Union Investment allows itself maximum flexibility

The PrivatFonds structure gives Union Investment the room to invest directly in
markets, not just via funds, its multi-asset team leader explains.

When shares fall by 11% in a month, as Europe’s did in August, it helps to have taken a different approach working for clients.

The recently established multi-asset team at Union Investment, headed by Thomas Romig (pictured), takes a “differentiated approach”, even to the level of individual customers.

Union has about 400,000 clients, together entrusting more than €7bn assets to its multi-asset management team. Romig and his team select managers and do portfolio construction for 17 products encompassing three different basic investment strategies. Starting from portfolio insurance strategies, they span static or volatility-driven asset allocation strategies, to strategies with complete flexibility.

One primary way Union has done things differently since July 2010 is for its multi-asset management team to make full use of the PrivatFonds structure.

PrivatFonds are similar, though not identical, to the “segregated account” structure, generally more familiar to institutional investors such as pensions and insurance companies. Union chooses to use the structure also for private clients, to whom it distributes primarily via around 1,200 regional bank partners. It also manages some family office mandates, and leads Germany’s market in types of pensions.Romig says PrivatFonds are mainly interesting for individuals with between €50,000 and €250,000. Some estimates put this community’s aggregate investable wealth at more than €100bn. Union’s PrivatFonds already hold about €1.2bn of the total €7bn assets the firm has in private wealth products.

Their launching formed part of the broadening of Union’s asset management division in other ways, too. It also launched new tranches of guaranteed funds in June, bringing in €804m and cementing Union Investment’s leading position in Germany for such products.

Changing structures

The sharp growth of its PrivatFonds programme shows investors’ appetite for more differentiated approaches to investing. Since the 2008 crisis, many are no longer satisfied with the “stock standard” funds of funds structure that prevailed in the industry pre-market crisis.

Union’s PrivatFonds are not tied to traditional benchmarks. They focus instead on the risk appetite and tolerance of separate clients. Romig explains: “With PrivatFonds, we can take any asset instrument, mutual funds, derivatives, certificates and we are active on a currency basis.

“With the concept of the PrivatFonds, we look first for interesting investment ideas in multiple asset classes, and then look for the best instrument to implement the idea into our portfolios.”

The breadth of the team’s thinking is shown by recent investments in puts and calls, ETFs, certificates and funds.

This helped products, says Romig. “For our PrivatFonds Flexible pro, which can have a risk exposure comparable to an aggressive equity product – looking at the short-term performance in the downturn of August, we were able to limit the risks and the negative performance in a tough environment.”

Factors that play a role in his decision about the investment instrument include the parameters surrounding final returns (expense ratios, bid-ask spreads, taxes and fees), liquidity (OTC or exchange-traded, for pricing frequency) and risks, such as counterparties.

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