Segmented "Spezialfonds"

Division into different portfolio segments

In a segmented ''Spezialfonds'' (funds for institutional investors only) the portfolio is split into several segments, that can be managed by different portfolio managers according to their asset category and area of expertise. For example, an investor can award a mandate for US equities to a specialist for US securities and another mandate for emerging markets to an expert in this particular field. Irrespective of the split management responsibilities, uniform reporting across all segments can produce clear and consistent information.

Investment volume of segmented ''Spezialfonds'' on the increase

In recent years, there has been an accelerating trend towards segmented ''Spezialfonds''. Volumes in 2018 increased from approximately EUR 1.100 billion to more than EUR 1.106 billion, marking a new peak.

The growing importance of segmentation underscores the increasing number of individual segments. In 2005 a typical segmented fund would have been made up of 3.5 segments on average, while in 2018 it averaged 4.5 segments. A key reason for this is the clear diversification of pre-existing segmented funds to cover new special investment fields.

The Master KVG 

One option for administering segmented "Spezialfonds" is the concept of Master KVGs. This undertakes the administration of several special assets on behalf of an investor. In most cases, they are "Spezialfonds" for institutional investors. In contrast to a ''normal'' fund investment, the portfolio management can be handled by a variety of experts. As such, managers that are regarded to be the most qualified for individual investment fields from a customer point of view can be selected.

Central administration

Administration is centrally conducted at the Master KVG. It produces uniform reporting. The assets are placed with a custodian bank. This provides a high level of transparency for customers. A comprehensive overview of the Master KVG also facilitates efficient risk control.

Investment decisions, however, are made by the various appointed asset managers. This process can be approached in two different ways: with a so-called advisory mandate, the external portfolio manager simply advises the Master KVG, while with an administrative mandate, the investment decisions are made by the asset manager.

Organisational structure of a Master KVG

For example, an institutional investor can bundle a number of "Spezialfonds" within a Master KVG. As such, 50 per cent may be invested in German equities, 30 per cent in European bonds and 20 per cent in real estate. In this example, three segments are structured whose administration is mandated to different specialised asset managers. However, administration and reporting are carried out uniformly by the same Master KVG. Institutional investors can select the custodian bank, fund company and management which they consider the best.