(Bloomberg Opinion) -- What a difference a year makes.
This time in 2019, all of the numbers at DWS Group GmbH were heading in the wrong direction. Four consecutive quarters of outflows in 2018 drove assets under management to their lowest in at least two years, revenue declined, and the firm’s cost to income ratio rose. The German fund manager was far from alone in feeling the squeeze bedeviling its industry.
So the turnaround reported by DWS on Thursday augurs well for its European peers — at least those able to offer clients the cheap passive investment products that are all the rage.
Chief Executive Officer Asoka Woehrmann, who took charge in late 2018, has been buoyed by a rising tide of market gains last year that has reinvigorated investor appetite for socking cash away with money managers. DWS’s fellow fund managers are likely to have enjoyed a similar rebound in flows, particularly in the fourth quarter.
The firm, still 80% owned by Deutsche Bank AG, attracted net inflows of 13.2 billion euros ($14.5 billion) in the final three months of last year, double what it achieved in the prior quarter and topping off a stellar year for growing assets under management.
More than 19 billion euros of 2019’s inflows came into passive products, with DWS making the most of its position as Europe’s second-biggest provider of exchange-traded funds to capitalize on investor enthusiasm for index trackers. By contrast, the firm’s active funds suffered net outflows of more than 3 billion euros last year. Active management, it seems, still has an image problem.
Woehrmann has proven more successful than his predecessor Nicolas Moreau at aligning expenses with revenue, with the company’s cost-income ratio dropping to 67.6% last year from 70.9% in 2018, putting next year’s goal of a 65% ratio in sight.
With assets under management climbing to 767 billion euros ($844 billion), an increase of 105 billion euros in the year, DWS remains short of qualifying for the $1 trillion club that all of the world’s big fund managers aspire to join. Woehrmann has made growth through acquisitions a “personal ambition,” but Chief Financial Officer Claire Peel told Bloomberg Television on Thursday that the firm is “not in a hurry” to do deals.
Maybe it should be. Amundi SA, Europe’s biggest fund manager, is adding almost 22 billion euros to its 1.6 trillion euros of assets after agreeing earlier this month to buy Banco de Sabadell SA’s business. The acquisition will make the French firm one of the biggest fund managers in Spain.
It’s the kind of deal Woehrmann should be competing for if he’s to challenge Amundi’s growing dominance in Europe. Negotiations to combine DWS with UBS Group AG’s fund management unit failed to produce an agreement last year; if Deutsche Bank is committed to growing DWS into one of the world’s top 10 asset managers, as it has said, Woehrmann will have to make good on his pledge to play an “active role” in industry consolidation.
To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."
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