MUNICH, Germany - One normally wouldn't expect to find a quant manager in Bavaria, which is better known for beer-drinking at Oktoberfest and men who still wear lederhosen and Tyrolean hats.
But HYPO Bank, Germany's fifth largest private bank, has a small but growing quant team that has gone from zero to 2.4 billion deutsche marks ($1.68 billion) in the past two years.
Wilfried Hauck, who heads the portfolio management department, said the unit has eschewed traditional German investment approaches and has won institutional clients through its risk-controlling quantitative strategies, including indexation, fundamental and technical styles. The bank uses BARRA International optimizers to limit risk.
Mr. Hauck said he has detailed discussions with clients on how much risk they can tolerate. Often, hedges are employed to limit downside risk - at the cost of capping the maximum return expectation, he said.
Since coming to HYPO Bank from Commerz International Capital Management GmbH, Frankfurt, in August 1994, Mr. Hauck has targeted major European institutional investors. So far, 90% of its assets have come from German clients, with the rest from Swiss, Austrian and Dutch institutions. The biggest demand has been for German bonds and international equities, with bonds accounting for about 75% of total assets under management.
But it will take time to build business in continental Europe, where managers generally charge small fees but augment income through affiliated trading operations.
His unit charges flat fees that are higher than average and he is not required to direct trades through the bank. Mr. Hauck said discretionary portfolio fees are more than 50% higher than typically charged to Spezialfonds. What his unit offers is specialized investment management techniques plus the bookkeeping services usually offered to Spezialfonds.
For the future, the money manager also hopes to tap its contacts in the Middle East, Japan and the Americas.
Bayerische Hypotheken- und Wechsel-Bank Aktiengesellschaft, as the bank is formally known, has been boosting its overall commitment to asset management. Money management now accounts for nearly 20% of income. Bank executives are committed to boosting reliance on steady fee-based income from asset management, according to the company's annual report.
HYPO Bank has nearly 20 units dedicated to money management, including its 12 billion-mark Allfonds Investment unit. It also has a joint venture with Foreign & Colonial Management Ltd., London.