It would have been Karl Marx’s 200th birthday on May 5, and German professionals came together in Frankfurt on the 18th of that month to establish the German Association of Institutional Investors (bii).
Today, institutional investors in Germany, as elsewhere, face tough challenges. Interest rates are low and many have the majority of their portfolios invested in interest-related assets. Like in many other countries, a number of German pension funds are no longer in a position to meet their payment obligations. Alternative investments can address this, but the selection process requires dedicated and well-educated teams that come at a cost.
Professionalisation is the answer. We need dedicated university-level certificates customised for institutional investors; we need institutionalised exchanges between Solvency I and Solvency II investors and, above all, we need more international exchanges of ideas.
bii aims to further such professionalisation in Germany through the exchange of ideas its members have with one another, and with legislators, supervisory authorities and friendly associations. The international exchange of ideas with institutional investors in other countries is also an important priority of bii. We want to meet and learn from representatives of Australian superannuation funds, Canadian and Dutch pension funds, Norwegian state funds, US university endowments and many others.
Co-operation with existing industry bodies is a priority, too. Germany already has a number of highly regarded institutional investor initiatives, such as aba, ABV, GDV and VFPK. bii will work with those bodies in its function as an institutional investment think tank. On one hand, this group includes large insurers that know a great deal about risk management, among others areas of expertise. On the other hand, this group includes family offices, the “speedboats” of institutional investment, which are well-versed in alternative asset classes such as private equity.
The case for the active investor
We also believe German institutions could become more active investors to establish and safeguard strong governance standards at public companies and cast their vote for strong shareholder rights. Most institutional investors are trustees of their beneficiaries; while delegation can be efficient from time to time, it is doubtful it’s acceptable to delegate the main asset management function effectively and thereby potentially forego higher risk-adjusted returns. Defined-contribution schemes were introduced into the German market only this year. German institutional investors can make good use of this additional option and bii wants to support them in creating additional asset management capabilities.
Let’s establish international standards
bii will be reaching out to well-established associations such as Association Française des Investisseurs Institutionnels in France, the Chartered Insurance Institute and others, to work on international standards. Those could cover uniform mandate tender questionnaires, ESG implementation and other current topics.
bii hopes to bring many international players to the table at its inaugural German Institutional Investor Days on May 21-22, 2019, in Leipzig. Meanwhile, we will continue to work hard to create useful formats and resources for our members.
As the late Marx would have said: “Nothing can have value without being an object of utility.”
Thomas A. Jesch is managing board member of the Frankfurt-based German Association of Institutional Investors (bii).