German Investment Boutique Bucks Global Trend as Assets Boom

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As active asset managers across the globe struggle with outflows, a little-known Cologne boutique is bucking the trend.

Flossbach von Storch AG, started more than two decades ago by two former Goldman Sachs Group Inc. private bankers, has more than doubled assets over the past four years by offering essentially one strategy -- multi-asset funds that invest across markets such as bonds, equities and precious metals. Last year, customers added 1.7 billion euros ($1.9 billion) in net new money to the company’s open-ended retail funds, with the flagship offering attracting cash every month.

German Investment Boutique Bucks Global Trend as Assets Boom

"If you want to sustain and increase your wealth over the long run, you should divide your money between different asset classes, securities and currencies," Bert Flossbach, who co-founded the company with Kurt von Storch, said in an interview.

Flossbach von Storch has been one of the few active managers able to weather a broad investor flight to cheaper index funds, helping the firm grow to 38 billion euros in assets. Started initially as a wealth manager, it has been able to parlay its expertise in multi-asset strategies into a growing retail business that’s taking market share from much larger players such as Deutsche Bank AG’s asset management arm DWS Group.

The company’s flagship offering, the 14 billion-euro Multiple Opportunities fund, has beaten 92 percent of similar funds over the past five years, with an average annual return of 6.6 percent. That track record helped it pull in about 500 million euros in new money last year, even as the fund declined about 5 percent in a challenging market.

The fund “has a clear edge and has a clear investment process, which is rigorously implemented,” said Ali Masarwah, an analyst at Morningstar Inc.

Holding Cash

The Multiple Opportunities fund, which is run by Flossbach, can invest up to 100 percent in equities, but has remained below that threshold. The ratio was 84 percent at its peak, and is now 67 percent. Other retail funds offered by the firm have lower risk profiles, though they follow the same multi-asset approach.

“After the stock price increases at the beginning of the year, I took my foot off the gas and realized some gains,” Flossbach said about the equity allocation in his main fund.

The fund’s largest stock holdings are Philip Morris International Inc., Nestle SA and Berkshire Hathaway Inc., each with a share of approximately 5 percent of the total portfolio. Other investments include precious metals and fixed income, while cash holdings stand at approximately 17 percent.

“This gives us enough room to buy during the next stock market correction,” said Flossbach.

German Investment Boutique Bucks Global Trend as Assets Boom

Flossbach and von Storch started the firm from scratch, opening for business in 1999. They offered the first retail funds the same year, but without a broad distribution network. The multi-asset funds were started several years later, with the flagship fund’s inception in 2007. Today, the retail funds account for about 60 percent of assets.

The founders met when they were both studying at the University of Cologne, and later worked together at Goldman Sachs in wealth management. The company is still owned by the founders and some employees.

Investing Guidelines

Of the 200 employees at the company, around 30 are involved in the actual investment process, which revolves around five guidelines and includes a focus on quality investments. Once a month, all investment professionals at the firm come together to discuss key issues that could fundamentally affect the firm’s long-term investment strategy, such as protectionism, populism or the "seemingly endless low interest rates.”

“However, only the fund manager is the one who ultimately decides what is being bought or sold,” said Flossbach. “At some multi asset funds, there is still a stock guy, a bonds guy, a precious metal guy. Responsibility is being pushed back and forth. You can’t do that.”

For investors, getting into the fund doesn’t come cheap. The flagship fund charges a management fee of 1.53 percent, a performance fee of up to 10 percent (high-water mark), and has a front load of as much as 5 percent.

“What’s not so great about the fund are the high expenses and the performance fee, which isn’t very investor-friendly,” said Morningstar’s Masarwah.

The fees may explain why the founders have no interest in becoming a takeover target in the rapidly consolidating asset management world.

“A sale of the company is out of the question for us,” said Flossbach.

Original Story:
Flossbach von Storch erhöht Assets auf 38 Mrd € gegen den Trend

Reporter on the original story: Stephan Kahl in Frankfurt at skahl@bloomberg.net

Editors responsible for the original story: Christian Baumgaertel at cbaumgaertel@bloomberg.net, ;Erhard Krasny at ekrasny@bloomberg.net, Stephan Kahl

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