Some have called Kevin Parker, global head of Deutsche Asset Management, the clean-up guy; others have called him a portfolio manager in an executive’s chair. Both are exactly why Josef Ackermann — chief executive officer of DeAM parent Deutsche Bank — hand-picked Mr. Parker to turn around the company’s asset management business in 2004.
“I’ve gotten the assignments that other people didn’t necessarily consider to be the most fun,” Mr. Parker said.
Mr. Parker, who built Deutsche’s equity derivatives unit from scratch in the late 1990s into a business that brought in more than $2 billion in revenues over just a few years, was charged with significantly improving profitability and performance of the asset management unit. In less than three years, the business has gone from bleeding assets — losing roughly e100 billion ($136 billion) in client assets in the three years before Mr. Parker took over and e458 billion ($620 billion) in assets as of Dec. 31, 2004 — to substantially increasing its assets under management to $736 billion as of March 31.
Mr. Parker, in his first-ever media interview, said DeAM has acted swiftly to reduce redundancies within the asset management business, most visibly in its 2005 sell-off of its U.K.-based investment operation. Also, by creating four distinct lines of business — institutional, insurance, alternative and retail asset management — DeAM has become a global investment management organization, he added.
How is asset management perceived, or regarded, among Deutsche Bank’s various business lines? About six years ago we did a strategic review and decided that there were seven core businesses, of which asset management was one. All of the businesses that did not fit into those seven businesses were sold. It resulted in 14 businesses being sold and over 30,000 people leaving the platform. That decision has not changed since it was made by the executive committee in 2001, even to this day. Whatever was non-core was sold, and asset management is still here. There should be no arguments, questions, concerns or any other issues raised about whether or not asset management is a core business at Deutsche Bank.
You took over with a mandate to turn the business around. What was your first move? My management style is well known around the bank — I tend to be strategic and trend-oriented. We discern what the megatrends are in the business; this business is all about playing the trends. We did a full strategic review and interviewed over 300 people in the division to listen to their problems and concerns. We wanted to understand what was going on in the business, to understand the pulse of the division, what are people happy about, how do you make people happy. ... This was an organization of 5,000 people with $600 billion under management. It’s a giant asset management organization with a number of constituents — clients, consultants, fiduciary responsibilities; you don’t take these decisions lightly. You need to make extremely informed decisions. The business obviously had problems. It was losing assets.
What caused the outflows? You can always attribute some of it to performance, and some to organizational instability. It’s no secret that we had numerous changes in the senior management, directional changes, strategic changes, and so on. In the institutional asset management world, that loses you business. There were also strategic mistakes in product lines, not shifting from one product line to higher growth product lines. In the U.K., for instance, there was a big trend towards multiasset class investing, then there was a trend away from it. With all of the change, we were sitting in asset classes in products that were becoming rapidly out of vogue. That’s a dangerous position to be in.
Have you finished executing your plan? The whole process — planning, review and strategic development — is an ongoing thing. You can’t sort of do it once and then revisit it again in five years. Clients, regulations, markets, they all change. It constantly requires you to invest in parts of your portfolio that are rapidly growing, and prune parts of your portfolio that have become out of vogue. That is what management gets paid to do.
What is the most significant challenge when it comes to running an asset management business? It’s always a process of change. There is a longer gestation period in asset management — the trends tend to last longer than they would in other businesses, such as equity derivatives. You have varying time frames for varying products in various businesses. We have one of the most diverse money management businesses out there, and possibly the most global money management operation. There are these added dimensions of product complexity and geographic complexity that are thrown into the mix. That’s an opportunity and a threat because you have more places to make mistake, but more places for opportunity as well.
How satisfied are you with the organization of the institutional business? We did not have a single global business here: we had regional institutional businesses in Germany, the U.K., the U.S., and Australia, which were in many cases competing with one another. You had businesses within the regions competing with one another as well. ... This was tying us up in knots and it would have prevented us from accomplishing our agenda on a global basis. (The reorganization) has allowed us to focus on our strengths and more effectively deliver all of what we do best to different types of institutional clients all over the world.
How can you tell when, or if, your turnaround strategy is working? We impose our own time frames and pressures on ourselves. For example, we lost e100 billion in assets. Our goal was to get it to flat. That was important to send a message to the institutional community that the business was stabilizing. When these businesses go into negative momentum, they can go into a death spiral. As a former mountain climber, I can tell you that arresting the fall is absolutely the most difficult maneuver when you are on a mountain. If you start sliding, you have your ice ax in hand, but I can tell you that if that is all that stands between you and a 2,500-foot runoff, you better be saying your prayers. This business is very similar. You will fight the trend until you come to a full stop. Arresting the fall was key. In 2005, after we lost e100 billion over the three previous years, we were minus e6 billion. Last year, we were plus e6 billion which we consider to be a victory. Overall, the bleeding has stopped at Deutsche.
Your approach to management isn’t that dissimilar from the way a portfolio manager runs money? You have to actively manage your portfolio of businesses just like you have to actively manage your portfolio if you are a portfolio manager. I have always referred to myself as a portfolio manager, even before I got to asset management, as a portfolio manager of businesses. I’m trying to pick the outperformers. I can set the business up any way that I want: I could set the portfolio to be an index, highly concentrated, long/
short, or any way that I want because the boss gave me the mandate to be the portfolio manager over these businesses. n