GERMANY - In a significant blow to Bundesbank, German federal states are considering outsourcing pension assets worth billions of euros to external managers.
The German central bank has traditionally managed the assets for federal state pension reserves and other federal state pension funds.
Bavaria and Sachsen-Anhalt are two of the states, or Bundesländer, moving to legislate for the full funding of their pension obligations to civil servants.
The liabilities of the 16 federal states run into hundreds of billions.
Such money would have historically been managed by Bundesbank, however the states are now eyeing private management.
A spokesperson for the Bavarian ministry of finance said the initial sum of tens of millions in the first year would grow exponentially.
He refused to comment on specifics, but confirmed outsourcing to private managers was one option being considered.
Thomas Huth director, pension solutions, Deutsche Asset Management/DWS Investment, commented: “So far the states have used the Bundesbank, simply because they are close and familiar. Bundesbank is often considered first, and now it is up to us [the asset managers] to show we can add value.”
Sachsen-Anhalt is said to be moving in the same direction, albeit at a slower pace.
Commenting on the potential new business, Klaus Esswien, managing director, State Street Global Advisors – Germany, said: “It is a plan for the future but is not something the asset management industry can generate revenues from within the next few years.”
Huth conceded winning over the federal states would be a challenge, because professional managers would have to take on an institution, however he was confident the asset management industry would win out: “Competition with the central bank is always tough.”
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