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General economic environment

General economic development

The German economy benefited in 2005 also from a positive international environment. Due to exports, overall economic production was on the 2004 level over the year as a whole after adjustment for working-day variation. Due to some distortion caused by the different number of working days, the actual rise in the gross domestic product was, at 0.9%, less than last year (1.6%).

Prices in Germany increased by 2.0%. This is the highest annual rate of inflation since 2001. In addition to the increases in duty on tobacco and vehicle license tax, the energy prices were principally responsible for the increase in prices.

Private consumption stagnated at the level of the previous year. Principally due to the increase in energy prices and the continued poor development on the employment market, private consumption continued to be the weak link in terms of economic development. Dynamic foreign trade was almost solely responsible for the growth in the economy. As part of the expansion of world trade, export levels increased in real terms by 6.2%.

Expansion of the global economy and equity markets

The global economy continues to expand despite the oil price developments and, according to estimates from the International Monetary Fund (IMF), will grow by 4.3% in 2005. Growth drivers for the global economy are the continued dynamism of China (IMF estimate: + 9%) and the robust development in the USA (IMF estimate: + 3.5%).

In the reporting year, the US Federal Reserve Bank continued its policy of small interest rate steps due to the continued expansive monetary and financial policies in the USA. The Federal Funds rate increased in eight steps, each by 0.25%, from 2.25% to 4.25%. The European Central Bank on the other hand only raised the main refinancing rate for the Eurozone once during the course of the year, from 2% to 2.25% on December 6, 2005.

The equity markets developed positively in 2005. This was reflected in an increase in the leading global indices. Especially the company's good earnings situation and overall economic growth led to rises in stock exchange prices. The German stock market index DAX finished 2005 with an increase of 27% at 5,408 points (XETRA closing rate). The DAX recorded its lowest value on April 28, 2005 with 4,178.10 points and a minus of almost 0.6% compared with the beginning of the year. It reached its highest point on December 29, 2005 with 5,458.58 points and a plus of around 30%.

In 2005, the euro recorded a decline of 1.6% against the most important currencies. Particularly worthy of note is the decline against the dollar. At the start of 2006, the euro was 2.8% below the average level of 2005.

Development of the industry

Market for closed-end investment models just short of last year's result The
market for closed-end funds in Germany, with EUR 12.30 billion, fell just short of its record achieved in 2004. Experts regard the reasons for the decline, which was a good 4%, as the abolition of the remaining tax advantages and the introduction of prospectus vetting by the Federal Financial Supervisory Authority (BaFin), which slowed down ongoing sales in July 2005

Global assets of the target group grows
Global economic growth and the increasing capitalisation of the markets are the most important factors for the growth of the global assets of the high net worth individuals (HNWIs) by 8.2% to USD 30.8 trillion in 2004. This is the conclusion of the authors of the World Wealth Report 2005, published in June 2005. The growth clearly increased once again in comparison to the 7.7% of the previous period. With an increase of almost 10%, the number of HNWIs went up particularly in North America where there were 2.7 million dollar millionaires last year against the 2.6 million HNWIs in Europe. For the coming years, the experts expect an average annual growth rate of global assets of 6.5%. By 2009, this is expected to reach USD 42.2 trillion.

After a consolidation phase of the asset structure of prosperous private customers, both growing equity markets and low interest rates ensured renewed interest in equities and a further increase in the demand for yield-oriented alternative investments. The momentum of the market for closed-end funds in 2005 documented the confidence of investors in asset-backed and yield-oriented investments. The share of alternative non-correlated investments increased from 13% to 14% of the total portfolio in 2004. After equities (34%) and fixed-interest investments, they already represent the third-largest form of investment in the asset allocation of wealthy private customers.

The number of German investors investing in closed-end funds reached a new record high in 2005. With 409,000 investors, the number of subscribers to closed-end investment products grew by 10% compared with last year.

The sale of closed-end funds via banks and savings banks increased from a 57% share in placed equity in the previous year to 59%. Due to the declining market overall, this increase was achieved with a constant placement volume in absolute terms.

Within the industry, the trend towards greater concentration continued to gain pace in 2005. In 2004, 10% of initiators achieved 67% of the placed volume. In the reporting year, this group represented 80% of the market volume.

Record year for ship investments and private equity
With syndicated equity of EUR 4.0 billion in 2005, closed-end real estate funds once again represented the most strongly placed product group. However, the share of real estate funds in placed equity declined from 41% in 2004 to 33%. Offerings based on non-German properties represented a fifth of the equity volume.

The market share of ship investments increased slightly from 23% last year to 24% in 2005. In total, EUR 3 billion were invested in this investment model.

The revival of the private equity market was also seen in the placement figures for 2005. With EUR 1.4 billion, the private equity funds almost doubled their volume and their market share increased from 6% to 11%.

The life insurance funds further increased their market share from 9% in 2004 to 12% and represent a solid pillar in the range of closed-end investment products. EUR 1.5 billion of equity were invested in products based on redeemed life insurance policies.

Stock market flotations push issuing houses into the limelight
Up to the fourth quarter of 2005, MPC Capital was the only listed issuing house in Germany. The stock market flotations of other market participants increased the public perception of the industry both in terms of players in the investment industry and the public at large. As the market leader, MPC Capital benefitted from this development: on the one hand, MPC Capital has five years of experience of communicating with the capital market, while on the other hand, the transparency for listed companies associated with a stock market flotation gives MPC Capital the opportunity for clear differentiation and positioning.


Business of the MPC Capital Group

The Hamburg-based company develops, initiates and sells yield-oriented and taxoptimised investments. The products on offer include closed-end real estate funds, ship investments, life insurance funds and private equity and investment funds. In the reporting period, the introduction of new products such as the Real Estate Opportunity America Fund and Fortrust Note further diversified the range of products. With all investments offered by MPC Capital, the investment strategies are based on the economic and tax requirements of the markets as well as on the requirements of the investors.

MPC Capital overall market leader in 2005, too
The MPC Capital Group also positioned itself in the past financial year as market leader in Germany in the field of closed-end funds. This is documented in the study entitled "Market Analysis of the Investment Models 2006" by analyst Stefan Loipfinger.

Admittedly, the market share of the MPC Capital Group, measured in terms of placed equity, fell from 8.5% to 6.7%, but the placed equity of EUR 974 million underpinned the Group's undisputed market leadership in Germany. To be taken into account in this respect is that the statistics only look at the German market, and certain products from MPC Capital, such as the Fortrust Note, are not included. Compared with the record year of 2004 (EUR 1,093 million), the placed equity of the MPC Capital Group fell by 11%. The deliberate caution in the initiation of core product lines of real estate funds and ship investments was not completely compensated for by the introduction of new and innovative products. Within the individual business divisions, MPC Capital is one of the leading issuing houses. In the area of real estate funds and life insurance funds with German policies, MPC Capital remains the undisputed market leader. The statistics for ship investments and private equity funds put MPC Capital amongst the strongest placed issuing houses.

MPC Münchmeyer Petersen Capital Austria AG continued its history of growth and in 2005 increased placed equity by 16% from EUR 137.7 million to EUR 157.5 million. The wide range of alternative investments as well as the intensive and service-oriented cooperation with institutional and independent sales partners are the reasons for the leading position of MPC Capital in the Austrian market and are popular with Austrian investors.

The Dutch company MPC Münchmeyer Petersen Capital N.V. focussed its activities on ship investments, real estate funds and private equity funds. With a placement volume of EUR 72.4 million compared with EUR 79.2 million in 2004, the syndicated equity admittedly fell by 9%. However, MPC Capital continues to occupy a leading position in the Dutch market.

Business in Switzerland was unchanged in the past financial year. Hanseatische i-Bank AG enjoyed a slightly positive result in the reporting period.

In its first rump financial year, MPC Münchmeyer Petersen Financial Services AG, Hamburg, which was founded as a 100% subsidiary in February 2005, posted a positive contribution to results.