Deutsche Asset & Wealth Management's global head said this week that his firm is not seeking to mimic BlackRock’s strategy in the passive-investment sector, acknowledging its rival’s huge success in this area.
“Everybody needs to have their own strategy, so we are not trying to be BlackRock,” said Michele Faissola of DeAWM, which runs $1.2 trillion in assets, against the US firm’s $4.4 trillion. “But there are some similar features.”
Speaking in London, he credited BlackRock’s success to its acquisition of Barclays Global Investors in mid-2009, which boosted its AUM by $1.5 trillion and turned it into a passive-investment giant. It is now the biggest exchange-traded fund provider, with close to $1 trillion in ETF assets.
“I see no point for us to launch the next S&P 500 exchange-traded fund – you [already] have iShares, Spider [from State Street Global Advisors], Vanguard,” said Faissola. “I think we are late to the party for the big passive [approach].”
Yet he believes that there is still plenty of room for other market players, provided their propositions are differentiated. DeAWM is focusing on what it calls ‘beta plus’, which involves “creating some form of alpha in the beta space”, he said.
Faissola’s comments came on the second anniversary of the proposed partial spin-off of DeAWM’s fund business unit, which was nearly sold to Guggenheim Partners until negotiations broke down in 2012. He clearly wanted to draw a line under those events.
“We are not putting any assets up for sale in the foreseeable future. We are totally committed with [this] business,” said Faissola. “Please don’t ask me any more of these questions. I am sick and tired of it.”
“We are committed to our target and we have not changed our target and we are on track,” he added. By the end of 2013, the unit’s pre-tax income was €1.2 billion. It plans to raise that to €1.7 billion by 2015.
Asked whether DeAWM intends to acquire any other businesses, Faissola said he is not against the idea, but that it is too early to consider doing so, as the firm is in the process of implementing a technology system upgrade.
“In financial services, integration is very tough, because it is all about people, personalities, egos. You have to be careful,” he said.
Asia accounts for some 7% of DeAWM’s global AUM, and Asian flows have remained positive despite the group suffering overall net outflows of €19.7 billion in the second half of 2013. However, it did not provide Asia flow figures by press time.
One area of business growth is Asia’s wealth management segment. “The question is at what point the onshore business will become more and more relevant, and I think this will be a function of the maturity of the market and regulation,” Faissola said.
With regard to China, he noted that Shanghai’s free-trade zone could enable DeAWM to tap onshore Chinese clients. The firm’s relationship with Hong Kong-based Harvest Global Investments will also be important to penetrating the mainland market, he added.
While DeAWM helps Harvest raise capital on the international market through its RQFII exchange-traded funds recently co-launched in London and New York, Faissola suggested Harvest’s expertise and distribution in China would help it gain a foothold there. “We are already managing significant mandates for Chinese investors,” he added.