Mark Twain could just as easily have been writing about Frankfurt when he famously insisted that ‘rumors of my demise have been greatly exaggerated.’ Thousands of job cuts at the big city banks have contributed to a growing sense of gloom in Germany’s financial center over the past few years. The mood was not improved by Frankfurt-based Deutsche Börse’s failed attempt to take over the London Stock Exchange (LSE) and the subsequent ousting of CEO Werner Seifert and supervisory board chairman Rolf Breuer.
If Frankfurt was ever really trying to take on London as Europe’s financial center (as some have argued), it has failed. But that should not detract from the pivotal role Frankfurt continues to play as a major international investment hub. ‘It’s never going to be like London or New York,’ says David Shirreff, The Economist’s German business correspondent, from his Frankfurt office. ‘But Frankfurt is always going to serve the German economy, and that’s going to grow rather than decline.’
As well as serving the German economy, Frankfurt is a significant source of capital for investment around the world. The total value of equities under management in the city is $266 bn, according to calculations by market intelligence firm CapitalBridge. Of that sum, only $72 bn is invested in domestic equity, so the vast majority of funds are tied up in foreign stocks.
After London, Frankfurt is the second-biggest European holder of US equity with $33 bn invested in the New York markets – so Frankfurt remains an important location for foreign companies hoping to broaden their shareholder base.
Show me the money
Frankfurt is home to a number of big funds, including DWS Investments and Deka Investment Management, two of Europe’s biggest institutions with $47 bn and $36 bn under management, respectively. These funds use a variety of growth and value models, with no specific Frankfurt investment strategy.
‘Investment style is dependent on the investment company, not the location,’ explains Jörg Peters, founding partner of consultancy PvF Investor Relations. ‘The most important thing we’ve learned from the perception studies we do is the difference between analysts and institutional investors: analysts are much more concerned with the short and medium term. Investors are looking for a long-term story.’
Whereas in the UK almost all the large institutional investors are situated in London, Frankfurt does not hold a monopoly on big German investors. ‘In Germany you also have to travel around because, while the analysts and banks are mostly located in Frankfurt, the investors are spread all over western Germany,’ says Peters. ‘You find investors in Hamburg, around Cologne and Düsseldorf and in Stuttgart and Munich, as well as in Frankfurt.’
As already mentioned, many Frankfurt institutions take a truly international approach to investment. At Deka, for example, only about 30 percent of equities under management are German. And as explained by Reinhard Pfingsten, the firm’s head of equities, Deka is happy to look at companies all over the world. ‘We are an international asset manager, not a German one,’ he points out. ‘We have an international research department that is truly international in terms of the people, their know-how and the languages spoken.’
At present, Pfingsten, who manages e20 bn ($24 bn) worth of funds, is keen on Japan, but he accepts that the international outlook is constantly shifting. ‘In terms of markets, we’re most bullish for Japanese equities followed by European and then US,’ he says. ‘But we’ve started to decrease our underweight position in the US and decrease our overweight in Europe.’
While most Frankfurt investors are indeed willing to invest in international firms, the reality is that many have had little exposure to foreign companies. ‘Most large US and British companies are not as well known as German companies, even at very large investors like DWS or Deka,’ explains Peters. ‘So it’s a big opportunity for these companies to come here and present themselves.’
Steve Yanor, senior managing director at the Global Consulting Group (GCG), agrees, arguing that Frankfurt offers good prospects for those willing to put the time and effort in. He has worked on a number of Frankfurt roadshows himself. ‘Frankfurt is a key destination for any offering and frequently serves as the backbone for any sizable transaction,’ he comments. ‘It is often the first city an issuer will visit during a roadshow and many deals will seek an entire day in Frankfurt.’
But Shirreff takes a less bullish view of the Frankfurt market. He thinks one of the main drawbacks for foreign companies is what he terms the ‘natural risk aversion’ of German investors. ‘There aren’t huge pools of institutional money here wanting to get into private equity or hedge funds,’ he warns. ‘For a roadshow here you’re not likely to get much buzz unless people know the company already.’
Given the greater challenges for non-household-name foreign issuers in Frankfurt, it is important to prepare for a unique audience. ‘Relative to their European counterparts, Frankfurt investors rarely show emotion and are non-confrontational during Q&A sessions,’ says Yanor.
Discussion not presentation
But that doesn’t mean investors have non-specific preferences for what they like to see from companies. Pfingsten emphasizes that Deka is interested in holding discussions with companies rather than just watching presentations. ‘Companies should try to reduce the marketing element of roadshow meetings,’ he advises. ‘We know they want to sell their stock but sometimes it is too transparent that they just want to offload shares, and they should really try to avoid that.’
None of this undermines how important face-to-face contact is for buy-side institutions. ‘We are a fundamental manager, creating fundamental research that we think is superior to that of our competitors and the market,’ says Pfingsten. ‘To bring our model into clear view we need to know about companies’ expectations: management, sales, revenues, product mix, competitors, and so on. That’s why we need one-on-ones.’ These meetings, Pfingsten argues, are the best chance foreign companies have to make clear to potential investors what they do differently from their competitors.
If companies need to lose some of their sales pitch, they also need to spend more time targeting investors. ‘You need to define very clearly, to the broker or agency you are doing the roadshow with, what sort of investor you are looking for,’ says Peters. ‘It’s embarrassing for us to see that some of the banks in Germany are not able to organize a quality roadshow for foreign or even German companies because they are not listening and not really looking at the needs of their customers.’
When in Frankfurt…
Germany is famed for punctuality and you’re expected to turn up to meetings on time. This can be a particular problem given the preference in Frankfurt for early meetings – it is not unusual to have a 7 am investor breakfast.
With such an early start, it is probably sensible to fly in the night before a meeting. But be careful to resist the temptation to sample the local delicacy, handkäse mit musik, a round cheese soaked in vinegar and served with a flatulence-inducing onion relish. The sort of ‘musik’ the latter is famed for producing is unlikely to go down too well with potential investors first thing in the morning.
Most commercial flights come into the Frankfurt-am-Main airport, a 20-minute drive from the city center, where the majority of institutional investors are located. Those flying in by private aircraft or on low-cost operator Ryanair arrive at the Frankfurt-Hahn airport, which is more than an hour’s drive away, even in light traffic.
As with any major city, Frankfurt’s roads get jammed during rush hour but the financial heart of the city is so compact that you can easily walk between meetings. ‘The big advantage of Frankfurt is that it is such a small city compared with London or Paris,’ Peters observes. ‘You can do six or seven one-on-ones and you don’t lose time traveling around. It’s very efficient to do a roadshow here.’
| Where to present | Where to eat | What to see |
| Hotel Hessischer Hof Friedrich-Ebert-Anlage 40 +49 69 75400 Modest on the outside with impressive interior |
Weisse Rose Erno’s Bistro Liebigstrasse 15 +49 69 721997 |
Städelsches Kunstinstitut One of Europe’s best art collections including old masters as well as impressionists |
| Steinberger Frankfurter Hof Am Kaiserplatz +49 69 21502 One of the city’s grandest hotels |
Tiger-Restaurant Heiligkreuzgasse 16-20 +49 69 920 0220 Fancy international fare at one of Frankfurt’s finest |
Altstadt Take a walk through Frankfurt’s reconstructed medieval center |
