DWS Group GmbH & Co. KGaA (DWS) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Stuart, your Chorus Call operator. Welcome, and thank you for joining DWS Q1 2020 Investor and Analyst Conference Call. [Operator Instructions] I would now like to turn the conference over to Oliver Flade. Please go ahead.

Yes, Stuart, thank you very much, and good morning, everybody, from Frankfurt. This is Oliver from Investor Relations, and I would like to welcome everybody to our earnings call for the first quarter of 2020. I hope you're all keeping healthy and safe wherever you are based. And before I start, I would like to remind you that the upcoming Deutsche Bank Analyst call will outline the asset management segment's results, which have a different parameter basis to the DWS results we're presenting today. I'm joined as usual by Asoka Woehrmann, our CEO; and Claire Peel, our CFO. And Asoka will start with some opening remarks, and Claire will take you through the presentation. For the Q&A afterwards, please could you limit yourself to the 2 most important questions so that we can give as many people a chance to participate as possible. I would also like to remind you that the presentation may contain forward-looking statements, which may not develop as we currently expect. I, therefore, ask you to take note of the disclaimer and the precautionary warning on the forward-looking statements at the end of our materials. And with that, I would now pass on to Asoka.

Thank you, Oliver. Good morning, and welcome, everybody, to the quarter 1 2020 results for DWS. Let me start by saying, I hope you all keeping healthy and safe. There's no doubt that we are living through a unique unprecedented time. What started as a public health crisis quickly became a global economic crisis, which, in turn, has brought a lot of disruption to the financial markets. Before we look at our firm's results in the first quarter, allow me to show our gratitude for what is most important right now. I speak for all of DWS when I say that we are truly thankful to the doctors, nurses, caretakers, scientists and workers, who are courageously saving lives. We have seen extraordinary actions from many, which will help us collectively to overcome this virus. As CEO, I must say that I am also super proud of our employees who have to remain resilient in the face of adversity. They have been quick to adopt to home-office lives, maintaining their professionalism as well as a unified attitude. This situation has been a real test of character, but it gives me confidence that DWS can pull-through together, and this is not the first time we have been challenged. With our robust business continuity management led by our Chief Operating Officer, Mark Cullen, we're able to respond quickly, decisively, responsibility to the pandemic and ensure that the health and the safety of our employees was our top priority. This has temporarily challenged the way we work. But let me say, it has not changed our fiduciary commitment to our clients. Over these past few weeks, we have embraced this new normal to ensure we fulfill our responsibilities to them. And while we can no longer operate as we once did, we are making the most of this time and technology become even more efficient, connected and productive. Over 90% of the DWS staff have been working from home for the better part of March and all of April, and even to this call is being conducted from different locations for the first time. Over these 2 last months, we also learned a lot of -- a lot about efficiency and flexibility in our operating environment as a global organization during this crisis and when it ends too. We are thinking about the next normal for DWS and what this could look like for asset management more broadly. We feel very comfortable that the mega trends we had identified and presented to you at our investor update last December are and will remain in place as we look ahead. And while our strategic view for the firm remains rather stable, one immediate consequence of the pandemic is that the Supervisory Board, along with the Executive Board of DWS, has decided to postpone the Annual General Meeting from June 18 to another date in the fourth quarter of 2020. This decision reflects our responsibility for the health and well-being of our shareholders, employees and service providers. And it also reflects the prevailing regulatory spirit we have seen in this environment. Allow me to now lead you through our key achievements during quarter 1. From as recent as 2018, we have learned that we cannot control the markets but we can control our costs. And this is exactly what we did during the first quarter of 2020, continuing our disciplined path we accelerated last year, which has positively impacted our costs this last quarter. Our total adjusted costs fell by 18% quarter-on-quarter as we continue to implement our efficiency initiatives as planned. On the revenue side, our strong starting position into 2020, along with the supportive markets in January and for the most part in February, helped us sustain stable management fees and revenues in quarter 1. As a result, we were able to achieve an adjusted cost-income ratio of 65.8%, keeping us on track to achieve our targeted ratio of below 65% in 2021. We also saw strong flow momentum of 2019 continue into start of 2020. In January and February, we reported close to EUR 9 billion of net inflows across Active, Passive and Alternatives, and especially, into our targeted growth areas before COVID took full effect, impacting clients' risk appetite and short-term liquidity needs. But even during the massive market downturn in March, we were able to took advantage of our diversified business model as inflows in Active, Equity, and especially, Alternatives helped to partially offset outflows. As we look forward, as we must do, we remain committed to our strategy, in which sustainability is a key cornerstone. As a fiduciary, we must allocate capital and invest responsibly. One of the biggest lessons of this pandemic so far has been the importance of sustainability to the planet and to our societies, and at DWS, we are stepping up to play our part. We are not changing our ESG trajectory. We are advancing our stewardship practices. We are launching new products. We are -- continue to educate ourselves and others with our research. And let me say, we are being recognized for our efforts too. Morningstar has named us as the leader in ESG proxy voting in the U.S. And the rating agency, Telos, has commended our strength in ESG integration. These are great achievements that remind us to the great progress DWS has been making so far and what we will continue to work on regardless of the pandemic. And there is no doubt that COVID-19 will continue to offer many challenges as we advance in the second quarter, and we are well positioned to deal with these challenges with our strict cost discipline, our diversified product range and our unwavering commitment to ESG and sustainability. With that, I will pass to our CFO, Claire Peel, to talk about our financial results in detail. Claire, please.

Thank you, and welcome, everyone. And I also wish you all health and well-being at this time. Today, I will present the results and activities for the first quarter of 2020, starting with the key financial highlights. Adjusted profit before tax was EUR 179 million, supported by our cost initiatives as planned. Adjusted cost-income ratio was 65.8% in Q1, slightly higher than the previous quarter as a result of lower revenues compared to Q4. Net outflows were EUR 2.5 billion in Q1, with inflows in January and February offset by outflows in March, in line with the broader asset management trends. Moving on to the financial performance snapshot in Q1. Starting at the top left, AUM decreased to EUR 700 billion in Q1, down 9% quarter-on-quarter, mainly driven by the steep decline in market performance. On the top right, adjusted revenues fell to EUR 524 million in Q1, down 24% from Q4, reflecting a negative change in fair value of guarantees together with expected lower performance fees quarter-on-quarter. On the bottom left, adjusted costs were down 18% at EUR 345 million, with sizable decreases in compensation and benefits costs and general and admin expenses, and this supported an adjusted cost-income ratio of 65.8% in Q1. Adjusted profit before tax fell to EUR 179 million, down 33% quarter-on-quarter as a result of lower Q1 revenues, but up 17% quarter on -- year-on-year. Let's recap on the market environment. In retrospect, it's now apparent that the global economic activity and corporate profitability peaked in 2019, while coronavirus triggered a downturn and what will be a new economic cycle ahead. During the first quarter of 2020, we saw a 30% to 40% correction in equity markets. The bond market was also significantly impacted by the pandemic as more countries turned to emergency monetary and fiscal packages in the first quarter. Volatility spikes amplified to unprecedented levels as liquidity was very thin. And in addition, fixed income interest rates started to trend downwards, which had a negative impact on the fair value of guarantees. And while the pandemic has accelerated at different paces across the world, this created volatility in FX movements in Q1 with the U.S. dollar appreciating against the euro by quarter end as investors sought safe havens in U.S. dollar funds. Overall, market conditions were undoubtedly more challenging in the second half of Q1, and we saw the implications of this on our AUM development, which I will now outline. After reporting a significant increase in assets under management in 2019, we saw assets decline to EUR 700 billion by the end of Q1 2020. The majority of the quarterly decrease is attributed to negative market performance, which resulted in a EUR 51 billion decline in March alone. This more than offset positive growth from favorable FX movements, and Q1 outflows also impacted our AUM as traditional asset classes were affected by the steep market decline and subsequent weaker investor sentiment. Moving on to net flows. At the end of Q1 2020, we reported our first quarterly net inflows -- sorry, outflows since Q4 2018 (sic) [ 2019 ] of EUR 2.5 billion. This number reflects the impact of COVID-19 across almost all of our asset classes as investors responded to the pandemic by de-risking portfolios and reallocating assets into cash products. This disrupted the strong flow momentum we have seen at the start of 2020. In the first 2 months of the year, we reported close to EUR 9 billion of net inflows despite seeing the first COVID-related outflows in late February. These included inflows across all pillars of Active, Passive and Alternatives across retail and institutional clients and with particularly strong flows in the Americas as well as in Europe. Some of these inflows were sustained until the end of the first quarter, such as Active Equity, which attracted EUR 1.7 billion of net inflows in Q1. While this number is positive, it primarily reflects inflows into a significant retail mandate over the quarter, which more than compensated for outflows as equity markets deteriorated in March. There were also positive developments in the asset class as we saw inflows to a number of our ESG Active Equity funds. Alternatives also remained resilient with EUR 1.5 billion of inflows over the quarter. This was mainly driven by real estate as our flagship grundbesitz continued to see strong demand in the yet low-yield environment. Given current market uncertainty, cash reported the strongest inflows of all of our asset classes in the first quarter with EUR 3.6 billion. While we have seen positive cash flows in every month of Q1, these inflows more than doubled in March as investors de-risked their portfolios and corporates increased their cash liquidity holdings. In this respect, DWS is well positioned to serve clients with high-volume turnover, thanks to robust liquidity management in our money market funds. In Active Multi-Asset, inflows into our flagship Concept Kaldemorgen and Dynamic Opportunities funds were more than offset by a reduction in a pension mandate as one of our institutional clients restructured their underlying business during the quarter. SQI also had a positive start to the year, reporting inflows in both January and February, but ending the quarter in outflows due to market-driven reallocations. Passive shifted into negative territory for the first time in over a year, following record inflows in 2019. Q1 net outflows of EUR 2 billion were mainly due to ETF and ETP redemptions as the broader market suffered its worst monthly withdrawals on record in March. March outflows more than offset EUR 4 billion of total Passive inflows recorded in January and February combined as clients made asset allocation changes to de-risk their portfolios. Meanwhile, Active Fixed Income reported the largest outflows of all of our asset classes, with more than half of these driven by mutual funds as investors reacted to the pandemic. This had implications on our flagship offerings, DWS Floating Rate Notes and Asian Bond Fund, as short-term and emerging market bond sectors fell out of favor as the virus accelerated. In contrast, we saw cash-like short-duration funds attract inflows instead. In addition, Q1 fixed income outflows also account for a low-margin mandate loss, reflecting the ongoing trend for insurers to in-source assets. Given the current market conditions we find ourselves in, our diversified business model has been and will continue to serve us well. While we have seen outflows in Passive, we have been able to counterbalance some of these with inflows into Active Equity and Alternatives. In addition, ongoing efforts to focus on our strategic priorities is paying off. Over the first quarter, we continued to receive positive contributions from strategic partnerships as well as into our ESG funds. Our new product launches are also gaining traction, reporting inflows in Q1 and reflecting the continued demand that we see for innovative offerings. With that, let's move on to product launches. In these unprecedented times, we are committed -- more committed than ever to provide our clients with the products that they need to build their financial future. And at DWS, we offer a broad range of products to serve these needs. As we have reiterated quarter-over-quarter, we are making ESG a key feature of our portfolio, and this has been seen across our product launches in Q1 and in the upcoming launches in Q2. We believe this focus on ESG will become increasingly important, especially as the coronavirus pandemic brings greater attention to the investments needed to make our economy, society and environment more sustainable and accessible to all. In this respect, we are already well positioned. In Q1, we continued to roll out ESG versions of existing fixed income and multi-asset funds. And in Q2, we are planning to launch sustainability-focused products across almost all of our asset classes and targeting both retail and institutional clients. Among them is the DWS Invest Qi Global Climate Action Fund, which is the first offering of its kind in response to growing client interest in ESG innovations, particularly around CO2 reduction strategies. This also forms part of our broader commitment to support the UN Sustainable Development Goals, as outlined in our 2019 sustainability report, which we have published during the quarter. Moving on to revenues. Total adjusted revenues were EUR 524 million in Q1, while the overall management fee margin remained resilient at 29.5 basis points. These reflect stable management fees and other recurring revenues driven by positive revenue contributions from 2019 net inflows and higher average AUM of EUR 753 billion. However, these asset-based revenues were offset by 2 key developments over the quarter: the negative impact of interest rates on other revenues and lower performance fees. Starting with other revenues, we saw a significant decline compared to Q4, mainly driven by the negative change in fair value of guarantees as interest rates declined in the first quarter. This more than compensated for the EUR 15 million contribution from our Chinese equity investment, Harvest. And as anticipated, we reported lower performance in transaction fees as the fourth quarter includes the recognition of a significant multi-asset performance fee. Moving on to costs. As we have demonstrated, our disciplined cost focus enables us to remain efficient in challenging markets. In Q1, total adjusted costs fell by 18% from Q4 to EUR 345 million. Adjusted general and admin expenses were down 19% quarter-on-quarter as we continued to implement efficiency measures and as a result of reduced volume-related costs. The Q1 decline in adjusted compensation and benefits costs can be attributed to lower equity-linked deferred compensation expenses related to the DWS share price over the quarter. All together, this supported an adjusted cost-income ratio of 65.8% in Q1. To conclude, our strategic progress and financial performance in 2019 has helped us to remain resilient in a challenging first quarter of 2020. In particular, our diversified business model has been and continues to be critical to support clients' needs in a fast-changing environment. And while we cannot control what happens in the market, our laser focus on costs enables us to remain flexible and efficient to adapt accordingly. This was evident in Q1 as costs continued to decline over the quarter as we implemented efficiency initiatives as planned. Additionally, we remain encouraged by our flow performance. Despite outflows, overall, we saw resilience in our Alternatives business, positive flows in Active Equity, and before the pandemic, strong sustained momentum in Passive and Active Multi-Asset. Looking ahead to the rest of the year, we realize that we are yet to see the full effect of COVID-19 on our financials. In particular, the negative impact of markets on Q1 AUM will reduce revenues as we start the second quarter on a lower asset base. As a result, we expect our 2020 adjusted revenues to be lower compared to 2019. To compensate for this, we will maintain our strict efficiency focus to achieve our EUR 150 million of gross cost savings targets by 2021 as committed. And we also have the capacity to achieve additional savings in 2020, if needed. For these reasons, we expect our 2020 costs to be below those of 2019. And as we advance into Q2, we are seeing a return to positive flows in our retail and Passive businesses as well as strong momentum in cash flows. I thank you, and I will now hand over to Asoka for strategic outlook.

Thank you, Claire. There is no doubt that we are operating in unprecedented circumstances. And like the rest of the world, we are monitoring the markets closely to ensure that we are ready for whatever comes next. While it is still too early to say what may happen for the rest of 2020, 2 things are clear: There will be a global recession this year, but to what magnitude is unknown. And central banks and governments are going all-in to protect the economies around the globe. Looking beyond COVID-19, we expect a number of developments to evolve and become the next normal. Equity markets will remain constructive in the long run as the world tries to recover from the fallout of the pandemic. Interest rates will reach new lows. Even before the crisis hit, we are looking at the decade of no interest rates. This is now even more likely driven by the buying programs by the central banks and the economic downturn. After the spread widening, the credit markets will attract greater demand and the currency cycle will age. So yes, we can expect change and challenges for all industries, including, of course, asset management industry. But DWS is well positioned for these challenges, thanks to its diversified business model and a focused management approach. Let me be clear. Our commitment to shareholders is unwavering. The Executive Board has decided to maintain its dividend proposal of EUR 1.67 per share for financial year 2019, although this is subject to approval of our AGM, which is now due to take place later this year following the decision of the Supervisory Board and the Executive Board of DWS. In addition, we are reaffirming our medium-term target of an adjusted cost-income ratio of below 65% in 2021, assuming that markets do recover during the second half of this year. As Claire said, we continued to successfully implement efficiency initiatives in quarter 1, and we have the ability to save more in 2020, if needed. So far, we are on track. Looking ahead, we know that cost control will be the key -- the DWS' key strength to remain resilient in the next normal operating environment. To achieve this, we rely on globally integrated structures, together with efficiency initiatives to ensure operational readiness for whatever markets we may face. In this respect, COVID-19 has also reinforced the mega trends we outlined at our investor update last year. For example, the ability to utilize the barbell in our distribution strategy will meet the client demand for efficient beta products, differentiating alternatives as well as solutions across multitude of asset classes. Demand for ESG-focused investments and solutions will also rise significantly as we move beyond the immediacy of the public health crisis. From this crisis, we have also learned that collaboration is key to getting through this situation together, as we have seen in all corners of the world. We have been fortunate that our strategic partners have been there to support DWS as we have been there for them in these challenging times. In 2020, we will be sure to strengthen these relationships, particularly those in Asia Pacific as well as continue to assess the market for new JVs or bolt-on acquisitions. We expect there will be more strategic opportunities as the mega trend consolidation in asset management will surely accelerate as we move to the next normal. So while nothing is certain for now, I'm confident of one thing, DWS will come out of this pandemic stronger and more resilient. We have the employees, the business model, the flexibility and the willingness and ability of management to successfully navigate the COVID-19 crisis, always ensuring the best service and quality for our clients. Thank you for listening. Please stay healthy and safe. I will now pass over to Oliver for Q&A.

Yes. Thank you very much, Asoka. Operator, we're ready for Q&A now. [Operator Instructions]

[Operator Instructions] First question comes from the line of Hubert Lam from Bank of America.

Just a couple of questions. Firstly, on the costs, you mentioned the cost base fell 18% quarter-on-quarter. Should we expect the cost base to continue to fall quarter-on-quarter regardless of market conditions, just given your cost save program coming through? That's the first question. The second question is on fee margin. Fee margins were probably a little bit higher than what I expected. Can you explain as to why the fee margin went up in the quarter? Any one-off impact in that number? And what is also the exit fee margin we should think of heading into Q2?

Hubert, thank you for the questions. I'll take both of those on costs and margins. On the first question, yes, we saw an 18% decline in costs in the first quarter, EUR 345 million overall. I think, certainly, as we look year-on-year, we absolutely expect our costs to decline in full year 2020 compared to full year 2019, and that will be as we recognize a good portion of the cost efficiency savings that we've announced on a targeted basis and also incremental savings that we will see, given the environment that we're operating in at the moment. To comment very specifically on quarter-on-quarter, in the first quarter, we have seen a more significant drop in compensation and benefits costs. And that is linked to the variable compensation awards, which are linked to DWS share price. So I wouldn't expect to see such a substantial decline on a continuing basis, and there's an element of one-offs that will revert back in the second quarter. But that said, I think, overall, year-on-year, we'll see declining costs. On the second comment on management fee margin, we finished the quarter at 29.5 basis points. This is very resilient in the environment that we're operating in. We've always pointed to the fact that there is always some technical effects within the quarterly margin, and there's some degree of that. If I was to normalize for those, it would be very slightly lower, perhaps 29.3%. But I think that demonstrates that we had strong and healthy inflows during 2019, which is supporting our management fees, and our management fee revenues are flat to slightly up quarter-on-quarter.

So for the exit fee margin, should we think of the 29.3%? Or would it be lower than that at the end of March?

If I was to look at the exit fee at the end of the year, I think we've said that we envisage an approximate 1 basis point of dilution in full year 2020 compared to full year '19. Of course, as we monitor the mix of asset classes throughout the year, we'll continue to revise that, but that's our outlook at this point in time.

Okay. Also -- sorry, just some clarification on the one-off benefit from the share-based awards. Can you quantify how much was that in the quarter?

Unfortunately, I can't give you a specific number on that one. There are so many factors that play into the variable compensation accounting that there's not one number I can point you to.

Next question is from the line of Arnaud Giblat from Exane.

I have a couple of questions, please. Firstly, can I ask about the other revenue line. I'm quite surprised to see the quantum of the fall in terms of the fair value of movements. And bond yields at the end of the day were only down 30 basis points quarter-on-quarter. We saw much sharper movements last year without so much of dramatic effect. I understand that we're close to 0 or we're beyond 0, so the small movements will have bigger impacts. But is there anything else to look at rather than just that the full -- between the beginning and the end of the year? And maybe could you talk a bit about the sensitivity from here on to a fall in bond yields on fair value movements? Also, on the other revenue line, Harvest is making a bigger contribution of EUR 15 million. Are there any one-offs? And my second question is on -- to follow on, on revenue margins. At constant mix -- so clearly, if I look at -- if I assume constant mix, it looks as though your average revenue margin per category went up by about 1 basis point. From the description you had during your presentation, it sounded like a lot of that came from the fixed income and the multi-asset categories, where -- which benefited from a positive mix shift. Is that right? Are there any other categories that benefited on the revenue margin side?

I will take those questions in order. Firstly, on the other revenues, we reported overall in the first quarter, minus GBP 46 million of negative revenues, and the primary driver of that, as you say, was related to the fair value of our guaranteed portfolio. I think we, of course, have to acknowledge that we saw a huge dislocation in long-term interest rates in the first quarter and extreme volatility -- more extreme, I think, than we've seen in a long, long while. And that volatility and that extreme decline is having an impact on how we fair value these products. So within the first quarter, we saw minus GBP 45 million of revenues attached to the fair value of guaranteed products, and that compared to a full year equivalent last year, full year in 2019 of below EUR 30 million. So I think that just demonstrates that the dislocation that we've seen in the first quarter has driven that result. And the volatility is based more on the long-term rates, where we've been seeing those enormous swings if you compare year-end, intra-quarter and quarter end. On the sensitivity, we do indeed disclose that. And if the rule of thumb that we give is that if long-term interest rates fall by 50 basis points, the reserve on the shortfall is expected to increase by EUR 14 million, but that's a linear relationship. So of course, in an extreme dislocation, which we've just experienced, that linear relationship isn't precisely playing out. If I move on to Harvest, the first quarter, we recognized revenues of EUR 15 million. The underlying profit of Harvest was strong in the first quarter, and we realized the benefit attached to that. I wouldn't expect that to repeat to that magnitude every quarter, and we would still guide to around full year revenues of approximately EUR 45 million. And finally, on the revenue margin and 29.5 basis points, we are not disclosing the asset class mix of that, given the volatility that we see, particularly in a quarter like this. But I think the first quarter has been more resilient given the jump-off point that we had at year-end, the net inflows and the very positive mix that we saw of inflows during 2019. And of course, we haven't yet seen a full quarter of the lower AUM and revenue levels, which we've seen in the first quarter of 2020.

Next question comes from the line of Haley Tam from Crédit Suisse.

Two questions from me, please. First of all, on the flows. I just wondered if you could quantify for us some of the specific movements you actually highlighted in the quarter. So the large Active Equity retail mandate, the ESG flows and the pension mandate redemption from Kaldemorgen, for example? And maybe just comment whether there was any contribution from partnerships to flows in Q1 as well? And then secondly, on costs, just a simple one. I mean given the very strong guidance you've given us on less than 65% cost-income ratio for 2021, I just wondered if you were able to make any comments about your anticipated cost-income ratio this year. And I guess related to that, maybe you could tell us how much of your reduction in general and admin expenses was permanent, i.e., due to renegotiated agreements versus perhaps temporary due to lower volumes?

Haley, I will take those questions in order. On the flow composition, perhaps starting with Active Equity, we did see that -- a strong performance overall with net EUR 1.7 billion of inflows and we benefited from a retail mandate with a wealth manager that we won during the quarter, which supported some outflows that we saw, of course, later on in the quarter, driven by the general environment that we were operating in. On the other asset classes, I think you pointed to strategic partnerships. We, again, saw positive inflows from all of our strategic partners and also through the channel of ESG. So both of those strategic aspects that we have been focusing on during 2019 have provided us with resilience during the first quarter as well, contributing to positive flows. And I would also point to Alternatives. I would say that, that's, again, been a very resilient asset class with no disruption to flows that we would specifically point to a more steady trend and continued inflows into our real estate grundbesitz portfolio. On the cost side, we are continuing to guide in 2021 to our target of below 65% cost-income ratio. We're not guiding to a near-term cost-income ratio within 2020. Obviously, there's huge volatility that we are experiencing in this near-term horizon, but we are making sure that we -- rest assured that we are delivering on the initiatives that we announced in December of last year. They're very much on track in the first quarter, and you can see that in the results. And we do have an ability to contribute additional cost savings if required. Some of those are just generally volume-related. We all know that some expenses around travel, et cetera, in Q2 will be muted. But other parts of our cost base, we are monitoring very carefully to ensure that we can be flexible in the environment. On the G&A decline, we saw a significant decline in the first quarter, and that really is reflecting the aspects of the cost-efficiency measures that we've outlined around vendors and also premises.

Next question is from the line of Stuart Graham from Autonomous Research.

I have two, please. You say you've got more cost saves in the back pocket if you need them. Could you say how big that is? Could you quantify what that kind of extra buffer could be, please? And then the second question is, you have a meaningful Italian business. Could you give us some color on what you saw in that business in the first quarter in terms of flows and anything else that's relevant, please?

If I just comment first on your cost save question, we have announced the saves over 2020 and 2021, which we have clearly defined and have those on track, EUR 150 million over a 2-year period, weighted into year 2020, around 2/3 within year 2020. On additional cost saves, we've obviously seen an example in the first quarter of the reduction that we've seen in compensation and benefits costs, acknowledging that, that is linked to variable compensation. So we'll not continue at that kind of degree. In terms of incremental cost saves, we're not going to put a number on that at this point in time because I think we want to monitor how the environment proceeds. Some of those, as I say, are volume-related. Obvious example is travel. There's other elements that are linked to AUM, so where we consume vendor expenses that are linked to AUM levels, we get a natural decline when we see a decline in AUM, and there's other actions that we are looking at to curtail expenses during the year if we need to do so, but no specific number on that at this point in time. And for Italy, the question is specifically on flows within the quarter, I will maybe have to come back to that one during the call.

Okay. Just, Claire, on the costs, I mean, the fact that you feel confident in calling out an additional buffer, I mean, to put words in your mouth, you kind of wouldn't say that if it was EUR 10 million or EUR 15 million. It has to be kind of a meaningful number on top of the EUR 150 million. Is that a fair statement?

That's a fair statement, yes.

Next question is from the line of Bruce Hamilton from Morgan Stanley.

Can you hear me?

Yes, we can hear you.

Perfect. Okay. So on the flows, that was very, very useful color. Just in Q2 so far, and I know it's early days, have you seen continued flows into Active Equity? Or did you say it was more sort of reverting to Passive rebound? And then within fixed income, I guess, would you expect that the challenging environment continues? And it sounds like you're expecting a shift towards credit where the sort of returns look better. And then on the flows topic, on the ESG, do you actually -- can you give us a number for what level of inflows ESG product accounted for in Q1? And then finally, just on the sort of calibrating the variable comp. How should we think about that? If the share price had been flat in the first quarter, for example, how different would the compensation cost would look just to give us a sense of how we might normalize that for Q2 or looking forward?

Maybe if I take the question first on ESG, we can give you the number on ESG flows, which was around EUR 2.6 billion of inflows on ESG funds during the quarter. So that continues to be a very positive trend that we continue to observe and linked to the product innovations that we've had quarter-on-quarter. And on the comp and ben, just to come back to that one, again, there's clearly a lot of interest in that one and that's understandable. We have reported EUR 162 million of comp and ben in the first quarter compared to EUR 197 million in the prior quarter. So that's a decline of EUR 35 million. Certainly, a good portion of that is attributed to the variable compensation. We had within the quarter, an all-time high and an all-time low on the share price, and that demonstrates the magnitude of change that we've seen in that period. So we wouldn't expect to see comp and ben operating at that low point. But equally, it's certainly not going up to the levels that we saw in Q4. I'm afraid I can't quantify exactly the mark-to-market movement on that because there are so many other factors that need to be taken into account. Sorry, you had a question on flows, I think, as well. The point on Passive was more linked to equity ETFs, where we saw in March, a shift more so out of equity ETFs and into more fixed income ETFs and cash or similar-like products.

Bruce, I think if I may add at what Claire has already outlined, I think it's as all crisis mode, I think, more and more people, after the first reaction of panic, is looking to park their money in liquidity as well as I do think with the easing of the risk mode on the markets -- the panic risk mode, I think more and more people are allocating again their assets through ETFs. That is what we can see already in the market, in general. And I think we are also taking advantage of that liquidity. And ETFs flows are taking momentum, but not the same momentum like what we have seen at the very beginning of the year. And I do think I'm expecting still in the second quarter, we will see more liquidity-driven flows and ETF type, as Claire said, in -- that the outflow out of ETFs -- equity ETFs, that is coming gradually back, and this is -- depends on -- really on the risk mode in the markets. And I do think this is exactly what we're seeing. And I think, as Claire said, Alts, it's a more or less momentum what we are seeing since 1.5, 2 years, and this is going forward. And I think that is not completely dried up. And I do think the credit question is very interesting to see. I think the first reaction is in credit assets, people are hurted, but I do think they are also looking now some attractiveness in the credit segments, and I'm sure for the long-term portfolios, people are looking to enter into these fields, especially institutional clients. And I do think also even in the retail area, people are looking to overcome the negative rate in the very short and might be to investments in these areas more in risk-managed approach. And I'm expecting during the course of the year, that we are coming back to credit segments back the flows. And so therefore, we felt we have to look into exactly into this field. That's only additional point what we are seeing from the strategic perspectives, what we have seen Passive and Multi-Asset and Alts, we can see this year, later of the year, more credit flows.

Next question is from the line of Gurjit Kambo from JPMorgan.

Just 2 questions. So firstly, on partnerships, you say you want to sort of further cement your existing partnerships and also enter into some new JVs. Could you just perhaps explain what you're talking about when you talk about referring to new partnerships? What sort of regions will be interesting to you? And also just cementing existing, is that sort of taking bigger stakes? And then second question, just quickly on the ESG flows, have these largely been into Passive ESG funds? Or are you also seeing some of the more Active ESG funds in inflows?

And again, let me start, Gurjit, I think, with the JV part. I do think we were also prior to the COVID-19 crisis in -- on -- really on track to strengthen our JV, say, JV partnerships further in Asia but also in other areas. You have seen we've done some stake with Arabesque to bring also more collaboration and bring more AI approach into the investment platform but also the whole organization. But we are talking about the JV now in the context also of Asia. As I said always, we -- that is, for us, a strategic region, and we want to collaborate there. This is a big region. There's a huge growth. I think also post COVID-19, this growth will be outperforming and outpacing the developed world. And I do think, therefore, we are looking for JVs. And also in connection with Harvest, our longest JV what we had, and I do think in this context, we are looking in Asia for some JV opportunities. We are in conversation prior to the COVID-19, but I want to strengthen the view also for you guys that we are not get stopped by the COVID-19, and we want to strengthen the Asian access, especially of our business, and that is exactly what we -- how we -- what we have framed through this statement. I think Claire, if you can take the ESG part, would be great. Thank you, Gurjit.

Yes. Thank you. On the ESG inflow question, for the first quarter, we had around EUR 2.6 billion of inflows. They were certainly more heavily weighted towards our fixed income and money market ESG funds, but we did also see very healthy inflows into equity and into Passive. And I'd say it went in the order of fixed income and money markets, followed by equities, followed by Passive and a small amount of Alternatives as well.

The next question is from the line of Nicholas Herman from Citigroup.

Can you hear me?

Yes, loud and clear.

Great. Two questions left to me, please. Just beyond your cost savings that you've announced, how should we generally think about the cost flex that DWS has? Obviously, FY '19 benefited from strong performance fees, but would you be able to give us a variable compensation ratio for last year? And then how that compared to a more normal level? That would be really helpful. And I guess -- and then the second question is, as a large ETF provider in Europe, have you had to make any changes to the way that you deal with the liquidity across your Passive product range or even as, I guess, across the broader range of products, that would be interesting?

Okay. I will take the first question on costs. I think as opposed to giving you different kinds of ratios, which I'll leave you to take a look at, what we very much manage ourselves against is the cost-income ratio. And as we reaffirmed, we are looking to continue to achieve our targets of below 65% by the end of 2021. We're obviously around that level at this point in time, but we acknowledge that we will see some challenges in the forward, and particularly, in Q2, and we will ensure that we can manage our cost base accordingly. I won't add any further ratios beyond that. We will continue to manage to our cost-income ratio target. And I hand over to...

Regard -- yes, regarding the second question on the ETS and liquidity, I think we have been lucky. I think we -- our strength in the ETF market is more due to the equity market. We know that the very unprecedented market dislocations what we have seen is always adjusted by price. And I think we have really proven also through the March volatility and dislocations that we can really keep our promises to our clients. And I think we had no problem in this field. And I do think, especially fixed income, we are not very super positioned in Europe. In fixed income, we have no high-yield-type funds where the liquidity can be some way problematic. So therefore, I think, especially the areas in equities, we had no really topics and our physical Gold ETF had very much enjoyed. So I do think Europe, we are well positioned in some way in this -- for dislocation in the market, and some way, some bottlenecks in the liquidity, but I do think this is more due to our other peers than to us.

[Operator Instructions] The next question is from the line of Mike Werner from UBS.

Congrats on the results. During the prepared remarks, you talked about potential consolidation within the asset management industry in response to the current crisis. I was just wondering how DWS is positioned. Can you give us an update with regards to, A, your excess capital position? And then, B, during your Investor Day last year, you indicated that you're still in the process of migrating from using Deutsche Bank's platforms to your own independent platform, at which case, you'll certainly be more suitable to be an acquirer of other firms. I was just wondering, in terms of the timing or the progress on that, has there been any delays as a result of recent events? Or are you still on track for that to be -- I believe, completed by year-end this year. Is that correct?

Mike, thank you. And I think -- thank you for the question. M&A is -- had been a topic, I think, the whole '19. We discussed that also with you in one-on-one -- ones. But I do think what I alluded to is, I think, the COVID-19 is creating a heightened focus of managements in asset management industry, also in the oil companies on cost management. I think more and more people will see how difficult is to respond by cost. We are happy that we started already end of '18 and continued the whole '19 with restructuring, vendor cost reduction, real estate footprint in many ways, and that will pay out this year very much. And I do think to that, I can see that the industry will go to a stronger speed in consolidation because even we talked last year about consolidation of asset management industry, we have not seen very much consolidation. There was 1, 2 big deals, transformation as well as a small bolt-ons, and I do think that will be more necessity for managements to think. And I do think, as we said, we want to be a consolidator in this industry. We want to play a key role, and I do think these opportunities will come and emerge in the next 1.5 years more than ever. And I do think that COVID-19 is a catalyst for me. From my view, for the industry to think more into the consolidation, and from this regard, we have been open for M&A in every type, bolt-on to transformational, if the things fits to us, to our clients, our shareholders, but we want to be -- play a predominant role, and I do think that has nothing changed, Mike, in our view. The only view is what we want to phrase here, COVID-19 is more -- created more speed into this segment than ever. And I do think -- Claire, any?

Yes. Maybe I'll just pick up on your question, Mike, around the infrastructure programs. And of course, in our business as usual, we continue to manage and improve our technology and digital applications and have shown extreme resilience, in fact, in this first quarter of having in excess of 90% of our staff working from home. But specifically, on the infrastructure project to separate our infrastructure from DB, that's not something that will be completed this year. That's a multiyear project that's very much in design at this point in time.

Next question is from the line of Christoph Blieffert from Commerzbank.

First of all, on your AGM, I would like to understand what holds you back to invite shareholders to a virtual AGM and pay your dividend in June as scheduled? Secondly, you mentioned that the market recovery is needed to achieve your cost-income ratio in 2021. Given that European markets have already recovered 50% of their losses since March, what market levels are needed to bring your cost-income ratio close to your targeted level? And as a last question, I missed your 3% to 5% net new money target in the presentation and just want to check whether this is still valid or whether it has been canceled?

And again, let me start and Claire can go into might be the last 2 questions, but I'm also happy to phrase that all. Let me say that regarding AGM, the shift of the AGM to autumn in the fourth quarter. With our decision, we are responding to, as I said, to near-term challenges because of the COVID-19 and also the regulatory spirit and the prudence, but I think we have not gave up the view to have a physical AGM because we prefer to have face-by-face communication and also, I think, conversation with our shareholders -- all of our shareholders. And I think that is why, I think, we are not going to say the physical AGM is impossible. But I do think we are also able and we want to do the visual one also if that's not possible. So I do think that both options are possible, and I think this is a very clear view. We want to do in autumn virtual or physical AGM as we discussed and depends on the circumstances where we're standing. I think, Claire, if you can take -- and let me say that Claire, before 3% to 5%. And I do think we said that always. Our first priority is cost-income ratio, and I think that is very important for us. That is why we also prioritize the KPIs in the way the cost-income ratio is absolutely showing the operational strength and -- of the organization. But also, we are sticking to 3% to 5%. And I do think, for us, it very much depends on the market. If the sentiment of the markets will stay where we are, it might be difficult to come. But as you've seen last year, many of you might be questioned our 3% to 5%. And at the very beginning of the year, we struggled to show to 3% to 5%, and then we really come with the market sentiment back, and I do think ended nearly ex cash EUR 4.7 billion. And I think we are committed also to that. I have not strengthened. I have not rephrased it because I think it depends on the market. If the markets are coming back, we are expecting the target growth areas will bring us into this range back. And I think, Claire, back to you.

Thank you. Yes, just to reiterate that we remain committed to our cost-income ratio target next year of below 65%. Yes, we need to see some recovery this year, and I think we're seeing some signs of that, but it's way, way too early. But of course, that is a criteria that, I think, we all require. And likewise, our net flow target, very much still committed to that.

And one follow-up question on the dividend, please. Is there any pressure from the regulator not to pay it now?

I think -- look, in my opinion, there is for -- no one has any -- put any pressure on us. This is a regulatory spirit we felt. As you know -- and as you know, all the regulatory environment, Christoph, I'm sure there is a BaFin view, there is a ECB view, there is a EIOPA view. There is a EBA view. There is a spirit that management should look to manage the organization through this crisis because no one in the market knew how long this crisis will take. But again, for us, as I've said, we are sticking to EUR 1.67, and this is due to the AGM decision. And the AGM will come up late autumn, and I do think then we will decide. Again, we have no pressure, not from regulators, not from any other side. We are very, very confident that we -- hopefully, the crisis will go over, and we will come more resilient and stronger. And I think we can stick to our proposal as we've done in the last analyst meeting.

There are no further questions at this time, and I would like to hand back to Oliver Flade for closing comments. Please go ahead.

Yes. Thank you very much, everybody. And as usual, if there are any remaining questions, then please contact the IR Department. Thank you very much. Have a good day, and stay healthy.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.