The Rothschild group has been trading in Germany since the 1760s, but is only now establishing a presence there as an asset manager, with the aim of building a complete business.
EdRAM has no clients served directly out of Germany yet. But it is well prepared to expand eastwards - 28 of 32 funds it manages are already registered in Germany - "more than enough, because all the funds we need for Germany are registered there. In years past, it was quite a lengthy process to structure and register funds in Germany, which was a reason behind having Luxembourg funds as Luxembourg's regulator (CSSF) was fast. But Germany is now fast, too, so there is no problem in registering French-regulated funds."
The focus of EdRAM's range spreads from equities and convertible bonds to asset allocation. All the funds are long-only. Germany is one of 15 countries in which EdRAM products are authorized for distribution. Its structuring used to focus on Luxembourg Sicavs, but it has moved to using French-based structures instead.
"As long as a product is tax transparent, investors no longer worry if it is Luxembourg-domiciled, or coming from other areas," says Hengster.
EdRAM's clients should be prepared for their managers to deviate from benchmarks where they see opportunities, Hengster says. "For our clients - family offices for example - it is important that they be prepared to accept a higher tracking error, and be comfortable with more benchmark-free products, because we are active managers with bold convictions to offer performances that withstand the test of time."
The current climate suggests taking on more risk in portfolios might be important. Hengster says: "In an environment where bond markets are weak, corporate earnings are strong and stock market valuations are still attractive, German investors are becoming increasingly willing to raise their share of investments in stocks. At the same time, we are also seeing a growing interest in asset allocation services.
"What we see now is that the percentages investors generally have in their portfolios of equities is far below what they had decided earlier as a quota, whereas for bonds the actual percentage allocations are much too high, and the highest allocation is occurring in fixed income.
"With the combination of interest rate scenarios, credit risks affecting government securities in various countries and a huge need for better investment returns, the biggest trouble many investors face now is they have to get a certain return - and they will have to put more in equities otherwise they will never achieve goals. But to be able to afford to invest in equities, it is important to have some kind of risk appetite."
For investors who want a safety ‘cushion' built into their equity investments, EdRAM has €1.6bn worth of convertible bond funds with European, global and global emerging markets focus. Hengster says: "It is a good strategy for people who are positive on equities, but who also want some insurance. They may get to make two-thirds or 70% of any upwards movement [in the attached equity], but when equities are going down, they will participate in only one third of that.
"At the moment, there is quite a lot of new issuance activity in Asia, which is helpful because many people started investing years ago in European convertibles, then moved to global, and only now are now moving to EMs."
EdRAM also has various equities products for those wanting unfettered exposure to share markets, including $7.5bn in ten or so developing markets funds.
Hengster says emerging markets will continue to be important in allocation decisions of investors "even if over the next couple of years, we see some sideways movement in these markets, or if they are a bit weak for some time.
"It is no longer a discussion about being invested for a couple of months in China, for example, it is a strategic allocation and most large investors have 3% to 5% of their strategic allocation to EMs."
EdRAM set up its first Asian equity fund, the Saint-Honoré Chine fund, in 1998, and has since grown this to €850m. It also has similarly named funds focused on India, Brazil and global emerging markets.
In April 2006, parent company La Compagnie Financière Edmond de Rothschild became the first private bank in Europe to get a qualified foreign institutional investor licence that allowed it to invest in A and G shares in Shanghai and Shenzhen.
In addition, EdRAM has the Saint Honoré European Synergie fund, with about €1.5bn. It focuses on M&A and restructuring, and has beaten the MSCI Europe index in 2008, 2009, and 2010.
Hengster notes it is also important to have good investor relations, in terms of reporting, client meetings and transparency. Large investors should expect two face-to-face meetings with fund managers each year, plus regular reporting through other channels. "Other clients may be prepared to get updates via video conference, but just writing reports is not enough."