At a meeting in midtown New York a year ago Stefan Hoops, CEO of DWS Group, didn’t wait for a journalist to ask the obvious questions about European and U.S. regulators’ allegations that the firm greenwashed its ESG funds and the dramatic raiding of its German headquarters in May 2022. He admitted it was going to be a rough road to recovery and patiently walked through the details of the imbroglio. (It was Hoops’s job to be patient: he took over as CEO in June 2022 after former CEO Asoka Wöhrmann resigned as a result of the investigations.) Of course, Hoops was also eager to talk about the concrete steps he was taking to nurse the manager back to health.
During an earnings call Thursday morning in Germany, DWS, majority owned by Deutsche Bank, reported numbers that validate Hoops’s initiatives. DWS ended 2023 with 896 billion euros in assets under management, compared to 821 billion the year before. Against a backdrop of wan flows to active funds industry wide, DWS’s net inflows, not counting cash, were about 22.6 billion. (With cash, which most firms consider temporary, inflows were 28.3 billion euros.) For the full year, DWS reported inflows across active, passive, and alternative strategies — and in all geographies.
“Based on what we can see so far, we may well be the asset manager globally with the highest organic growth rate,” Hoops cautiously told Institutional Investor.
The DWS CEO pins the rebound on many factors that have little to do with ESG specifically. The firm has a diversified platform, he stressed, where investors can get what they want: active, passive, or alternatives. The firm also stopped wasting energy and got out of businesses that it called “non-strategic with lower performance in the past” including private equity and direct to consumer.
Hoops switched up management in some poor performing areas. “You and I also discussed that we were unhappy with U.S. fixed income, so early last year we made significant changes. We introduced new leadership, the PMs stayed the same, and our investment performance in fixed income went up by slightly more than 20 percent.” A big gain, even if a short time period.
The turnaround was also helped by sales people who got a breather from the bad news. “For a number of years [the sales force] had to deal with the uncertainty as to how committed we were, had to deal with the overhang from ESG. To some degree they were unleashed in ’23.” Hoops added, “If you were the CIO of a large insurance company would you in the summer of ‘22 have given us a new mandate? Maybe not. You may have said, ‘Let’s wait.’”
Even though DWS hasn’t yet closed the allegations from German prosecutors, it did settle with the Securities and Exchange Commission in September after a two-year investigation. The SEC’s enforcement action found that DWS made “materially misleading statements” about how ESG factors were used in its investment process. “The [SEC’s] order also makes clear that there was no intent to defraud, and the weaknesses identified by the SEC are in relation to processes and procedures that the firm has already taken steps to address,” DWS pointed out at the time of settlement.
Still, “The SEC settlement had impact,” Hoops told II this week. “We are glad to be able to put it behind us.”
Expanding the firm’s footprint in India and in China, where it has a 30 percent stake in the sixth largest asset manager, is next on Hoops’s list. He is intent on competing in areas where it feels it has a distinct advantage. “If you want to add exposure in India or China, our thesis is that you probably want to do it through somebody you know that has local operations, but with a matured governance.”
DWS continues to look for select acquisitions, but it is returning capital in the form of a dividend to shareholders that totals 800 million euro. The firm couldn’t justify a purchase right now. “If you look at transformative opportunities there are only so many that would meaningfully make a difference -- and frankly are affordable. Anything transformative appears unlikely” right now.
Like many asset management CEOs, Hoops, a DWS lifer, is betting on alternatives. In November of 2022, DWS hired Blackstone’s Paul Kelly to run alts, which is particularly strong in real estate. The alternatives group also includes infrastructure and liquid real assets. Kelly recruited Dan Robinson late last year from Capital Asset Solutions at Man Group to be EMEA head of alternative credit and head expansion plans for the asset class.
Last February “When we had breakfast, we spoke about Paul Kelly, who joined us from Blackstone Credit,” Hoops said. But “building an annuity business is long term, a little bit of a grind, but we are obviously willing to do it.”
