Deutsche Asset Management to pay bulk of profit in dividends

Deutsche Bank AG’s investment unit said it plans to pay out most of its earnings to shareholders as it seeks to attract investors to a planned initial public offering next year.

The asset manager will use its German retail brand DWS to sell its products globally and will be renamed to reflect that, the bank said Tuesday. The business expects to achieve annual net inflows of 3% to 5% of assets under management in the medium term, an adjusted cost-income-ratio of less than 65% and a dividend payout ratio of 65% to 75%, according to a statement. 

Deutsche Bank Chief Executive Officer John Cryan in March announced plans to sell a minority stake in the unit, known as Deutsche Asset Management, to help shore up capital, ending years of shifting strategies for the business that have eroded client confidence and employee morale. Assets under management have started to rebound this year as customers returned and CEO Nicolas Moreau reorganized management.

To prepare for the IPO, Deutsche Asset Management in the first quarter next year will turn itself into a Kommanditgesellschaft auf Aktien, or KGaA, a form of limited partnership under German law that also has elements of a corporation selling stock. The structure helps ensure Deutsche Bank’s control over the unit.

'Bolt-on' deals

"The KGaA structure increases complexity and may lead to a valuation discount," said Ingo Speich, a fund manager at Union Investment.

Moreau, in a presentation Tuesday, said that having shares that are separate from Deutsche Bank will help attract and retain talent. The stock could also be used for "bolt-on" acquisitions, he said.

Deutsche Bank’s payout target for asset management would put it in line with larger rival Amundi SA, the investment firm controlled by Credit Agricole SA, which has set a minimum payout ratio of 65%. Schroders Plc last year paid out about 52% of profit, according to data compiled by Bloomberg.

Amundi, Schroders

Amundi had €62 billion of net inflows in 2016, or about 6% of its assets under management. It hasn’t yet given new flow targets following the purchase of Pioneer Investments. Natixis SA, which owns US fund managers Harris Associates and Loomis Sayles, last month set a target for its asset-management business to attract more than €100 billion of new money over the next three years, in an effort to reach €1 trillion under management. Natixis had €813 billion under management at the end of September.

Total invested assets at Deutsche Bank Asset Management declined to €711 billion at the end of the third quarter, from €715 billion a year earlier, according to Deutsche Bank’s latest interim report. The unit suffered outflows last year as concern about the parent company’s financial strength rattled investors. This year, clients added €14 billion in new money in the first nine months.

The unit’s name change is meant to highlight independence from the parent company and facilitate a new ownership structure should Deutsche Bank eventually decide to sell a bigger stake, according to a person briefed on the matter who spoke on condition of anonymity.

Deutsche Bank is expected to sell a 25% stake in its asset management unit for about $2.3 billion, people familiar with the matter said previously. The management team will be comprised of eight people, led by Moreau, with four of them based in Frankfurt.