DWS Group GmbH & Co KgaA

XETRA:DWS

Earnings Call Transcript 2022-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. My name is Emma, your Chorus Call operator. Welcome, and thank you for joining the DWS Group's Q1 2022 Results with Investor and Analyst Conference Call. [Operator Instructions]

And I would now like to turn the conference over to Oliver Flade. Please go ahead, sir.

[Oliver Flade, executive]

Yes, operator, thank you very much, and good morning, everybody from Frankfurt. This is Oliver Flade from Investor Relations, and I would like to welcome everybody to our earnings call for the first quarter of 2022. As always, I hope you're keeping healthy and safe. And before we start, I wanted to remind you again that the upcoming Deutsche Bank analyst call will outline the Asset Management segment result, which has a different parameter basis to the DWS results that we are presenting now. As always, also, I'm joined by Asoka Woehrmann, our CEO; and Claire Peel, our CFO. And Asoka will also, as always, start with some opening remarks and then Claire will take you through the main part of the presentation.

For the Q&A afterwards, please could you limit yourself to the 2 most important questions, so that we can give as many people a chance to participate as possible. I would also like to remind you that the presentation may contain forward-looking statements, which may not develop as we currently expect. And I therefore ask you to take note of the disclaimer and the precautionary warning on the forward-looking statements at the end of our materials.

And now without any further delay, I will pass over to Asoka.

[Asoka Woehrmann, executive]

Thank you, Oliver. Good morning, and welcome to our results presentation for the first 3 months of 2022. Before I start, allow me to ask for a moment of silence out of respect for the suffering and distress of the people in Ukraine. Unspeakable acts of violence and terror have come back to haunt the European continent. While others in the elected offices carry the weight of responsibility to act and react, we have the responsibility to continue to act as a fiduciary asset manager on behalf of other clients, but also as a corporate citizen part of the society in which you live and work. We will continue to fulfill both roles.

Ladies and gentlemen, today, I can report another very strong quarter for DWS, showing resilience in a uncertain and volatile environment and already reflecting the positive work we have done so far in Phase 2 of our corporate journey to transform, grow and lead. Despite the backdrop of geopolitical upheaval and subsequent macroeconomic corrections, we saw adjusted revenues increase significantly year-on-year to EUR 689 million, supported by strong net inflows into high-margin strategies, as well as our higher base of assets under management built in 2021. The adjusted cost income ratio remained below 60%, driven by a reduction in the total cost base in the first quarter. This also enabled us to achieve an unadjusted profit before tax of EUR 279 million in quarter 1, our second highest quarterly total on record.

During the first quarter, we saw clients reposition their portfolios as geopolitical tensions amplified ongoing concerns over inflation and supply chain issues resulting in net outflows from very low margin Cash, as well as Fixed Income. Having said that, our global and diversified portfolio of product and asset class offerings enables us to adapt quickly to the market environment and continue serving our clients' ever-changing needs, no matter what challenges the markets have in store. As a result, excluding Cash, we recorded net -- total net inflows of EUR 5.7 billion during quarter 1, 2022, with positive flows reported across a mix of asset classes and further supported by solid 3- and 5-year investment performances. Notably, high-margin Active and Alternative strategies performed well this quarter, attracting strong net inflows and supporting stable revenue growth. ESG products also remained in demand during the first 3 months of the year. And we can report EUR 1.1 billion of net inflows, including contributions from our Passive ESG offerings.

Additionally, new product launches continued to attract positive inflows in quarter 1, reflecting our ability to successfully innovate new products that align with client demand. As we look ahead to the second quarter, we are aware that there will be ongoing challenges as the world goes through significant paradigm shifts ranging from energy and defense policies to inflation and interest rates all at breathtaking speed. But we are ready and committed to serve our clients through these times regardless of what challenges the market poses. This is the purpose of what we do at DWS and what we have always done. This thinking and this spirit encapsulated in our refreshed brand narrative, which we launched in March as we aim to further improve the visibility of DWS and build a well-known and leading asset manager brand in key markets across the globe.

Our new claim, investors for new now serves as our compass and as a timeless reminder of our purpose and ever-changing market environment. For many reasons, many of which are terrible and rooted in human suffering, this has never been more current and relevant than during the first 3 months of 2022. After having successfully launched our new brand identity, we will continue to invest into DWS leadership with a particular focus on the appearance and the visibility in digital channels, as well as through the brand partnerships we have in place.

Thank you. With that, let me now pass over to our CFO, Claire Peel, to talk about the financial results. Claire, please.

[Claire Peel, executive]

Thank you, Asoka, and welcome, everyone. Today, I will present the results and activities for the first quarter of 2022, starting with key financial highlights. Adjusted profit before tax totaled EUR 279 million in Q1, our second highest quarterly total on record and supported by cost discipline in the first quarter. Adjusted cost income ratio stood at 59.5%, reflecting a lower cost base in Q1. Excluding Cash, net flows were positive in the first quarter, driven by sustained flow momentum into high-margin strategies and ESG products and resulting in strong net new revenues.

Let's look at the financial performance snapshot for the first quarter. Starting on the top left, AUM decreased to EUR 902 billion, down 3% quarter-on-quarter as a result of negative market performance in Q1. On the top right, adjusted revenues totaled EUR 689 million, down 14% from Q4, reflecting a normalization in performance and transaction fees in the first quarter. On the bottom left, adjusted costs decreased to EUR 410 million, down 3% quarter-on-quarter, driven by a 19% decline in general and administrative expenses in Q1. And this supported an adjusted cost income ratio of 59.5% and on an adjusted profit before tax of EUR 279 million in Q1.

Let's recap on the market environment. The first quarter of 2022 was impacted by higher levels of volatility compared to Q4 and the highest level seen since the outbreak of COVID-19 as political uncertainty dominated the markets and exacerbated ongoing concerns over inflation and pricing pressures. This impact -- the impact of this can be seen across major equity indices, which were hit by a sharp sell-off in the first quarter, with Europe suffering most due to greater exposure to Ukraine and Russia, both economically and geographically. The U.S. dollar strengthened by 2.8% against the euro as investors sought safe havens in U.S.-denominated funds. In addition, Fixed Income markets, including corporate and government bonds reported losses in Q1, potentially indicating signs of a future recession.

Overall, market conditions were challenging in the first quarter of 2022, which had an impact on our AUM development, which I will now outline. After reaching a record high in 2021, assets under management decreased to EUR 902 billion in Q1, down 3% quarter-on-quarter, but up 10% year-on-year. This quarterly decrease can be attributed to negative market performance, which more than offset a favorable FX movement in the first quarter. Net flows also shifted into negative territory for the first time since Q1 2020 as investors repositioned their portfolios in response to market volatility.

Moving on to flow performance. Following our strongest year of flow performance in 2021, DWS like the rest of the world was impacted by turbulent markets at the start of 2022. In the first quarter, we reported EUR 1 billion of total net outflows as investors responded to geopolitical tensions and exacerbated concerns over inflation and supply chain issues. This is evident in Cash and Active Fixed Income with both asset classes reporting quarterly redemptions as investors repositioned their portfolios amid rising inflation and inflation interest rates. Despite this, our diversified investment portfolio continues to serve the ever-changing needs of clients, enabling us to sustain flow momentum for the medium term, as well as through the current market volatility.

Excluding Cash, net inflows totaled EUR 5.7 billion at the end of the first quarter, including inflows into high-margin strategies and ESG products. Active Multi-Asset reported EUR 6.8 billion of net inflows in Q1, driven by institutional mandates and further contributions to our flagship retail funds. Alternatives sustained their positive flow momentum from 2021 with EUR 1 billion of net inflows in the first quarter. This includes continued net inflows into Liquid Real Assets and Real Estate reflecting growing investor interest in Alternative strategies to diversify portfolios and generate higher returns in response to inflationary pressures.

Quarterly Alternative flows also included the planned disposal of a specific EUR 1.8 billion Infrastructure asset in the first quarter. Passive inflows totaled EUR 0.5 billion in Q1, lower compared to previous quarters due to investors increasingly derisking their portfolios. European-listed ETPs, mainly our physical gold offering were key drivers of quarterly Passive inflows. Active Equity delivered another quarter of positive performance with EUR 0.3 billion of net inflows in Q1. Quarterly inflows were driven by Active Equity ESG funds, including continued client demand for the DWS Invest ESG Equity Income Fund. Overall, ESG products continue to be critical to our flow performance, attracting EUR 1.1 billion of total net inflows in Q1.

Moving on to new product launches. Since our IPO in Q2 2018, new product launches have attracted EUR 44.6 billion of cumulative net inflows and an overall management fee margin of 38 basis points. This includes EUR 3.9 billion of net inflows from new fund launches in the first quarter, higher than the EUR 3.4 billion of net inflows reported in Q4, and with new Passive and Alternative fund launches accounting for the majority of this quarterly total. As outlined in Q4, we will focus on accelerating new fund launches while making enhancements to our current range of products. In Q2, we will continue to scale our Passive business through the launch of the Xtrackers ESG Euro High Yield Corporate Bond UCITS ETF. And we will aim to meet growing investor demand for Alternatives by launching the 4 Columns Junior Capital Fund and the DWS Confirmed Payables Fund.

We will also launch the ESG Global Mobility Fund in the second quarter to capitalize on growing client interest in Thematic-ESG Equity Funds. Our recently launched DWS Invest ESG Women for Women Equity Fund is getting off to a good start, recording net inflows in the first quarter and indicating growing client interest in funds that support positive social impact. This is why we continue to make ESG a key feature of our portfolio to ensure that DWS is well positioned to meet the ever-changing needs of its clients and to further grow our ESG AUM from EUR 115 billion reported at year-end 2021. Looking ahead, new product launches will be key to sustaining our positive flow momentum and achieving top line revenue growth.

Moving on to revenues. Total adjusted revenues decreased to EUR 689 million in Q1, down 14% quarter-on-quarter, but up 9% year-on-year. This quarterly decline reflects a normalization in performance and transaction fees after the recognition of a significant Multi-Asset performance fee in Q4 2021. Despite this, the management fee margin remains resilient at 27.6 basis points. This is supported by higher average AUM and stable management fees and other recurring revenues in the first quarter, primarily driven by continued revenue growth from our high-margin Alternative strategies. Other revenues benefited from a EUR 19 million contribution from our Chinese investment, Harvest, in Q1, together with a favorable change in fair value of guarantees and positive investment income.

Moving on to costs. In the first quarter, DWS took greater control of its cost base in response to heightened market volatility. As a result, total adjusted costs decreased by 3% quarter-on-quarter to EUR 410 million, supporting an adjusted cost income ratio of 59.5% in Q1. This was driven by a 19% decline in adjusted general and admin expenses, including lower IT and marketing costs and lower professional and AUM-related service fees. Together, this more than offset an increase in adjusted compensation and benefits costs in Q1, which primarily reflects approximately EUR 30 million in carried interest variable compensation relating to future Alternative performance fees. Excluding carried interest, adjusted compensation and benefits costs were broadly in line with Q4 2021. As a reminder, the total adjusted cost base excludes EUR 7 million of investments into our infrastructure platform transformation in Q1.

To conclude, despite greater market volatility, DWS remained financially resilient in Q1. This is a testament to our global and diversified business model, which is helping to navigate our clients through political and macroeconomic uncertainties. We reported our second highest quarterly adjusted profit before tax on record and EUR 5.7 billion of net inflows, excluding Cash in the first quarter. Notably, net flows include contributions from ESG and new product launches, as well as from Active and Alternative strategies, and further supported by 3- and 5-year investment outperformance of 79% and 80% respectively. Positive flow momentum into high-margin investments has also supported stable revenue growth and a resilient management fee margin in Q1, while continued cost discipline has supported an adjusted cost income ratio of 59.5%. As a result, DWS remains strongly positioned to continue serving its clients efficiently and effectively in Q2 and beyond.

Thank you. And I will now hand over to Asoka for the strategic outlook.

[Asoka Woehrmann, executive]

Thank you, Claire. Despite a turbulent and unexpected start to 2022, our long-term ambitions and path remain intact. We are working diligently on achieving sustainable and profitable growth, while at the same time, remaining cost conscious. This can be seen clearly in the resilience of our quarter 1 financial results. As we turn our attention to the second quarter and beyond, we are under no illusion that the macroeconomic environment will become any easier. We expect market volatility to remain at elevated levels as investors continue to react to a number of ongoing concerns, including inflation, growth numbers from China, growth or -- global supply chain disruptions, surging energy prices, and, of course, geopolitical tensions.

As a result, as we move further to this year, we expect tighter monetary policies in both the U.S. and in Europe. However, we do not anticipate this action to solve the high inflation levels resulting in a deep financial repression for savers around the globe. While this will impose challenges to financial markets and the asset management industry, we are confident that our global and diversified business model will enable DWS to navigate and protect in the best way possible our clients' portfolios.

In addition, the challenging environment does not stop us from progressing in Phase 2 of our corporate journey to transform, grow and lead, but rather it reinforces the need for us to intensify our efforts and build on the progress made so far. This will be the key for DWS to sustain its success in the long term. Therefore, we remain focused on transforming our firm into a truly stand-alone asset manager with our own dedicated infrastructure platform. We are committed to developing and evolving the best possible ESG products and solutions for our clients while engaging in external commitments that will help shape better ESG practices.

Our pursuit of further organic growth in the markets and businesses where we believe we can lead, especially in Passive and high-margin strategies remains intact. Also, we are better positioning ourselves to take an active role in M&A activities in addition to organic growth whenever see the right opportunity at the right price, with a particular focus on opportunities in Asia Pacific. And finally, we are continuing to raise visibility and awareness of the DWS brand globally in our key markets with support from our partnerships and our refreshed brand identity. Together, these efforts will keep DWS on its growth part, will advance our ambition of becoming a leading European asset manager with global reach and a global client base. And as we have already demonstrated this quarter, again, we will continue to act in accordance with our purpose and our corporate values proving the markets that we truly are investors for new now. Thank you for listening. Thank you.

With that, I will hand over to Oliver for Q&A.

[Oliver Flade, executive]

Yes. Thank you. Thank you, Asoka. And operator, we're ready for Q&A now.

[Operator]

[Operator Instructions] One moment for the first question, please. First question comes from the line of Arnaud Giblat with BNP Paribas Exane.

[Arnaud Giblat, analyst]

A couple of questions, please. Firstly, can I ask about your -- the flexibility of your cost base? I mean should markets remain challenging, say, they go down another 10% from here or something. I'm just wondering how much flexibility there is in the cost base, what portion of your cost base is variable, so that you can achieve that 60% cost-to-income ratio in this year? And secondly, M&A, you've talked about M&A being a core plank of the corporate strategy for some time. I'm just wondering how things are evolving, given your own valuation, does that put out of reach some potential deals? I mean, what sort of -- how should we think about your framework in terms of doing any potential until -- do the required returns increase because of your valuation?

[Claire Peel, executive]

Thank you for the questions. I'll take the first one around the cost base. And again, I would reiterate that we're very focused on our cost income ratio target that we have for 2024 of being below 60% in that time horizon on a sustainable basis. And in our last outlook, we guided to a 2022 cost income ratio of around 60%, recognizing that we're now in an environment of more significant volatility. Within the cost base, within our general and admin expenses, we have approximately 20% of that cost base that we consider to be flexible and more linked to absolute or average AUM levels. So that can obviously move up or down.

And outside of that, we always have tactical measures that we can take, which we have indeed drawn on to some degree as well in the first quarter to ensure that we can maintain efficiency in the environment that we've seen at the start of 2022. But that said, we are continuing to invest in the platform, invest into the transformation and growth strategy, but always mindful of the cost income ratio target that is underpinning us. So we will remain diligent on that focus while ensuring that we can invest into the growth strategy.

[Asoka Woehrmann, executive]

Thank you, Claire. And if I may answer your M&A question, our position on M&A opportunities remains unchanged. Inorganic growth is and will be part of our strategic journey. At the same time, we are already delivering very nicely on our results and also on organic growth and a very high -- and with a high level of cost control, and that makes also, I think for many others, very attractive to work with us. And I do think your point is right. Our multiple is quite low compared to the peers.

And -- but nevertheless, we are very much focused on organic growth, but also inorganic growth with all the opportunities that will bring us in the next near periods. And I think that we are confident, even our currency is, let me say, low priced, but our results are very strong, and we need an quite -- we become attractive for many other players to work with us. From that standpoint, we are focusing and we are also focusing on Asia. As I said in my part, and I do think also Asia is, even the COVID has taken a little bit breath out of the momentum of Asia, but I do think that will come back, and we are also focusing on this region is important for us.

[Arnaud Giblat, analyst]

Is it okay if I just have a quick follow-up on the M&A question. I think probably your parent has an important sale as to whether or not you engage in M&A. How should we think about perhaps a more challenging environment for investment banks? Is there any -- could that have any implication on your potential for doing deals?

[Asoka Woehrmann, executive]

Yes. And also I think there's 2 things I want to say, you talk only on the stock and the multiple of the stock. We have many other instruments. DWS more or less, we have no debt. We have cash. We have all the opportunities to fund transactions. I want to say that, that's, we are very out of the IPO phase, and we are very solid financially as you can see. And yes, I can see a lot of transactions can crystallize in the markets over this year. I do think many organization, financial institutions have to ask what is core for them also to run the revenue challenges to master their cost. And I do think core or not core are creating opportunities as last year, we have seen, and I think this year more because I think more broader financial institutions have to think about that.

I know where your question is directed to. I can see it these things are coming more and more into the play. And end of the day, all of you can be very sure and I reiterate that many times and Claire, the shareholder value creation is for us important not to become, let me, a big AUM-driven asset manager, profitable, efficient asset manager with a strong platform, that is our future, and this is exactly the vision we are working on the Phase 2.

[Operator]

Next question is from the line of Gurjit Kambo with JPMorgan.

[Gurjit Kambo, analyst]

Just a couple of questions. Firstly, in terms of the EUR 30 million of carried interest that you're accruing. Is that like a one-off or is that something which we should be sort of seeing going forward, because I guess you haven't sort of called it out historically? So just to think -- how to think about that EUR 30 million? And then secondly, just in terms of M&A, I think you cited Asia Pacific as an area where you see the opportunities. Is there any sort of particular areas within that? Are you looking at product, distribution, so any sort of thoughts around M&A in Asia?

[Claire Peel, executive]

Thank you for the question. I'll take the first one on the expense in Q1. So the magnitude of the carried interest that we see in Q1, we consider to be one-off in nature given the material size of that. And it's really underpinned by the point in time of the fund life, which is now at the point of recognizing valuations on its underlying assets, and, of course, the uptick that we're seeing in Real Assets in valuation. So I think this is a positive indicator for obviously, the Real Estate Infrastructure Alternatives asset class in general, and we see that represented across the portfolio. It's also a strong indicator of future performance fees, but it has a one-off impact in terms of the carried interest effect that we see in expenses. All vehicles or the vehicles that are relevant for carried interest can have continued accruals in time, but I would consider this one as one-off.

[Asoka Woehrmann, executive]

Regarding your specific question on M&A, yes, I -- also that remains the same. APAC region remains our key priority. And also I think it's not only the AUM growth is only for us, one of the focuses -- focus, it is also to expand growth through partnerships are one of the core areas of partnerships and M&A activities. It's important to broaden your distribution platforms. That is also what we are looking for Asia. And these are the key -- 2 key priorities, but also it's very important also at these days, and you can see again with the first quarter results to enrich and very strongly supporting our barbell strategy in grow -- in high-margin areas is absolutely relevant, also that is one of the focus of the M&A on DW -- at DWS.

[Operator]

Next question is from the line of Hubert Lam, Bank of America.

[Hubert Lam, analyst]

Actually, a couple of questions. Firstly, on Passives, Passive flows were positive in the quarter, but small, especially compared to the trends you've seen in the past. Can you talk about what you're seeing in Passives? Is the slowdown mainly due to cyclical factors or any other reasons? And how do you see Passive flows developing from here given that it's -- it was such a big driver of your flows last year? Second question is, I guess, on the ESG situation. Is there anything you can say about this in terms of an update, possible timing? And is this even an issue anymore in terms of the clients you speak to?

[Asoka Woehrmann, executive]

Thank you for the 2 questions. I will take it. You're right, I think -- and your statement is right. We managed, again, another quarter of positive inflows on to Passive, but this quarter was compared to all other quarters, let me say, smaller inflow. And I think there's 2, 3 reasons for that. There was a very evidently derisking activities of our investors, key investors, what we have seen. That is something to do with 2 factors, the rising inflation and also I think especially their expected thinking about -- their -- or their expectations, inflation rate -- interest rates concerns that has created and Ukraine itself, the war there that has impacted the -- and derive more or less went to derisking activities.

And we have seen the negative performance of some indices has also driven to a rule-based investors outflows also normal in these circumstances. So I do think we have seen these activities ongoing. We have also seen remarkable 2, 3 actions there, but I think we can see already, and I can slightly guide you, the April was much more constructive what we have seen. And I think from this perspective, we are on the Passive side, we are fully intact in our trend there.

Then your second question, again, I said that very clearly and loud last time, and I mentioned or phrased allegations, there is nothing to say -- sometimes nothing to say is a good news because I think you can see the tonality has been -- came down dramatically because there are no news to bring up that we -- and that organization on the greenwashing case, we have no news. We have -- I have mentioned already, we are highly cooperate with all the, let me say, potential inquiries. And I do think from this standpoint, we can't see any -- we can't give you any further news than what we have said last time because there is no other news than what I said last time. I -- for my personal -- personally, I can say I have empathetically rejected the allegations and the insinuations made by selective and misleading leaks. And I think also that I have nothing to add to that, too.

[Operator]

Next question is from the line of Haley Tam with Credit Suisse.

[Haley Tam, analyst]

Can I quickly just clarify the cost question, then I have a couple of others. On costs, to follow up on what Gurjit asked, can I just clarify that EUR 30 million of carried interest accrual in Q1, all other things being equal, that is something we should expect not to repeat. So the comp and ben costs run rate is going to be EUR 30 million lower for the rest of the year?

And then my other question is, first of all, in terms of China and the Harvest joint venture, the EUR 19 million contribution was stable pretty much for the second half of last year. And I just wondered if there's been any change in your outlook there, given the slower economic growth in China and the COVID lockdown concerns there? And then secondly, in terms of fund flows, you obviously saw some difficulties due to Cash and Fixed Income net outflows in Q1 due to derisking and rebalancing. Is that something you think is now done or is there still some headwind to continue for the rest of this year?

[Claire Peel, executive]

Thank you for the questions. I'll take the first one there on costs, and just to a clarification, I would say on carried interest. Carried interest is related to future performance fees on certain Alternative funds and is, therefore, based on the underpinning valuation of those respective funds. So we continually in our cost base will have accruals up and down on that basis. But what was exceptional in Q1 was the magnitude of this particular fund because it had come into the area of valuing its funds as it was at that point post the investment stage on the fund. So I wouldn't expect to see a material movement as we saw in Q1, but we always have a certain run rate within our variable expenses around carried interest. So I hope that clarifies because it is obviously an ongoing valuation item.

On the second question around our Chinese JV, Harvest, we reported EUR 19 million of income in the first quarter, which is consistent with what we saw at the -- in the second half of 2021. It was higher in the first half of 2021. And as we look forward, we think this is a reasonable guide to look at the run rate for the return from the JV in 2022, again, recognizing that we have heightened volatility in the markets, including in China, but our current outlook is that is a reasonable run rate.

[Asoka Woehrmann, executive]

The flows, Haley, I think let me say that I'm CEO of Asset Management should not say differentiate different flow categories, but I have to say that I'm in some way, happy to have no margin inflows as inflows, and this is exactly happened. I do think if you look over also the over the whole 4 years, we have not been quitely or highly driven by Cash inflows. Cash is not playing important role for our profitability. And I do think this is important message to all.

So therefore, our EUR 5.5 billion high-margin assets are creating the value for our organization. And therefore, I'm quite happy that all the targeted growth areas, alts and also Multi-Asset, as well as in Equity, we are -- we have the inflows. And I think, yes, this -- and your question, let me say, a sub-question, are we believe the Cash outflows or low-margin embedded flows are -- is over these outflows? I do not think at the moment. I can see further fears of investors on inflation and especially treasurers need their deposits to manage their companies and we can see the trend is not over, but for us, we are managing very hands-on our high-margin flows. It's important. That is exactly important for our cost income ratio in the future to manage and guide you to the guidance what we gave also today in our reports.

[Haley Tam, analyst]

Thank you, both. If I can just clarify then that, is the EUR 30 million uplift in comp and ben from Q4 last year to Q1 this year that's unusual. Is that the right interpretation?

[Claire Peel, executive]

That's the right interpretation. If you look at Q1 versus Q4, then the magnitude of that uptick is the unusual item. And then as we look forward in the run rate, we would move back to a normalized level consistent with what we saw in the quarters last year.

[Asoka Woehrmann, executive]

Yes. Haley, the ex cash number, by the way, is EUR 5.7 billion, not EUR 5.5 billion. Sorry.

[Operator]

Next question is from the line of Bruce Hamilton with Morgan Stanley.

[Bruce Hamilton, analyst]

Just a couple of follow-ups. One on sort of flow picture. Obviously, you saw notable strength in Multi-Asset. So I just wanted to try and think about sustainability in that line, whether there are any sort of particularly lumpy items in Q1? And also, any potential capacity constraints, particularly in the high-margin retail book? And then secondly, just on M&A, and thanks for your sort of comments so far on that. But to check in terms of sort of funding from balance sheet and not issuing shares, would I be right in thinking that the sort of excess available is somewhere between sort of EUR 1 billion and EUR 1.5 billion? I know you typically don't give it out, but if you could remind me how we should work it out? I think it was [ $200 million ] to IPO and then you add the retained earnings, which is about EUR 1 billion from memory, but if you could just clarify that, that would be great?

[Asoka Woehrmann, executive]

Bruce, I will take the first question and then hand over to Claire. Again, Multi-Asset, if you think now and look into the world, inflation resulting in financial repression. We have the geopolitical tensions around the world. We have a 0 policy of China on COVID, that means also supply chains are really under pressure in the world. All that together, we can expect this year quite high volatility. And you can see already the weeks, how that the roller coaster of that this year. And therefore, I do think Multi-Asset as now the -- that there's a reason to invest in Multi-Asset. I'm expecting good performing Multi-Asset can weather the situation best for investors, and there should be a more demand than ever for Multi-Asset. And I do think we have a very strong Multi-Asset strategies, also especially also in retail area, and I do think we feel this is a area of focus this year. We mentioned that, by the way, already last time due to the market outlook. Claire, I will hand over to you.

[Claire Peel, executive]

Thank you, Asoka. And if I may just add on the flow points that within Q1, we saw EUR 4.6 billion of net inflows into retail funds across all asset classes. And I think that just points again to the quality of the flows. And we saw the shift between institutional and retail assets under management tick up slightly on the retail side. So that was a stronger driver of the net inflows, whereas outflows were more weighted on the low-margin institutional side.

Coming on to the question of capital, you're correct that we've guided that we do have a comfortable excess capital position, which puts us in a position to participate in M&A. We've guided that taking the original surplus capital that we had at the point of IPO, and if we -- if you look at accumulated profits, less dividends, it's a good guide -- accumulated profits as retained earnings, I should say, it's a good guide of excess capital, noting that all of the other risk factors have adjusted over the time horizon. And in addition to that, we have authorized capital positions, which enables us to deploy other tools if necessary to participate in M&A. So on the capital front, I think we're well positioned in that regard.

[Bruce Hamilton, analyst]

Cool. And so just to check on the Multi-Asset side, are there any capacity constraints that we should think about that could constrain growth in particularly the retail book or do you have plenty of runway?

[Asoka Woehrmann, executive]

No. We -- I do think we can't -- we have no capacity constraints. And I do think we have shown already a strong growth over the last years that we can absorb it in all areas. I can't see it, Bruce, in this area.

[Operator]

Next question is from the line of Angeliki Bairaktari with Autonomous.

[Angeliki Bairaktari, analyst]

Just to get back on the retail AUM, if you could please provide us a rough split of the retail AUM of EUR 414 billion into sort of AUM in the mass market channel and private banking and wealth? And with regards to the impact of inflation on retail flows, do you expect retail customers to react with somewhat of a lag later during this year to the fact that consumption, energy prices, food prices are rising and thus direct more of their savings into consumption?

[Claire Peel, executive]

Thank you for the question. If I pick up the first question just on the mix of the retail AUM, we have the majority of that coming through intermediary channels as opposed to direct channels. So I think that that's really the channel mix that we see for the retail composition, unlike institutional, which is more broader, obviously, across insurance, pensions, financial institutions and banking, private banking channels and so forth. And just to reiterate, it's really the mix that we saw in Q1, where we saw more inflows coming into retail, more outflows coming on the institutional side, which has shifted that balance slightly of AUM.

[Asoka Woehrmann, executive]

Angeliki, I think what your question regarding customer behavior and especially retail customer behavior, what we can observe, and that is very much due to also the last year's [ let me ] experience of retail clients. They have experienced a very shocking year last year in Europe and might be also last 2 years that they have to pay to store their deposits on the banks. And that was a shocking moment for many. And that means they still -- and that is the phenomena what we can see compared to other crisis, we still see inflows into investment funds, investment vehicles, because I think this experience has driven them to invest more and to save more in vehicles like investment funds.

And in my opinion now -- and your question is absolutely right, what treasury -- treasurers -- what is valid for treasurers is also valid for households for -- to overcome the inflation effects in their household, let me say, budget equation, they have to redeem, but they are redeeming deposits, not funds at the moment. At the moment, we are not seeing a risk aversion and trade going on in retail in the first quarter, not what we have seen on numbers of our side.

[Operator]

There are no further questions at this time. I hand back to Oliver Flade for closing comments.

[Oliver Flade, executive]

Yes. Thank you very much, and thanks, everyone for your questions and for dialing in. And as always, if there are any follow-up questions, please feel free to contact the IR team. Otherwise, I wish you a great day and a healthy time. All the best. Bye-bye.

[Operator]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.