Three hedge fund stumbling blocks in Germany

In a lively panel debate on Germany’s hedge fund industry, Dr Dirk Söhnholz, managing director of Feri Institutional Advisors, gave three main reasons for hedge funds’ disappointing performance since they were allowed by the German regulator in 2004: “lower than expected returns based on unrealistic initial expectations, [BaFin Chief Jochen] Sanio’s black holes statement on hedge funds, and very restrictive interpretation of regulation by industry actors themselves.” Other panellists highlighted the damaging effect of the “skull and crossbones” imposed on distributors. The law forces distributors to indicate clearly the existence of a “risk of total loss” in funds of hedge funds, an assertion which is not plausible in reality. Rolf Dreiseidler, in charge of Deka Invest’s fund of hedge fund activity, highlighted that the Sparkassen (regional and local banks) his company services stopped recommending these products to customers. In effect, they are classified as high-risk, which seriously affects the adviser’s civil liability. Other obstacles to the development of the hedge fund industry in Germany are the extremely stringent tax transparency requirements – which are very costly to implement. The panel also discussed the difficulties which foreign players have adapting to the German regulatory environment – access to information, finding the right partner, adapting products developed at global level to the German context. Further challenges lie ahead for the fund of fund managers to attract institutional investors, and to and pull all the regulatory and market strings available to them. Industry representatives, said the panel, must also make a better job of educating the public. Achim Pütz, chairman of the German Alternative Investments Association (BVAI) spoke of a “package of problems” faced by the industry, regulatory issues being only one aspect them. A more reassuring point of view came from Andreas Engel, CEO of Union Alternative Assets, reminding the speakers and the audience that the German hedge fund industry is only two-years-old. Germany still needs to learn, and to “show calm and composure,” he said.

ID