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

Ladies and gentlemen, thank you for standing by. I'm Natalie, your Chorus Call operator. Welcome, and thank you for joining the DWS Q3 2021 Analyst and Investor Conference Call. [Operator Instructions] I would now like to turn the conference over to Oliver Flade. Please go ahead.

Yes, Natalie. Thank you very much and good morning, everybody, from Frankfurt. This is Oliver Flade from Investor Relations, and I would like to welcome everybody to our earnings call for the third quarter of 2021. As always, I do hope that you're keeping healthy and safe. And before we start, I would again like to remind everybody that the upcoming Deutsche Bank Analyst Call will outline the asset management segment results, which have a different parameter basis to the DWS results that we are presenting today. I'm joined by Asoka Woehrmann, our CEO; and Claire Peel, our CFO. And also, as usual procedure, Asoka will start with some opening remarks, and Claire will take you through the presentation. And 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 statement at the end of our materials. And with that, I will now pass on to Asoka.

Thank you, Oliver. Good morning, everyone, and thank you for dialing in today. I hope you are keeping healthy and safe wherever you are. This morning, I'm very pleased to report another record quarter of financial results for DWS in quarter 3 2021. We can report today record levels of profitability as well as a continued flow momentum, while at the same time starting to invest into growth. This is a testament to our commitment to advance further into Phase 2 of our corporate journey to transform, grow and lead. In the third quarter adjusted profit before tax grew to a record EUR 271 million, up 10% from quarter 2, driven by higher quarterly revenues and AuM growth during the last 3 months. And the adjusted cost income ratio of the firm improved to a record low 59.2% despite some initial investments into growth projects. During this quarter, we also attracted strong positive net new money, reporting EUR 12 billion of net inflows and all importantly, EUR 10 billion, excluding cash. For the first 9 months of the year, our net inflows totaled EUR 32.6 billion, almost exactly double our flow result in the same period last year at EUR 16.7 billion. Remarkably, EUR 4.8 billion of net inflows came in September alone. Our strong quarterly performance includes EUR 5 billion of net inflows into ESG products, which accounted for more than 40% of our total net inflows in quarter 3. This not only reflects our [ unwavering ] commitment to our fiduciary responsibility to our clients, offering them ESG products to meet their requirements for risk-adjusted returns in their portfolios. It also demonstrates the confidence our clients have in us as a fiduciary asset manager as well as the trusted relationships we share with our strategic partners and our distribution partners. In addition, we also showed our continued commitment to the ESG space by being recognized as a signatory to the Financial Reporting Council's U.K. Stewardship Code. This is acknowledgment that underscores the recognition of the capabilities we have in place to integrate stewardship and ESG factors into our investment decision-making processes, which we take very seriously. During the third quarter we saw at work our strategy to grow in areas we believe we can take a leading position in beyond ESG, especially in passive and in high-margin strategies. Over the last 3 months, we retained our #2 position in our share of European ETP flows as well as market AuM, both during quarter 3 and year-to-date. Overall, our passive business recorded EUR 7 billion of net inflows in the quarter and EUR 22 billion in the 9 months 2021, double the EUR 11 billion of net inflows reported in the same period last year. This also includes significant contributions from our ESG ETFs, which are fast becoming growth area amid growing client demand for such offerings. At the same time, we have maintained our focus on high-margin strategies, including alternative offerings, active multi-asset and active SQI, which all sustained a positive flow momentum in quarter 3. Notably, alternative strategies remain a strong demand with continued client interest in liquid real assets, infrastructure and real estate, which have collectively contributed significantly to our higher-margin flows year-to-date. As we have outlined before, Phase 2 of other corporate journey marks a shift away from focusing on driving efficiency towards also focusing on top line revenue growth, which is not only evident in our financial results, but also in the strategic progress we made, we have made this quarter. To enhance our existing capabilities and expand our distribution reach, we have engaged in some selective M&A activities in quarter 3. First, we have formed a partnership with BlackFin Capital Partners to unlock the full potential of our digital investment platform IKS, taking a minority stake in the new joint venture. And in the U.K. we have acquired a minority stake in retirement technology provider, Smart Pension, to a target growth in the local pension savings market in a moment where the marketplace is moving from defined benefit to defined contribution plans. Both partnerships are a great fit with DWS, and we are looking forward to our joint collaboration to bring something new and exciting to the asset management industry. Before I pass over to our CFO, Claire Peel, for detailed walk-through our numbers, allow me to recap. The third quarter of 2021 has been a great one for DWS, demonstrating our focus and client-centric commitment to execute and deliver on Phase 2 of our corporate journey to transform, grow and lead. As a result, our firm has delivered another quarter of record growth, record adjusted profit before tax, record AuM and a record low adjusted cost income ratio. And we have sustained our strong flow momentum throughout the entire quarter, contributing to record 9-month net inflows already exceeding full year 2020 NNA and including significant contributions from our ESG products. Let me now hand over to Claire to present our results in detail. Claire, please.

Thank you, Asoka, and welcome, everyone. I hope you're all keeping well. Today I will present the results and activities for the third quarter of 2021, starting with the key financial highlights. Adjusted profit before tax increased to a record EUR 271 million in Q3, reflecting continued AuM growth over the third quarter. Adjusted cost income ratio further improved to 59.2%, supported by higher quarterly revenues. Quarterly net inflows of EUR 12 billion and EUR 10 billion, excluding cash, keep us firmly on track to achieve our net flow target of greater than 4% on average in the medium term. This has been supported by ESG products, which accounted for more than 40% of net inflows in the third quarter and in the year-to-date, reflecting the continued strong client demand we see for such offerings. Moving on to our financial performance snapshot in Q3. Starting at the top left. AuM increased to EUR 880 billion in Q3, up 2% quarter-on-quarter, driven by net inflows and favorable FX movements. On the top right, adjusted revenues grew to EUR 664 million, up 6% from Q2, supported by higher management fees and other recurring revenues. On the bottom left, adjusted costs totaled EUR 393 million due to an increase in general and administrative expenses in the third quarter. Adjusted cost income ratio was 59.2%, an improvement of 1.4 percentage points as a result of stronger quarterly revenues. Adjusted profit before tax increased to a record EUR 271 million in the third quarter, up 10% from Q2 and up 20% year-on-year. Let's recap on the market environment. All major equity indices had a strong start to the third quarter, but dipped in September as investors reacted to a number of concerns, including China's regulatory initiatives, continued supply chain disruptions, the prospect of tie to monetary policy and on -- the ongoing pandemic. In particular, high energy prices have led to increased concerns that higher inflation rates are more persistent than originally anticipated. As a result, market volatility levels were slightly higher compared to Q2, and the U.S. dollar appreciated 2.5% against the euro in the third quarter. However, market momentum has picked up since the start of Q4 as investor sentiment has shown signs of improvement. Moving on to AuM development. Assets under management increased to a record EUR 880 billion in the third quarter, up 2% from Q2 and up 16% year-on-year. Quarterly asset growth was driven by favorable FX movements in Q3, together with strong net inflows, which I will now outline in more detail. In Q3 2021, we sustained our positive flow momentum from the first half of the year, reporting net inflows of EUR 12 billion and EUR 10 billion, excluding cash. This brings our total net inflows to EUR 32.6 billion in the 9 months 2021, which already exceeds our record net inflows of EUR 30.3 billion in full year 2020. Our strong flow performance in Q3 and in the year-to-date has been supported by retail and institutional channels and all 3 pillars of active, passive and alternatives. Retail investor sentiment has been particularly strong, with 66% of our Q3 net inflows coming from retail investors, especially in EMEA. This is a testament to our strong 3- and 5-year investment out-performance at 72% and 82% respectively. In addition, more than 40% of our quarterly inflows came from ESG-dedicated funds, reflecting our strong client demand and engagement in such offerings, a trend we see clearly in most asset classes. This is most evident in passive, our biggest flow driver, which contributed EUR 6.6 billion of net inflows in Q3, 1/3 of which came from ESG ETF. This includes inflows from new product launches as we continue to build out our range to meet increasing investor interest in ESG. One example is the Xtrackers Emerging Markets Carbon Reduction and Climate Improvers ETF. Overall, ETPs accounted for almost 2/3 of our total passive inflows in Q3. The remainder of net inflows were mainly contributed by a significant mandate win. As we have seen quarter-after-quarter, our European listed ETPs continued to perform strongly, ranking #2 in the region and by Q3 net inflows. In 9 months 2021 DWS has steadily increased its total passive flow share with EUR 22 billion of net inflows year-to-date, double the EUR 11 billion of inflows recorded in the same period in 2020. Alternatives have also sustained their positive performance with EUR 1.4 billion of net inflows in Q3. This was primarily driven by liquid real assets, including the DWS RREEF Real Assets Fund, which continued its slow success from Q2 and is now close to achieving EUR 2 billion of net inflows year-to-date. In 9 months 2021 we have seen our alternative net inflows almost doubled to EUR 4.3 billion compared to EUR 2.3 billion of inflows in the same period last year. This not only reflects continued demand for liquid real assets, but also stronger interest in infrastructure, especially the DWS Infrastructure Debt Opportunities fund and the DWS Invest Global Infrastructure fund. We also continue to see client interest in our real estate offerings, including flagship [ fund grand visits ]. This uptick in alternative inflows not only supports our quarterly and year-to-date flow performance, but also contributes to revenue generation, underscoring the importance of alternatives to ensure DWS sustains its growth trajectory. Cash remained in positive territory this quarter with EUR 1.9 billion of net inflows. Q3 cash inflows were primarily driven by the DWS Government Money Market Series fund supported by the U.S. institutional market. Active multi-asset attracted EUR 1.1 billion of net inflows in Q3, continuing its positive flow momentum from Q2. Our flagship concept Kaldemorgen was our top-selling multi-asset fund in Q3, following a rebound in investor appetite for the asset class. In addition, the DWS ESG Dynamic Opportunities fund also continues to attract strong investor interest and currently ranks as our top-selling multi-asset ESG fund year-to-date. Active fixed income reported EUR 0.8 billion of net inflows in Q3, marking a fifth consecutive quarter of positive flow performance. This reflects net inflows from institutional investors in the U.S. and retail investors in EMEA, and include sales in our flagship product, Floating Rate Note Fund. In addition, our insurance fixed income business continues to perform well, reporting EUR 1.2 billion of net inflows in Q3 and EUR 3.9 billion year-to-date. Active SQI recorded positive inflows for the third quarter in a row in Q3 with EUR 0.7 billion of net inflows, marking a reversal from 2020 outflows. This quarterly result primarily reflects the uptick in European retail sentiment, with inflows reported across a range of funds. Altogether, these inflows more than compensated for active equity outflows in the third quarter. While investor appetite for the asset class has picked up in the market, there has been a greater shift away from traditional active equity funds in favor of ESG equity funds as investors seek to rebalance their portfolios. We saw this trend play out in the third quarter amid uncertainties around economic outlook and flagship fund performance. And while we reported net outflows from our traditional active equity funds in Q3, we're encouraged by the strong and continued demand we see for our active ESG equity funds which have attracted EUR 1.9 billion of net inflows year-to-date. Overall, ESG products contributed EUR 5 billion of total net inflows in Q3 and EUR 13 billion year-to-date, representing approximately 40% of our EUR 32.6 billion of net inflows in the 9 months 2021. The ESG products also account for 40% of cumulative net inflows into our new product launches, which I'll now explain in further detail. Since Q2 2018, new product launches have attracted EUR 37.3 billion of cumulative net inflows and reported an overall management fee margin of 40 basis points. This includes a EUR 4.2 billion of contribution to our Q3 net inflows, bringing the year-to-date total to EUR 15.5 billion. As a result, new products represent almost half of our total EUR 32.6 billion of net inflows in the 9 months 2021, which is testament to product innovation. Notably, the DWS concept ESG Blue Economy fund we developed with the WWF has been well-received, contributing positively to net inflows in Q3. And as mentioned previously, the Xtrackers Emerging Markets Carbon Reduction and Climate Improvers ETF is attracting strong client demand, confirming that we are meeting growing client interest. This is an area we will continue to build out, including in Q4, with the planned launch of the Xtrackers ESG Global Government Bond UCITS ETF. We are also planning to launch the DWS Invest ESG Next Gen consumer fund in the fourth quarter, which is designed to invest in companies that are expected to benefit from a shift in consumption patterns driven by millennials and the subsequent next generations. Both of these new products will comply with Article 8 of the EU SFDR regulation, which will continue to play a key role in our fund launches going forward. In addition, we will also focus on SFDR conversions for existing products where efforts is concentrated in Q4. Moving on to revenues. Adjusted revenues increased to EUR 664 million in the third quarter, up 6% from Q2 and up 19% from the same period last year. Management fees and other recurring revenues grew by 4% from Q2 as a result of higher average AuM and strong net inflows in Q3. Despite this, the quarterly management fee margin declined to 27.6 basis points due to specific quarterly factors. Performance and transaction fees increased by 45% quarter-on-quarter, primarily driven by higher transaction fees in Q3, while other revenues increased quarter-on-quarter and was supported by a EUR 17 million contribution from our Chinese investment Harvest, together with positive investment income. Moving on to costs. With fewer COVID restrictions now in place, we are gradually getting back to normality. Total adjusted costs have risen by 4% to EUR 393 million in the third quarter. This is primarily due to an increase in adjusted general and admin expenses as we continue to invest into growth projects as well as in business travel and marketing activities. These have also -- there has also been a number of one-off items in the G&A expenses in Q3. Together, these more than offset the 7% decline in adjusted compensation and benefits costs due to lower variable compensation relating to DWS share price movements within the third quarter. As a reminder, the adjusted cost base excludes EUR 9 million of investments into our infrastructure platform transformation project and EUR 21 million in the first 9 months of the year. To conclude, DWS reported another successful quarter in Q3, sustaining its positive momentum from the first half of the year into the second half of 2021. Strong Q3 net inflows contributed to total net inflows of EUR 32.6 billion in the 9 months of 2021. This is driven by positive flow performance across most asset classes, retail and institutional channels. And with continued client demand for ESG products, which accounted for approximately 40% of total net inflows in the third quarter and year-to-date. Together, this supported higher revenue and AuM growth in Q3, resulting in record-adjusted profit before tax of EUR 271 million and an improved adjusted cost income ratio of 59.2% in the quarter. As committed, we have continued to invest into the growth and transformation projects in Q3, a focus we will retain in the fourth quarter and into 2022. As a result, we expect an adjusted cost income ratio in the low 60s in 2022. As we have demonstrated already this year, we are successfully attracting net inflows into our targeted growth areas, and this keeps us firmly on track to deliver a net flow growth rate of more than 4% on average in the medium term. And ensures we continue to advance even further into Phase 2 of our corporate journey to transform, grow and lead the business. Thank you. And I will now pass to Asoka for closing comments.

Thank you, Claire. Looking ahead, we will continue to concentrate on our corporate journey for Phase 2. We will continue to focus on helping our clients navigate through any macroeconomic situation that may present itself, including inflation pressures with our global and diversified offering of products and solutions. We are more committed than ever to deliver value for our shareholders while transforming our organization and investing into both organic and inorganic growth wherever it adds value to our firm. In particular, we are committed to: first, delivering ongoing profitability through continued net flows driving AuM growth; second, achieving a clear path to a sustainable adjusted cost income ratio of 60% in 2024; and third, staying fully committed to the ESG space to meet our clients' growing needs. To ensure we are able to accomplish these goals, our strategy of transform, grow and lead will continue as before. We will keep pushing to transform our firm into a truly stand-alone asset manager with our own dedicated infrastructure platform. We will remain focused on developing and evolving the best possible ESG products and solutions offering for our clients, while engaging in external commitments to help shape better ESG practices for our industry. We will invest more to grow in the markets and businesses where we believe we can lead, especially in passive and high-margin strategies. We will continue to form strategic partnerships that capture growth opportunities, especially in our targeted growth region of Asia Pacific. And to underpin our growth strategy in key markets, we will accelerate building and promoting the DWS brand globally, supported by our recently announced strategic partnership with the iconic NBA basketball team, the LA Lakers, leveraging their global visibility, especially in Americas and in Asia. While there is clearly still a long road ahead of us during Phase 2 of our corporate journey, which we started just 10 months ago, the resilience of our strong financial results in quarter 3 and the first 9 months of 2021 indicate we are positioning ourselves well for the future. Thank you for your attention, and I will now pass over to Oliver for Q&A. Oliver, please.

Thank you very much, Asoka. And operator, we're ready for Q&A now. Again, I would like to remind everybody in the queue to limit yourself to 2 questions. That would be great. Thank you very much.

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

2 questions from me. First, if you -- can you describe, I guess, any impact that the ongoing SEC and BaFin investigations are having on your business? I mean, we did see good EUR 5 billion of inflows in September, but I was just wondering on the institutional side if there has been any impact maybe that we haven't seen or we may see in the future? That's number one. And then number two, on the cost side, thank you for the color on the incremental costs that we saw in Q3. I was just wondering if you can break out maybe what the one-off costs were related to some of the transactions that you have done, particularly the professional fees there, which are unlikely to occur? And/or maybe you, Asoka, I think you mentioned that some of this came from the initial investment in growth opportunities. I was just wondering what that initial investment looks like versus the recurring investment that will be needed as we go forward in those specific opportunities?

Mike, thank you for both questions. I think first, I would -- the first question I would -- or complex, I will take. Might be Claire will chip in on the numbers. And I think then also the cost one will also -- will answered by Claire. First of all, we never comment on any regulatory interaction. I think you understand that. We have been very clear that we firmly reject the allegation being made by former employee. We stand behind our disclosures, and we remain firmly committed to ESG as a part of our fiduciary duty as well as our corporate. We have to say all our institutional clients, they are long-standing partnerships, they knew all our processes. And therefore I think we have a more client interaction, but they knew exactly what we're doing and what we disclosure -- know our disclosures are, our investment processes are, our product and solutions are. So therefore we can't see any material impact to our business and to our franchise. This is due to also our close relationships, but also very strong, let me say, reach out to our clients during this phase. And I think we are glad to see that is also shown in numbers. With that, I will hand over to Claire, and Claire will -- if you want, we can go in a deep dive on numbers, but I think Claire had done that already in her section and also going to the second question.

Thank you, Asoka. And thank you, Mike, for the question. On the second one on costs, we did see a 4% increase in total costs, as you've indicated, in the third quarter. And we really saw across a number of areas incremental costs on the G&A side, but really no surprises there. So in part I would say that's business as usual activity, some small pickup coming in travel and activity levels on the marketing front. We had a few one-off costs which I referred to related to various activity we have in the platform. Some actually linked to efficiency gains, where we're adjusting our real estate portfolio at the moment, and we had some one-off costs attached to that. And also some of the activity that we've outlined in terms of the recent transaction drove some costs in the third quarter as well. So a small uptick there in G&A, but offset by some decline that we saw in the comp and ben costs but overall still a 60%, 60.1% cost income ratio on the year-to-date. On the question of growth costs going forward, we have incorporated in our target a sustainable 60% cost income ratio capacity for investment into growth initiatives. And we've seen some of that playing out in the third quarter, and we'll continue to see that in the second half of this year and moving into next year and beyond. Hopefully, that addresses the question.

The next question is from the line of Hubert Lam from Bank of America.

Just 2 questions. Firstly, on ESG AuM, do you have an updated figure in terms of your ESG assets? And have there been any changes in how you report ESG in your disclosures? That's the first question. The second question is just a little bit more generally, Asoka. I think there'll be increased regulation on ESG going forward. And what do you think this will be generally?

Claire will take -- Hubert, good morning. Thank you for the 2 -- all the questions. Claire will answer the disclosure and how we're reporting on ESG flows, and I will take might be on regulations how that kick in and how that's going to shape the asset management industry.

Hubert, thank you for the question. On the ESG dedicated AuM number, we reported that in our half-year interim report, and we will again report in our annual report, but we don't report that as standard practice in the interim quarters of Q2 and Q3. So as of our interim report that we published in July for Q2, we reported ESG AuM of EUR 70.1 billion. And that was following the new regulation that came into play on the 10th of March around the SFDR definition. So in terms of the question on changes, the only changes that took place in the definition was as defined from the regulation that was published on March 10. So that's effectively the basis of the reporting disclosure that we have for AuM and will also be so when we report at the end of the year.

Hubert, I think, hopefully the first part is answered. I do think, regarding your second part of your question, how the regulatory environment going to change over the next course not months, in my opinion, years. This is the start. The SFDR regulations in Europe, the Article 8 and 9 is the start of disclosure regulations. I do think that will kick in much more regulations. We are expecting next year to have not only the European taxonomy as we discussed many times here. But also I think the MiFID regulation will change. That means the suitability discussion will come in. All that, that is the way how we're preparing all our conversions, all our product suite into the future. It will be a very evolving and dynamic market. And I do think -- that is Europe. We, at the moment we are not seeing anything kicking in the U.S., also in Asia, but that will come in, in my opinion next year. So as we discussed, the ESG space is an evolving base. I think we are very much welcome also the dialogue in also in a part of -- as a part of the asset management industry, the dialogue in the COP26 that will happen [ soonly ] next month in Glasgow. And we will see how the dialogue is going on. And I do think the green industrialization topic and the contribution of asset management to this green industrialization and the society change will be discussed. And I think as we always talk in our AGMs, but also in different events, we are happy to contribute and bring our thought leadership into this field. And as, I think, to be honest, as an active manager and also in a passive player and alternative player, we are happy to especially go the part of engagement into this field. I do think that will differentiate us also to some other players. So Hubert, I think I want to only prepare all of us. There's huge dynamic market and many changes will come in. And therefore the disclosures and how we -- also the reporting standards will be developed very dynamically in the future.

The next question is from the line of Arnaud Giblat from Exane BNP Paribas.

I've got 2 quick questions, please. Firstly, on Harvest. You mentioned in the presentation EUR 17 million contribution this quarter. I think that's quite a substantial sequential decline. Could you talk a bit about the factors that have an affected Harvest and whether these will continue in the following period? Also, I'm just wondering what are the other contributing factors to that EUR 29 million in other revenues? And my second question is to come back on cost. So you're guiding to a low-60% cost-to-income ratio in 2022. I'm wondering what are the moving parts? So perhaps could you give us a bit more color in terms of what are the investments still to be made and quantify those? Any efficiencies to be made and quantify those? And then your revenue assumptions I think is quite important in that cost-to-income ratio guidance.

Thank you for the questions. I'll take the first one on the composition of the other revenues, which was EUR 29 million in Q3. And as pointed out, EUR 17 million of that came from our Harvest joint venture, which takes us to a year-to-date total of EUR 66 million from the harvest JV investment, already outpacing the exceptional revenues that we actually generated in the full year of 2020. So yes, it is a decline quarter-on-quarter. But as with any quarterly numbers, there's no particulars going on there. I think it is just the performance that we're seeing across the Harvest JV. But we expect 18 to 20 was expected to be a more normalized run rate per quarter. We slightly outperformed that in Q2, and there was a very strong performance that we saw in Q1, but we still expect to continue on that path and see an increasing and improving contribution from harvest for '21 compared to 2020. And also looking forward into 2022. In terms of other items that are within the other revenue category, the other most notable item for Q3 was coming from investment income from co-investment positions that we hold in our alternatives platform. And we saw a strong return coming from those in the third quarter. Those are the most notable items to comment on. On the second question around the outlook for 2022. We're guiding to a cost-income ratio in the low 60s. We -- to recall that our target here is to have a sustainable 60% cost income ratio target by 2024, and we are on a path forward to both invest in the business while ensuring that we can generate ongoing sustainable efficiencies to take us to that 60% level. So as we look forward to 2022, and we will give more guidance in the future, we do expect to see further investments into growth, further investments into the platform. And of course some normality returning to general activity levels compared to what we've seen in the last 18 months. On the revenue side, we've seen very strong growth, we know, in 2021. So we wouldn't expect to see such strong growth in market levels in 2022. But we do take a constructive consensus outlook in terms of opportunity for '22 on the revenue side. And more details will follow on that later on. I hope that addresses the question.

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

2 for me, please. One on ESG, one on the margin this quarter. I imagine you've done some thorough evaluations following the allegations. What have been your initial learnings across your ESG government structures integration processes or otherwise? Or is there absolutely nothing that needs to change as you submit? And the second question on margin, I think it's actually a solid margin considering mix shift. Yes, the margin did come down versus a strong Q2. But if I remember that benefit -- if I remember well, that benefited particularly on the alternative side following fund closures. So just curious, were there any other similar effects in alternatives this quarter, please? Or anything else to call out, I should say.

Nicholas, thank you very much to the 2 questions. If you allowed me, I will take the first one. And I think, as you know, we -- 26th of August, we've done a corporate statement that was I think hopefully for everyone is clear. Our part of ESG will continue as I stressed again today. And I think we are standby to all our disclosures, what we've done in all our annual reports. As I already said and I think Hubert asked this question also how to -- what will happen to the ESG space in the future regulatory wise, I think as we discussed many times, Nicholas, it is a dynamic area. So other -- and I think we decided in end of '19 our strategy license to operate. And license to operate was designed to bring a clear governance in our -- into our organization. And we've done it with the GSO office and brought that as a core strategy to DWS. All that is continuing. And you can see not only that we are now in this year that we have decided about our conversion with a very clear foresight, not only at the SFDR regulation. We are also preparing for the future regulation changes and taxonomy changes in Europe, saying that at the same time also we are looking forward. And as you know, we are one of the signatory members of the Net Zero. And I think Net Zero is also a path we want to go as one of the signatory early members, saying that we are continuing our program, the first phase as well as the second phase to become one of the leading player in this industry. And I think, as I said, also our contribution to the biggest change in our -- in my opinion, lives because I do think that's not only a society topic, it's also especially industry topic what we can contribute. So therefore, our organization is not only changing fast to all the changes, what is -- what we are seeing outside, but we are stick to our strategy as we always set and agreed and also discuss with you guys.

Thank you for the question, Nicholas. I'll take the second one on fee margin. So yes, the management fee margin of 27.6 basis points in Q3 is a decline compared to Q2 of 28.1 basis points. And as you pointed out, we did have some fund closures in the second quarter in alternatives that led to an equalization effect and uptick in Q2, which we see normalized in Q3. And that really accounts for the majority, I'd say, about 0.3% of the movement we see quarter-on-quarter. Otherwise, adjustment is from a small mix effect that we see in the Q3 number. The guidance still very much holds that we project around 1 basis point of fee margin dilution per year. So where we came from at the end of 2020. I would say that for the full year fee margin will be slightly less than 1 basis point of dilution overall. Compared to last year 2020, we were slightly higher. So I think on average, about 1 basis point of dilution per year continues to be the guidance.

Nicholas, is that -- did we answer your questions?

Yes, no -- yes, yes, yes, you did. I mean it was helpful. I guess -- listen, I obviously noted the fact that you had rejected the allegations and that you were confident in your disclosures. I'm not disputing that at all. I was just curious in terms of, therefore, if there were any other learnings beyond that from what you have, from what you've investigated since then. But I appreciate that it's obviously quite -- it's also sensitive as well. So if there's anything else you want to add to that, you're obviously welcome. Otherwise happy to be [ out there ].

Yes. No, Nicholas, I think your points are very, in my opinion, valid. What we can see through these allegations, what we have rejected, it became a movement to the organization. We never believed. We are now -- we have so much client interaction, and we have so much education session on ESG, it's a great chance for our organization. This is now really one of the forefronted items with our clients. Not only with institutional clients, it is also with all distribution channels. And I think that's a great opportunity for us. And I think that is also witnessed by flows and I think also the number of client actions. And I think that gives us not only, let me say that in a great feeling this is a very much interest of all but we can really show up now with all other, let me say, capabilities, what we have in hand and be in a dialogue with our clients, but also I think more and more with very, very, in my opinion, the pressing topic. This is not only asset management industry topic. We have to engage many other stakeholders to get their -- what people are looking for.

The next question is from the line of Gurjit Kambo from JPMorgan.

So 2 questions. Firstly, on the digital investment platform, and obviously the acquisition of BlackFin Capital Partners. What's the sort of strategy behind that? Now what are you trying to do? Are you trying to build like a distribution platform? Just really interested to understand what that platform would look like and where we will expect to see the kind of contribution from that? Does it come into other revenues? Or will it come somewhere else? That's the first question. And then secondly, on M&A, what's the sort of rough sort of firepower you currently have for M&A? And what sort of areas are you looking for potential acquisitions?

Thank you for the questions. Let me perhaps start with the second question on firepower for M&A. And I think as we've indicated before, we are in a position to act should the right opportunity arise on the acquisition front. We don't have any constraints or obstacles in that regard. We're suitably capitalized and we have tools that we can deploy to engage in an acquisition of size, whether that's bolt-on or larger. So we are in a position to move forward. We can't disclose specific excess capital, but we are able to act should the opportunity arise. On the question around the digital platform, to answer the question on the recognition side, we have not yet closed the transaction, of course that will take us into next year. And when we do close that transaction, we expect midway through next year we would look to report if there is a gain on sale, which we're not disclosing at this point in time, that would indeed be reflected to us as a revenue line. And so that's something to come next year. And I'll hand over to Asoka on the transaction.

Great. Thank you. And I think if I may answer your question regarding what we are designed -- or what we are desired to reach out of this, let me say, partnership. BlackFin and DWS has agreed to long-term partnership to evolve our digital investment platform into a platform ecosystem. And I think, as you know, it is a very intense work. And we thought it is very helpful for us to work with BlackFin Capital Partners because of their great experience in this field. And we are going to create a best-in-class client experience and service platform and not only, by the way, for distribution partners, but also the institutional clients and retail clients in the future. And I do think it is not -- might be relevant at the moment in Europe. But it will become very relevant in the future. And I do think also our Global Coverage Head, Dirk Goergen, has mentioned I think this joint venture on the digital side will be important to build up also a pan-European -- to create a pan-European player go out of our very strong positioning in Germany. And I do think that will help bring us with this partnership. And I do think this is a big hope and intention of us. And I do think that's a relevant partnership for us in the future.

The next question is from the line of Jacques-Henri Gaulard from Kepler Cheuvreux.

I guess I have the same 2 questions as everybody else, but I will rephrase them. The big event of the quarter was the stock price nonetheless going down by 12% on the day of you had those 2 regulatory inquiries. I'm just surprised, you didn't make even half of the slide on the communication today. I was wondering what drove your decision not to basically do that. And I can perfectly appreciate you where you can communicate on it. But do we have any idea of the delay on these inquiries because, as you know, when these contingencies happen, they really are a pain for the medium-term analysis of any stock. So any color, even very, very vague you could give any sort of delay would be great. Second question on the cost front. It's great hearing you, Claire, on the cost-to-income ratio side, you've done 59% quarter with a lot of one-offs. So probably without one-offs you would have been at 58%. Obviously, not asking you to change any of your guidance, but if you were an analyst in our shoes, wouldn't that make sense to just stick the cost income ratio to 60%, almost irrespective of market conditions over '22-'24? That's it.

Jacques-Henri, I think -- let me take the first question. First of all, I've been a long-standing investor and started as an investor. One thing I know, my career, you will not control markets. And I think share prices move according to news flows. And as we know, 25th of August with Wall Street Journal article, the discussion started, and we have seen the slump. Since then we had a quite side way. And I have to say that is something I never -- we never discussed here the rise of the stock, and we never discussed the down of the stock. But I think that either event we can't -- let me say, not recognize it, but we can do only our best as a management. We are close to our clients. We are implementing and executing our strategy consistently as you knew. And I think we're delivering the numbers of what our shareholders are expecting. And that we can do. And all other things, other investors and the community where you are in, can do it. And I think that's only where you can tackle these situations. Again, we are not going to control our stock price. So therefore I would say we are doing our best, as you can see in the third quarter, with the record results what we delivered and close to our clients and driving our strategy. With that, I will hand over to Claire to answer the second part.

Thank you, Asoka, yes. And thank you for the question on the cost side. So indeed, we have reached a record low in Q3 at 59.2% cost income ratio, with a few one-off items that we have in that number. So indeed that would have improved it slightly, albeit there's always the number of one-offs that we have through the quarters. The guidance that we're giving for next year is looking to refine the medium-term guidance a little bit more for you to indicate that we will be in the low 60s next year. Have seen strong accelerated revenue growth in the year of 2021, and we need to look more closely at the market outlook for year 2022. And on the cost side, as we've said, we will see a normalization of some activity, which will give some upward cost pressure with continued investments into growth. So I think when we combine those factors, that does lead us to the guidance that we would see a cost income ratio in the low 60s in 2022. But we're firmly committed to achieving a sustainable 60%. And that's why we don't think we can guarantee that next year. But we are committed to achieving that sustainable cost income ratio target by 2024. Hopefully that answers the question.

The next question is from the line of Bruce Hamilton from Morgan Stanley.

But I guess just -- and this kind of goes a little bit to the '22 guidance point again. I mean, it sounds like the exit speed in net new money terms coming out of Q3 is pretty strong. So I just wanted to get a sense. When you talk about sort of fading your assumptions on growth for '22 versus where we've been in the last 18 months, I completely get that. But to check, you're not seeing anything in the business today that suggests any form of sort of slowdown in the organic growth rate. And then just to clarify, I think to one of the earlier questions on the sort of any institutional impact from the ESG sort of investigations. Just to make clear, you're not seeing any sort of impact to pipeline that you would flag in terms of growth. That would be super helpful. Just to clarify.

Thank you for the question. I'll pick that one up given the continuation on to the outlook and the guidance for 2022. I would say, in terms of the net flow outlook that we've seen year-to-date and what we see continuing going forward we continue to be very constructive on our guidance there. We have a good pipeline, no surprises in our pipeline. And as we said in Q3, there's been no material impacts to the negative side that we have seen, and we continue to see that in our pipeline outlook for Q4. In terms of our guidance on flows, we've always said that we will exceed 4% net flow rate, and we've certainly seen that for this year. At the same time, we do recognize there can always be volatility, and that's why we hold to the guidance of greater than 4% on the net flow rate. Otherwise, in terms of business outlook on the revenue side. We continue to guide on performance and transaction fees of between 3% to 5%, and that will continue into next year. But noting that we can always exceed that, we can outperform as we did in Q4 2019 when we had a one-off performance fee in that quarter. We can see a recurrence of that, which would indeed mean that we would outperform our 3% to 5% performance in transaction fee guidelines. But otherwise, nothing out of the ordinary that we would point to for 2022.

The next question is from the line of Angeliki Bairaktari from Autonomous.

Just a follow up on the IKS platform, please. What was the revenue and net profit contribution of the business to your P&L in 2020? And perhaps also in the first 9 months of 2021, just to understand the size of that business given that you're now selling most of it. And second question on flows. Retail net flows have been very strong year-to-date. And I think you also called out a good appetite from retail clients. In which countries do you see most interest from retail investors? And how is Deutsche Bank's network in Germany performing in particular?

Thank you for the questions. On the first one regarding IKS, we haven't disclosed specific financials for that platform business that has been embedded in our broader business and now is in the process of a carve-out. So I don't have any numbers to disclose on that one, I'm afraid, but we will have more to say on that as we close the transaction next year. On the flow side, in terms of retail distribution, indeed we've seen strong retail flows in the third quarter. And in fact that's been the majority of the flow pipeline, particularly strong in EMEA and across our distribution networks, including the Deutsche Bank distribution network, which has also been contributing strongly to the results that we've seen in the third quarter. So mainly EMEA and strong in Germany.

Can I just -- if I may just follow-up on IKS, is it fair to assume that it's not going to be -- the impact from the deconsolidation or from the partial deconsolidation of that business is not going to be more than a couple of percentage points in your earnings?

I can't give any specific guidance on that, I'm afraid, to that degree.

The next question is from the line of Reg Watson from ING.

As you shift into stage 2 of your strategy, clearly you're focusing on the top line. And in the commentary you make a reference to strong fund launch pipeline for 2022. Please could you give us some quantification in terms of scale and cadence of how 2022 is going to be different from '21?

Thank you for the question. Yes, indeed on the slide on product innovations, we have pointed to the fact that 2 things actually, that we are focusing on fund conversions following SFDR regulation. And I think that's one indication of where we'll see a lot of activity in terms of product pipeline as we convert current funds that we have on the platform to SFDR-defined funds. And in addition to that, we have a strong fund pipeline going into 2022. And again, we have said that our new fund launches will be very much focused on ESG-dedicated funds as a default, and that's really where we'll see the continued growth across our passive and ETF platform across active thematic funds, specifically within equity where we have thematic ESG equity funds and also within alternatives where we have a pipeline next year. I don't have specific percentages to give you on that, but I think that's something we can certainly follow up on as we have more details coming into next year.

There are no further questions at this time. So I hand back to Oliver Flade for closing comments.

Yes. Thank you very much, and thanks, everyone, for your questions and for dialing in. Any follow-up questions, please feel free to contact the IR department. And otherwise I wish you a fantastic day and a healthy time. All the best. Bye-bye.

Thank you.

Thank you.

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