Changes in German capital gains tax could give the advantage to foreign players in Europe’s second largest market

Italy and Spain have suffered from the credit crisis more than most fund markets. The great minds of Italian fund management have been gathering to find solutions to their problems.

Our European Fund Series roadshow (full report pages eight to 10) was most recently in Milan and delegates heard that while funds remain hard to revive, the outlook for private banking is more optimistic.

Similarly in Spain, while the prognosis is not all that some market participants hoped for, there are forward thinking groups such as Santander Asset Management (Big Interview, pages 12-13) which are fiercely defending market share. Whether they can create a new breed of products to re-create the golden years of 2002 to 2006 is another matter.

Looking up

Germany’s ?540bn funds market, Europe’s second largest after France, has also seen bad times of late. But things are picking up. And there are several reasons for this. The up-coming changes to capital gains tax mean that there may well be a rush among retail investors to open up fund portfolios before the end of the year.

But the legislation will require a re-think of priorities among the country’s fund houses and the army of foreign interlopers. Traditionally, for the foreigners in particular, success has come through specialist products, particularly thematic funds making a play on emerging markets, sectors or defensive stocks.

These have typically been marketed through guided architecture partnerships with large distributors such as Deutsche Bank, Deka or Commerzbank.

But the nature of the looming legislation means products need to be held for the longer term in order not to attract tax. This makes the broader, global-type investment funds – which the foreign groups should find easier to dust down and relaunch – more

attractive than any localised funds or products investing in specific themes.

Germany’s saviours

Competition amongst foreigners in Frankfurt remains cut-throat. When a team from BlackRock joined Schroders last year, the move led to legal action, not just in Germany, but dramatically in New York as well.

Yet it is not just new regulations which will save the German industry. There really are some excellent operators in town, including the likes of JPMorgan, which is among the most admired foreign groups. DWS, the local champions, are certainly no slouches. And Cominvest under the stewardship of Sebastian Klein, its young and ambitious new CEO, is also one to watch.

There is also the role of the funds industry in fighting its corner, with a collective venom aimed at the structured product producing investment banking community.

When the funds association, BVI, talks about a ‘war on certificates’ and structured products, Germany’s once feared investment banks are wise to actually take note, and show some respect to their worthy foes.

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