When absolute returns meet absolute thinking

“Klaus Kaldemorgen is the incarnation of a fund manager. He knows what is driving the markets, and is also one of the most influential shareholder activists in corporate Germany.” So says Thomas Richter, managing director at BVI Bundesverband Investment und Asset Management, about his former DWS Investments colleague.

It is not a surprise, given such a ‘character reference’, that Kaldemorgen has stepped down from being speaker of the board to concentrate wholly on managing money.

Kaldemorgen runs €9bn in two traditional global equity funds: DWS Akkumula and DWS Vermögensbildungsfonds I.

Investors in Germany and Switzerland have asked him to manage absolute return money for them.

One Swiss allocator says: “There are managers who should run unconstrained money, but do not. Kaldemorgen is one of these.”

DWS is rectifying this by launching an absolute return fund, with Kaldemorgen at its helm. The asset manager is expecting to register the fund with the regulator in Luxembourg in April, then to seek approval to market it in other countries thereafter.

To devote his full energy to investing, he asked Kevin Parker, global head of Deutsche Asset Management, to release him from the role he held since 2006. Wolfgang Matis is taking on his duties.

In running his new fund, Kaldemorgen will be backed by a six-member team, with input also from other experts at DWS, such as bond analysts and specialists in emerging markets.

The portfolio’s launch is expected to be warmly welcomed by investors, but it is just as eagerly awaited by Kaldemorgen’s peers in the broader industry. On the one hand, naturally, rivals want to see how he does.

Kaldemorgen says: “The first three to six months are the most critical period, and the biggest risk is reputational because these funds depend on confidence and trust. I do not think the period during which you have to get the confidence and trust of investors is very long.”

But the industry will also watch to see how much appetite Europeans have generally for the concept of ‘absolute return’. They bought net €22.9bn of such funds last year, according to Lipper. The data provider predicts this mode of investing will surpass emerging markets later in 2011 as the primary investment theme in Europe.

However, it adds: “The concept ‘absolute return’ remains tainted in many countries for the perceived failure of the strategy before the financial crisis.”

Kaldemorgen says: “In Germany, balanced or absolute return funds are in demand. But if you call them hedge funds, people will be scared. The distribution side does not want to sell products described in that way. However, hedge funds are a major opportunity for our industry.”

Following a decade in which global equities suffered two sharp plunges and left investors nursing losses, Kaldemorgen says absolute return might be one method of packaging equities in such a way investors are attracted to them again.

He says: “There is a cultural problem here – German investors are not equity-minded. They feel the risk in the equity markets is higher than their available risk budgets.”


David Walker

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