In the near term, the asset and wealth management industry will continue to be challenged by market instability arising from sovereign indebtedness, particularly in Europe and the U.S., and the persistent low-yield environment in many developed markets. We expect that uncertainty in the investment climate – characterized by high allocations to fixed income and cash products, which are relatively low margin – will put further pressure on industry profitability. This should be compounded by higher compliance-related costs resulting from new regulation. Thus, there is a continuing need for scale and efficiency. In our view, a select group of large managers should increasingly dominate the industry, gathering the majority of new assets. Asset and wealth managers stand to benefit this year from an improvement in equity markets and increased client activity, which should support revenue growth from commissions and performance fees.
As part of the strategic review, we announced the establishment of a newly integrated Asset & Wealth Management (AWM). AWM combines Deutsche Bank’s former asset management and private wealth management units, as well as the third-party alternative assets and passive businesses that were part of CB&S. Thus, AWM offers all client types a comprehensive product suite, spanning key growth areas such as alternative investments (including hedge funds, real estate and private equity) and passives (including exchange-traded funds). With € 944 billion of assets under management as of December 31, 2012, AWM ranks among the ten largest bank-owned global asset and wealth managers.
AWM has defined a strategy that positions AWM well to benefit from the longer term trends, the development of the industry and the competitive landscape. AWM has targeted doubling IBIT to € 1.7 billion by 2015, through revenue initiatives of € 0.3 billion and cost savings of € 0.7 billion.
AWM will enhance its presence in selected markets – particularly in emerging markets – by leveraging strong DB Group footprint. We will actively participate in emerging markets where rapid growth is driving wealth creation and in turn raising the demand for asset and wealth management services. Accordingly, AWM aims to grow revenues in Asia/Pacific and Latin America by 20-25 % through 2015 while the envisaged growth highly depends on the continuation of economic growth in these regions.
We will continue to target the ultra-high net worth client segment globally and should increase the client relationships in this segment by 50 % until 2015 by enhancing our product offering and solutions platform and by a dedicated coverage team. In this segment, the competition for clients and top talent is particularly intense. Furthermore, AWM anticipates a continued shift toward alternative investments across the client spectrum, as well as an increased demand for retirement products, as a consequence of demographic trends. We should be able to grow the invested assets in these products by more than 10 % by 2015 by expanding the product set and continued cooperation with external managers. Furthermore, we expect a global increase in allocations to passive investments, which we anticipate will lead to continued growth of exchange-traded funds in particular. AWM should be able to grow the invested assets in ETFs by 50 % until 2015 while leveraging our market position and expanding in Americas.
The substantial scale of the division, combined with targeted investment in the platform, should enable us to achieve significant operational efficiencies, which we believe will be crucial as margins come under further pressure, while continuing to invest in high-growth opportunities. AWM expects to derive cost and revenue synergies by optimizing our business model with respect to manufacturing (investment), coverage (sales) and infrastructure. Key initiatives in meeting those aims include integrating coverage globally and creating a unified investment platform. Efficiency should be achieved by: removing duplications of business lines, products and services, and technology; rationalizing infrastructure; and streamlining infrastructure supporting our business. This should enable us to improve our gross margin; a significant effort has already been initiated in this respect, with solid results in 2012. The timing on some of the envisaged optimization projects is dependent on a number of execution risk factors, which may delay or reduce the envisaged plan benefits.