Deutsche Bank’s DWS Loses More Investor Cash on Cautious Outlook

Laura Benitez and Steven Arons, Bloomberg News

DWS Group logos sit on banners hanging outside the Frankfurt Stock Exchange, operated by Deutsche Boerse AG, as Deutsche Bank AG make an initial public offering (IPO) of shares for its asset-management division in Frankfurt, Germany, on Friday, March 23, 2018. DWS held its ground on the first day of trading after parent Deutsche Bank raised about 1.4 billion euros ($1.7 billion) from an initial public offering. Photographer: Alex Kraus/Bloomberg , Bloomberg

(Bloomberg) -- Deutsche Bank AG’s asset-management arm reported outflows of nearly €20 billion in 2022 and a €107 billion drop in managed assets as the firm battles with investor confidence and souring market conditions. Its shares fell.

DWS Group’s clients pulled €19.9 billion ($21.9 billion) in 2022, according to a statement on Thursday. That missed the €18.03 billion consensus of outflows forecast by analysts polled by Bloomberg. Assets under management fell to €821 billion euros in 2022 from €928 billion at the end of the previous year.

“Outflows were mainly in lower-margin products, but we actually expect to see investors return to fixed income this year as the asset class becomes more attractive,” Claire Peel, DWS’s chief financial officer, said in a telephone interview. “Although that won’t happen immediately,” she added.

The results stand in contrast to the previous quarter, which saw a brief pause in outflows. The decrease in assets under management was mainly driven by negative market developments, while exchange rate movements had a positive impact, the firm said in its statement.

The firm fell as much as 6.4% in early morning trading in Germany.

DWS said clients pulled €1.6 billion in the fourth quarter and they were largely focused on fixed income funds, cash and passive. The fixed-income sector was hit by rising interest rates and a surge in inflation during 2022, roiling markets.

“Our outlook for this year is to see positive flows and we saw some good signals already in January, although it’s early days,” Peel said in the interview.

The asset manager is still being investigated by German regulator BaFin as well as the Securities and Exchange Commission and the Department of Justice in the US for allegedly misrepresenting its ESG work. DWS has rejected allegations of greenwashing.

Peel said while the allegations are not helpful for client confidence, the firm is working to help conclude the investigations as swiftly as possible.

DWS posted an adjusted cost-income ratio of 60.6% in 2022 versus estimates of 61.6%.

Market volatility and worries about the German economy have also led to investor caution, the company said in the statement. European fixed income markets endured one of their most volatile periods last year as central banks started to roll bank years of quantitative easing that had stabilized bond prices.

DWS said it will propose an increased dividend of €2.05 per share for the 2022 financial year.

Alternatives

DWS is planning to build out its alternatives business, and pulled in €600 million from clients last year. The firm sold its private equity secondaries business to Brookfield Asset Management Ltd. this week in a bid to focus more alternatives, which invests in real estate, infrastructure and private credit.

“Even though real estate valuations are challenged it’s an asset class we are confident in and that investors still want to invest in,” Peel said.

DWS said it plans to mobilize private capital of up to €20 billion by 2027 to address the need for transformation across Europe.

(Updates with CFO comments from the third paragraph, share price move in the fifth paragraph)