (advertisement, the transition to PR often flowing) does not find approval with media or investors, also the fund initiator should possibly ask himself the question: Do I have at all products or contents to offer, which can arouse target group interest? Many PR professionals can only work with what offers “communication substance” in the long term. 2. PR myth: “Pure product advertising interests the investor! The PR industry in general (media, consultants, employees) lives in every industry from the fact that one does not know exactly what is real and what is not. Similar to the alleged statement of Henry Ford regarding the topic of advertising, in the following sense: “I know that 50% of advertising expenditures are wasted, unfortunately, I do not know which 50% it is”. It is a fact that advertising expenditures have a benefit, one can consider them as a form of cultural sponsoring, especially concerning the media. Articles, advertisements, special supplements, events – all activities that advance the industry in general and promote communication. The situation can become critical if the interest of the industry for the industry is confused with the news needs of some investor groups. Information overflow – often it is more likely to be covered than to read extensive product promotion articles. 3rd PR myth: “PR and sales have nothing to do with each other! Here, too, opinions differ widely, especially in more owner-managed companies. Many people appreciate a clear, traditional press work for itself genome-men already very highly, others put a small finger in the wound: If the selling does not run, the PR-budget must be shortened. Often this attitude is accompanied also by the opinion that PR-articles represent the ideal Teaser instrument for investor contacts, so to speak the efficient and economical possibility for the generation of marketing material. If content, quality, performance, etc. keep their promise, then this view does not seem completely absurd. For “small” companies it seems to be ideal if the internal or external PR support lives this philosophy. Counter-example: There are supposed to be PR people who have never spoken to an investor before and who, moreover, may not be interested in direct dialog in terms of content. Outlook – opportunities for business developers The discussion about myths or supposed myths in the industry can offer a lot of potentials. The investment companies that manage to direct an optimal “concert” in the marketing mix (e.g. PR and sales components) will attract more interest from independent fund initiators. The PR-specialists, internally or externally, which can signal fund initiators plausibly, which you can take up topics actively – ideally technically independently investment-relevant information to prepare (specialized articles, inquiries, etc.) – will be very in demand. Independent asset managers are subject to great market pressure and are naturally natural business developers. Consequently, they can follow a train of thought well: Public Relations should serve the long-term positive positioning in the public and can actively

  • Frankfurt-Main-Skyline

    Finance crisis, procyclicality in product policy, short-term thinking – these are all critical points that the financial industry worldwide has to deal with. On many of these points, dialogue with critical investors and other participants is not avoided. The financial industry and many PR experts have probably recognized that transparency and willingness to engage in a dialog are required. Perhaps it is also an impression of resignation and capitulation – too many negative things have been discussed in the media in recent years. In the last quarter, Universal-Investment and Union Investment published studies that described the increased interest of institutional investors in real assets. The positive tenor of the study can certainly give hope. Investments in the solar, wind, agricultural, and forestry sectors are more often associated with the label “long-term thinking” and “sustainability”. More differentiated approaches also allow for a critical pro and contra discussion that is in flux. What business potential could the described trend offer for investment companies? What could an ideal project look like? Investment companies and procyclicality among fund initiators Many patterns and structures can be found in similar facets in different industries – or even in the same industry. From the field of fund boutiques and private label funds, the quality spread in fund projects is well known. In short, admittedly a “rough wedge”: a) Projects that arise from pure opportunismb) Projects that at first glance do not appear to be a self-runner, but have potentialc) Projects where fund project parameters are consistent, i.e. desired projects for investment companies In simple terms, these structures can also be applied to the area of real assets fund requirements. An additional complicating factor here is perhaps in many cases the fact that a financial expert discusses projects with a financial expert, in which the “underlying” could often require additional technical competence (power plants, agriculture, renewable energies, and technology as keywords). Project types – binding of consulting capacity at Investment companies Project variant “Plain vanilla opportunism The project variants described above tie up resources in the daily business of investment companies. AIFM guideline, a slump in sales at closed-end investment companies, attention among investors – all possible reasons for employees to change camp and feel called upon to become real asset managers or “general contractors”. Frequently, these projects brought to the attention of investment companies fail because know-how is only available in fragments or even sufficient, but no seed money is available and no budget is available to initiate an economically viable project. Opportunism as a driver (“Real Asset is a thing that is currently doing well”, etc.) leads to long discussions in combination with a polite rejection or reference to resubmission. The fund initiators often forget that investment companies also have to manage reputation risk in the long run with this kind of project category. It would be fatal if the own fund edition project portfolio was later burdened with a large number of “foot-ill” projects. Project variant “Not a self-runner Many know-how carriers are excellently networked in the industry. Who has the technological know-how and network? Who perhaps already have some experience in advising fund projects in the real assets sector – or who can at least make it more or less credible than they could successfully implement their first project. Goodwill is there, know-how is there – as so often, there is a lack of seed money for the project. In contrast to the group of opportunists, the efforts in this project category are often accompanied by own resources (time, personnel, budget). This is viewed positively by the investment company, but here too the following applies: no seed money, time frame until realization still uncertain – that means back to the start. Status: benevolent observation by the investment company, stay in touch, communicate project status regularly: Such projects can be realized. Often the timeline is seriously misjudged. Allocations of internal and external resources are often only made after long internal discussion processes at the potential initiator. Strategic bottlenecks here are often points such as no central project management, insufficient budgets, and underestimation of the time required to approach potential investors and professional “sounding boards”. Often “only” a project idea sketch is available – as in the field of art, it boils down to the question: Who will finance my potentially profitable “bird”? Project variant “Potential self-runner It can be said that “self-runners” in this sense are rare. With some restraint, one can describe such fund projects as “self-running”, with which optimally already before by the fund initiator a fund project was successfully “managed”. Optimally, the potential fund initiator already has a name in the industry, an excellent track record in its segment (renewable energies, e.g. established wind turbine manufacturers, etc.). The investment company’s advisor may be even more pleased to be informed that this type of project has been in operation for years with institutional investors. Optimal in connection with this is already the promise of potential seed money donors. There are “wish you-what-projects” of this kind on the market, as is the case with good real estate: the “fillet pieces” are quickly placed. Optimal initiator, optimal investment company, and seed money – a good mix to start a successful fund launch project. Potential: Domestic and international – quality combined with attractive returns is in demand Of course, the project types sketched above very much like woodcuts are a reduced variant quiver. One can find various attenuations or alternative expressions. Opportunism, for example, is not per se the motivational structure of just one fund initiator group, the mix does it in the end. Exaggerations and ideal types may make it easier for one or the other fund initiator in the real assets sector (real estate, gold, etc. have been deliberately excluded here) to determine the location. Quality, time, and resources are usually the essential set screws for the described type of fund launch projects. An example: The main motivation for the new edition can neither be the consequences of the AIFM implementation for the