Deutsche funds arm suffers exodus and low morale ahead of new CEO

Deutsche Bank Frankfurt HQ


Deutsche Bank Frankfurt HQ

In part, problems at DeAM – which manages €719 billion and has provided much-needed stability to the bank – stem from the woes of its banking parent which has led to pressure for cost cuts.

Deutsche Bank‘s latest setback is a request for a payment of $ 14 billion from the US Department of Justice after a probe into its mortgage-securities business, according to The Wall Street Journal.

But some of DeAM’s problems are its own and present challenges for Nicolas Moreau, who arrives to run the unit in less than two weeks.

The DWS German retail business, one of the cornerstones of the business, has just seen the departure of global equity chief Henning Gebhardt, considered one of the best managers in Germany. He has been with DeAM for two decades.

A rival said: “Henning’s a rock star. The kind of guy an asset manager should never lose.”

Elsewhere, Owen Fitzpatrick is preparing to step down as DeAM’s head of equities in the US. Over the summer, Joe Benevento, his chief investment officer, confirmed his intention to quit. Dodd Kittsley also stepped down as head of US exchange-traded product strategies.

Also during the summer, Steffen Leipold quit as head of active retail coverage for Germany and Austria at DWS – passive chief Thorsten Michalik has taken over Leipold’s role. His appointment follows the departure of Barbara Rupf Bee as head of global clients in Europe, the Middle East and Africa.

Nils Ernst is also stepping down as DWS global growth equity manager – by mutual consent, according to Deutsche insiders.

The people mentioned in this article could not be contacted or declined to comment.

These, and other, departures over the past year, plus bad news about its parents, have led to low morale, one executive said. But there are some bright spots.

Deutsche gains comfort that while executives may be departing, investors are not, particularly at DWS. DeAM churn for its managing directors stays pegged at 2% a year.

DeAM suffered net outflows of €20 billion in the half year to June – but its marketers argue this is mainly swayed by outflows from money-market funds in a low-interest rate environment. Pre-tax income fell 9% to €334 million over the period following a loss of performance fees. But the underlying picture remains relatively reassuring.

One Deutsche executive also points to the hiring of two ETF managers in the US and three executives at DeAM’s global client group this year. Bobby Brooks has arrived from State Street to become national retail sales manager in the US and Victoria Sharpe becomes head of real estate in Asia – still a relatively happy hunting ground for DeAM.

Morningstar’s senior fund analyst Barbara Claus said she retained faith in the DWS team, including equity star Tim Albrecht, who is taking over Gebhardt’s largest funds. The DWS management board continues to provide stability after serving the business for an average of 17 years.

DWS investment legend Klaus Kaldemorgen has postponed his retirement by two years, to take the division forward, according to a Deutsche statement. And it is readying new products, such as bond exchange-traded funds.

John Cryan, chief executive at the bank, took over from Anshu Jain in June 2015, with a mission to reboot the business.

DeAM chief Michele Faissola left in October and several senior executives followed him. Unfortunately, Faissola’s replacement Quintin Price, hired from BlackRock, quit after four months due to ill health.

Incoming chief Moreau, former CEO of Axa Investment Managers and then Axa’s French business, is under no illusions concerning poor morale at DeAM exacerbated by defections and bad publicity at Deutsche Bank, according to one person familiar with his thinking.

He is aware that even his own arrival could be seen as an irritant. Although the funds business has done well in recent years, the bank has persistently recruited outsiders to run it.

One DWS staffer said he found it hard to see why Moreau will be based in London, rather than Frankfurt.

Moreau plans to spend a great deal of time in Frankfurt and create an inner circle of advisers, including, DWS executives, to take DeAM forward. According to insiders three obvious DWS candidates are Michalik, director and government adviser Christian Strenger and Thomas Schüssler, whose income products are a valuable fee generator,

In mid-September, Cryan denied speculation that he might want to sell all, or part, of the business. In an internal memo sent on September 8, seen by Financial News, he said: “Deutsche Asset Management is, and will, remain an essential part of our business model.”

Deutsche executives have denied subsequent comments by investment bankers that its North American business will go up for sale. When he worked at Axa, Moreau learned it was expensive to look after an asset management business. But Deutsche still sees its business as an important part of its offering, particularly in the alternatives sector.

A senior consultant said it had become hard to recommend Deutsche for business, given its news flow: “We rarely offer business to bank-owned asset managers, in any event.”

Investment bankers warn Moreau needs to hit the ground running, but they agree he is probably the right man for a difficult job.

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