German asset manager DWS continued positive flow momentum in Q2 2019. Despite a challenging market environment that includes global trade tensions, continued uncertainty and volatility, DWS was able to solidify our flow trend by posting net inflows for the second quarter in a row.
The adjusted cost-income ratio was at 69.5%, below our full-year target, putting us firmly on track to reach that target in 2019.
Asoka Woehrmann, CEO said: "The first half of 2019 has been very successful for DWS. The positive performance of our diverse platform and spirited commitment of our global staff have helped us post strong flows and have put us firmly on track to achieve our goals for the full-year."
Total revenues increased to €608m in the second quarter of 2019 (Q1 2019: €534m). Management fees and other recurring revenues improved driven by the positive flow development and favourable markets. In addition, performance and transaction fees increased significantly due to the recognition of a non-recurring Alternatives fund performance fee. Total revenues were €1,142m in the first half of 2019.
Adjusted profit before tax rose to €185m, (Q1 2019: €153m). For the first half of the year, adjusted profit before tax totaled €338m. After deduction of taxes, DWS posted a higher net income of €112m for the second quarter (Q1 2019: €102m).
The management fee margin increased slightly to 30.3 basis points (Q1 2019: 30.0 basis points), and was at 30.2 basis points in the first six months of the year.
Assets under Management (AuM) further increased to €719bn in the second quarter of 2019 (Q1 2019: €704bn). This was primarily driven by the market development and supported by net inflows, while exchange rate movements had a negative impact. Our AuM stood at €662bn at the start of the year.
In the second quarter DWS successfully generated further net inflows of €4.2bn (€0.6bn excluding Cash), achieving total net inflows of €6.7bn in the first six months of 2019. The main driver was continued momentum in our targeted growth areas of Passive and Alternatives. In addition, key flagship funds across our diversified platform, such as DWS Top Dividende, DWS Concept Kaldemorgen, RREEF America II and the DWS Grundbesitz real estate funds family continued to perform well, gathering net inflows. Also, the flagship funds, DWS Dynamic Opportunities and DWS Invest Asian Bonds fund each exceeded €1bn in AuM for the first time.
Furthermore it saw positive inflows from insurance companies and into product innovations, such as ESG-related funds.
Active Asset Management ex Cash saw net flows of minus €5.2bn in the second quarter (Q1 2019: minus €1.4bn). In particular, Active Fixed Income suffered net flows of minus €3.7bn, with institutional redemptions primarily impacted by corporate activities and the lower yield environment. Active SQI and Active Equity also faced a challenging flow situation. The outflows in equities were in line with the lower risk appetite of retail investors during the second quarter. Meanwhile Cash products saw inflows of €3.6bn, following outflows in the first quarter.
Passive Asset Management saw net inflows of €3.5bn in the second quarter (Q1 2019: €6.2bn), adding up to almost €10bn for the first half of 2019, surpassing the total net flows of full-year 2018. ETPs (exchange-traded funds and commodities) contributed strongly to the overall Passive business and achieved a market share of 17 percent in European flows during the second quarter (source: ETFGI).
Alternatives generated net inflows of €2.2bn in the second quarter (Q1 2019: €2.6bn), with positive flows into both Illiquid and Liquid Alternatives, driven by continued high demand for the DWS Grundbesitz real estate funds family and new mandates.
Adjusted costs stood at €423m in the second quarter (Q1 2019: €382m). The quarter-on-quarter increase was due to higher revenues and subsequent carried interest through compensation related to non-recurring Alternatives performance fees. Our ongoing measures for sustainable cost efficiency are successfully paying off: In the first half of the year, adjusted costs decreased by 5 percent to €804m (H1 2018: €846m). We are on track to deliver the top-end of our medium-term savings guidance of €150m by the end of 2019.
The adjusted Cost-Income Ratio (CIR) improved to 69.5 percent (Q1 2019: 71.4 percent), as higher revenues outweighed increased costs in Q2. Hence, we are on track to achieve our target of an adjusted Cost-Income Ratio for full year 2019 of around 70 percent assuming flat revenues.
Growth initiatives and strategic progress
During the second quarter - and as announced at Annual General Meeting in June - DWS worked intensely on further strengthening its digital and sustainable investing capabilities. As a result, it acquired a minority stake in Digital ESG-Scoring Provider Arabesque S-Ray, with closing in July, and agreed on a related cooperation which will help us strengthen and broaden our existing ESG solutions capabilities and our ESG Engine. Arabesque S-Ray offers a variety of services and products in the field of ESG: Through its innovative data tool S-Ray, it monitors and allows clients to assess the sustainability performance of more than 7,000 listed companies globally.
In addition, DWS has entered exclusive talks to acquire a potential significant minority stake in Arabesque's AI Engine. The AI (Artificial Intelligence) Engine combines big data, machine learning, and high-performance computing in order to build an intelligent system that primarily predicts stock price developments.