Battle Lines Drawn

March 2009

As Philipp Hensler, CEO of DWS Investments, explains his firm's strategy for gaining U.S. market share, one can't help but notice some of the objects around his office: a baseball, a football, an American flag in a coffee cup. The objects don't quite jibe with Hensler's thick Swiss accent, but it's a dissimilarity he hopes will shrink over time, just as he hopes his firm, owned by the German banking giant Deutsche Bank, will one day be viewed as a player in the American market, like Franklin Templeton or Blackrock. Until then, he compares himself and his firm's fight for U.S. assets to King Henry V and the Battle of Agincourt in 1415, in which the English faced a French army six times its size.  

"It was basically hopeless, and it reminded me of my situation when I came here," Hensler says. "People told me, whatever you do, you will never unseat or dethrone the top layer of U.S. firms."

As it turns out, Henry V gave a compelling speech that rallied his troops to victory. It also didn't hurt that rain made the battlefield so muddy, the French had difficulty moving in their heavy armor.

"He shifted the focus from a gloomy today to a glorious future. He painted a picture of victory," Hensler says. "I told my guys we are not here to compete with the best in the industry. We are here to change how asset management is done."

Currently the ninth-largest retail asset manager in the world, DWS Investments, the mutual fund arm of Deutsche Asset Management, would like to jump to number five and it knows it can only get there by growing its U.S. market share. Only 30% of its assets under management come from America. Most of its assets, 65%, come from Europe, where it is the second largest retail asset manager. But instead of going head-to-head against American giants like Fidelity Investments and The Vanguard Group, DWS executives decided four years ago to gain market share through an innovative approach to asset management.

"We knew that even if we did things a little better, we had a brand disadvantage that we could never escape. The only way to gain market share was not to compete in the industry but to change the way the game of asset management in the U.S. was played," Hensler says.

One example of its innovative approach is its structured products-a product category that has been popular in Europe for years but which has just recently gained a foothold in the U.S.

DWS has introduced to the U.S. market something called M-Notes, a principal protected structured product that can potentially benefit investors in both a positive or negative market.

Here's how it works. An investor buys, say, a $1,000 note that says an underlying index cannot rise or fall more than 20% at the close of any trading day through the life of the security. If the underlying index stays within these limits during the term of the note, the investor will receive his principal back, plus a bonus based on the absolute value of the index's movement on the day of maturity.

For instance, if the index closed up 17%, the investor would receive a return of $170. If the market was down 17%, the investor would still receive $170. So the investor's total return at maturity would be $1,170. If an investor buys the same note and the index rises or falls more than 20% before maturity, the investor receives only his principal back.

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