DWS chief on the ‘gem’ inside Deutsche Bank
Asoka Wöhrmann says rise of passive investing and wealth growth in Asia are causing ‘tectonic shifts’
Asoka Wöhrmann took on one of the investment industry’s most difficult roles last year when he was promoted chief executive of DWS, Germany’s largest asset manager.
He appeared to have picked up a poisoned chalice as head of an unstable business that had already employed four other chief executives since 2012. Nicolas Moreau, his predecessor, was brutally axed after two years in the role after DWS failed to meet ambitious performance targets agreed at the time of the company’s March 2018 initial public offering.
The IPO followed a protracted period of instability that included several failed efforts by its parent, Deutsche Bank, to sell the €752bn asset management business, multiple reorganisations and the departure of numerous senior staff members.
Mr Wöhrmann’s appointment immediately prompted questions as to how long he might survive the axe. But Mr Wöhrmann, 54, is a trusted lieutenant of Christian Sewing, the Deutsche Bank chief since April 2018 who was instrumental in his junior colleague’s promotion.
“Asoka will get more support from Christian. Deutsche Bank badly needs the revenues that DWS can provide to shore up its weak funding position,” said an alumnus who asked not to be named.
Mr Wöhrmann’s position has been strengthened by a revival for DWS, which has attracted net cash inflows of €12.9bn so far this year, driving a 9 per cent increase in profits to €508m in the nine months ended September.
After flying from Frankfurt to London, Mr Wöhrmann is clearly buoyed by this progress and keen to discuss his vision.
“This is the most exciting time in my 21 years with DWS and Deutsche Bank,” he says.
“We are seeing tectonic shifts in the asset management industry with the rise of passive investing and ETFs, massive pricing pressures and profit margin erosion, the rise of Asia as the premier growth market, the growth of alternatives and systematic investments driven by huge increases in computing power.”
Some analysts believe Mr Wöhrmann wants a transformational deal that would help DWS compete more effectively against the industry’s heavyweights.
DWS came close to agreeing a marriage with the asset management arm of UBS but negotiations collapsed over which parent would control the enlarged investment unit.
“DWS is a gem within Deutsche Bank,” he says, adding that structural pressures will drive more mergers and acquisitions in asset management.
Mr Wöhrmann will readily admit that the English language is not his strongest skill but there is no doubt about the quality of his intellect.
Over a dinner of lobster risotto that stretches for more than two hours, he acts as a genial host in a wide-ranging discussion. He talks about his birth in modest circumstances in Sri Lanka and his youthful hopes for a career as a university professor. At the end, Mr Wöhrmann opted for a move into the investment industry, which he found distinctly challenging.
“When I first came as an academic to DWS and was given the most difficult market — Japan — it was definitely a learning curve,” he says.
The bursting of Japan’s stock market bubble in 1990 and subsequent decline in the country’s property market provides, in his eyes, a powerful warning for policymakers in Europe.
“There are a lot of parallels between Japan in the 1990s and problems now confronting European economies. I fear that Europe will follow Japan into the same deflationary trap. We are forcing people to save more at a time when interest rates are falling. People will start storing their money under the bed, as [John Maynard] Keynes warned. Germany’s austerity policies have to change,” he says.
Yields on long-term German and Japanese government bonds are mired deep in negative territory, with policymakers in both countries struggling to stimulate economic growth.
“Weak economic growth and low bond yields will persist possibly for a decade or more. This is a new era for the world. Negative interest rates will lead to behavioural changes across the private sector,” Mr Wöhrmann says.
Many observers blame negative rates on the huge bond-buying programmes introduced by central banks in response to the financial crisis. This view is not shared by Mr Wöhrmann: “If central banks had not stepped in to rescue the financial system, then the problems across the global economy would be much worse.”
Ultra-low interest have forced investors to shift into illiquid asset classes such as real estate, infrastructure and private equity in search of better yields.
“Alternatives is a growth area for us. But we cannot solve all of the problems in fixed income markets by a shift into alternatives,” says Mr Wöhrmann, who is guarded about efforts by private equity managers to persuade regulators that their funds should be opened to the general public.
“History has shown that retail investors want to be able to exit from their funds at short notice so we have to be cautious,” he says.
Further expansion is planned at the ETF unit of DWS where assets have just broken above the €100bn mark for the first time.
“The rise of ETFs is unstoppable. Europe will move down the same road as the US at a faster rate because of the pressures on fees. There will also be more demand for systematic approaches with low production costs. Combining machines with human capabilities will be key,” he says.
These trends raise questions over whether traditional active management strategies will survive. Mr Wöhrmann’s predictions include concentrated equity and multi-asset portfolios along with emerging market debt and some areas of credit even if they are affected by negative rates.
But he freely admits to having made some wrong calls.
“People that cannot admit to their mistakes do not make good investment managers. I thought the rise of multi-asset would be unstoppable after Lehman’s implosion. Instead every underperforming equity manager was lifted by excess liquidity and falling rates boosted fixed income returns. But multi-asset managers that can make good asset allocation calls, they are the kings,” he says.
In common with every leading asset manager, DWS is also strengthening its environmental, social and governance capabilities in response to rising client demand. It plans to introduce a group sustainability office and to attach ESG ratings to investments across its entire platform.
“ESG is no longer just a ‘nice to have’ feature. It has become part of an asset manager’s license to operate,” he says.
Pressed on whether DWS will divest from companies that contribute to global warming, Mr Wöhrmann says the focus will be on engagement rather than exclusions.
“We don’t believe in trivial approaches as they cannot tackle complex challenges such as climate change. We have to encourage people to follow their dreams, to invest for the future. You always have to look ahead,” he says.