Christof Kessler and Anton Buchhart from Barmenia Gothaer AM, Part 1: “We clearly state who fits with us and who doesn’t.”

Mr. Buchhart, Mr. Kessler, the past few years have been very challenging in many ways—geopolitics, interest rates, the coronavirus. What was your first thought when you both learned that your employers wanted to merge?

Christof Kessler : When the merger plans were announced, the reasons for the merger with Barmenia were explained very convincingly. The motivation behind it was clear from the start and welcomed by all sides. There are always two questions. How you do it was one thing. Whether you do it was undisputed. Barmenia was positioned to complement Gothaer.

Anton Buchhart : In terms of the timeline, that was also one of the major success factors. When we were shown the business areas, the breakdown of customer groups and divisions, and we overlaid them with our own, everyone quickly saw that there was hardly any overlap. My first thought was that this could have been thought of earlier.

Buchhart: There were hardly any major areas of conflict. Gothaer focused on property insurance, serving small and medium-sized businesses and corporate clients. Barmenia served almost exclusively private clients and was very strong in health insurance.

Kessler : The solution was obvious. Barmenia Leben will merge into Gothaer Leben. Barmenia is the brand in the health insurance sector, and Gothaer is the brand in the property insurance sector for business customers; that was also undisputed. The merger was good and long overdue for another reason.

Which one do you mean?

Kessler: We've repeatedly investigated what a significant advance in IT would cost us. Such advances are very costly. This quickly raises the question of whether we can even afford them. Insurers across the board operate systems that are, to put it mildly, outdated.

This cannot continue. To afford modernization, large budgets are needed, relative to the size of the membership fees. This merger is perfect for this. We can now access a significant three-digit million-euro sum over the coming years. Furthermore, it's not enough to simply make this investment; it must also be brought to life.

Buchhart : It's similar with capital investments. Larger investments are now flowing into Barmenia Gothaer Asset Management. As Barmenia alone, we probably wouldn't have done it, at least not on this scale. I don't know if Gothaer would have invested so much money on its own either.

What else has changed as a result of the merger?

Kessler: We're now among the top 10 asset managers in the insurance industry in Germany in terms of size. What I didn't expect was the difference in recruiting. We're now receiving applications from people who wouldn't have applied before the merger. We're attracting different talent. That's something special, and we're very pleased.

Is it so difficult to get good staff?

When Anton Buchhart and I entered the profession, asset management was a top industry. Today's career entrants no longer see it that way. Sure, there are some people with conviction who still absolutely want to go into asset management because, for example, sustainability is important to them. But generally speaking, asset management is no longer the first choice for a top-level master's degree candidate. Those days are over. A top-level candidate from a good university is now more likely to choose a management consultancy or the AI ​​industry.

Buchhart: When I entered asset management in the early 2000s, the dot-com crisis was raging. It quickly became clear that the financial industry wasn't always fun. I was in risk management, which was a sought-after job back then. The financial crisis hit in 2007. Friends sometimes commented on my work in the financial industry in a strange or even critical manner. The reputation of the financial industry had suffered, had suffered serious damage, and this naturally also affected newcomers to the profession.

Kessler: In addition, a good graduate in consulting, auditing, risk assessment, and at commercial law firms can already earn a six-figure salary as a career entry. That's not usually the case with us.

Buchhart: In the financial sector, we had comparatively very good earners for many years. Then came the sectors mentioned by Christof Kessler. Then there are engineering, biotech, IT, and tech companies that can pay very high salaries and offer really cool career fields. We need to offer young people jobs with creative potential. No top applicant wants 80 percent routine work.

Kessler: It's a war for talent. It's been going on in London for a long time, and now it's arrived in Germany as well. What's also changed compared to the past is that we have more competition for the same candidates.

Are you continually developing unique selling points to be more attractive to talent?

Kessler: Absolutely, it's not just about salary. We can't simply pay much more than the industry average. Location is an important factor, for example. Diversity has also been a priority for us for a long time. We have employees from all continents and a diverse, gender-balanced team. We have a modern approach and want to continue to push this. We approach universities and look for student interns, preferably through other student interns. We clearly state which topics we deal with and what approaches they offer for a good master's thesis. We work diligently and are rewarded with good applications.

What do you expect from the working students?

Kessler: You should be proficient in various programs like Python and be interested in AI. It's no longer enough to simply read and classify balance sheet data. Hundreds of issuers must be processed, the AI ​​does the data processing, and then the analyst or portfolio manager's brilliance begins with creating an optimal portfolio.

Surely your ESG approach is also a magnet for talent?

Kessler: Yes, that's certainly true. There are certainly young people who don't care about ESG, environmental protection, and all that, or who question the point of it all. But that's a disqualifying factor for us, too. They don't come to us. We don't hide our feelings. We clearly state who fits with us and who doesn't. Barmenia Gothaer is currently developing a joint future strategy. Since the topic was already important to both insurers before the merger, ESG will continue to play a central role in our strategy for the foreseeable future.

However, ESG is also associated with an enormous amount of bureaucracy…

Buchhart: I think everyone, including politicians, has realized by now that reporting has gotten hopelessly out of hand. Moreover, it doesn't add much value to the transformation of the real economy. And that was the actual goal. As an investor, I want to support precisely that. We collect endless amounts of data, and no one really knows what to do with it. Currently, there are 70 KPIs, or key performance indicators.

There shouldn't be that many of them. I hope we end up with a maximum of 15. The depth of reporting should also be reduced. This will work without causing any disadvantages. Furthermore, sustainability reporting must be highly automated, including in capital investments. Doing this manually is illusory and frustrating for highly qualified staff.

What else should be done?

Buchhart: Smaller companies should be exempt from reporting obligations, or only be required to provide a reduced amount of data. If this happens, however, there is a sticking point. We remain obligated to report. If small and medium-sized companies do not report, or only report to a reduced extent, we will not receive any data from them. This creates data gaps for our own reporting. Nevertheless, the real transformation should take priority over reports about it.

Kessler: That's exactly what raises my doubts. Let's take the supply chain law. Let me give you an example: An airline has seats manufactured. This company, with 6,000 employees, then commissions another company with 500 employees to procure the leather. The third company, with 100 employees, comes in to prepare the leather so that it can be processed. How does the airline get all the data? Of course, those in charge will tell the small business that it has to provide the data. If this company can't or won't do so and claims that it is exempt from reporting requirements, it won't get the contract.

These are points that have been obvious for five years, in some cases. Are all those years lost?

Kessler: I'd like to put it another way. We have to stop constantly resisting everything. We simply have to get better. Anton Buchhart and I talk a lot about pre-seed companies in this context. If the people in charge are clever, they build the company from the beginning in such a way that they always have all the information.

This is possible these days if you digitize from the start and incorporate AI. We're currently looking for someone with in-depth AI knowledge in the sustainability department. You can't hire young, talented people and then tell them to manually dig up the data. We need to empower new employees to do their data work digitally and automatically.

Buchhart : If an employee can't do that with us, they won't even come to us. If we tell an applicant that 70 percent of their work involves working through reports, we'll lose them as a potential employee.

Kessler: And we, the industry and regulators, need to provide smaller companies with software so they can collect the data. Currently, however, we're investing more energy in complaining than in what really matters: the successful integration of sustainability, efficiency, and productivity.

What role does AI now play in your investments?

Kessler: Before we get to true artificial intelligence, with learning processes and everything that goes with it, there's automation. All of this could have been programmed 20 years ago, but it wouldn't have been efficient. At the turn of the millennium, neural networks already existed in the currency sector. Unfortunately, the computers collapsed, and that was with twelve currency pairs. The network, the capacity of the computers, the programming languages, the overall level had to be higher. Is our automation conceptually an AI? No.

Let me give you an example: We've integrated 400 corporate bond issuers into our system. This can be done with Excel, or we can use Python, and the whole thing populates itself. Instead of employees poring over reports, the program searches for the necessary data. Then I tell the program which buy and sell recommendations the data has led to over the past ten years. I train the program and get pretty close to AI. Then I need good employees who can monitor all of this.

Buchhart: Rule-based investment tools have existed for decades. Today, the infrastructure exists, and we can now gradually teach computers to think and act like a portfolio manager, but with the necessary critical distance.

You're both very open to new technologies. Is there anything that was better when you were starting out?

Kessler: I don't miss anything from the good old days, the pre-smartphone world. It's not exciting to download files one by one. That's totally boring. What's exciting is working with programs in real time.

Buchhart: The entire technological evolution is leading to more creative freedom. When I started in risk management, data and system maintenance took up most of my working time. There was much less time for independent thinking and developing improvement concepts.

When it comes to ethically sustainable investments, the arms industry has so far been sidelined by many investors. Now geopolitics is changing, and Europe needs to become more independent. How do you proceed?

Kessler: We're investing in armaments again. We had a very difficult time with it and had ruled out the area. Then came February 24, 2022, when Russia invaded Ukraine. After that, we had very controversial discussions. The reason for these discussions is undoubtedly tragic, but they lead to very enriching conversations. I don't want to hire anyone who is indifferent to the issue of armaments. No one should be indifferent to securing peace. We invest in armaments—and I'm being very clear about this—not because we want to make profits. We invest because we are aware of geopolitical realities.

Buchhart: The defense sector is currently a major focus of the financial world. The performance of some stocks is currently outstanding. But compared to, say, the Magnificent Seven, their share in an index like the S&P 500 is relatively small. We're not chasing short-term investment trends; we want diversified portfolios.

Kessler: We regularly review our sustainability criteria, including our ethical ones. If you don't, you'll lose ground in pharmaceuticals, defense, infrastructure—in fact, in all asset classes.

Donald Trump is once again president of the United States. What impact does this have on your investments there? Gothaer has previously classified countries according to a 5-tier program, from non-investable (tier 5) to safe investment (tier 1)…

Kessler: We're having intensive internal discussions about the tiered program as a whole and the USA. When we launched the program, the USA was a three-minus-minus. Many factors play a role, such as the death penalty. Now we have to reevaluate; disturbing news from the USA comes in almost daily. To reach a conclusion in our discussions, we have a set of 20 fixed indicators. But the bottom line is that no institutional investor will stand up and say they're banishing the USA from their portfolio. We also invest in municipal bonds, i.e., American municipal bonds. Some US states are excluded from this. Interestingly, these exclusion criteria were recommended to us by our US third-party manager.

Buchhart: As a portfolio manager, you have to view everything the Trump administration is currently coming up with with a certain degree of perspective. US stock markets have been outperforming European ones for years. Now there's a small countermovement, with some writing off the US market. That's nonsense. For example, the US tech industry, even beyond Google, Apple, and the like, is extremely productive and innovative. The result is gigantic profits. How often has Nvidia been described as overvalued? And yet the next quarter always follows with a new record result. We'll remain invested as long as it makes economic sense and is ethically justifiable.

You can read the second part of the interview starting May 15. In it, Christof Kessler and Anton Buchhart discuss, among other things, the wave of consolidation in the asset management industry, their strategic asset allocation, and Solvency II.

About the interviewees

Christof Kessler has been CEO of what is now Barmenia Gothaer Asset Management since 2010. Before joining Gothaer, Kessler held, among other positions, 15 years in a leading position at Sal. Oppenheim (now Deutsche Oppenheim Family Office ). On the day of the interview, it was officially announced that he will retire this summer. He will be replaced by Gerrit Heine from Munich Re.

Anton Buchhart is a member of the Board of Management of Barmenia Gothaer Asset Management. He has headed Barmenia 's investment activities since 2012. Prior to joining Barmenia, Buchhart held senior positions at DWS , Sal. Oppenheim, and Meag .