DWS/asset management: stairing contest

“The stairs are swept from above,” noted Asoka Wöhrmann, chief executive at DWS. Next steps for some senior managers at Germany’s largest fund management house could be a chat with an outplacement consultant. Mr Wöhrmann’s comments to a German newspaper underscore the cost cutting needed at the Deutsche Bank subsidiary. As the former chief investment officer, he understands the complexity of his task. The issues at DWS parallel those in the entire asset management industry.

Mr Wöhrmann only took over the CEO position in October. He has inherited the cost-to-income target of his predecessor Nicolas Moreau. A 7 percentage point drop in the ratio to below 65 per cent is required. That looks necessary. Schroders has a ratio of 62 per cent. France’s Amundi does an even better job at 51 per cent. Indeed, on its own DWS has a ratio similar to those of investment banks such as UBS and Société Générale.

There’s the rub. Portfolio managers often demand efficiency from banking investments. “Do as we say” has been the message rather than “do as we do”. Frankfurt-listed DWS is a case in point. Its operating margins of 26 per cent sit below those of European peers and index fund titan BlackRock, estimated at around 40 per cent for this coming year. Tack on the problem of declining market values and matters get worse.

The squeeze from passive products is inexorable. Over the past decade active managers have outpaced benchmark indices for only 3 out of 49 European domiciled fund products (by size and region), says Morningstar. Big investment houses, keen to keep institutional and retail clients happy, will need more, not less, low-fee passive products. No wonder outstanding short positions have tripled on UK’s Jupiter, a fund house highly dependent on star stock pickers.

DWS needs a thorough spring clean. But its rivals will surely have to cut costs too. Buckle up, active managers. You are the new investment bankers. And not in a good way.