Pru Targets Germany Through Acquisitions
August 5, 2002
Prudential Financial of Newark, N.J., has purchased a portion of two mutual fund distribution and asset-management companies owned by a German bank in an effort to target German investors. In doing so, analysts said Prudential is one of the first U.S. firms to acquire German fund operations in a market considered by some to be the most opportunity-rich in the world. Analysts expect more firms to follow Prudential's lead.
Prudential's joint venture with Sal. Oppenheim bank will enable the firm to capitalize on a distribution system that the bank has established throughout the country. The bank currently oversees more than $59 billion in assets, $24.9 billion of which is invested in mutual funds.
Both firms hope the deal will help them improve their distribution, asset management and customer-service capabilities in Germany.
Under the deal, Prudential will buy a 50% stake in two Sal. Oppenheim companies, a German-based wholesale distributor called Oppenheim Fonds Trust GmbH, and a Luxembourg-based management and administration firm called Oppenheim Investment Management International SA. The two Sal. Oppenheim units currently administer and distribute, via intermediaries, more than $6.26 billion in mutual funds valued at about 1.5% of the German retail market, Prudential said.
The bank's wholesale and management units will be renamed, and the German funds they distribute will be re-branded, Prudential said. The companies will now be known as Oppenheim Prumerica. Prudential is known as Prumerica throughout Europe.
Oppenheim Prumerica plans to introduce new mutual funds to the German market under the new brand, said Lisa Villareal, a Prudential spokeswoman. All of the funds will be distributed through intermediaries, Villareal said.
Prudential has been operating in Germany for more than 35 years. The company runs a German securities and wealth management business known as Prudential-Bache International, as well as a real estate investment advisory unit known as PRICOA Property PLC.
In addition, Prudential has been offering two fund families in Germany, index funds called the Prumerica Global Investment Matrix Series and a series of equity and income funds called the Prumerica Worldwide Investors Portfolio. Those products may be re-branded under the Oppenheim Prumerica name, Villareal said.
U.S. firms, facing a saturated domestic market, have been clamoring to target European investors. Fund assets on the Continent are expected to double from their current level of $2.71 trillion to $5.42 trillion by 2006, according to the London office of fund researcher Cerulli Associates.
In addition, a recent report from Cerulli said that German assets in retail equity funds are expected to grow even faster to $800 billion by 2006 from $297 billion at the end of 2001, the report said.
Cerulli said the growth in the German fund market is expected to result from open architecture systems where companies sell third-party funds alongside their proprietary products.
The growth is also expected to result from cultural changes. Germans, like other Europeans, are beginning to demand independent investment advice and are becoming increasingly savvy in differentiating fund performance, Cerulli's report said.
Germany is also an opportune market for U.S. firms because banks and other companies there have been developing computer-driven fund distribution platforms, known as supermarkets, which are making it easier for firms to distribute their funds to intermediaries.
Roughly a half-dozen such distribution platforms were built in Germany in the past year, and 18% of net new flows into mutual funds in Germany came through supermarket platforms, according to the Cerulli report.
Sal. Oppenheim is among the firms developing new platforms, said Thomas Marsh, an analyst based in Cerulli's London office. Details about the system are sketchy because Sal. Oppenheim has been reluctant to talk to analysts about it, Marsh said. Sal. Oppenheim officials could not be reached for comment on the system.
Prudential is bucking a trend in buying a stake in a German bank, said Ed Moisson, a spokesman at the London research firm Fitzrovia. German firms have historically been more likely to buy U.S. fund managers than vice versa, he said. In fact, Moisson said his firm had not heard of a single U.S. fund company that has purchased a stake in a German bank.
Conversely, to name just a few examples of European asset managers buying U.S. investment firms, Allianz of Germany bought PIMCO, Zurich Investments of Switzerland bought Scudder, and Unicredito of Italy bought Pioneer Investments, Moisson said.
Prudential's Villareal declined to comment specifically about the European strategies of her firm's competition, but she said that "there are very few in the German market that have partnered with a local entity there."
But Ben Phillips, an analyst also based in Cerulli's London office, said the deals have been uncommon because "there really hasn't been anything to buy." German banks have been holding tightly to their asset management operations, but that is changing, Phillips said. Now, "some of the smaller German banks will start selling their asset management operations."