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Here Are the Challenges New DWS CEO Will Face Amid Greenwashing Allegations
Experts say that the hurdles facing Deutsche Bank vet Stefan Hoops are significant.
Stefan Hoops, who will become the new CEO of DWS, has a big job ahead of him to stabilize Deutsche Bank’s asset management division and reassure clients after allegations of greenwashing by U.S. and German authorities. Hoops, most recently Deutsche Bank’s head of corporate banking, succeeds Asoka Woehrmann, who DWS announced on June 1 would step down.
Hoops’s rise to CEO follows high-profile searches of Deutsche Bank and DWS offices by German authorities looking into disclosures around funds that claim they use environmental, social and governance factors in their investment process. The raids come on the heels of probes by the U.S. Securities and Exchange Commission and Justice Department into allegations of greenwashing — overstating its sustainable investing efforts.
DWS’s first focus should be on clients, said Jonathan Doolan, managing partner at asset management consulting firm Indefi. The first thing any new executive in this position should do is go on a listening tour, speaking to consultants and clients, and give them confidence about the direction of the business. The impulse, Doolan noted, is often to focus only internally after an event like this. But getting out a narrative that the portfolios are performing as they should keeps clients happy — which means they’ll stay on with the firm.
The current market environment will make that more difficult.
“This is not an easy year for a CEO to begin with,” Doolan said. “Virtually every asset class you’re operating in is down. This is a particularly challenging opportunity to know your positioning and get out in front of the market.”
Hoops will also face the challenge of coming from a different business. Taking on an asset management leadership role after spending years in corporate banking will require Hoops to shift his thinking, industry experts told Institutional Investor. This is even more true following allegations of wrongdoing at the firm. Corporate banking can be more transactional, while the success of asset management and investing unfolds over many years — at least in the best scenarios.
“One of the pitfalls is that there is impatience,” added Doolan. “If you think about asset management, virtually all active management is supposed to outperform over a full market cycle. To be able to run these businesses, you have to have a much longer-term view.”
Hoops has years of experience at Deutsche Bank, starting in fixed income sales in 2003. He departed in 2006 for a fixed-income role at Lehman Brothers before returning to Deutsche Bank a year later. He has since held multiple roles, most recently serving as head of the corporate bank for three years.
“Corporate banking is all he’s been thinking about for the past few years,” recruiter Charles Skorina said. “All of a sudden he’s going to switch gears. I think it was an expedient promotion.”
Described as tough and decisive, Hoops wrote in a LinkedIn post that he is taking on his new role with “due humility.” He added: “At the same time, I also take it on with confidence. We have a great brand, the right business model, and an exceptionally strong team in place.”
Shuffling a corporate banker into an asset management role is not an uncommon move in Europe, according to Doolan. “When you look at a lot of European firms outside the U.K., the top three or four asset managers in every country are owned by either a bank or an insurer,” Doolan said. “There is a history of banks and insurers plopping people into senior leadership positions, thinking that people can fix and change things.”
But that doesn’t mean the move has always been effective. Asset management and corporate or investment banking are inherently different businesses, and without recognizing that going in, a new leader could struggle at first, Doolan said.
For one thing, the risk profile is different. Following the Global Financial Crisis, corporate banks began de-risking, shifting their business focus as regulators prevented them or made it more difficult to engage in many activities, including making risky loans. But asset managers get paid for analyzing and then taking on certain risks.
Asset management also is a people-driven business that relies on relationship management skills.
“Another pitfall is there’s a perspective that while asset management has long been an art, it could be more of a science, so why don’t we use technology to replace people,” Doolan added, noting that this is the opposite of what a firm should focus on. Instead, it should try to keep its best staffers.
Skorina highlighted the steady stream of departures at Deutsche Bank over the past few years. “They have constant turnover,” he said.
It’s likely that Hoops’s new role will focus on growth through acquisitions, particularly in the Asia Pacific region. “The bank made some interesting and strategic investments in China, which were growing,” said a source familiar with the firm. “In Latin America, the bank has an excellent reputation.”
During DWS’s late April earnings call, Woehrmann told analysts that the Asia Pacific region is specifically a focus for M&A. “It’s important to broaden your distribution platforms. That is also what we are looking for in Asia, and these are the two key priorities,” he said.
“I'm surprised that they haven’t sold off some of the U.S. businesses to focus more on Europe and emerging markets,” the source added. “That was always something they wanted to do.”
Although DWS didn’t respond to II’s request for comment, Woehrmann said in a statement after the raids in Frankfurt, “…the allegations made against DWS and myself in past months have become a burden for the company, as well as for my family and me. In order to protect the institution and those closest to me, I would like to clear the way for a fresh start.”