FRANKFURT -- German mutual fund industry officials are rubbing their hands with glee. With the passage of the Third Financial Support Act April 1, a new type of fund was established that could make them a bundle.
Called Altersvorsorge-Sondervermgen, or AS for short, these equity and real estate-oriented funds are supposed to spark Germans' interest in individual retirement savings as Deutsche Telekom's November 1996 initial public offering did in stock-market investing.
Rolf Passow, chairman of the Frankfurt-based Bundesverband Deutscher Investment Gesellschaften (the federal association of German investment companies) estimates the potential size of the market at 520 billion deutsche marks ($290 billion), assuming the German retirement market develops along the lines of the U.S. model.
German mutual fund companies are salivating at the prospect. A survey earlier this year of BDI members found 44 investment companies saying they planned to establish a total of 76 AS funds. Some funds are expected to be up and running by August.
The vehicles will be required to be far more equity-oriented than the typical bond-oriented German investor is used to. Fund managers are required to hold between 21% and 75% of assets in stocks and up to 30% in real estate or open-end real estate funds.
Essentially, the AS funds are mutual funds with optional savings features. Investors will make an initial deposit, with additional contributions usually taking the form of automatic debits from their bank accounts.
But investors will be charged a healthy front-end load of 5% on average, plus annual management fees of 0.6% to 0.7% for the privilege of handing over their money.
The funds are intended to be held for 18 years or until age 60, whichever comes first. Investors are locked in for the first 13.5 years, but can switch out for a 5% charge. Afterwards, they can switch funds within the same mutual fund family -- presumably to lower-risk funds -- free of charge.
A number of people in the industry don't think AS plans are anything new. Said David Mark, marketing manager of State Street Global Advisors: "It's nice that they're (money managers) introducing these funds, but there's a consensus that it's nothing more than a marketing gimmick."
Other non-German fund companies with a presence in Germany, such as J.P. Morgan Investment GmbH, don't have any plans to get in on the AS business.
The chief problem with these funds is that the money invested is after-tax income, unlike in retirement plans in the United States or Great Britain. And only if an individual's total annual investment income remains under 6,100 marks ($3,408) for an individual, is the investment income tax-free.
Klaus Esswein, managing director of State Street Global Advisors, said AS plans "are a good first step to make people aware of the necessity of saving for retirement. However, growth will probably be slow as long as there is no tax advantage."
Many industry experts complain the German pension market -- individual or employer-sponsored -- won't develop unless pension contributions are tax-advantaged.
But Finance Ministry officials counter the government could suffer as much as 60 billion marks in lost income per year should tax incentives be created.
However, enthusiasm for the AS funds from domestic companies is substantial. So far, some 24 investment companies have applied with the Bundesaufsichtsamt fur Kreditwesen, the regulator for the investment industry, according to spokesman Manfred Schub, among them Credit Suisse Asset Management Deutschland and Deutscher Investment-Trust Gesellschaft fur Wertpapieranlagen, both based in Frankfurt. The funds are still pending regulatory approval, expected to come through by August, according to the BDI.
Germany's largest mutual fund company, Frankfurt-based DWS Deutsche Gesellschaft fur Wertpapiersparen, with about one-fourth of the market, expects to offer several AS funds.
DWS already has a headstart. A year and a half ago, the firm launched an "Investment Pension" stock fund that offered investors a savings plan much like that in the new AS funds. After five years, DWS cuts the front-end load in half. Some 50,000 accounts already have been set up, according to Eckhard Bergmann, a spokesman at DWS.
"Individuals in Germany still have to learn that they need to save for their retirement on their own," he said. "Our Investment Pension Plan and these AS plans are an important way to make people think about it."