Alternatives to home-made ideas
Volumes going into structured products in Germany are now so big that they can negatively affect the managed funds business, believes Rupert Hengster. He admits that structured products are not so transparent in terms of pricing and says banks must guard against the temptation of easy, but inappropriate sales. “We must really avoid structuring products first and then looking for markets.”
This is a sensitive issue in Germany, and representing an institution which profits from both manufacturing mutual funds and issuing certificates, he tries to steer a sometimes uncomfortable middle-ground.
“Clients like certificates – they think they bring benefits to their portfolios. But certificates won’t be up to 50 per cent of portfolios in the long-term. They represent a few percentage points of tactical asset allocation for flexibility. For strategic asset allocations, mutual funds will always be the number one business.”
Oppenheim works with a strong open architecture philosophy for both structured products and investment funds. “Clients read about Fidelity and Templeton funds. If relationship managers in a bank tell them they can’t buy them here, the client won’t just take a home-made alternative, they will go somewhere else to buy the external funds,” believes Mr Hengster.
Oppenheim will typically manage European bonds, equity and balanced products internally in addition to asset backed securities (ABS) and active quants “The ABS fund goes into the portfolios of private banking clients and also individuals who invest in a small business. It offers higher returns than the money market and is very tax efficient.” Private banking customers also demand significant tranches of private equity products, which Oppenheim runs in-house. The bank is a shareholder in Dusseldorf-based IKB, one of Germany's key bankers to mid-sized companies.
“They bring us a lot of clientele,” says Mr Hengster. “This is one kind of sales channel. We may be small compared to Deutsche or UBS, but we have good ideas and can create a nice business model.” There is absolutely no hesitation in using sub-advisers to run more specialist strategies. Attica is used to advise on hedge funds, Lloyd George Asset Management for emerging markets and Prudential for high yield.
“Satellites and high alpha products are very complicated,” admits Mr Hengster. “The expertise is often in the US, so we will use external managers. We are not talking about Allianz Dresdner, but smaller and medium-sized houses.”
