Fitch upgrades DB Advisors with almost-clean bill of health

Fitch Ratings upgraded its assessment of the Frankfurt investment operations of the institutional arm of Deutsche Bank, but noted the unit faces challenges, chiefly a heavy reliance on fixed income assets.

Fitch upgraded €106bn manager DB Advisors from M2 to M2+, citing DB Advisors’ return to “modest profitability” and ongoing focus on risk management.

As explanation, asset manager operations within the M2 category demonstrate low vulnerability to operational and investment management failure.

However, Fitch also noted challenges facing DB Advisors, including the fact 72% of assets are fixed income funds, including money market.

This, said Fitch, “exposes AuM to a higher risk of rising interest rates and credit migration. Fitch notes that the business profile is less diversified when compared to peers. Despite its market leading position in Germany, the agency believes that DB Advisors needs to extend its market share in a range of other European countries where it is less well represented.”

DB Advisors has broadened away from pure fixed income recently by merging one of its money market funds with a similar portfolio run by Henderson Global Investors, adding £2.5bn, and it is undertaking a similar move with one managed by Standard Life Investments, which could win it up to a further $12bn liquid assets.

Fitch said DB Advisors’ increased emphasis on institutional advisory services, managed by a dedicated team, was “essential to cope with the changing regulatory environment and succeed in the competitive institutional space”.

“The risk management processes addresses asset management specific risk in a forward-looking manner as demonstrated by the recent initiation of a regulatory steering committee.”

Fitch said the newly-established liquidity risk management function and dedicated risk committee for DB Advisors’ fiduciary management platform brought the unit a “deepened oversight”.

Fitch said no issues emerged after DB Advisors fully merged its European equity management with portfolio teams at DWS Investments last year. Fitch noted the “staff retention, and continuation and consistency in portfolio management processes”.

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