🗞 Deutsche Bank's Banker Hiring Spree | Asset Management Industry's Assets Rise

Happy Monday!

This morning I read the following articles and found them interesting. I thought you might like them as well (scroll down for key takeaways and summaries).

1. BCG Global Asset Management Report 2024

2. Private Equity Firms’ $1TN in ‘Carry’ Fees and Taxation Debates

3. Deutsche Bank Counting on Investment Bank Hiring Spree to Pay Off

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THIS MORNING’S TOP 3 READS

BCG Global Asset Management Report 2024 - The global asset management industry saw its assets rise to nearly $120 trillion in 2023 after a previous decline. Despite this growth, asset managers face significant challenges, including a shift towards low-fee passive funds and increasing costs. The industry's historical reliance on market appreciation for revenue growth is expected to slow, prompting a need for new strategies. Asset managers are encouraged to focus on the three Ps: productivity, personalisation, and private markets, leveraging AI to enhance these areas and remain competitive.

Here are 5 key takeaways from the report:

1. Growth in Assets: The global asset management industry rebounded to nearly $120 trillion in assets in 2023, recovering from a decline the previous year.

2. Challenges to Growth: Asset managers are grappling with increased costs and a shift towards passive, low-fee funds. Efforts to differentiate with new products have largely failed, with investors preferring established products with reliable track records.

3. Slowing Market Appreciation: Historically, market appreciation has driven revenue growth, but this is expected to slow in the coming years, adding to the industry's challenges.

4. Three Ps Strategy: To maintain growth and profitability, asset managers should focus on increasing productivity, personalising customer engagement, and expanding into private markets. AI is seen as a crucial tool to enhance these strategies.

5. Role of AI: AI can boost productivity, enable personalised portfolio management, and improve the efficiency of private market deal teams. Surveyed asset managers expect significant or transformative changes from AI, with many already planning or scaling AI use cases. Asset managers must invest in AI now to avoid falling behind.

Private Equity Firms’ $1TN in ‘Carry’ Fees and Taxation Debates - Research by Oxford University's Ludovic Phalippou reveals that the world’s largest private capital firms have avoided over $1 trillion in income taxes on incentive fees since 2000 by classifying them as carried interest, which is taxed at lower capital gains rates. This has reignited political debates in the US and Europe about closing this tax loophole. The study highlights the significant wealth generated for a select group of billionaires and the potential tax revenues that could be collected if these fees were taxed as income.

Here are 5 key takeaways from the article:

1. Tax Avoidance through Carried Interest: Private capital firms have avoided over $1 trillion in income taxes since 2000 by structuring incentive fees as carried interest, which is taxed at lower long-term capital gains rates.

2. Political Scrutiny and Reform Efforts: Political figures in the US and Europe, including the UK's Labour party, are pushing to close this tax loophole. Recent presidents in the US have vowed to end the special tax treatment but faced industry pushback.

3. Potential Tax Revenue: Phalippou’s research indicates that treating carried interest as income could generate significant tax revenue. His report aims to provide a clear estimate of the potential tax collection from coordinated global efforts.

4. Wealth Accumulation and Influence: The research underscores the enormous wealth accumulated by private equity executives, such as those at Blackstone Group, who have become influential political donors in both Republican and Democratic circles.

5. Investment Returns and Costs: Phalippou's report questions the cost-effectiveness of private investment strategies, showing that the median private equity fund’s returns are comparable to long-term US stock returns, despite the substantial fees involved. The American Investment Council argues that private equity has generated significant returns for retirees, aligning investor and manager interests.

Deutsche Bank Counting on Investment Bank Hiring Spree to Pay Off - Deutsche Bank has embarked on an aggressive hiring spree, adding more than 100 investment bankers in the past 18 months, including key hires from Credit Suisse and Citigroup. This strategy aims to boost revenues and reduce the bank's reliance on bond trading. The acquisition of UK broker Numis has further expanded Deutsche's staff. The bank's focus is now on enhancing its corporate finance advisory services amid a recovery in global mergers and acquisitions.

Here are 5 key takeaways from the article:

1. Aggressive Hiring Spree: Deutsche Bank recruited 125 investment bankers since early 2023, including 75 at managing director (average base salaries exceeding £350k) or director levels (average base salaries exceeding £250k), and 300 more from the acquisition of UK broker Numis, marking a strategic shift from its post-financial crisis cost-cutting approach.

2. Strategic Focus on Corporate Finance: The bank aims to expand its corporate finance advisory arm, which includes advising on acquisitions, debt and equity raising, and IPOs. This move is intended to balance its volatile fixed-income trading business.

3. Improved Performance and Rankings: Deutsche Bank's investment banking fees have surged, ranking seventh in the first quarter of 2024, up from 11th in 2023. The corporate finance advisory revenues rose by 54% in Q1 2024 compared to the previous year.

4. Notable Hires: Key hires include Alison Harding-Jones from Citigroup as global head of M&A, Ken Oliver Fritz from Lazard, and William Mansfield from Credit Suisse, strengthening Deutsche's M&A and advisory capabilities.

5. Numis Acquisition and Client Gains: Despite some staff departures post-acquisition, Deutsche's £410 million purchase of Numis has led to client wins such as Coca-Cola Europacific and Land Securities Group, reinforcing its UK market presence despite a recent €233 million writedown on Numis.

Tomorrow morning I’ll send you another 3 articles I find interesting each with a summary and 5 key takeaways.

Afzal

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