Wealth & Finance International - March 2017

Wealth & Finance International 42 Cost Reduction for Institutional Investors AROS Consulting was founded in 2003 by Mr. Uwe Rieken who still runs the firm today. FAROS provide advice in strategic asset allocation and asset liability management. They also perform asset manager research and selection, and carry out searches for fund administrators (i.e. custodians and/or German KVGs). In addition, FAROS Consulting also provide qualitative asset monitoring. Together with their affiliate FAROS Fiduciary Management, FAROS are able to provide Fiduciary Management services to institutional investors as well. FAROS Fiduciary is licensed and supervised by BaFin and German Bundesbank. “Recently, we have been mandated for manager searches in Emerging Equities and Emerging Corporates – both asset classes with a special view on ESG criteria. Not many consulting firms are able to combine both tasks, exceptional risk-adjusted returns and sustainable investing in emerging markets” explains the firm’s Oliver Draeger when we asked him to give examples of successes the firm has had lately. His own role in the firm concerns responsibility for custodian searches, sustainable investment and cost saving projects for clients. The firm’s staff are highly-qualified Draeger asserts, indeed they are characterised by investment professionals, supported by skilled juniors. “All client projects are run by professionals only” he says. “They have either been working as portfolio managers themselves in previous roles, knowing well about pearls and pitfalls and being responsible for clients’ investment success. Or they have a risk management background with lots of regulatory experience which is increasingly important for our regulated clients like pension fund institutions which form a significant part of our client base” Draeger explains. Looking to the future in 2017 and beyond, in a low interest environ- ment, Draeger stresses it is crucial to find asset strategies which help institutional investors to comply with their needs. He adds that many clients are regulated and must invest in government bonds to a large extent. Developing this point further, Draeger remarks that, “many investors need to think about alternative investments – infrastructure, renewable energy, private equity and/or debt, subordinated bonds. “The challenge is finding a useful balance of liquid and illiquid assets in the clients’ strategic asset allocation and then investing funds in due course” he says before turning his thoughts to the wider industry issues. “With nothing to earn on the fixed income side, asset management costs need to be reduced significantly. There is a great deal of scope for cost reduction. High fees for asset manages and custodians with contracts signed years ago, should be renegotiated. Fees for asset man- agers are more or less transparent. ‘More’ in the US, ‘less’ in continental Europe. Fees for fund administrators like custodians or German KVGs are highly intransparent. There is no official statistic available showing services and fee levels. “FAROS have conducted more than 60 due diligence projects and is one of the very few consulting firms in Germany with an overview of services and pricings offered by custodians and KVGs for German insti- tutional investors. Our proprietary database forms the ground for more transparency regarding price levels. With that asset, we are certain that FAROS are able to save a more than reasonable amount of money for institutional investors.” “Other types of cost show significant room for savings. Even if asset manager fees are more transparent than administration fees, we see constantly declining fees in the past 15 years. Fees which have been negotiated some time ago could have been reasonable at that time, but not necessarily now.” “Another important point is that there is no correlation between the quality of fund managers and the level of management fees. I would suggest that you re-negotiate fees, and if that is not possible, substitute the fund manager” Draeger concludes. Company: FAROS Consulting Name: Oliver Draeger Senior Investment Consultant Email: [email protected] Web Address: www.faros-consulting.de Address: Franklinstr. 56 ZIP code / city: 60486 Frankfurt, Germany Telephone: +49 69 9074 4930 FAROS Consulting is an independent and owner-managed consulting firm for institutional clients in Germany and Austria. Since the launch of the firm in 2003, they have not lost a single client and their work is much valued, reveals the firm’s senior investment consultant Oliver Draeger. F 1702WF11