One of the first changes made by Oliver Behrens – the DekaBank board member responsible for the institution’s E147bn mutual funds operation – when he joined in 2006 was a streamlining of the firm’s often obstructive management structure.
“We reduced our hierarchy in pure management from six layers to two or three, giving responsibility back to the people who run the money, and diversifying the fund management team to a more European type of operation,” notes Mr Behrens.
The new formula was based on adding foreign talent to a previously German-centric equity team in order to improve performance, which had gone through a weak period in 2003 and 2004. And crucially, for fund managers, rather than their bosses, to have full say in the way they run their assets.
The changes did the trick. Performance improved significantly in 2006 and 2007 in German, European and quantative equity strategies. Deka Investmentfonds, which had previously fallen behind its competitors, and was seen as a backward player due to its links with rural savings banks, is now the envy of the German industry.
Sales wise, its funds are now second in the German League. “And our three year track record is back on the same level as the main competition,” confirms Mr Behrens. “We are seen by some of the other players as boring and not innovative enough. But now, everything is going back to the roots. You need to do business you understand in a region you understand.”
His comments are partly aimed at Deutsche Bank and its funds subsidiary DWS, his previous employer and key rival, where he spent 23 years and was a popular and approachable figure both in the boardroom and on the trading floor. But while Deutsche has now made a move to make toxic assets part of history, and concentrate on savings and private wealth management business rather than investment banking, Mr Behrens says his ex-employer is just moving to the space his new one already occupies.
Rather than unveiling any ambitious expansion plans – the fighting talk was already done by Mr Behrens when he joined the group – the future is about the basics: selling investment management products to clients of the Landesbanken (regional state banks) and Sparkassen (savings banks), which jointly own Deka. “If you want to tour Germany, you can always travel the country with Deka,” he jokes in a minor pastiche of a recruitment ad for the type of global organisation now suffering in the recession.
With an almost non-existent appetite for so-called “fancy products” in Germany, Mr Behrens expects the new reality to exclude sales of anything remotely opaque or complex, such as structured products and collateralized debt obligations.
“Before the crisis, the retail man in the street could not differentiate between a certificate and a fund. Now they know the difference,” he says, commenting on the Germans’ love affair with almost unregulated capital market, derivative-linked baskets of shares, known as ‘certificates’ and issued regularly by the country’s high street banks.
Around E100bn of these securities, often bought by retail investors at the expense of better regulated and safer mutual funds, remains outstanding.
Many German families lost money because the counterparty to the issuers was the now-defunct Lehman Brothers bank. “With a certificate, you have all your eggs in one basket. In a fund, [the investor] is a shareholder and part of a bigger pool. Both risks are the same if the world folds completely, but that is not our expectation of the future.”
Nevertheless, some of the so-called safety first products peddled by DekaBank to the conservative investors of the country’s savings banks should be carefully scrutinised.
Crisis point
While Mr Behrens' sales teams are concentrating on guaranteed funds, German investors’ reliance on real estate funds and covered bonds, known as pfandbrief, have caused some worries. “The whole covered bond market was in danger of collapsing, therefore the bail-out of Hypo Real Estate was necessary to restore confidence,” says the head of a major Frankfurt-based consultancy, referring to the recent Government-led E50bn rescue package for one of Germany’s biggest lenders.
In October last year, Sal. Oppenheim, Germany’s largest independent private bank, was forced to write to all clients to tell them that their covered bond-based investments were safe amid increasing nervousness. Mr Behrens admitted during the autumn that even investors with conservative portfolios were suffering “sleepless nights,” although they would be able to “ride to safety.” A spokesman says “tensions have eased” due to the government support.
And although investors have short memories, it is only three years ago that three of Germany’s largest real estate funds were frozen after huge withdrawals from investors in the space of a month, and the industry had to be forcibly stabilized by a joint initiative between the government and the BVI association of mutual fund houses.
