On November 9th the conference “Germany Institutional Forum” will take place in Frankfurt am Main. The independent industry expert Markus Hill will moderate a panel there. He will discuss trends and tendencies in this market segment with decision-makers of the fund industry and institutional investors. IPE Institutional Investment Editor-in-Chief Frank Schnattinger spoke with him about the panel, further conference contents, about Frankfurt am Main, and about the field of seed money search for new fund concepts.
IPE Institutional Investment: Which topics will be addressed at the conference “Germany Institutional Forum”?
Hill: The conference is strongly oriented towards the area of institutional asset management. Providers and investors will experience some controversial discussions. The formats are panel discussions, roundtables, and presentations. You can compare it to the “Private Wealth Forum” from Munich, where I was able to accompany a panel on the topic “The Future of Family Offices” by the same organizer in September. The format offers plenty of space and time for exchanging ideas and networking. Classic product topics are discussed in Frankfurt – smart beta, alternative investments, active versus passive management, and more. Macroeconomics, global asset allocation real assets, fixed income, ESG, and other topics are also in focus. Product providers and investors will exchange views on trends and tendencies in the industry.
IPE Institutional Investment: What specific issues are picked up and discussed in your panel?
Hill: In terms of content, I do not want to anticipate my discussion and the interests of my panelists. My panel is called: “Passive versus active management, the edition of an earlier debate”. Participants will be Nizam Hamid from WisdomTree, Dr. Peter König from delta management consulting GmbH, and Michael Fuß from XTP AG. One can assume that the world is not being reinvented here. However, with time I have noticed in similar panels – especially in past discussions with family offices in Munich, Berlin, Zurich, and Monaco – that an exchange of ideas always brings up new aspects. I look forward to the discussion on Thursday.
IPE Institutional Investment: How do you, as moderator, view this panel topic?
Hill: I find the topic exciting. Often I do not know if all parties are talking about the same issues. What exactly does “passive investing” mean? What active part does an investor take on when using ETFs, for example? How do I measure the performance of someone who invests purely passively? These are some questions I have discussed with institutional investors from time to time. Equally interesting are topics such as compensation and selection of active fund managers. My impression is that people sometimes talk at cross purposes in the conference. A thesis, in rejection of thoughts of Paul Watzlawick, could be: One cannot invest non-actively!
IPE Institutional Investment: Are there any other points in the conference or the panel that could be of general interest?
Hill: Frankfurt is currently not only a “Brexit profiteer”. Meanwhile, the pros and cons are being discussed locally calmly and objectively, the hype seems to be slowly fading away. Many Germans and foreigners often associate the city strongly with the classic banking business. Many of the specialty stores and niches that are occupied in the city are often not known. Because of the airport, it is the central hub also for many representatives of the international fund industry. If you talk to foreign friends and business partners, they are often surprised when you talk about the industrial mix in the Rhine-Main area. Speaking on a meta-level – abroad, the federal character of Germany is often not so familiar. The country’s good decentralized supply of infrastructure and the broad mix of manufacturing industry and services often meet with astonishment and admiration from the other side. German small and medium-sized businesses and hidden champions are often well known, and the fragmentation often seems to give cause for amazement here. The financial industry is also depicted in this way. Although Frankfurt is the central hub, many of the large institutional investors are widely spread throughout Germany. Especially many of the foreign asset managers are mistaken at the beginning when entering the market. Paris, London, Vienna suddenly come across Berlin, Cologne, Stuttgart, and more seemingly “provincial” places. Due to the networking of the fund industry, Frankfurt is an ideal place to approach the topic of institutional investors in Germany. There is nothing like a good exchange of ideas. Recently the BVI Asset Management Conference was held again in Frankfurt, the whole fund industry came together here. An event that is less commercial in nature. At the beginning of next year, the Institutional Money Congress will take place too.
IPE Institutional Investment: Beyond the event on November 9th – which topics are you currently dealing with intensively?
Hill: On the one hand, the focus is on the check of fund concepts for potential new fund editions. The discussion with potential investors regarding the viability of concepts is always interesting from a technical point of view. On the one hand, the demands of investors on new fund managers appear to be very strict, on the other hand, the expectations of potential fund initiators often seem too “unrealistic” – self-perception and external perception do not necessarily appear to be congruent. Often factors for a potential commitment for seed money for the fund initiator or qualification for the watch list for a later investment cannot be estimated in advance. It is interesting here that one gets to know many concepts of fund initiators. In this respect, the exchange of ideas when approached is always interesting for both sides. On the investor side, I am often presented with unusual concepts, often “house products”, which are only presented to my clientele and are only presented to selected investors. Often there is not even a sales interest here – everything “off the market”. Seriously, one has to say that there are potential initiators who – if approval is given for a meeting with an acquaintance – are already convincing at the first appointment. Most of the time, they are the ones who have already successfully and verifiably looked after portfolios, i.e. who have a track record. On the other hand, people and teams with very specialized know-how are also interesting. Examples can be special access to certain data pools, university connections, or even in-depth know-how in a certain industry. In my opinion, the magic formula for a commitment has not yet been found, guarantees are difficult to present here.
IPE Institutional Investment: Are there currently certain products or concepts that you are looking at with particular interest?
Hill: Currently I am more interested in absolute return concepts and value investing approaches. The small and mid-cap sector is also very interesting here, as areas are now growing together – in some cases this can also be applied to various theme fund concepts. I very often look at concepts that go in the direction of “Value Investment Protection”. An area that is currently not so clearly defined. What does a long-only manager do when the markets give way? Actively investing and “smearing” one to one with the market and keeping still is one option. Of course, buy-and-hold can be a possible strategy. Especially in the area of value investing, this approach can be understood. Ideally, the portfolio manager here also gets the class of investors who understand this long-term thinking and have no problems with it. Convinced value fans often keep their cool when the guns thunder, and in case of doubt, additional purchases are made. But other investors perhaps appreciate or would appreciate a value-light variant to get to know. Here it is worth keeping your eyes open. The transition to the topic of absolute return and mixed funds appears to be flowing here. The value investing area itself is a “classic” topic for me. Proximity to the topic of fund boutiques, family offices, medium-sized companies, sustainability, and long-range thinking. Following on from my panel discussion topic at the upcoming conference in Frankfurt, this time I will be accompanying an investor event in Hamburg on November 29, 2017, for the seventh time in cooperation with Prof. Dr. J. Carlos Jarillo of Strategic Investment Advisors Group (SIA). The topic will be “Strategic Investing – Investing like an entrepreneur”. An exchange of ideas in a “small” fund selector round is scheduled too. Of course, there will also be a brief discussion of competitor approaches, and I will admittedly speak in a biased manner about why I find fund boutiques so fascinating. Completely detached from the product packaging or category.
IPE Institutional Investment: Do you have the impression that generally speaking, the exchange of professional ideas at events and also direct discussions with investors meet with great interest?
Hill: Many of the experiences and thoughts from above can be easily transferred to closed approaches and also to areas such as private equity, venture capital, and direct investments. In the end, it’s the brains and know-how, the experience that counts here. By the way, there is a lot of overlap in the selection process and way of thinking regarding private equity funds and liquid value funds. These investor events, but also various panels, often allow me to maintain an exceptional professional dialogue by personally inviting investors. When inviting investors, I generally give a brief description of the topics I am currently working on. In return, the “invited” people often inform me of what could be of particular interest to you from a professional point of view. Which products or which fund managers are interesting? What do you see critically in the industry? What moves the investor side? This exchange of ideas is very much appreciated by me, completely independent of whether someone happens to be interested in visiting an event at the exact date – one stays in contact pleasantly. Vice versa for constellation often arises in the conversation that both sides exchange ideas about the “red flags” for concepts and products, a counter-check, so to speak, of their own “due diligence” glasses through which they view the investment universe. If you have a topic, both sides can pick up the phone. You can see, I also look at the topics of active management in the fund area and professional exchange of ideas with a certain openness and interest. My central impression from the professional exchange of ideas over many years can perhaps be outlined in this way: Investors are often – rightly or wrongly – not boundlessly enthusiastic when they are contacted by the sales department. Nobody likes to be seen as a pure means to an end. However, if a discussion situation arises for both sides where they can “fertilize” each other professionally, so to speak, a win-win situation results. If investors notice that their counterparts are genuinely interested in the content, few will close their minds to an interesting exchange of ideas!
IPE Institutional Investment: Thank you very much for the interview.