DWS Investments, the mutual fund family owned by Deutsche Bank AG that is the successor to two storied U.S. fund firms, has had a turbulent history. But its executives say the business, built with acquisitions including the former Scudder Kemper Investments, is on course to notch its first year of positive net flows in several years. A big reason, the executives say, is an expansion and upgrade of its intermediary distribution force.
"On the intermediary side — broker-dealers, independents, [registered investment advisers] and bank advisers — our goal this year has been to establish best-in-class personnel to face off in the field," said Michael Woods, head of U.S. distribution. "On the national accounts side, it's been to get the best people by recruiting and retaining."
Overall, DWS Investments has expanded its external sales force by 11% over the past 12 months, Woods said. In addition, a new hybrid wholesaler effort has helped the distribution force cover more ground. By the end of September, net flows exceeded $360 million.
DWS Investments is the U.S. brand name for the retail asset management organization of Deutsche Bank, of Frankfurt. It resides within the bank's Deutsche asset management unit. The firm known as DWS has been around since 1956, when it was founded in Hamburg, Germany. In 2002, the parent Deutsche Bank acquired Scudder from Zurich Insurance Group. Zurich had bought Kemper in 1996 and Scudder in 1997, combining them into the company that was sold five years later to Deutsche.
As it has tried to establish momentum over the past several years, DWS Investments has faced obstacles including a market-timing scandal, so-so fund performance and ongoing manager turnover, observers say. Its long-term assets under management recently stood at $49.5 billion, down from $61 billion in 2007, according to Morningstar Inc.
The problems predate the Deutsche Bank era, according to Burton Greenwald, a mutual fund analyst in Philadelphia. Zurich erred in retaining the Scudder name even though Kemper was far better known in the intermediary distribution channel, he said. Greenwald also faulted Deutsche for later replacing American leadership with German executives. "For reasons best known to Deutsche Bank, they brought in leadership from Europe, and that doesn't work in this country," he said. "This is a very different marketplace from Europe."
DWS Investments' long-term funds struggled to increase assets even in the heady period before the housing bust. Their assets under management grew from $60.3 billion in 2006 to just $61 billion in 2007, according to Morningstar. That result came at a time when the company was under the cloud of a market-timing scandal, said Kathryn Young, a mutual fund analyst at Morningstar.
Another long-standing problem has been turnover among fund managers, Young said. Over the past four or five years, executive management has remained stable. But fund management has been another story. Young has analyzed DWS Investments' funds and calculated that in 57% of them, the longest-tenured manager has been in place for less than five years, and that in a third of the funds, the longest-tenured manager has been in place for less than three years.
Some of the turnover is said to have arisen from cultural clashes between U.S. and German personnel. But more recently, it has been the result of a strategic decision by the company to transfer the management of some of its funds from the U.S. to Frankfurt, Young said.
"DWS has been plagued by manager turnover, and there has been more turnover in shifting to Germany," she said, adding that the move started two years ago. "That continues to be a problem, but the hope is that will subside going forward."
The shift in management could in fact prove to be a good change, Young said. The investment management operation in Frankfurt has been more consistent and has had less turnover than some of the U.S. management, she said. "This is a positive change in our view, although we don't know the results yet," Young said. "I believe the motivations are positive for shareholders."
Through the first three quarters of 2010, DWS Investments' long-term funds had returned 6.3%, versus their category average of 6.9%, according to Morningstar.
One positive development at DWS Investments is the fact that the business has consolidated its fund lineup over the past couple of years, Young said. It has also slowed the pace of fund launches, after a period from about 2005 to 2007 in which it "had launched a lot trendy stuff," she said.
