Deutsche Bank's Asset Manager Sees Clients Pull $8 Billion

(Bloomberg) -- DWS Group, the German asset manager taken public by Deutsche Bank AG in March, is wrestling with withdrawals, though its executives say the worst is behind them.

Investors pulled 7 billion euros ($8 billion) in the fourth quarter of 2018, taking total redemptions last year to more than 22 billion euros. To make matters worse, the volatility that roiled markets in the final months of 2018 saw assets under management fall to the lowest in at least two years. DWS shares fell by the most in nearly seven weeks, before rebounding after management sought to reassure investors.

Most of the outflows in 2018 were due to “one-off effects,” Chief Financial Officer Claire Peel said in a telephone interview. More than 20 billion euros of outflows can be attributed to U.S. tax reform and the loss of two large institutional mandates that “won’t be repeated,” she said.

Holding on to customers’ funds is a top priority for Chief Executive Officer Asoka Woehrmann, who replaced Nicolas Moreau in October. As pressure rises on the fees that money managers charge clients rises, the amount of assets they control is increasingly important to the profitability of those firms. In an interview with Bloomberg News last week, Woehrmann said he was confident that the firm would see better flows than the market average in 2019.

Shares of DWS fell as much as 3.7 percent, the most since Dec. 17, before rising 2.2 percent to 24 euros as of 11:38 a.m. in Frankfurt.

Market Turmoil

Last year proved a difficult time for DWS and its peers. BlackRock Inc., the world’s largest asset manager, reported outflows from institutional clients and saw assets under management fall 5 percent in the final three months of last year compared with the same period a year earlier.

“I think Q4 put everyone on watch” Peel said. The volatility in markets “makes investors a little bit more negative and cautious,” she said.

There were some bright spots in the results. Net inflows into passive products, an increasingly popular investment choice for clients, were 8 billion euros in 2018. The company also managed to reduce its costs by 9 million euros compared to the previous quarter.

The outflows were largely from lower margin products, and inflows to higher margin funds in recent months have offset the slight miss in assets under management, a Morgan Stanley analyst wrote in a note.

Deutsche Bank still owns about 78 percent of DWS after the IPO. The German bank on Friday said that revenue contracted for an eighth straight quarter in the final months of last year, complicating Chief Executive Officer Christian Sewing’s plan to turn around the lender through cost cutting.

“DWS is adapting to the market conditions by further accelerating cost reductions,” Deutsche Bank CFO James von Moltke said on a call with analysts on Friday.

--With assistance from Chitra Somayaji.

To contact the reporter on this story: Lucca de Paoli in London at gdepaoli1@bloomberg.net

To contact the editors responsible for this story: Shelley Robinson at ssmith118@bloomberg.net, Patrick Henry

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