Frankfurt The greenwashing allegations against DWS brought Stefan Hoops, previously head of corporate customers at Deutsche Bank, a lightning-fast promotion to the head of the institute’s fund subsidiary. Exuberant marketing in terms of sustainability should be a thing of the past, emphasizes the new CEO.
In some respects, however, Hoops sees his company playing a pioneering role. And he explains in an interview with the Handelsblatt why he believes he can stand up to the market giants in the fund industry in the USA.
Mr. Hoops, six months ago you took office overnight after your predecessor Asoka Wöhrmann had to leave following a raid on allegations of greenwashing. At the time, critics complained about your lack of experience in asset management.
If that’s the only criticism, it could have been worse. As an economist, I have dealt intensively with macroeconomic issues such as monetary policy, interest rates and inflation. During my time as an investment banker, after all the first 15 years of my career, I was close to the capital markets – and asset managers were among my customers, most recently also in the corporate bank.
They are said to have negotiated a fixed salary of 2.8 million euros and a bonus of 4.4 million euros per year. How can this be justified? Compensation for a difficult job? Advance laurels? Or does your employer want to make sure that you don’t try to procure a Porsche through questionable middlemen like your predecessor did?
We drive a leased family car, so there is no risk of buying a car. As for salary, it is always difficult for the person concerned to justify why they are being paid a certain amount. As someone who received student loans not too long ago, I am aware that in the financial sector we are talking about very high salary amounts.
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In your message to the DWS staff, you said: “Let’s make Asoka proud.” Many found the wording unfortunate because it signaled a “continue as before” after the abrupt departure of your quite controversial predecessor.
You have to put yourself back in the situation at the time: First the local public prosecutor’s office, then the CEO changed overnight. The employees were in a state of emergency. I had the choice of starting with either a presumption of innocence or general suspicion. It was important to me to send a signal to everyone: “I am one of you and I will compete without prejudice.”
>> Read here: These scandals weigh on DWS
But your predecessor didn’t have to leave because of bad numbers, but primarily because of corporate governance issues. DWS also had to defend itself against allegations that it presented its commitment to sustainable investments in an overly positive manner. Your announcement may give the impression that you approve of such a corporate culture.
From my point of view, the most important thing in that phase was to stabilize the healthy company DWS. I wanted to prevent a massive outflow of client funds or a number of experienced portfolio managers leaving. An announcement like: “First of all I’ll put everything to the test, nobody’s sure” wouldn’t have been helpful. In the meantime, however, we have changed a few things.
For example, you have significantly restructured the Executive Board. Was that it with the changes?
We now have a strong management team, with three women and three men, who are fully motivated to move the company forward. I feel very comfortable with the composition.
>> Read here: DWS: Investment boss Stefan Kreuzkamp has to leave early
The internal investigations into the greenwashing allegations are almost complete. What conclusions did you draw from this?
Please understand that I do not want to comment on the ongoing official investigations. Looking at our internal investigations, we can say that we stand by our publications and prospectuses. But in hindsight, one can already see that there was exuberant marketing on the subject of sustainability for a while – not only in asset management, by the way, but across many industries. We should all be more cautious about that.
On a scale from naïve to guilty, how would you rate what went wrong at DWS?
I can’t do much with such categories, and it’s not up to us to judge.
According to Stefan Hoops, the DWS brand is not up for grabs.
(Photo: REUTERS)
They have now introduced a kind of ecological audit. Couldn’t you have done that from the start?
It’s not uncommon for a new growth area to learn incrementally. I assume that other asset managers will set up comparable structures in the future.
The sustainability sector does not come to rest. DWS recently downgraded several of its funds from the EU category for “dark green” funds – so-called Article 9 funds – to the category for “light green” funds – Article 8 funds. Was this another case of exuberant marketing?
no In this case, existing EU regulations have simply been made clearer and tightened. As a result, many asset managers have had to adjust the classification of their funds. Incidentally, we are among those who made the decision to recategorize very early on. Such changes will probably continue to be made in the future as long as the rules are modified and made more precise.
Regulation is becoming ever stricter, and in the US fund companies that act “too” green from the point of view of Republican-governed states are punished with order cancellations. Is sustainability still the growth issue it used to be? The US fund company Vanguard has just withdrawn from the climate protection initiative “Net Zero Asset Managers”.
We have no intention of withdrawing from such initiatives. But of course it’s not good when big competitors do it. We should all pause and reflect on how we can move forward together instead of falling into camps. The topic is socially important, and so is it for our customers.
>> Read here: Vanguard: Withdrawal from climate initiative fuels political dispute
Let’s talk about your strategy. They have announced plans to expand their exchange-traded fund business in the highly competitive US market. Were there no more promising options?
We have all the necessary starting conditions, the appropriate licenses, the necessary technical platform, a well-known brand. Our team has clearly stated what is needed for growth in this area: more staff, more marketing and that we bring new product ideas to the market faster.
And that’s enough to survive against fund giants like Vanguard?
If we wanted to replicate the well-known and broad stock indices like the S&P 500 or the MSCI World, the answer would be no. But when it comes to passively managed funds that address specific themes, that are currency-adjusted, or reflect a specific industry, then we have an opportunity. In this segment, it is important to have the right nose for a new topic idea and, if possible, to be the first to bring a product to market. The growth is greatest with such tailor-made index funds.
So you are looking for your luck in the niche?
Yes, although the niches in the US are very large because this market is simply huge. We anticipate market growth of 25 percent in such niches. And ultimately there are only two options with index funds: either you go in full and invest – or you give up the business completely. The team said what it takes to grow. That’s what it got – and now it has to deliver.
>> Read here: US wealth managers are outperforming the competition
When it comes to acquisitions, you are reluctant. Why?
We have announced that we will return our excess capital to our shareholders after the Annual General Meeting in May 2024 if we have not spent it on interesting acquisitions or organic growth initiatives by then. I think that’s fair, because the money doesn’t belong to us. Our main financial goal is to create distributable profits for our shareholders. It’s not about being able to say we did something with the money – new deals or acquisitions have to add value.
Are you still pursuing the goal once set by Deutsche Bank that DWS should be among the top ten in the world in terms of assets under management?
The focus on this one parameter would not be enough for me. I would like to acquire talent through acquisitions or expand the business with alternative investments. Buying large-scale, low-margin money market funds just to add a few hundred billion to assets under management, on the other hand, wouldn’t make sense. The market sees it that way too. There are some asset managers who manage fewer assets than we do, but are worth significantly more on the stock exchange.
So you’d rather be among the top ten wealth managers measured by market capitalization?
That would be a good goal, but of course ambitious. On the other hand, I still have a few years left. By the time I retire on schedule in 2047, it should work (laughs).
To increase your market capitalization, you could also do away with the unusual structure of a limited partnership of shares, which many international investors don’t like.
You will forgive me that I will not comment specifically on this. In general, we as management strive to increase the share price of DWS. If investors make suggestions that would be conducive to this, we are happy to take them on board. Incidentally, our share price would also benefit if more than 15 percent of our shares were freely tradable. I bring these points to the discussions with our main shareholder, Deutsche Bank. How this is implemented does not depend solely on us.
Recently there has also been speculation as to whether DWS will change its name again, because the brand is not as well known in many foreign markets as it is in Germany. What is the current standing?
The background to this speculation is probably that I asked in all regions what measures would help to strengthen sales. DWS is very well known in Germany, but not in other countries such as Korea. For example, our former name Deutsche Asset Management worked well because investors liked the association with Deutsche Bank. In other countries it is different again. However, there was never any discussion about changing our name. The DWS brand is not up for grabs.
Mr. Hoops, thank you very much for the interview.
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