Company profile: DWS diversifies

Special report: Focus on Germany

DWS Investments, the retail fund arm of Deutsche Bank Asset Management, which began developing structured products 14 years ago, is keen to vary its product range. "All of our structured products business is tied to fund-linked products," explains Frankfurt-based Günter Graw, managing director and head of guaranteed fund products at DWS. We do not offer warrants or certificates at the moment. But we have plans to do so."

Acknowledging its limitations, DWS has hired help from the investment banking sector. Stephan Kunze will join DWS at the beginning of October as head of distribution for Europe and Asia-Pacific, Graw says. He joins from ABN Amro, where he assumed a number of roles including head of the European private client group in equity derivatives.

By combining an investment bank's expertise in trading equity derivatives with an asset manager's knowledge of stock-picking, Graw says DWS will plausibly be able to offer investment certificates, and adds that the idea is to "remove the barriers between asset management and investment banking".

Certificates versus fund-linked structures

DWS's structured products business has a total of E23 billion in assets under management, E4 billion of which stems from retail guaranteed funds. "Retail products are where we want to grow. Higher margins mean the earnings potential is greater in the retail market than it is in the institutional market, and certificates will contribute to this growth," Graw notes.

According to Graw, the turnaround time for a fund-linked structure is between one and three months, whereas certificates are more flexible and can cover asset classes that mutual funds are either unable or are not allowed to due to the regulations that govern them.

Retail investors also respond faster than private or institutional clients, who need more convincing when taking up such products, Graw explains.

Despite the E65 billion certificates market's attractions for product producers, there are concerns that certificates are less transparent than mutual funds and that their costs are significantly higher than those of fund-linked structures. "Certificates are not licensed by the regulator, whereas funds are supervised very closely," says Norst Nottmeier, head of hedge funds and securities supervision, for German regulator Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). And certificates are not guaranteed by the bank in case of default, whereas mutual funds are, he adds.

Despite these concerns, DWS is committed to forging ahead with its plans to offer certificates. "Athough there are some concerns regarding transparency, there is a clear demand for certificates in Germany. So it is best if we are able to offer both fund-linked products and certificates, " Graw says.

Wider distribution

DWS's products can already be purchased through Commerzbank, Citibank and Postbank, and it is keen to develop relationships with independent financial advisers (IFAs) and German savings banks. IFAs are a minority distribution channel in Germany but they have been developing gradually.

DWS has a dedicated sales team to target savings banks. Poor performance of in-house products has encouraged savings banks to look elsewhere, and since the abolition of state guarantees for Landesbanks, under which savings banks operate, Graw says the doors have been opened even further.