Asset managers cannot seem to get enough of Germany. At the beginning of last month The Hartford, the 198-year-old US financial services group, announced it would enter the region to sell variable annuities in the first quarter of 2009, while Goldman Sachs Asset Management last week unveiled its own German push.

GSAM has poached Fidelity’s Markus Weis to fill the new role of German fund distribution head. The US firm followed this up last week with the appointment of Fortis Investments’ Henning Stein as head of German third-party marketing.

Gartmore, meanwhile, has repositioned its German offering with the appointment of Deutsche Bank’s Bettina Hoenigmann as head of business development.

These moves come despite the influential Munich-based Ifo index showing that business expectations in Germany are at their worst levels in 15 years, with business confidence at its lowest level in three years.

Hypo Real Estate, one of Germany’s biggest lenders, had to be rescued by its peers and the government to avoid a €50bn (£39bn, $69bn) liquidity crisis last week.

But Lipper Feri statistics show that, while most European countries suffered heavy mutual fund outflows during the first half of this year, Germany saw inflows.

In the three months to the end of June, for example, the country saw positive flows of €8.1bn.

The Italian mutual fund industry, meanwhile, saw net outflows of €13.5bn in July while Spanish funds shed €7.3bn in June.

“Most of the major markets are in the doldrums,” Bella Caridade-Ferreira, publisher at Lipper Feri, said during the summer. “It’s really only Germany that is speeding ahead.”

“Lots of market participants are trying to get a piece of the Germany cake at the moment,” adds Karl-Hermann Hammel at Allianz Global Investors.

According to an Ignites Europe poll, 33 per cent of asset managers plan to make moves in Germany with another 33 per cent admitting they are keeping a close eye on the market. The other 33 per cent say the opportunities are overblown.

The Hartford disagrees. “Germany’s population is ageing, with one in three people projected to be age 60 or older by 2025, and millions of people leaving the workforce for retirement.

“As a result, cheques from the country’s generous public pension system are shrinking and new incentives will soon be available to help Germans shoulder more of their own financial security in retirement.”

The company’s own research shows three in four Germans worry about having enough money to enjoy a comfortable retirement, while six in 10 believe they are most responsible for providing their own income in retirement.

Only 25 per cent now see the government as being most responsible for their retirement security.

Marc Lieberman, president and chief executive of Hartford Life, the group’s European arm, says: “The timing of our entry is ideal because it is expected that variable annuities and other insurance products will become more attractive to German consumers when a new flat rate tax is introduced in 2009.”

Those beliefs, he adds, “are expected to prompt many Germans to shift money from traditional savings accounts or cash into equity-oriented investments to generate greater long-term returns as they prepare financially for retirement”.

German households have $5,800bn in assets, $2,770bn of which is in cash.

Under the new tax changes, to be introduced on January 1 2009, capital gains on shares, bonds, certificates and investment funds in Germany will be taxed at a rate of 25 per cent.

With investors seeking to enter the market before the new capital gains tax measures come into force, providers have been looking to pick up business. It is estimated that up to €200bn will be moved from one vehicle to another this year.

Murat Ünal, chief executive of Funds@Work, says: “What companies are doing now is moving into fund of funds and similar structures such as super funds, which grant a tax shelter.”

“The trades within a fund are not subject to withholding tax so they are moving existing fund-based portfolios into fund of fund

According to data from the BVI, the German investment manager association, there were 662 funds of funds in Germany at the end of May 2008 with more than €55bn in assets under management. Mr Ünal believes that by the end of the year, the figure could increase to about 900 to 1,000.

Chris Newlands is editor of Ignites Europe, a Financial Times publication, where this article first appeared

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