Martini stirs deutsche bank into action

Klaus Martini was faced with a key challenge when he took up his post as global chief investment officer (CIO) at Deutsche Bank’s Private Wealth Management division in 2002. He knew very well that CIOs’ reputations among their peer group are made or broken by the big calls they make on equities, bonds, commodities or property.

However, an institution such as Deutsche Bank typically rewards senior directors in Mr Martini’s position according to the performance of client portfolios. This means it is all very well making a big asset allocation call, but the products have to be in place beforehand, so that customers can be directed into these strategies.

“The most important goal for me is to get clients into the market quickly,” says Mr Martini, who is currently in the process of making a major call on Asian equity funds. Any global view is taken with the input of regional CIOs looking after Asia, America and Continental Europe.

“If I make such a call, I need to make sure that the investments are available immediately, and not too much time is spent re-engineering products,” adds Mr Martini.

His department’s current recommendations include Asia, China and Japan funds managed by Deutsche’s DWS subsidiary, Templeton’s Asian Growth fund, HSBC’s Indian equities fund and a variety of certificates issued by Deutsche Bank and ABN Amro.

“We can use certificates or funds, but we just need to be in there. We are thinking about whatever is good for customers. For instance, there are some segments such as commodities, which mutual funds cannot currently cover. So if there is a liquid market, we opt for certificates – it is not an ideological question. We are also using more and more exchange-traded funds.”

Stocked shelves

Deutsche Bank insiders say Mr Martini has been pushing to get more involved in the NPA (new product approval) process, so that the bank shelves are already stocked once he has called a particular market. “Six to 10 weeks before I make a call, I start to talk about it already to our teams who are creating products,” says Mr Martini. “I am in a position to give some guidance to product manufacturers. I know the manufacturers very well, as I have worked for so long with the bank,” smiles Mr Martini. This is a reference to his previous position as head of fund management at DWS, where he worked since 1984.

Following his move into wealth management, Mr Martini was disappointed to see that private clients did not have access to products readily available to institutional investors. “One of our tasks is to bring intelligent solutions and products to the private client world. Two years ago, when I came over from DWS, it was only equities and bonds,” remembers Mr Martini. “Now there is a vast number of solutions and products in place.”

High reputation

When DWS moved out of the Deutsche Bank headquarters in Frankfurt’s Grüneburgweg West End district, and relocated up the road to a less fashionable stretch of Mainzer Landstrasse, Mr Martini took the opportunity to move Deutsche’s wealth management department into the new investment HQ.

“We are based in the same building so that we can have their best people in to help with generation of ideas,” reveals Mr Martini. “If DWS has an analyst coming in from Morgan Stanley or Goldman Sachs, for example, it means we can participate in the debate. What we had before was a more fragmented operation in Germany, but it was very clear to me that you need strong people sitting together, having arguments and discussions. So I brought them under one roof – private client officers and asset management people all on one committee, which meets regularly and has a high reputation.”

Between Mr Martini and external providers, however, rests another facilitation department. “We have a product management team who can go to different producers,” says Mr Martini. “We do not talk directly to manufacturers.”

Deutsche Bank’s German branches started to sell funds manufactured by Invesco and Fidelity in 2002. Alliance Capital, Franklin Templeton, Merrill Lynch, Morgan Stanley, Schroders and UBS were added to the list of strategic partners in 2003. At this stage, DWS was also re-instated as a key provider for Deutsche Bank customers, after internal pressure was brought to bear.

Funds on the “buy-list” are chosen by Deutsche’s Global Manager Research Group. “This group is considered independent within the bank. They take everything into account. Fund size is also an argument,” says Mr Martini. When there is a choice of internal and external funds, all other things being equal, the better performer wins.

Yet even if the products are made available, if clients don’t want to buy them, Mr Martini and his big calls can encounter a brick wall. Potentially, his influence on asset flows can be huge. Mr Martini’s wealth management division alone manages assets worth E166bn for private clients. But when he made a case for investment in commodities at the end of last year, branch-based consultants and their clients were slow to take him up, despite the availability of a certificate based on Deutsche Bank’s liquid commodity index, which has surged 20 per cent in the first half of 2004.

“There is a long education process to explain to people why they should not just be in equities and bonds,” says Mr Martini with a shake of the head. “Much more education is needed around forex and commodities.”

Sometimes, he feels he has a mountain to climb in refocusing the way his clients think, dampening their expectations from the 9 per cent of previous decades, to 3 per cent after inflation today, and gradually weaning them away from their traditional equity and fixed income mix.

“Equity returns from developed markets are lower. But we still want to propose something with an edge for our investors. So we say you should stay invested in the traditional markets of Europe and the US. But there is something else which is growing: Asia – why don’t you have a look at this?”

The reply from most Deutsche Bank clients is that they have already had their fingers burned once in Asia. So private client advisers come back with arguments such as the staging of the Olympic Games in Beijing in 2008 and the World Exposition in Shanghai in 2010.

Guiding hand

Alternatives, including hedge funds, are another case in point, with Mr Martini advising clients to make significant allocations. “Clients, particularly here in Germany, are not demanding alternatives from us, especially on the private and business clients side,” reveals Mr Martini, referring to the segment which encompasses both high net worth individuals and retail investors.

“We have to guide them into it. This is an important part of making an asset allocation. We are not claiming that returns are going into the sky, but clients can use alternatives as a tool for risk diversification, rather than yield enhancement. We are saying why not have 5 to 10 per cent in alternative investments? This is possible, especially if you introduce commodities, private equity and real estate.”

Martini: ‘most important goal is to get clients into the market quickly’