Expo Real: Only large players will survive in the German KVG market

The proliferation of German KVGs – regulated management companies that can launch institutional Spezialfonds – will be reversed in time as consolidation takes hold, delegates at Expo Real heard.

Close to 60 KVGs have been approved by German regulator BaFin in recent years, but speakers at the annual trade fair in Munich agreed that only a handful of KVGs – including those run by third-party providers – would persist.

Many large investment managers have established their own in-house KVGs to manage Spezialfonds (domestically regulated vehicles for German institutional investors), but others have opted to outsource some of the back office tasks, admin and IT to third-party ‘service KVGs’.

CBRE Global Investors is one of the latest international fund managers to launch a KVG.

“As the regulatory pendulum keeps swinging to one side, consolidation in the market will continue and in future there will only be a few major KVGs, many of them service KVGs,” said Michael Schneider, managing director at IntReal, which runs a service KVG.

Karim Esch from Union Investment Institutional Property said: “Having a KVG license is like a diploma, a seal of approval from BaFin some asset managers want to have. However, many are outsourcing the admin side.”

Union Investment is one of the fund managers that has a KVG and manages everyting in-house, and will continue to do so, Esch confirmed.

Swiss Life, meanwhile, established its KVG last year, but decided to outsource certain activities. Christina Bernhofer, managing director at Swiss Life KVG, said: “We wanted to appear on the KVG market under our own brand but did not want to deal with the ‘regulatory monster’ on our own. So we outsourced fund administration and IT services to IntReal.”

She said “time to market” was an important argument for outsourcing KVG services, as was ability to hold property assets on the company’s own books rather than those of the service KVG.

Along with certain service KVGs, providers offering the whole range of fund, portfolio and KVG management will survive in the market, if they are large enough, said Esch. “The medium-sized KVGs will all vanish as regulatory demand continues to grow.”

Ralf de la Camp-Gruber, responsible for real estate management consulting at PwC in Germany, said the future development will be determined by ability. “There will be a sharpening of profiles as providers have to determine which tasks they can perform themselves and which they want to outsource,” he said.

Schneider agreed: “The time for generalists is over. Now is more the time for specialists.”

Klaus Niewöhner-Pape, managing director at Industria Wohnen, said no investor had ever questioned why the residential specialist had not set up its own KVG.

“For several years now, investors are rather looking for able specialists than generalists,” he said.

He added that having a service KVG was also useful as an independent controller and to have a voice in lobbying groups and associations.