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Federated expands into Germany with joint venture

The demand for mutual funds in Germany is growing and Federated Investors has gained a toe-hold in that market. Federated, the Pittsburgh-based mutual fund firm, has entered into a joint venture agreement with a German insurance company, LVM-Versicherungen, to sell retail mutual funds in Germany and in portions of Austria, Switzerland and Liechtenstein. The joint venture, which will be under the auspices of a new company based in Frankfurt, Federated Asset Management GmbH, also will provide institutional money management services.

Under the terms of the agreement, LVM will provide distribution through more than 2,300 salespeople while Federated will manage assets. The deal calls for Federated and LVM to split profits and expenses equally, said John McGonigle, executive vice president of Federated. LVM already has agreed to invest approximately $900 million in separate accounts which the insurance firm manages, in Federated GmbH. The precise number and nature of the mutual funds to be offered has not been established, McGonigle said.

As of Nov. 15, Federated had approximately $110 billion in assets under management. About $3.6 billion of that is in foreign assets, according to a Federated spokesperson.

McGonigle said the joint venture was a part of Federated's efforts ultimately to increase international assets to as much as 25 percent of its total assets under management.

"Diversification can get you over a lot of bumps in the road," McGonigle said.

Germany promises to be a good place to accumulate assets. The German market for mutual funds is expected to grow rapidly because of pending tax law changes, said Frank Fischer, management director in the Hofhein, Germany office of Standard & Poor's Micropal, a mutual fund tracking and research firm. Those changes ultimately should provide the same tax treatment for mutual funds that a life insurance/investment product currently popular in Germany has, Fischer said. The superior returns which the mutual funds provide will make them very attractive, Fischer said. The fact that there is a shortfall in the national retirement system should further increase the popularity of mutual funds, Fischer said.

"I envision a mutual fund boom," Fischer said. Mutual funds are "just superior to all the other products around," he said.

U.S. mutual fund companies such as Fidelity, Scudder Kemper Investments, Franklin Templeton and Pioneer already have built a presence in Germany.