DWS GmbH : Q2 2020 Investor & Analyst Conference Call

DWS Group GmbH & Co. KGaA

DWS Q2 2020 Investor & Analyst Conference Call

July 29th , 2020 | 10:00 am CEST

Speaker Key:

Oliver Flade

Asoka Wöhrmann

Claire Peel

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Oliver Flade	Good morning, everybody, from Frankfurt. This is Oliver from
	investor relations, and I would like to welcome everybody to our
	earnings call for the second quarter of 2020. I hope everybody
	is keeping healthy and safe wherever you're based. And before
	we start I would like to remind you, as always, that the upcoming
	Deutsche Bank analysts call will outline the asset management
	segment results, which have a different parameter basis to the
	DWS results that we are presenting now.
	I'm joined, as always, by Asoka Wöhrmann, our CEO, and Claire
	Peel, our CFO, and Asoka will start with some opening remarks,
	and Claire will take you through the presentation. For the Q&A
	afterwards, please could you limit yourself to the two most
	important questions, so that we can give as many people a
	chance to participate as possible?
	And I would also like to remind you that the presentation may
	contain forward-looking statements, which may not develop as
	we currently expect. I therefore ask you to take note of the
	disclaimer and the precautionary warning on the forward-looking
	statements at the end of our materials. And with that, I will now
	pass on to Asoka.
Asoka Wöhrmann	Thank you, Oliver. Good morning, and welcome, everybody, to
	the second quarter results of 2020 for DWS. I hope you're all
	keeping healthy and safe as we continue to fight the pandemic.
	Today, we will explain how we were able to solidify delivery
	against our strategic plans as a firm, despite the challenges
	we're all facing.
	As lockdown measures begin to ease across most of the
	industrial world, we saw equity markets recover more strongly
	than expected. However, uncertainties remain. We saw various
	situations where business models and corporate activities in
	different industries came under increased scrutiny, oftentimes
	rightfully so.
	But while COVID-19 continues to impact our day-to-day
	operating environment, it is not stopping us from executing our
	strategic priorities as committed. Against this backdrop, we
	delivered an adjusted cost-income ratio of 65.7% in the second
	quarter, close to our medium-term target, ahead of schedule for
	the second quarter in a row.
	This was made possible by our relentless and continuous focus
	on cost-efficiency measures, and we will continue on that track
	regardless of the pandemic-driven environment.
	On the flows side, having a diversified business across all liquid
	and illiquid asset classes benefited us as we were able to meet
	changing client demands throughout the first half of 2020. We
	attracted 8.7 billion euros of net inflows in the second quarter.
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This was driven by especially strong momentum in passive, and with sustained inflows in active equity.

In the first half of the year, we reported a total of 6.2 billion euros in net inflows, half which was driven by ESG fund flows. This not only indicates that increased client demand we are seeing for sustainability team products and solutions, but also reflects the strong outperformance of our ESG-dedicated funds and their ability to remain resilient compared to traditional funds in time of crisis.

To ensure we keep our intensified focus on sustainability in the long run, we have appointed Desiree Fixler, as our group sustainability officer. In this newly-created role, Desiree will be responsible for coordinating a sustainability strategy that is consistent across regions and that aligns perfectly with our duties as a fiduciary and as a corporate citizen.

And I am very pleased to say that we are already making meaningful progress on this front. During the second quarter, we enhanced the integration of ESG criteria in our investment platform through a sophisticated and pioneering process called Smart Integration.

This process enhanced our own stewardship practices, while also setting the bar higher for sustainability standards across the asset management industry. Through Smart Integration, we used robust research from our ESG engine to identify companies in our portfolios that either violate international norms or have high climate transition risk.

More importantly, it allows us to take the necessary actions to mitigate this ESG risk from our client portfolios, either through active management or by excluding them from our investment universe as a last resort. To us, this super-important as we aim to shield our clients and help them to invest more responsibly.

We are also continuing to execute our strategic plan. For the first time our firm's rich history, we introduced fully globally-integrated structures, removing silos, creating greater accountability and enhanced client-centricity. Our new structure allows us to prioritise our most important responsibilities as a fiduciary asset manager.

Our unified investment platform and its so-called in the future division will bring together our market expertise to help us achieve strong investment performance across all asset classes. Our coverage division will operate more efficiently and effectively to provide coverage locally where our clients need us.

Through our new and dedicated product division, we will strengthen time to market, innovation and lifecycle management of our product suite. And further advancing the establishment of

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	the state-of-the-art asset management framework, our
	infrastructure functions have been newly aligned into a globally-
	integrated structure.
	With these changes we ensure that DWS remains client-centric,
	flexible, efficient and effective in the future. Ladies and
	gentlemen, the second quarter has been extremely progressive
	for DWS. We have continued to withstand, to overcome the
	biggest challenges of the pandemic so far, so demonstrated by
	our strong and resilient financial performance in quarter two and
	the entire first half of the year.
	And we are not slowing down, dropping any of our strategic
	priorities we set before the pandemic. On the contrary, we are
	intensifying our focus on executing everything we have
	committed to consistently since late 2018. And we are delivering
	results. With that, I'm happy to hand over to Claire to look into
	the financial results.
Claire Peel	Thank you, and welcome, everyone. I hope you're all keeping
	healthy and safe. Today, I'll present the results and activities for
	the second quarter of 2020, starting with the key financial
	highlights.
	Adjusted profit before tax increased to 189 million euros in Q2,
	up 5% quarter on quarter, driven by an increase in quarterly
	revenues. Adjusted cost-income ratio improved to 65.7% in Q2,
	and 65.8% in the first half of the year, reflecting the continued
	success of our efficiency initiatives, and keeping us on track to
	achieving our target of below 65% in 2021.
	Net inflows of 8.7 billion euros in Q2 driven by strong flow
	momentum in passive and cash, further supported by active
	equity, and this helped us to achieve 6.2 billion euros of net
	inflows in the first half of 2020.
	Moving on to our financial performance snapshot, and starting at
	the top-left, AUM increased to 745 billion euros in Q2, up 6%
	quarter on quarter, driven by the improvement in market
	performance and net inflows.
	On the top-right, adjusted revenues were 551 million euros, up
	5% from Q1, mainly reflecting the favourable change in fair value
	of guarantees during the second quarter.
	On the bottom-left, adjusted costs were up 5% quarter on
	quarter, due to higher compensation costs linked to the DWS
	share price, but down 14% year on year, reflecting the desired
	impact of ongoing efficiency measures. This supported an
	adjusted cost-income ratio of 65.7%, and adjusted profit before
	tax increased to 189 million euros.
	Let's recap on the market environment. Following one of the
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sharpest market declines on record in Q1, we saw a stronger than expected recovery in Q2. Markets rallied in the second quarter as lockdowns began to ease, most notably in Europe.

And with central banks around the world confirming their easing bias, this provided reassurance that they would be ready and able to do more when needed. Together, this helped stabilise equity markets and reduce levels of volatility over the second quarter, while interest rates continued to operate at new lows.

However, as the pandemic continued to accelerate at different paces across the world, particularly in the US, there was still some volatility in FX movements, with the US dollar depreciating against the euro by quarter-end.

Overall, market conditions were more constructive in the second quarter, which had a positive impact on our AUM development, which I will now outline. Assets under management increased to 745 billion euros in Q2, up 6% quarter on quarter. Positive market performance helped recover two-thirds of the assets lost during the severe market downturn in Q1, and this more than offsets the negative impact of FX movements during Q2.

Net inflows also positively contributed to our AUM growth over the second quarter, which I will now explain in more detail. We reported 8.7 billion euros of net inflows in Q2 2020, marking a reversal from Q1 net outflows. Our positive flow performance is a testament to our diversified business model, which has enabled us to continue meeting clients' needs regardless of the market conditions in which we are operating.

After a challenging first quarter, passive gathered significant momentum in Q2, reporting 6.5 billion euros of net inflows. European listed ETFs and ETPs accounted for the majority of this quarterly performance, helping us to rank number two by Q2 flows in Europe, and number one by XT ETF inflows over the same period. We also recorded more than half a billion of inflows in the US, the majority of which went into our high yield bond offering.

Cash sustained strong flow momentum from Q1, attracting 6.3 billion euros of net inflows in the second quarter. Approximately half of the quarterly cash inflows went into our sterling fund, as corporates and local authorities stockpiled their cash to avoid a liquidity crisis in light of the lockdown.

Active equity also reported inflows for the second quarter in a row, with 1 billion euros in Q2. This was driven by improved retail flows, including contributions from our flagships, together with ESG equity funds, which remained positive inflow territory over the quarter.

Alternatives also sustained positive flows, albeit at a lower level

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compared to Q1. This is mainly driven by real estate, as our flagship Grundbesitz continued to attract investor interest in the low-yield environment. Collectively, these inflows more than compensated for outflows in the remaining asset classes.

In active multi-asset, retail inflows into our flagships Concept Kaldemorgen and Dynamic Opportunity fund were more than offset by a redemption from one of our institutional clients. Active fixed income reported the largest outflows of all of our asset classes in Q2, mainly reflecting the strategic decisions made by three institutional clients to bring assets in-house.

However, there was also some positive developments in the fixed income asset class. In contrast to Q1, we reported net inflows in a number of our flagship retail funds, and we attracted positive fixed income flows from institutional clients in Asia.

Altogether, our strong Q2 flow performance helped us to achieve

6.2 billion euros of net inflows in the first half of 2020, almost in line with the level of inflows recorded in the same period last year. This includes contributions across all three pillars of active, passive and alternatives, and with inflow across retail and institutional clients.

And with ESG funds accounting for more than half of our half- one inflows, this once again reinforces the importance we place on ESG and sustainability as a growth strategy for DWS.

Moving on to product launches, during the second quarter we continued to launch new products demonstrating our commitment to continue meeting clients' needs in these demanding market conditions. This included launches across most of our asset classes, and with ESG continuing to be a prominent feature of our portfolio.

Our Q2 launches also include great examples of our product innovation, such as DWS Invest QI Global Climate Action Fund, and the DWS Invest ESG Next-generation Infrastructure Fund. Both of these funds are considered to be the first of their kind to directly deal with the challenges posed by climate change.

As we enter Q3, we plan to launch sustainability-themed products within our fixed income and passive offerings, and with our newly-created product division we will align all of our capabilities to ensure that product innovation and the full product lifecycle will remain a key focus for our business going forward.

Moving on to revenues, total adjusted revenues grew to 551 million euros in Q2, up 5% quarter on quarter. As anticipated, management fees and other recurring revenues were lower, as we started the quarter on a lower asset base as a result of the market downturn in Q1. This was also reflected in our management fee margin, which fell to 28 basis points in Q2.

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Performance and transaction fees remained stable quarter on quarter, despite the market turmoil, and other revenues reported a positive turnaround from Q1, due to a favourable change in the fair value of guarantees over the second quarter, in addition to a 16 million-euro contribution from our Chinese investment, Harvest.

Despite positive quarterly developments, total adjusted revenues decreased to 1.1 billion in the first half of 2020, down 7% compared to the first half of 2019. And as already guided last quarter, we do expect 2020 adjusted revenues to remain below those reported in 2019.

Moving on to costs, in Q2 total adjusted costs increased by 5% from Q1, to 362 million euros. The quarterly increase can be attributed to higher adjusted compensation and benefits costs, mainly driven by the increase in equity-linked deferred compensation expenses, relating to DWS share price in the second quarter.

It's more than offset the 4% decline in adjusted general administration expenses, quarter on quarter, which reflects ongoing efficiency initiatives and additional cost-saves from the pandemic, such as reduced travel expenses.

Together with higher quarterly revenues, this helped us to achieve an adjusted cost-income ratio of 65.7% in Q2. In the half-year 2020, we saw total adjusted costs fall by 12% year on year, with significant decreases in both general and admin costs and compensation and benefit expenses.

As committed, we have continued our focus on efficiency, keeping us on track to deliver our gross cost savings objective of 150 million euros, and to reach our targeted adjusted cost- income ratio of below 65% in 2021.

To conclude, DWS continued to show financial resilience in the second quarter of 2020, despite facing ongoing challenges in light of COVID-19. We have remained fully focused on delivering and executing on our strategic priorities.

Efforts to build out and enhance our global and diversified business model are proving to be successful. We reported significant inflows in Q2 and in the first half of the year, including positive flows across the three pillars of active, passive and alternatives, and also across retail and institutional client channels.

Cost-efficiency remains a key focus to ensure that we maximise shareholder value, and in the first half of 2020, we have seen our cost base fall 12% year on year, as we have continued to deliver our efficiency initiatives as committed. And with the half-one adjusted cost-income ratio of 65.8%, we are close to our

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	medium-term target.
	Considering the unprecedented circumstances we have been
	working in, the strength of our Q2 and H1 results gives us
	confidence that DWS has the financial resilience to remain
	successful in the future. Thank you, and I will now hand to Asoka
	for the strategic outlook.
Asoka Wöhrmann	Thank you, Claire. With the first half of the year behind us, the
	historic disruption of markets and economies worldwide is clear.
	The unprecedented crisis was met with unprecedented action.
	The health protection actions led to lockdowns, counterbalanced
	by swift monetary and fiscal policy decisions, which helped
	stabilise economies across the globe, but also leading to the
	biggest mismatch of the real economy and markets, especially
	equity markets, in modern history.
	As we look ahead, the reality is that the road to recovery will be
	much longer than widely expected. It will take more stimuli and
	a lot of collective discipline. The pandemic itself also poses one
	of the greatest risks as we look ahead into the second half of the
	year.
	The materialisation of the second wave might lead to a further
	economic downturn. Additionally, there are heightened
	geopolitical risks, including the US elections in November, along
	with ongoing international disputes centred around the trade, as
	the US continues to score off China and the European Union.
	Despite the challenging and somewhat volatile market, I can
	reaffirm what I said last quarter. DWS is well-positioned to
	overcome the industry headwinds and deliver on its promises.
	I'm pleased to note that the executive board of DWS has
	reiterated its proposed dividend of 1.67 euros per share for the
	financial year 2019 for approval at our AGM which will now take
	place virtually on 18th November this year.
	We are also, as I mentioned, committed to achieve our adjusted
	sustained cost-income ratio target of below 65% as well as
	returning to our flow targets to the levels we had locked before
	the pandemic.
	As outlined at the start of the call, we have significantly
	restructured our organisation to ensure that DWS is
	operationally ready to deliver on these goals and for the future
	in general.
	Let me be clear, our organisational changes were not made in
	response to COVID-19. They formed part of our strategic
	priorities we have outlined consistently since late 2018, and
	which we reiterated again at our investor update in December
	2019.
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	And let me say we are confident that this improved structure
	gives us a solid basis to focus on our most important
	responsibilities, strong investment performance, best-in-class
	clients services and product innovation. This will be especially
	important as we enter the next normal.
	As we have said before, the megatrends we had identified last
	year are likely to accelerate in light of the pandemic. In particular,
	we expect the barbell between alternatives and passive to
	become more pronounced, driven by market liquidity and low
	interest rates.
	We are already seeing this at DWS. Despite a muted second
	quarter, our alternatives business continues to thrive as
	investors look into increasingly invest in such products due to
	their long-term nature and ability to generate returns in a low-
	yield environment.
	And as we saw very clearly in the second quarter, demand for
	passive remains very strong. We expect this trend to continue
	amid growing client interest in ESG and sustainability-focused
	passive products, especially in EMEA and in the US.
	Also on our agenda, continue to develop existing relationships
	and exploring opportunities to build new ones. This is
	exemplified by the strategic partnership we recently formed with
	the private markets division of Northwestern Mutual Capital,
	where we will combine the strength of DWS global investment
	expertise, broad platform and client base with Northwestern's
	proven investment track record, to identify and develop private
	market opportunities.
	And of course, we want to shape how the post-pandemic work
	environment will look like in the asset management industry. So
	we are exploring how our business becomes more digitalised,
	our offering and our workplace is more flexible, and our client
	coverage is more interactive, through various virtual formats
	which are adding to in-person engagement.
	And we want to lead the movement into the next normal, not
	merely follow the herd. Thank you for listening. Please stay
	healthy and safe. And with that, I will pass over to Oliver.
Oliver Flade	Thank you very much, Asoka. Operator, we are ready for Q&A
	now. And again, if I could remind everybody in the queue to limit
	themselves to two questions, thank you.
Operator	Ladies and gentlemen, if you'd like to ask a question, please
	press star followed by one. To withdraw your question, you may
	press star followed by two. If you are using speaker equipment
	today, please lift the handset before making your selections.
	Anyone who has a question may press star followed by one at
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	this time. One moment for the first question, please. The first
	question comes from the line of Hubert Lam with Bank of
	America. Please, go ahead.
Hubert Lam	Hi, good morning. I've got a couple of questions. Firstly on costs,
	you've made really good progress on G&A costs coming down
	every quarter, should we expect the same type of progress over
	the next several quarters, where it continues to come down?
	Also related to this, how much of the decline in G&A in the
	quarter was due to Covid-related savings that may come back,
	eventually?
	The second question is on fee margin. The fee margin fell about
	1.5 basis points quarter on quarter. How much of that would you
	say is due to fee margin pressure and how much of that is due
	to mix? And also, if you could give us some colour by asset
	classes, as to where most of the fee margin pressure is being
	felt? Thanks.
Claire Peel	Hi, Hubert. Good morning, and thank you for the questions. I'll
	take both of those on cost and margin. On the cost run rate,
	indeed we expect this to be a sustainable level of cost we are
	operating in. Certainly on the adjusted general and admin
	expenses, which is taking into account the initiatives that are
	reflected there, we would expect to operate at that level that we
	see at the moment in Q2.
	On the compensation and benefits line, that is similar and
	consistent in terms of what we expect going forward, with the
	exception of any volatility that we may see in the share price.
	But with the share price being equal as it stands at the moment,
	we would expect to see a stable level, with of course the normal
	movement that we may see in comp and benefit at the end of
	the year. But otherwise, we're very much focusing on the cost-
	income ratio target of below 65%, and that will be our guide.
	On your question around incremental cost savings around
	Covid, for T&E and marketing expenses, those have declined in
	this half-year compared to last half-year by 11 million, and I
	would attribute that decline to the Covid environment that we're
	operating in.
	On the fee margin question, Q2 we see 28.1 basis points, so
	quite a step down of course from the first quarter, and I would
	break that into three parts. Around 0.5 basis points of the
	movement is coming from the market downturn and the spill-over
	effect that we see in Q2 versus Q1.
	We provide, on the revenue slide the average AUM levels
	compared to the spot, and of course the average in Q2 is much
	lower than it was in Q1, which hadn't seen the full effect of the
	market decline.
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	The flow mix effect is also around 0.5 basis points, and then the
	balance is normalisation effects that we see between quarter
	one and quarter two. We would expect to be operating at this
	kind of margin level in our outlook.
Hubert Lam	Sorry, on costs, I just wanted to clarify, you're saying that the
	170 million G&A costs, you're saying it's going to be stable going
	forward on that number? Or do you mean that that can come
	down further?
Claire Peel	I would say that that would be more stable. Obviously, it can
	fluctuate, I can't give a precise prediction, but I would expect it
	to fluctuate around that level.
Hubert Lam	Okay, thank you.
Operator	The next question comes from the line of Haley Tam with Credit
	Suisse. Please, go ahead.
Haley Tam	Morning, everyone. Two questions from me, please. First of all,
	just to follow up on the management fee margin question that
	Hubert gave, the 28.1 basis points in Q2, I think you've said that
	should be now a level that you would expect to operate at in
	terms of your outlook.
	Could you help us understand why that actually shouldn't go up,
	given the market recovery in Q2 and perhaps a positive flow mix,
	with most of the outflows in Q1 apparently from institutional
	mandates?
	And then a second question, in terms of this barbell of flows that
	you've spoken about, can you help us understand how to think
	about the alternatives side of that for you, from here? I guess in
	particular liquidity alternatives, how much AUM there is there,
	what's been driving the net outflows, and perhaps some idea of
	the scale and timing of the opportunities you outlined with
	Northwestern and the other joint ventures? Thank you.
Claire Peel	Good morning, Haley. I'll comment first on the basis point
	around the fee margin, and the hand over to Asoka for some
	comments on alternatives. So the 28.1 has effectively factored
	in what we've seen in the market downturn, and the average
	AUM level that we see for Q2 is 728 billion compared to the spot
	of 745.
	So I think it's reasonable to say that we've obviously seen that
		[unclear 00:32:39	] in the 28 basis points, but we've also had a
	shift in the flow mix in the asset classes that we've seen driving
	our flows. And I think from what we see at the moment at least,
	in this environment, we see that as driving the margin at this kind
	of level. So I think that's the basis of the 28 basis point outlook
	that I was pointing to. And on the alternatives side, I'll hand over.
Asoka Wöhrmann	I think your comment on alts is quite right. I think the second
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	quarter we have seen some very muted flow there. I think it's
	understandable people took some pause into the flow story, but
	I think there are two angles to see.
	I think more and more people are also not realising that the
	pandemic will lead us to a lower call rate in the world, and that is
	going to happen, and it will stay there. So therefore, I think the
	demand for this kind of assets will increase further, not only this
	year but also beyond that.
	We have seen already strong inflows in Germany, for example,
	in Grundbesitz family, the open real estate funds, all the three
	categories, Germany, Europe and global, and I do think for us
	it's important that you see this as… The first quarter was strong
	inflows, second quarter still continued in inflows but not in the
	same momentum, it dried up.
	And I do think also the infrastructure inflows, infrastructure equity
	funds, in my opinion, in the third and fourth quarter we will see
	more momentum, especially in the fourth quarter, and we are
	expecting also the liquid real assets area, with positive
	momentum of the market, coming up.
	And the B3	[? 00:34:45	], I am not allowed to talk precisely into
	that but I do think the third and the fourth quarter we can see a
	next	[? 00:34:53	] closing, and I do think with that we will be back
	on track again on the flows in alts, and that is exactly the barbell
	that we are looking for.
	Passive, and now at the moment, in the second quarter, liquidity,
	flows coming in, and some equity funds, people are seeing a
	change in very low index levels getting into this strategy, but
	now, the second half of the year, we are seeing more momentum
	in alts.
Hayley Tam	Thank you.
Operator	The next question comes from the line of Mike Werner with UBS.
	Please, go ahead.
Mike Werner	Thank you. Two questions from me, please. First, have you
	seen any fallout in terms of flow momentum on the equity side
	from the Wirecard exposure that you had across some of the
	funds? And I was just wondering and thinking about how we
	should think about that as we go through Q3?
	And then second, you noted in the press release this morning
	that the management team is committed to identifying and
	realising further cost savings if the revenue situation should
	allow that or should make that necessary, and I was just
	wondering about these incremental cost savings.
	Are these cost savings that will only be implemented upon
	should the revenue environment weaken? Are these core to the
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	business, or if the revenue environment, the markets, continue
	to perform, are these potential cost savings that could come at a
	later point, in addition to the 150 million that you've already
	targeted? Thank you.
Asoka Wöhrmann	I'll take the first question, and I think the second part Claire will
	go into, especially the cost programme, what we have initiated
	already at the beginning of the year and end of last year.
	Let me say on the Wirecard topic, it is a big event in Germany
	and also in Europe, but we do not see any direct short-term
	impact on our flows. Although we cannot predict the medium and
	the long term, but I do think, ironically, we have seen in German
	equities in the second quarter inflows, but it might be a mixture
	of a great performance of the DAX German stock index and
	people might be seeing a chance after clearing these positions
	from our side.
	But again, we are not seeing any negative impact on Wirecard,
	but we are coping with all the reputational risks that the
	organisation is looking for, and therefore, at the moment, also
	the relative underperformance through Wirecard of our German
	equity funds are very, very muted. And therefore, I am not seeing
	a bit topic out of that. And happy to hand over now on your
	revenue and cost topic to Claire.
Claire Peel	Good morning, Mike. Just to pick up on the question around the
	cost savings, to recap we committed to a gross cost savings plan
	of 150 million euros for this year and next. That's weighted
	towards year 2020 and we're very much on track to deliver
	against that.
	And I think that's quite evident, particularly looking at the half-
	year G&A number, when you look at half-year one versus last
	year, on G&A, that's down 45 million over that period. So we're
	very much on track with those initiatives and we can see the
	benefits of those coming through.
	On your question of the additional cost savings, we've already
	realised some of those Covid-related savings, as mentioned on
	the marketing and T&E line, that's 11 million down in the first
	half, and we would anticipate that saving to continue, given what
	we're seeing in Q3 and possible Q4 for this year.
	So I think we will certainly see those additional Covid-related
	savings, but in terms of the go-forward, we're very much
	focusing on the cost-income ratio target. And obviously if we
	need to continue incremental cost savings, we will do so. But it's
	all anchored on a cost-income ratio target.
Mike Werner	Thank you. That's helpful, thanks.
Operator	The next question comes from the line of Jacques-Henri Gaulard
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	with Kepler Cheuvreux. Please, go ahead.
Jacques-Henri Gaulard	Good morning, everyone. Two quick questions. You mentioned
	in your press release that you're combining your passive and
	SQI units, and I was wondering what would that mean in terms
	of disclosure, if you would still keep SQI and passive separate,
	and whether that was actually a source of cost reduction as well,
	and if you can maybe quantify that if it is at all relevant? And
	maybe a view about the excess capital of the firm and whether
	you're seeing the current situation as lending itself to
	consolidation or not? Thank you.
Asoka Wöhrmann	Let me take the SQI, and excess capital, Claire will briefly go
	into that. Again, SQI is, for us, and I think I explained at maybe
	one of the former analysts meetings, a more [	unclear 00:40:25	],
	and combining passive and the quant area together, we want to
	create a platform, and based on this platform we want to set our
	aspirations, especially for this area, ETFs and the quant area,
	much stronger in the future.
	Because as I outlined before, I think the passive and the quant-
	related strategies will be requested from our clients much more
	in the future. And there is an efficiency aspect, there is an
	efficiency aspect, and I think we are never disclosing this in a
	separate way, but I want to say this is playing out into all the
	efficiency measures that we have outlined, and the programme
	was clearly always outlined.
	But at the same time, I can see much more revenue potential
	and AUM potential for DWS. This is why we are doing it and we
	have this aspiration. And also, our new organisational set up, we
	already executed the Six Plus One strategy, as we called it, in
	our transformation of our platform into this area, so we have
	already announced SQI and passive coming together in a
	systematic investment platform.
	And we will see, in 12 months, where we are, and I think this is
	our aspiration and thinking. Claire, briefly if you can outline
	excess capital, that would be great. Thanks.
Claire Peel	Thank you, Asoka, and good morning, Jacques-Henri. I think on
	the point of capital, I would just reiterate that we are very well
	capitalised, we have a CET1 ratio of 30% for the second quarter,
	which is well above the regulatory minimum on a pillar one
	standpoint.
	On excess capital, we don't disclose that. We did announce at a
	point in time that we had excess capital at the point of the IPO,
	but it's not something that we measure or disclose on a go-
	forward basis.
	But I think more important, when it comes to M&A activity we
	certainly will continue to scan the environment and to monitor
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	opportunities and consider those that make economical sense at
	DWS. So we will be active in monitoring the opportunities that
	are in front of us.
Jacques-Henri Gaulard	Thank you.
Operator	The next question comes from the line of Stuart Graham from
	Autonomous Research. Please, go ahead.
Stuart Graham	Hi, thank you for taking my questions. I have two, please. On
	the additional cost savings that you talk about, I'm a bit confused.
	If you know you can deliver them already, I don't understand why
	you're not formally targeting them already rather than only
	invoking them if revenues falter. So that's my first question.
	And then the second question is on ESG. Your own governance
	set up, the KGAA structure is obviously relatively suboptimal
	from a governance perspective. I know that was chosen by your
	parent, not by you, but are there any discussion of changing this
	structure to give your outside shareholders normal shareholder
	rights? Thank you.
Asoka Wöhrmann	Let me say, Stuart, thank you. I think let me answer the last one
	first. The KGAA structure is given, as I became CEO of DWS,
	that was well-known, and also as we went into the IPO, so
	therefore I think we can't change the structure. I know all the
	ESG perspective on the KGAA and shareholder perspective on
	that, but again that's something that is out of the scope of the
	management of DWS executive board.
	But all other people can engage on that, and I think this is exactly
	given that we are still completely confident that the ESG is the
	right DNA change that we need for DWS itself, and might be, in
	a forward-following step, maybe we are going to address that.
	But first of all, we are going to change, and as you have seen,
	Stuart, we are changing to our smart integration of investment
	processes, we are delivering on all innovating ESG products in
	passive or in active areas, all the solutions, and in all these kinds
	of product suites for our clients, and we are taking, as a
	corporate, all our duties in this area very seriously, as I said at
	the last AGM, and we are continuing to put all the right
	governance, given the structure that you alluded to.
	The first one, smart question, and I think again you can see we
	are delivering, quarter on quarter, our targets. Again, Covid was
	not completely unexpected by us, even that we are trying to
	deliver. And that is why I think from the first day on, what we are
	doing since late 2018, we are managing our costs really
	diligently. This is the disciplinary action that we have introduced
	to delivering our targets. But I think, Claire, you want to also give
	some comments on that. With that, I will hand over to Claire.
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Claire Peel	Thank you. Yes, I would just briefly add on the cost side I think
	the 150 million cost-saving programme that we have initiated,
	we've done that regardless of revenue environment, and we will
	put those savings in place to drive efficiencies across our
	platform. The incremental savings are really in support of the
	volatility that we have seen and could see in the revenue
	environment in the future.
Asoka Wöhrmann	And, Stuart, also, the market scenario is still, as I presented at
	the very end, quite volatile. We can see a second wave, we can
	see uprising markets and our activities are going back to very
	normal. All that has some impact, as Claire outlined, so therefore
	I think to deliver, quarter by quarter, and to deliver into 2021 our
	targets, especially medium term, and medium term is not
	medium term for us, it's always shifting the three-year periods in
	front of us.
	We have committed and we are delivering, and if things are
	coming earlier, we are all happy, but we are working to that, and
	I think there is also market perspective and client perspective,
	and we have to be, there, also cautious and not interpolating the
	things that we have reached, we are all proud on that, into the
	next quarters because the uncertainty at the moment we should
	not underestimate.
Operator	Your next question comes from the line of Arnaud Giblat with
	Exane. Please, go ahead.
Arnaud Giblat	Good morning. Firstly, could I ask on Harvest, that's had some
	nice progress, the contribution to profit of 55% year on year in
	H1. Could you maybe go through some of the drivers that are
	driving that growth in terms of progression flows, revenue
	margins, operating margins? That could be quite helpful. And
	specifically, are there any plans to further develop that joint
	venture.
	And secondly, I'd like to ask on your fund platform, IKS, what
	sort of contribution it makes to the group. The reason why I'm
	asking is obviously there's been some stories going around
	where the platform may be up for sale. So any comments on that
	would be appreciated.
	Clearly, Deutsche Börse has done well out of accelerating
	growth of the platform that they've acquired, so perhaps you
	could partake by retaining a minority? But I'd really appreciate
	some thoughts on that. Thank you.
Claire Peel	Hi, Arnaud, good morning and thank you for the questions. I'll
	start with the question on Harvest. So yes, indeed in the second
	quarter we've recognised 16 million of revenues from Harvest,
	and that's compared to 15 million in Q1. So 31 million for the first
	half of the year, and that compared to a full-year recognition last
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	year of 45 million.
	So certainly operating at a higher run rate from a very solid return
	that we see from Harvest, and that's been supported on the
	Harvest side by some good inflows in the first quarter, and
	obviously a market recovery in the second quarter, and then
	some underlying product and performance factors that Harvest
	has seen within its own area. So that has had a knock-on effect
	to us, and gives us the opportunity to beat the run rate that we
	had on the full-year basis in 2019.
	In terms of incremental opportunities with Harvest, we are
	indeed looking to further build on the relationship that we have
	there and to collaborate on further projects, and we'll have more
	details to give on that.
	If I move on to IKS, as we've said, or as I said earlier at least, we
	will continue to scan the environment for any opportunities that
	we have around strategic partnerships, and that's without
	exception, but I will pass to Asoka to add some more comments.
Asoka Wöhrmann	Claire, thank you very much. Let me say on Harvest but also a
	comment on what we have done previously commented already,
	we are looking for strategic relationships. You are seeing in
	Northwestern Mutual something which is enriching our
	organisation, with all our capabilities combined with external
	strategic partnerships, the best we've done.
	And as I said before, I have really big aspirations in Asian, and
	we are working also beyond Harvest on strategic relationships,
	and I do think also that is ongoing and this is something we want
	to reiterate again.
	The second thing, regarding the IKS, it is more than the IKS topic
	for us. The market is, in some way, in sales platform building, in
	the asset management industry, a peripheral area, but the
	highest dynamic in M&A activities and partnerships is going in
	this field, in the platform-building and the sales platform building
	environment.
	And I do think in this subsector we want to be active. We have,
	with IKS, a fantastic position, as Claire said, and I do think we
	are really evaluating and thinking what are our strategic options
	to build our fund platform into the next era, attach the next
	momentum in the market in this environment? And that is exactly
	what we are doing.
	There are some rumours, but I wasn't to say that DWS executive
	board was very much engaged also in the last 12 months to think
	about this topic, because this is a fast-growing area.
Arnaud Giblat	That's helpful, thank you.
Operator	The next question comes from the line of Bruce Hamilton with
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	Morgan Stanley. Please, go ahead.
Bruce Hamilton	Hi, thanks for taking my questions. Maybe firstly, just to go back
	to the costs question, just to clarify, on the Covid impact, I think,
	Claire, you said 11 million euros worth of saving in Q2, and you
	expected similar for Q3 and Q4, just to check?
	And then secondly, given the experience of Covid, it feels like
	most of your peers have found that they can operate pretty
	effectively and actually improve efficiency, decision-making,
	etc., etc., less travel going forward. Some of these savings
	should be sustainable into the future, or is that not how you view
	it?
	And then secondly, just a little more colour on the strategic
	partnership with Northwestern Mutual. What product strengths
	do they bring? Can you give just a little more colour on what they
	bring in terms of enhancing your existing capabilities? Thank
	you.
Claire Peel	Good morning, Bruce, and thanks for the questions. You're
	correct in the way you defined the Covid-related marketing and
	T&E savings that we've seen in the first half, so that was 11
	million which I commented on, and we would expect the same
	kind of level in the second half of the year, based on activity that
	we're seeing at the moment.
	Do we expect that to be sustainable in the future? I think the way
	we work is clearly going to change in the future, and I think that's
	under evaluation with us and everywhere, but equally we would
	expect to see some of that expense-saving this year come back
	as we normalise to a certain degree in the way that we operate
	some of our travel and marketing events and so on.
	So some of it will come back, but I'm sure not to the scale that
	we've spent perhaps in the past is something that we're very
	much assessing. And I will hand over to Asoka on the second
	question.
Asoka Wöhrmann	Thank you. And I think Northwestern Mutual is a topic for us. We
	worked for some time to build our excellent position in the US,
	what we have in various areas in alts, and I do think we are now
	looking for the partnership that we are building, especially our
	private equity, newly-formed private equity division, are looking
	to partnering up with the excellent investment capabilities of
	Northwestern.
	And I do think what we are aiming for with this action is
	broadening the product range, strengthening the distribution
	reach, also with the new product range, and also go faster
	complimenting other capabilities in our organisation. Because
	there is some complementary projects that we don't have to build
	up at the moment in this cycle, it takes time. And these are the
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	capabilities that we are looking for, these three things.
	Broadening our product range, strengthening our distribution
	reach and complementing our capabilities. These are the main
	thoughts behind this strategic partnership.
Bruce Hamilton	Great, thank you.
Operator	The next question comes from the line of Nicholas Herman with
	Citigroup. please, go ahead.
Nicolas Herman	Good morning, thanks for taking my questions. I appreciate the
	broad colour you've provided on group margin trends. Could I
	just push you for some more detail on margin trends by product,
	please? And as part of that on the passive side, is that coming
	off to a great extent than other products?
	I saw in particular, for example, that BlackRock cut several of
	their passive fees in Q2, so some commentary around the
	passive competitive environment would be helpful, please.
	Second question, just on growth, inorganic growth, I guess with
	the strong market rebound has that basically limited now M&A
	optionality, and therefore it makes it much more like that any
	inorganic growth, so to speak, is going to be done through
	strategic partnerships? And I think you said before that your
	preferred region there is Asia and alternatives. Thank you.
Claire Peel	Hi, thank you for the question. I will take the first question on the
	margin, and specifically you're asking about asset classes there,
	and I think I heard where is the decline most pronounced. We've
	always guided to the fact that we would expect to see margin
	compression in the passive asset classes of up to 2 basis points
	per annum, and that's certainly what we saw last year and that's
	what we would expect to see this year.
	And it is indeed a contributing factor in what we see in the second
	quarter. We're not disclosing the quarter-on-quarter fee margins
	per asset class, just because of some of the volatility that we see
	there, but certainly passive is a driver.
	And also influencing is the active equity asset class, where the
	movement in the markets and the mix of the assets is also
	contributing to the average fee margin. So those would be the
	two main areas of margin effects that I would point to. And I will
	hand over to Asoka.
Claire Peel	Thank you, Claire. And I think your question between strategic
	partnerships and M&A activities, I do think also we can show you
	that we're managing DWS with the clear priority and this is
	generating organic growth and improving our efficiency.
	And that will strengthen our market position, and we want to
	become a leading asset manager in this industry. And this is
	exactly why we are strengthening the ESG effort, that is why we
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	are enriching our product suite with the three-product layer asset
	manager, and we want to strengthen our regional footprint, and
	that is why we are looking for strategic relationships.
	And I do think in the Covid crisis, you have all experienced it
	yourself, executing M&A activities during this unknown period of
	Covid is a big challenge for many organisations that have done
	M&A activities. I am happy to say, also with my executive board,
	that we are not engaged with M&A executions. But the possibility
	at the end of this Covid cycle, I'm sure that there are a lot of
	possibilities.
	We are looking for, we are screening, these things, but we are
	also strengthening our competitive position and building our
	leading position in this industry. This will help us to make much
	better, in later stages, M&A activities than today. I want to
	confirm to you we are working on our own position, want to grow
	organically and become a more efficient and leading
	organisation.
Nicolas Herman	That's very clear, thank you. And just to clarify, despite the very
	strong market rebound, you still expect to see a lot of possibilities
	in the market as a result of this Covid cycle?
Asoka Wöhrmann	Yes, let me say that many, many players, they have not worked
	for some time on cost. If you work on cost, and Claire and myself
	know, and the executive board, how long that takes, these things
	kicking in… And I do think now is all about run your costs in a
	diligent way and build up an efficient organisation. And it is to
	build an efficient organisation in Covid is difficult for many, many
	leaders and management people.
	And I do think, from this perspective, the revenue side is now
	recovering markets is a good sign, but we lost more or less four
	months this year, good markets we have to say. This is the part
	that you are missing on your revenue side. If you're not
	counterbalanced with cost, you can never deliver what we have
	promised at the very beginning of the year.
	So from this perspective, I am sure that many companies have
	to look for partnerships, M&A activities. And also I think this
	industry is fast-moving, and as I said it quite depends on the
	duration of Covid. The longer duration of Covid impacts the
	industry, the life of people, and I do think also the economies,
	there is more pressure on the market to consolidate, and we are
	ready also for looking to this strength, as I said already before.
Nicolas Herman	Interesting, thank you.
Operator	The next question comes from the line of Thomas Hallett with
	KBW. Please, go ahead.
Thomas Hallett	Hi, guys. So I guess most of my questions have been answered,
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	but maybe just a quick one on the dividend and a follow-up on
	the excess capital. On dividend, you reiterated the proposal for
	the 2019 dividend at the November AGM. But recent ECB
	commentary has effectively told banks they'll have to wait until
	2021.
	I guess given your previous commentary on staying within the
	regulatory spirit, I'd just like to get your thoughts on your ability
	to diverge from that ECB view, and whether any discussions took
	place with the regulators?
	And then maybe just a follow-up to the question on excess
	capital. I appreciate the challenges and not providing too much
	detail on this, but given the general reduction in capital
	requirements across Europe, can you at least tell us whether
	DWS has been a beneficiary of this, or at least do you broadly
	expect the capital requirement to fall over time? And if so, is
	there any potential timeline on this? Thank you.
Asoka Wöhrmann	Again, let me thank you for the question, and I think there are
	questions and Claire will do the first part, I will answer your
	question regarding dividend and regulators.
	I think we are a financial holding company and we are regulated
	as a financial holding company, and the ECB, for example, what
	they are discussing does not apply to us.
	And I do think we have very carefully looked into that from
	various perspectives, but also all the sub-entities, everything, we
	looking very in detail. I think Claire's department have done a
	fantastic job on that, and I do think that is why we are reiterating
	our proposal of 1.67 euros to the AGM this year, 18th November.
	That is why we came to this statement, also looking into the
	regulator's views and how that will impact us. So up to now, we
	can't see this can be against the regulator's view of the financial
	holding companies.
	The second thing is I do think also our commitment to 1.67 we
	proposed at the beginning of the year to our investors, we always
	kept to that. Also, at the last analysts meeting we said we want
	to have the chance to have a physical AGM versus virtual.
	I think now we know that the pandemic is taking longer than we
	expected we are going to the more or less clear view to virtual,
	but we want to do it and we want to keep our promise on the
	dividend, the proposal that we outlined. And I think that has very
	much based on our committed to you guys, our investors. Claire,
	if I can hand over the excess capital, what you already briefly
	answered? Thank you.
Claire Peel	Yes, thank you for the question. Nothing to add specifically on
	the quantification of excess capital, but I think on your comment
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	around the revised European prudential framework for
	investment firms and the review that's underway at the moment,
	we do expect for the publication of regulation, that these will
	come in to be applicable around the middle of next year.
	And our understanding is that the aim of the new regime for
	investment firms is to introduce rules that are adapted to the risk
	profile and the business model of investment firms. And of
	course we generally welcome that, and we'll be monitoring that
	progression very closely over the coming months.
Thomas Hallett	Great, thank you.
Operator	There are no further questions at this time. I hand back to Oliver
	Flade for closing comments.
Oliver Flade	Thank you very much. And thank you, everyone, for dialling in
	today. For any follow-up questions, please feel free to contact
	the IR team. Otherwise, we wish you a great day. Bye-bye.
01:07:30

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