Deutsche Bank’s DWS inflated client asset inflows by billions of euros
Deutsche Bank’s asset manager DWS inflated the amount of money it won from clients by billions of euros through an accounting approach that it failed to disclose for years, and which fed into executive bonus calculations.
Quarterly results for the Frankfurt-listed company, in which Deutsche Bank holds an 80 per cent stake, last month showed for the first time how it included so-called advisory mandates in its overall assets under management and annual flows.
Advisory mandates are a low-margin business, where an asset manager gives a client its view on matters such as asset allocation but the client makes its own independent investment decisions, and are distinct from higher-margin “assets under management”, where the company makes investment decisions on the client’s behalf.
DWS did not expressly disclose that its assets under management also included assets managed by third parties until late 2022 — months after former chief executive Asoka Wöhrmann was ousted — and that changes in the market valuation of advisory assets were counted in its flows. Even then, the practice was only referenced in a footnote.
The size of DWS’s advisory assets has grown disproportionally in recent years, according to the new disclosures and people familiar with historic data.
Three people with direct knowledge of DWS’s internal discussions told the Financial Times that the asset manager started to place significant emphasis on the acquisition of new advisory mandates when Wöhrmann took the helm in late 2018, months after the company floated.
Since its IPO, bonuses for executives and other staff have been directly linked to net flows.
DWS’s pay policy tasked executives with lifting net inflows as a percentage of assets under management by 3 to 5 per cent a year as one of four targets in their long-term incentive plans. In 2021 — the first year for which data is available — DWS management achieved 150 per cent of their inflow target.
DWS told the Financial Times that “advisory asset inflows, and in particular the inclusion of market movements when calculating them, have not had a material impact on executive compensation in any year.”
It is the second time since its 2018 IPO that DWS has faced questions about disclosure. Last year, DWS paid $19mn to settle charges with the US Securities and Exchange Commission about greenwashing, and an investigation by Frankfurt prosecutors into the allegations is ongoing.
The asset manager last month reported for the first time that advisory mandates made up 3.5 per cent of total assets excluding cash in 2023, up from 3 per cent a year earlier. In the same year, however, the disclosure shows that advisory assets represented 27 per cent of all net inflows excluding cash.
DWS has not disclosed data for advisory inflows for years before 2022.
But FT calculations based on data provided by insiders show that advisory assets accounted for at least a fifth of all DWS non-cash inflows between June 2018 and March 2024 — a breakdown not previously made public.
Advisory assets more than tripled to €29bn in that period, while total assets under management excluding cash rose 36 per cent to €856bn.
According to people familiar with the historic data, advisory assets lifted DWS’s reported net flows in all years since 2018.
In 2020, almost all of the €10.8bn in reported non-cash inflows were linked to advisory assets, the people said. That was mainly due to a multibillion mandate from Siemens which had been erroneously treated as an active multi-asset one, and was reclassified as an advisory mandate in late 2022, they added.
The overall impact on flows was “immaterial” in all other years, the people said.
After DWS restated the data for 2023, a €4.4bn inflow into the asset manager’s high-margin flagship “active multi-asset” strategy became a €1.7bn outflow when stripping out an advisory mandate for another German blue-chip.
Irene Rossetto, an asset management analyst at Keefe, Bruyette & Woods, told the FT that including changes of the value of advisory assets, including currency effects and market performance, in flows was “uncommon” and “does not appear to be in line with industry practice”.
DWS told the FT that despite changes to the definitions of net flows and assets under management in its financial reports, its internal definitions had “been consistent since prior to the initial public offering”, adding that “our annual reports and financial disclosure were always accurate”.
The group said that changes in disclosure since late 2022 were intended to “provide more transparency into the nature of our AUM and flows”.
Wöhrmann declined to comment through a lawyer. Deutsche Bank declined to comment.
M&A will not help with looming copper shortage, warns Barrick chief
Amid BHP approach for Anglo, prolific dealmaker says consolidation does not guarantee more production
Mark Bristow, one of the mining industry’s most prolific dealmakers, has warned that M&A will do nothing to grow the supply of copper that the world needs to go green, as sector leader BHP pursues a £31bn mega-deal for Anglo American.
The chief executive of Barrick Gold said miners needed to invest more in exploring for and developing new deposits of the world’s most important industrial metal — needed for power lines, data centres and electric cars — as he dismissed making a rival bid for Anglo American or First Quantum, another copper producer.
Bristow told the Financial Times that the BHP approach for Anglo “reinforces that the industry needs investment in its future”. He added that “you can consolidate but it doesn’t build the production profile. On consolidation, you can always reduce production.”
The South African executive’s comments come as the world faces a future shortage of copper because of a lack of new mines under development — even as demand is set to almost double to 50mn tonnes per year by 2035 because of the boom in renewables, EVs and AI — according to S&P Global Commodity Insights.
Anglo American chief executive Duncan Wanblad said earlier this year that copper M&A is like “rearranging the deckchairs on the Titanic”, referring to its impact on solving the looming shortages of the metal.
BHP must decide by May 22 whether to make a formal offer for Anglo, which holds coveted copper mines in Peru and Chile. Under the Australian group’s initial proposal, Anglo would have to sell its majority stakes in its South African platinum and iron ore businesses to its shareholders for the deal to go ahead.
Barrick has a strategic aim to boost copper production by developing the ambitious $7bn Reko Diq project in Pakistan, which Saudi Arabia is considering taking a significant minority stake in, and a “super pit” expansion at Lumwana in Zambia.
The $29bn gold miner has been touted as one potential rival bidder for Anglo, as well as a potential saviour of First Quantum, whose giant copper mine in Panama was ordered to be shut down by the government following environmental protests. Yet Bristow played down the possibility of making a foray for either of the copper industry’s foremost targets, especially given BHP’s $145bn market capitalisation.
“BHP is the ultimate 800-pound gorilla. It’s a complex transaction,” he said. “It’s hard to imagine how we could be competitive in that process.”
Despite Bristow initially having a keen interest in a takeover of First Quantum, he said the company and its Panama mine were an “undefined risk” at this stage.
He added that “until we can see some definition, for us, there’s no interest in this opportunity. In our mind, it’s not an opportunity.”
Copper prices have rallied more than 20 per cent since the middle of February to the highest level in about two years at almost $10,000 per tonne because of shortages of copper ore from mines. Goldman Sachs has predicted copper prices will jump to $12,000 per tonne by the end of the year, well above the metal’s record high.
The world is lagging behind in the investment needed in critical minerals, a UN report warned last month, with copper suffering the biggest investment shortfall with 80 new mines that needed to be developed.
Silver Lake targets ‘bigger bets’ as it raises its largest fund
Private equity group concludes smaller investments made during the pandemic landed in ‘the regret zone’
Silver Lake, the technology-focused private equity group behind Dell and Endeavor, has raised its largest fund to date as it shifts its focus back to big takeovers and halts the smaller-sized bets it believes have backfired in recent years.
The US-based group has raised $20.5bn for its seventh private equity fund. That tops the $20bn it raised for a fund in 2021 and bucks a trend of shrinking fund sizes at large private capital groups as pension funds cut their exposure to unlisted assets.
Co-chief executives Egon Durban and Greg Mondre told the Financial Times they were repositioning Silver Lake’s portfolio after observing that their largest investments were performing best, while smaller minority investments made during the pandemic had performed poorly.
“We are at our best when we are investing at scale,” said Mondre. “The returns are substantially higher when the bets are bigger.”
“We are simplifying our investment strategy, cleaning up our calendars and refocusing the team entirely on the key things that matter,” added Durban.
Silver Lake, which holds its annual meeting on Wednesday, has internally dubbed its array of smaller, pandemic-era tech deals as “the regret zone”. The ensuing surge in interest rates cut valuations and caused gains in technology groups such as Unity Software to evaporate.
“In 2021 we made a number of subscale, passive, minority growth investments. We were very active. Today, those assets represent only around 3 per cent of the net asset value in our portfolio and we’ve eliminated subscale, passive, minority growth investing,” said Durban.
Silver Lake’s change in posture comes amid a surge in activity in which it has returned enormous profits to investors from successful large buyouts, such as the takeovers of VMware and Dell, and emerged as one of private equity’s most active investors.
Since early 2023, Silver Lake has struck deals to sell down $20bn in investments, including its stake in VMware. Broadcom bought the cloud computing specialist last year, yielding a $7bn-plus profit for Silver Lake investors according to the FT’s calculations.
Helped by that deal, it has averaged a 21 per cent annual net return after fees on its funds since 2009, Silver Lake will tell investors on Wednesday, bolstered by asset sales and gains on recent investments.
Durban and Mondre decided in late 2022 that falling technology valuations made it a good time to pursue large takeovers. Since then, Silver Lake has agreed deals to take private US software group Qualtrics, German technology pioneer Software AG and sports and talent agency Endeavor. Its average equity investment across seven such deals was $3.5bn.
Large Silver Lake investors who spoke to the FT encouraged the changes.
“[We] might be in one of those time periods where the large tech companies that can do big things are going to be the winners,” said Mary Callahan Erdoes, chief executive of asset and wealth management at JPMorgan Chase, one of Silver Lake’s largest backers. “Our belief is that Silver Lake is going to help us identify those companies.”
“At some point in 2022 they realised they were distracted from where they are best,” said another large investor, who welcomed the group’s appetite for “large high-conviction bets with high complexity”.
“The investments in 2023 were largely a result of planting initial investments in previous years, and it allowed us to step in with big, creative deals when markets presented big opportunities,” said Durban.
Both Durban and Mondre said a rally in technology stocks since October had caused much of the market to be “fully priced to overvalued”. Even as they eye remaining buying opportunities, they predicted that Silver Lake would be active in selling non-core assets to return cash.
Since its takeover of Dell in 2013 alongside the personal computer company’s billionaire founder Michael Dell, Silver Lake has emerged as a favoured investor for tech executives seeking to reposition their companies.
With Durban’s guidance, Dell fended off an activist approach by Carl Icahn and orchestrated the $67bn takeover of tech conglomerate EMC in 2016. The transaction has become a seminal private equity deal of the post-crisis era, generating more than $70bn in gains.
In an interview with the FT, Dell called Durban “the hero of the story” of his buyout, noting how little new equity the deal required. “How do we buy a $67bn company with just $4bn in new capital? That is probably something that very few people would have figured out and been able to execute,” he said.
The deal has positioned Silver Lake at the forefront of technology management buyouts. “You get very few times at bat with these types of big transitional moments with CEOs,” said Erdoes. “You want to be that call. Now, Silver Lake gets that call.”
Silver Lake’s takeovers can start with it taking a small position years earlier.
“When you see us end up in a scale minority position, we are coming in to help the management team solve a problem. but it doesn’t make sense to do a full buyout,” said Durban. “When the market is upside-down, that’s when we may see the ability to pay for control.
“We are selling something seductive to a management team,” he added. “How do you build and grow a great business?”
Silver Lake is now looking to capture opportunities from artificial intelligence breakthroughs, investing in the “picks and shovels” of AI infrastructure but avoiding bets on start-ups developing large language models.
Mondre recently led Silver Lake’s $6.4bn equity investment in Vantage Data Centers, which manages properties where tech groups store AI data.
Silver Lake is also maintaining its roughly $10bn holding in Dell. “We expect it will be a massive beneficiary of the new AI tailwinds,” said Durban.
After Hours Summary: Busy earnings session; ODD +13.4%, RDDT +12.6%, CRUS +11.4%, POWI +11.2%, GMED +10.9%, INTA +9.2%, RNG +9.2% higher on earnings; TMCI -46%, DV -36.5%, GO -18%, INSP -16.2%, ZI -14.2% lower on earnings
After Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: ODD +13.4%, RDDT +12.6%, CRUS +11.4%, POWI +11.2%, GMED +10.9%, CRCT +10.3% (initiates semi-annual dividend; declares $0.40/sh special dividend; approves $50 mln repurchase plan), INTA +9.2%, RNG +9.2%, MYGN +8.6%, OLO +8.5% (also announces deal with BROS), BROS +8%, CFLT +6.7%, MQ +6.7%, NVRO +6.6% (also names new COO), LYFT +6.1%, ANET +6% (also authorizes new $1.2 bln share repurchase program), PUBM +6%, ANGI +5.8%, AMRC +5%, GXO +4.9%, ADPT +4.8%, KD +4.7%, AGL +4.4%, VCYT +4%, GPRO +3.8%, LGND +3.5%, CRC +3.4%, TOST +3.3%, INGN +2.7%, VECO +2.7%, KGC +2.7%, UIS +2.1%, BKD +2%, WYNN +1.8%, HALO +1.7%, MGY +1.7%, AIZ +1.4%, ENV +1.3%, RDFN +1.3%, AOSL +1%, TRIP +1%, IRBT +0.9% (also names new CEO), CHRD +0.8%, MRCY +0.8%, BHF +0.4%, JANX +0.4%, HRT +0.1%
Companies trading higher in after hours in reaction to news: WTS +7% (increases dividend), HASI +3% (HASI and KKR establish $2 bln partnership to invest in sustainable infrastructure projects), LCII +2.7% (LCII acquires furniture business assets of CWH unit), CTMX +2.5% (enters into collaboration and supply agreement with MRK), MFC +2.3% (amends normal course issuer bid to repurchase for cancellation up to an additional 40 mln shares), PVBC +1.3% (names new CFO), MYE +1% (files $400 mln mixed shelf securities offering), SDRL +0.4% (contract awards for two drillships), DRS +0.2% (wins Boeing contract), CAH +0.1% (increases dividend)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: TMCI -46%, DV -36.5%, GO -18%, INSP -16.2%, CDRE -15.8%, FLYW -15.5%, ZI -14.2% (also increases share buyback authorization by $500 mln), AMRK -12.6%, LZ -12%, UPST -11.8%, SHLS -11.7%, ATEC -11.6%, ANDE -10.9%, DH -10.3%, OPK -10%, ALAB -7.5%, OCUL -7.3%, CRSR -6.5%, CERT -6.4%, TWLO -6.3%, RGR -6.1%, RIVN -5.7%, PWSC -5.5%, VTEX -5.3%, MTCH -5.1%, AWR -4.8%, CMP -4.7% (also halts dividend), USPH -4.4%, ICHR -4.3%, RRR -4.3%, IPAR -4.1%, RPD -4%, RVLV -3.6%, ASTH -3.3%, STAA -3.3% (also announces milestone strategic agreement in US with IQ laser vision), LAZR -3%, SPCE -3%, EA -2.5% (also authorizes new $5 bln share repurchase program), VTOL -1.8%, JOBY -1.7%, NRDY -1.7%, PCRX -1.7% (also authorizes new $150 mln share repurchase program), SONO -1.5%, OVV -1.4%, BIO -1.3%, BL -1.3%, EOLS -1.3%, CYRX -1.2%, QLYS -1.2%, ABCL -1%, CPNG -1%, MCK -0.8%, JKHY -0.7%, IAC -0.6%, OXY -0.6%, AZPN -0.4% (also names new CFO), BBDC -0.4%, DEI -0.4%, PEN -0.4%, KTOS -0.1%, PR -0.1% (also increases dividend)
Companies trading lower in after hours in reaction to news: MAX -10.2% (stock offering by selling shareholders), AVA -5.1% (files for at-the-market offering of 3,305,541 shares), DLR -3% (10.5 mln share offering), EGBN -2.8% (files $150 mln mixed shelf securities offering), CXDO -1.3% (files $75 mln offering; also files for 3.5 mln share offering by selling shareholders), IP -0.9% (no comment on rumors or speculation), MDGL -0.9% (files mixed shelf securities offering), DCGO -0.3% (discloses cybersecurity update), CGC -0.3% (stock offering by selling shareholders)
Gapping down
In reaction to earnings/guidance:
In reaction to earnings/guidance:
- TDC -12.8%, PLTR -11.9%, DDOG -10.6%, BYON -10%, AUDC -9.9%, ATKR -9%, MDGL -8.7%, LCID -8.2%, CELH -8.2%, FMS -7.1%, SPR -7.1%, DIS -5.9%, SNCY -5.8%, JELD -5.5%, ROK -5.3%, GEO -5.1%, AL -4.6% (also files mixed shelfand secondary stock offering), RACE -4.6%, PARR -4.5%, CROX -4.1%, RRX -3.4%, VNO -3.2%, BSM -3.2%, HNRG -3.1%, RKLB -3% (also completes first full assembly of its Archimedes engine; completes selection of subcontractors), NE -2.9%, BLDR -2.9%, MCHP -2.7% (also increases dividend), FMC -2.2%, BP -2.2%, PAY -2.1%, DOOR -2%, ADTN -1.9%, SRRK -1.9%, CEIX -1.6%, ACM -1.3%, AXON -1.1%, J -1.1%
Other news:
- CLLS -11% (AstraZeneca completes Cellectis (CLLS) equity investment)
- GFI -4.2% (Fields provides Q1 operations update; Production for the quarter was severely impacted by weather-related events and operational challenges; annual group production and cost guidance for 2024 remain unchanged)
- ASR -2.8% (releases passenger traffic data for April)
- CNO -2.3% (files mixed shelf)
- RYAM -2.2% (selling Softwood Duty Refund Rights)
- AXON -1.1% (acquires Dedrone)
- GPRE -1.1% (files mixed shelf)
- TLRY -1% (entered into certain private debt-for-equity exchange transactions between April 24, 2024 and May 6, 2024)
Analyst comments:
- CVS -0.5% (downgraded to Hold from Buy at TD Cowen)