Ladies and gentlemen, thank you for standing by. I'm Stuart, your Chorus Call operator. Welcome and thank you for joining DWS First Half twenty twenty one Analyst and Investor Conference Call. Throughout today's recorded presentation, all participants will be in a listen only mode. Presentation will be followed by a question and answer session.
Followed by 1 on your touch tone telephone. I would now like to turn the conference over to Oliver Flada. Please go ahead.
Yes. Thank you very much and good morning everybody from Frankfurt. This is Oliver from Investor Relations and I would like to welcome everybody to our earnings call for the Q2 of 2021. I hope everybody is still keeping healthy and safe wherever you are. And before we start, I would again like to remind you that the upcoming Deutsche Bank analyst call will outline the Asset Management segment result, which has a different perimeter basis to the DWS results that we're presenting today.
So no change here. I'm joined also as always by our CEO, Doctor. Azoca Vermaaten and Claire Peel, our CFO. And Azoca will start with some opening remarks and Claire will then take you through the presentation. For the Q and A afterwards, also as always, 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.
And 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 with that, I would like to pass over to Azoka.
Thank you, Oliver. Good morning, everyone, and thank you for dialing in today. I hope you are able to enjoy the summer where you are and while staying healthy and safe. Today, I am pleased to report a very strong second quarter for DWS, making a successful end to the first half of the year and the start of Phase 2 of our corporate journey, which we kick off at the beginning of 2021. As we had said during Phase 2, we will continue to transform our organization and invest into growth especially into our targeted areas of ESG, passive and high margin strategies in order to become a truly leading asset manager in the competitive global market.
Our results during the second quarter and the first half of twenty twenty one emphasize our commitment to making Phase 2 as successful as the first phase following the IPO. They are also a testament to the organizational changes we made one year ago to ensure we remain client centric, flexible, efficient, effective for the future. Quarterly net inflows reached a record high of €19,700,000,000 €20,700,000,000 for the half of the year. Excluding cash inflows totaled almost €24,000,000,000 in the 1st 6 months of 2021. These net new assets were driven by positive inflows across all regions and all three pillars of our business, active passive alternatives.
Inflows also supported our assets under management which grew at record €859,000,000,000 in the 2nd quarter. At the same time, we have continued to invest into transformation and growth without compromising our adjusted costincome ratio, which we now expect to stay well below the level originally planned for this full year, given our strong flow momentum and benign market environment. As we work towards Growing in areas where we believe we can take a leading position in the market, the second quarter has been a superb example of how we capable of executing our strategy. Reinforcing our ability to meet growing client demand for sustainable investments, DWS ESG Solutions attracted €4,000,000,000 of net inflows in the 2nd quarter €8,000,000,000 in the 1st 6 months, representing more than a third of our total inflows. Product innovation, Innovations such as DWS Concept Blue Economy Fund, which we built together with the WWF and DWS Invest Low Carbon Bonds Fund.
They are both Well received in the market and underpinned our ESG credentials. In addition, we successfully launched 2 DWS X Tracker's Green Corporate Bond ETFs in response to greater client interest for such offerings. Our position in the passive market remains very strong. The flow momentum in all our 3 global regions enabled us to exceed €200,000,000,000 in AUM for the first time. In our home market, Europe be ranked 2nd in net ETP flows according to ETF GI with the flow share of 13% in the 2nd quarter.
At the same time, To support our top line revenue growth, we kept our focus on high margin strategies. Responding in the first half of twenty twenty one to growing institutional demand for infrastructure offerings. This is evident in our 3rd Pan European Infrastructure Fund, which achieved a final closing during the Q2, totaling over €3,000,000,000 exceeding its €2,500,000,000 fund target. We also launched a 1st ESG Infrastructure Debt Fund in quarter 2, further demonstrating our commitment to provide state of the art ESG solutions in the alternative space. As demand for Investment Solutions continuously becomes more complex.
We have intensified our collaboration with strategic partners to ensure we meet our clients' Changing Needs. In the Q1, we launched an artificial intelligence fund with arabesqueai, which has gained a lot of interest from a broad set of clients. And in the Q2, we launched a new secured Income Fund in conjunction with Tikao Capital. This private and structured credit solution offers defined benefit pension plans, enhanced security of income with diverse private credit assets combined into a single easy to access pooled fund. Allow me to summarize.
The first half of twenty twenty one has been very successful for DWS. As we launched Phase 2 of our corporate journey to transform our organization, Invest into targeted growth and aspire for leadership in the industry, We were able to execute on our strategy well. Combined with supportive markets, Our firm has delivered a record quarter and half year to its shareholders. Record net flows record AUM and the cost income ratio at very low levels. With that, let me hand over to our CFO, Claire Peele to present our quarter 2 results in detail before we both give you our view on the road ahead.
Claire, please.
Thank you, Itokar, and welcome, everyone. I hope you're all keeping well. Today, I'll present the results and activities for the Q2 of 1, starting with the key financial highlights. Adjusted profit before tax was €247,000,000 in Q2, reflecting strong AUM growth over the quarter. Adjusted costincome ratio remains below 65% as committed, supported by strong half year revenue development and disciplined cost management.
Quarterly net inflows reached a record high of 19 point €7,000,000,000 14,200,000,000 excluding cash with sustained inflows into our ESG products. This keeps us firmly on track to achieve our net flow target of greater than 4% on average in the medium term. Moving on to our financial performance snapshot in Q2. Starting at the top left, AUM increased to €859,000,000,000 in Q2, up 5% quarter on quarter, driven by stronger net inflows and market performance. On the top right, adjusted revenues were €625,000,000 driven by higher management fees and recurring revenues in the 2nd quarter.
On the bottom left, adjusted costs reduced to €379,000,000 as a result of lower compensation and benefits costs in the quarter. Together with strong revenues, this supported an adjusted costincome ratio of 60.6 percent in Q2. Adjusted profit before tax was €247,000,000 in the 2nd quarter and €496,000,000 in the first half of twenty twenty one, up 35% from the first half of twenty twenty. Net income also increased significantly, totaling €340,000,000 in the first half of the year, representing a 40% increase year on year. Let's recap on the market environment.
All major equity indices continued to rally strongly in the Q2 reflecting further progress made in vaccination campaigns worldwide. As a result, market volatility levels are lower compared to Q1, although market concerns remain over the delta variant of COVID-nineteen. In currencies, the U. S. Dollar depreciated slightly against the euro in the second quarter, which had a minor impact on our AUM growth in Q2.
Overall market momentum remains positive amid reduced concerns over inflation and interest rates. Moving on to AUM Development. Assets under management continued to grow in the 2nd quarter, reaching a record €859,000,000,000 up 5% from Q1 and up 15% year on year. Quarterly asset growth was driven by positive market performance and strong net inflows, which more than offset unfavorable FX movements in Q2. Looking more closely at net flows.
In Q2 2021, we reported €19,700,000,000 of net inflows and €14,200,000,000 excluding cash, our highest quarterly inflows on record. This includes positive flows across all regions retail and institutional as well as all three pillars of Active, Passive and Alternatives. EMEA was a key driver of Q2 performance attracting €14,000,000,000 of net inflows amid improved retail investor sentiment in the region. This is also testament to our strong 3 5 year investment outperformance at 76% 83% respectively. Overall, we saw stronger net inflows across most asset classes in the 2nd quarter.
Passiv continues to prove its strategic importance delivering €7,900,000,000 of net inflows in Q2 including sustained demand for ESG ETFs. European listed ETPs continue to account for the majority of our quarterly passive total, helping us to win greater market share in the region. In the first half of the year, DWS accounted for 13.1% of total European ETP market inflows higher than our AUM market share of 11.2%. In addition, we have attracted stronger flow momentum in Asia Pacific and the Americas with both regions recording passive inflows in the quarter and in the year to date and helping to grow our passive AUM beyond €200,000,000,000 Cash shifted into positive territory reporting €5,400,000,000 of net inflows in Q2, driven by stronger institutional inflows in both EMEA and the Americas. Active multi asset attracted €2,000,000,000 of net inflows in Q2, marking a reversal from Q1 outflows.
Quarterly multi asset inflows were driven in part by flagship concept Kaldemorgan together with institutional inflows in the asset class. Alternative inflows improved to €1,800,000,000 in Q2, up from €1,000,000,000 of inflows in the Q1. The DWS Reef Real Asset Spend was a key contributor of our quarterly performance, more than doubling its inflows from Q1 amid stronger client interest in the product. In addition, we continue to see strong demand for our infrastructure offerings, including flagship PEAF III, which reached a final close of €3,000,000,000 in the 2nd quarter. Active fixed income inflows increased to €1,700,000,000 in Q2, driven by a significant institutional mandate win in the Americas.
Active SQI recorded €1,100,000,000 of net inflows in Q2, sustaining positive performance from Q1 amid continued growing European retail demand for such offerings. Altogether, these inflows more than compensated for equity outflows, which primarily reflects a single institutional investor reallocation as a flagship top dividend and into a multi asset strategy. This masks the continued demand we see for our active ESG equity strategies in the 2nd quarter. Overall, ESG Products contributed €3,800,000,000 of total net inflows in Q2 €8,100,000,000 in the year to date, representing more than a third of our €20,700,000,000 of net inflows in the first half of twenty twenty one. ESG products also account for more than a third of cumulative net inflows into our new product launches, which I'll now explain in more detail.
Since Q2 2018, New product launches have attracted €33,100,000,000 of cumulative net inflows and reported an overall management fee margin of 41 basis points. This includes €6,800,000,000 contribution to our Q2 2021 net inflows, Bringing the year to date total to €11,400,000,000 of net inflows. This represents more than half of our total €20,700,000,000 of net inflows in the first half of the year. Strong flow momentum into our new fund launches is a testament to the organizational changes we made last summer to ensure that DWS is developing and delivering investment solutions in line with client demand and market trends. In Q2, we launched the DWS Invest Low Carbon Bond Fund, strengthening our ESG portfolio with a fixed income strategy that meets growing client demand for investments that align with the climate goals of the Paris Agreement.
This fund complements the launch of the DWS Concept ESG Blue Economy Fund, which we pioneered as part of an ongoing commitment to proactively address water risks in our investment portfolio. Looking ahead, ESG will remain a key feature of our new product launches in the Q3. We are planning to launch the DWS Invest ESG Healthy Living Fund, which was designed in accordance with Article 8 of the EU SFDR regulation and the X Tracker's Emerging Markets Carbon Reduction and Climate Improvers ETF, which has been developed in response to growing investor interest in ESG ETFs. In addition, we are continuing to expand our range of illiquid investments As committed, we already launched a junior private debt fund and a European real estate debt fund in the 2nd quarter. And in Q3, we are planning to launch a German retail outlet fund and a European property fund, which we expect to attract strong client interest.
Moving on to revenues. Adjusted revenues totaled €625,000,000 in the 2nd quarter and €1,300,000,000 in the first half of the year, up 17% from the first half of twenty twenty. Management fees and other recurring revenues in Q2 increased by 7% from Q1 driven by higher average AUM of €835,000,000,000 with stronger net inflows and positive market performance in the 2nd quarter. This supported a stable management fee margin of 28.1 basis points in Q2, including a positive effect from the final close of our infrastructure fund. Performance and transaction fees were down quarter on quarter as Q1 benefited from a non recurring real estate performance fee.
Other revenues were also lower compared to Q1 due to an unfavorable change in the fair value of guarantees, supported by a strong €22,000,000 contribution from our Chinese investment harvest and positive investment income. Moving on to costs. In the Q2, we continued to invest in growth while sustaining our operational efficiency. This is reflected in our adjusted costincome ratio of 60.6% in Q2, which was supported by strong revenues and a 2% decline in our total adjusted costs quarter on quarter. Adjusted compensation and benefits costs were down 5% from Q1, mainly due to lower variable compensation and other seasonal effects in the Q1.
This more than offset the slight increase in adjusted general and admin expenses in Q2 due to the ongoing investments into growth projects as well as higher service costs as a result of increasing AUM. As a reminder, the adjusted cost base excludes euros 7,000,000 of investments into our infrastructure platform transformation in Q2 and €13,000,000 in the first half of the year. To conclude, DWS sustained its positive performance in Q2, building on from a strong Q1 and concluding a successful end to the first half of the year. As a result, We saw the adjusted profit before tax increase to €496,000,000 in the first half of twenty twenty one, up 35% year on year. This was supported by our highest quarterly net inflows on record in Q2, demonstrating our ability to meet the diverse needs of our global client base.
And this is evident in our 3 5 year investment outperformance of 76% 83% respectively. And in our diversified product portfolio, especially ESG, passive and high margin strategies, which continue to attract strong client demand. This keeps us firmly on track to generate net flows of greater than 4% in 2021. As committed, we are continuing to invest in growth and transformation projects without compromising our costincome ratio. And this will remain a key focus for the second half of the year.
Assuming benign markets, we expect adjusted cost income ratio to remain in the low 50% level supported by full year 2021 adjusted revenues, which were expected to be higher year on year driven by stronger net inflows and the current market environment. Thank you. I will now hand over to Asoka for closing comments.
Thank you, Claire. Without doubt, DWS has advanced its strategy significantly in the first half of the year. The launch of Phase 2 of our corporate journey was successful. This Phase 2 CEASE delivering shareholder value by transforming our organization into a and investing into both organic and inorganic growth wherever it adds value to our company. The management of DWS is committed more than ever to deliver on its aspiration set off set for this second phase even if some targets might have a nonlinear trajectory.
We are pleased with our results in the 1st 6 months of 2021. But we also know that we have a long road ahead of us to request full attention and energy of the management team and the entire organization. We will keep pushing to transform our firm into a truly stand alone asset manager. We will invest more in order to grow in the markets and businesses where we believe we can lead our industry. And we will do so while focusing on achieving the financial targets we defined for this second phase.
We look forward to this journey. Thank you for your attention. I will pass now over to Oliver for Q and A. Oliver, please.
Thank you very much, Azoka. And operator, we're ready for Q and A now. Again, I would like to remind everybody in the queue to limit yourself to 2 questions,
1. For using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by 1 at this time. 1. 1st question is from the line of Nicholas Herman from Citigroup.
Please go ahead.
Yes, good morning. Thank you, Nikki. Thank you for taking my questions. Hopefully, you can hear me All right. Two questions from my side, please.
One on M and A. So that's the first one. So I know that you've spoken you are open to potential deals. Just curious, I mean, would you be interested in deals that also involve significant cost restructuring? Or is that not something that would be interest to you?
Just kind of are you more interested in high growth product areas? Just kind of thinking your thoughts on some of the qualitative criteria for deals beyond quantitative criteria. And the second question Is just a clarification please on margin. Were there any notable moves on product margins In the quarter, I know you referenced in the past that's an improved alternatives margin helped by fund closures, But were there any others maybe in fixed income or multi asset or otherwise? That would be helpful.
Thank you.
Niklas, Thank you very much for your questions. I will take the M and A question and Claire will go to the product margin questions. And again, look, we can't and we never comment on M and A topics. But one thing is very clear. We want to be part of the consolidation what is going to happen in Europe.
And very clear for us, It must play out along our Phase 2 strategy and it must be to our narrative what we have placed out very clearly and it must also pay out to our kind of culture what we have in our organization. As you asked in your last part of the M and A, what kind of non financial targets we are looking for because I think culture piece we always highlighted many times we will 1. We have to check this box beside the 3 other criteria what we said the first criteria was always It must enrich our platform that means some complementary approach to the existing capabilities, local footprint and new customer based and I think culture topic was important. And end of the day, 1. We said everything in the also in the second phase as I highlighted The shareholder value is one important topic and we have to that also have to Payout into the shareholder value and that is what how we're looking.
Might be boring my answer Always, but always it will be the same. And I think therefore, there's a very clear guidance to you all. Thank you, Nicholas. And I will hand over to Claire.
Hi, Nicholas. Thank you for your questions. On the fee margin, yes, in Q2, we stand at 28.1 basis points. That compared to 27.9 basis points in Q1. So it looks reasonably stable.
As I said, in Q2, we had one effect from the final closing of our Pan European Infrastructure Fund, which did give a one off effect in the Q2 and we'd expect that to normalize in the Q3. In terms of the overall guidance, we still maintain the annual shift of approximately 1 basis point of margin fee deterioration each year. So that's still the overall guidance for the full year. And across the quarters, we will see some of this volatility.
That's helpful. Thank you. If I could just let me just start on the same question. So can I read from that that apart from the alternatives Which again you reiterated there were no other notable movements in that case? So is that a fair read of what you just said?
Yes, that's right. The only one off effect if you like in the Q2 is around the alternative spend.
Mr. Herman, are you finished with your questions?
I am, yes. Thank you.
Next question is from the line of Hubert Lam from Bank of America. Please go ahead.
Hi, guys. Good morning. Firstly, very good results. A couple of questions. Firstly, on costs.
Your G and A cost averaged around about $180,000,000 per quarter in the first half. Should we expect this run rate to continue for the rest of the year? Any reason why it should go up In H2, perhaps first half benefited from cost savings from the COVID environment and then this and maybe increased investments in the second half. Second question is on flows. Flows are very good in the second quarter, coming pretty much across the board.
I know it's early days, but just 1. Wondering how the momentum is shaping so far in July and then the coming quarter and any notable changes you've seen so far. Thank you.
Good morning, Hubert. Thank you for the questions. I'll start with those. On the cost expectation for the second half of the year, we See that the run rate for the first half of the year has no exceptional one off events. So we think that's a reasonable run rate.
Obviously, there's always some volatility on The specific events that we've mentioned around the DWS share price for example, but we're maintaining that similar kind of run rate and our guidance on the costincome ratio for year 2021 to remain in the low 60%. On the second question of flows, We are guiding that we do expect to meet our guidance of greater than 4% of net flows for the year of 2021 in line with what we've guided to on average over the period up to 2024. The pipeline that we see for the second half of the year does remain positive. We had an exceptionally strong Q2 across all of our asset classes And ESG, of course, is featuring strongly in that as well. But we expect that we will continue to see a strong pipeline of flows in the second half.
Okay, great. Thank you.
Next question is from the line of Arnaud Giblatt from Exane BNP. Please go ahead.
Yes, good morning. I've got two questions, please. Firstly, on Harvest. First, a comment. I was wondering if going forward, if you could give a bit more disclosure given that So 11% of 2020 profits, quite a big contributor.
It would be nice to have a bit more detail. And my question is pertaining to that. Could you discuss a bit What's happening at harvest in terms of flows, in terms of operating in terms of profitability? Just a bit more color. Is €22,000,000 a good level of run rate And secondly, since we are talking about M and A, could you give us an update on surplus capital, please?
Anur, thank you for the both questions. Claire will go to the financial detail into the financial details. But one thing is also clear, harvest is always 1. We are not showing fully as many other peers. We are bringing only to the dividend approach into our numbers.
And therefore, I think unfortunately what You guys not seeing is really the top performance of harvest inflows and so on. Therefore, I will hand over to Claire. Claire, please.
Hi. Thank you for the questions. Yes, on Harvest, we've Certainly seen a strong first half return in terms of the 30% share that we have. We've seen €22,000,000 of profits in Q2. And for the first half of the year that's €49,000,000 and that compares to what we had in full year 2020 of €65,000,000 So certainly we see a strong performance from Harvest overall.
Within the Harvest composition, as you know, we don't include the AUM or flows in our numbers, They have seen a strong growth and strong performance in their respective AUM levels, which are up 25 Year on year and also in their net flows. So the participation from our partnership there with Harvest is performing very strongly. In the second half of the year, we wouldn't expect it to be quite at the level that we've seen in the first half of the year. We would see some normalization effects, but still strong and significantly higher than what we saw in 2020. On the question of excess capital, As you know, we don't disclose a specific number there, but we have grown and developed the levels of excess capital that we carry.
At the point of IPO, we announced that we had €200,000,000 of excess capital, and we've continued to grow on that position from accumulated profits after our dividend payments that we've made. So retained earnings have developed through to our excess capital position.
Thank you. That's very clear.
Next question is from the line of Haley Tam from Credit Suisse. Please go ahead.
Good Good morning, everyone. Can I ask a couple of questions as well, please? The first one on ESG fund flows. On slide 7, you set out €12,900,000,000 flows into new ESG products since IPO. I just wondered if you could also tell us what the figures are including existing funds rather than just new fund launches in ESG.
That would be great. And the €4,000,000,000 per quarter Level of ESG flows that you've seen in the first half, should we consider that that's an hour as a sustainable level? Or is there still scope for that to get bigger from here? And the second question, if I can just quickly follow-up on the well, two half questions and I'll have a question. Management fee margin, You've said there was a benefit from the P3 final close that's one off.
Could you quantify that for us please? And then in terms of the cost income ratio outlook, Can you clarify your current strategy? Should you think about that simply referring to the revenue and market dynamics rather than the anticipated increase in the rate Cost Investments. Thank you.
Hi, Hayley. Thank you for the questions. I'll take those starting with the ESG flows. So to clarify, the first half ESG inflows that we've seen across all of our funds are €8,000,000,000 That's not just on new product launches. That's on all of our funds.
And that also spans all asset classes. So a strong first half We would expect to maintain a similar momentum in the second half year without giving very precise guidance on a number, but Certainly the momentum level that we would expect on ESG flows in the second half would continue. On the question on fee margin, We have, as I say, 28.1 basis points in the 2nd quarter. Approximately 0.3 basis points would be attributed to the one off effect that I referred to in the infrastructure fund closing. And so we would expect that to normalize in the Q3.
And on the cost income ratio and the cost guidance, yes, we are investing into growth in the second half of the year as we have indeed done in the first half. So we do see growth expenses in the first half that we will continue to develop on that. So we'll see that in this year and going forward into the following year in 2022. But we're still considering for this year given the strong market momentum, but also the strong revenue generation that we see from the strong net inflow position that we would expect for this year the cost income ratio to remain in the low 60s percent.
Thank you.
Next question is from the line of J. H. Galar from Kepler Cheuvreux. Please go ahead.
Yes. Good morning, everybody. I have one question left, which is on the fair value of Guarrancy. If I remember well, Claire, last quarter, you seem to be saying that the impact would be slightly less yo yo, I would say, than it was in the past. Is it what happened this quarter or are you a little bit disappointed about the evolution?
And any way we can have a view about to
Hi. Thanks for the question. Yes, I think in the Q1, we saw the most material shift in the long term interest rate, which had an impact on The positive effect that we saw in our other revenues from the fair value of guarantees, so that was all baked into the Q1. In the Q2, that's more normalized. And There's other features, of course, that are reflected in the movement that we see in the fair value of guarantee in addition to just the long term interest rate, which one.
It's many of the modeled effects and we've seen a small effect from that in the Q2. Nothing material and nothing that we would make specific in our forward guidance. So I think it's we saw a slight effect compared to Q1, which we wanted to point out.
Okay. That's great. Thank you, Claire.
Next question is from the line of Angeliki Baikatari from Autonomous. Please go ahead.
Good morning. Thanks for taking my questions. First question, We would expect that the current market conditions, which are quite positive and also the fact that you have strong ESG flows, which help generate inflows in active equities, but that has not really been the case in the first half, at least not material ones. I hear your point about The specific institutional client shifting into multi asset, but nevertheless, could you give us some color on what are your expectations For active equity flows in the rest of the year and also in 20222023. And second question on Harvest.
Would you consider increasing your stake? And do you think there would be any appetite from the local owners down the line to sell part of their stake to you?
Angeliki, I think thank you very much for the two questions. First of all, even again to borrowing, I can't comment on any M and A activities, but we are glad to have a 30% stake with Harvest. It's an important market and as Claire outlined and delivering great results to our bottom line. So that is to note there. Yes, you're right.
I think in the First half of the year flow wise it was not I think the Q1 was great quarter And ex cash number was one of the strongest quarters what we had over €9,000,000,000 inflows to non cash. We have suffered in the U. S. Money market funds to outflows and that has diminished our overall flow number in the Q1. But as I outlined also in my part and clear, we had in total in this first half of the year EUR 24,000,000,000 ex cash.
That's a very, very strong number. This is a record number. And we have seen And that is interesting in my opinion. We have seen all the client segments has contributed, institutional, retail and also in insurance type clients. We are glad to see it.
But In the same time, we have to say all our targeted areas as we outlined ESG is delivered 1 third over and constantly over the both quarters and also the passive flows are going well. Equity, ESG, we have seen over €1,500,000,000 inflows into in the first half of the year. And I think it's important. In the Equity space we are seeing that people are crowding out from the traditional type of funds into ESG active equity funds that exactly we experienced in the first half of the year and nicely contributed. That means also our traditional equity funds have seen outflows, but at the same time we have seen exactly This inflows going into our ESG solutions in this in an active equity space and that is really great to see.
This is exactly the transformation what we are seeing also in the industry. And yes.
Thank
you. That's very clear. Thank you.
Next question is from the line of Bruce Hamilton from Morgan Stanley. Please go ahead.
Thank you. Good morning and congratulations on the results. Two questions from me. 1, just on the sort of pipeline for alternatives. You obviously had the good infra close in the quarter.
There's a lot of demand out there for private market So can you give us a sense of any significant products that could impact the market in the next year? And then secondly, just going back to the point on sort of M and A. I guess, obviously, the market often worries about scale deals where there isn't a compelling kind of story around top line growth. So I guess, how do you think about that in the context of larger deals and the impact that can have on the organic growth profile of the group? And that's more specifically the market also seems to often take the view that insurance assets are sort of low margin vanilla rather unexciting, But obviously you run quite a lot of insurance money.
So would you take a different view or highlight anything that perhaps people often miss? Thank you.
Hi, Bruce. Good morning. Thank you for the questions. I'll take the first question on The pipeline for flows in the second half and particularly around alternatives. So we are quite confident with our greater than 4% net flow rate for the full year.
And that does include active, passive and alternatives. And alternatives continues to contribute very strongly to that. I would say that in terms of what we see in pipeline across our real estate assets, across our liquid real assets, We'll continue to see a pipeline in those areas for the second half of the year. We've done the final close on the P3 fund in Q2, But infrastructure more broadly continues to attract attention. But for the second half, we would expect real estate and liquid real assets to be the key focus.
But a solid pipeline, I would say, across the board in the second half.
Bruce, thank you for the both questions. I will take In a M and A question, again, you're right. Overall, all this transaction have to deliver, as we also mentioned, shareholder value creation. If that not the case, I do think it makes no sense top or bottom line to the cost efficiencies or About revenue synergies doesn't matter. I think end of the day that have to pay out.
And I think it's important that we also Have to look with the lens of ESG and how high margin strategies can one. Be a part of this M and A views. So this is very important. And but I think, again, I'm fully with you. The pure size is not As we always said, it's the only, let me say, view what we are putting for M and A.
Great. Very helpful. Thank you.
Next question is from Mike Werner of UBS. Please go ahead. Thank you. Just one question from me. With regards to the strong passive inflows that you reported over the past couple of quarters, In particular, I was just wondering where the demand from an asset class perspective within those passes is coming from?
And maybe how that shifted, say over the past 1 or 2 years. Thank you.
Good morning, Mike. Thank you for the question. Yes. On passive flows, we've certainly seen that the flow rate continue to increase quite strongly. And indeed for the first half of the year, Market share is increasing, so our flow of our share of net flows is greater than our absolute market share.
And in terms of where we see the interest, Equity ETFs continue to be predominant in the net flow rate that we see and also ESG funds. So those would be the two areas that I would point out. I think on the ESG flows, they contribute in the first half of the year of the €8,000,000,000 A good portion of that's coming from passive, but all other asset classes as well. So equity ETFs and somatic ESG funds are supporting the passive flows.
Thank you. Next question from Gurjit Iskambo from JPMorgan. Please go ahead.
Hi, good morning. Just two quick questions. So firstly on the flow side, It looks like in Asia Pacific, you saw a slight slowdown there in terms of flows around €200,000,000 I think you were running at about €1,300,000,000 the quarter earlier. So just anything around the Asian flows. And then secondly, on the performance within the active retail equity, I think you saw a drop from sort of 70% outperformance to about 41%.
1. Is there any specific funds that drove that weaker 1 year performance?
Hi. Thanks for the question. On the flow performance in Asia Pacific for the Q2, the Overall result of flows across Asia Pacific is positive. We have net inflows of €200,000,000 We do have in the Asia region a specific institutional outflow on the fixed income side, which has contributed to a slightly lower result than we saw in Q1. We do tend to see some of those larger institutional movements taking place in Asia and that's the point that we see there.
Thanks. And then just
on the performance on the 1 year retail equity performance?
Thank you also for the both questions. I do think Our 4 and 5 star performance as well as benchmark outperformance are still very, very strong also during the COVID period 1 year, 3 year and 5 year. In Equity, 1 year The figures are 41%. And recently we have seen a drop one because of the very strong bull markets. But I think 3 5 years are very solid in equity area over 70% 86%.
So therefore, we are very Let me say that our number 3 5 years is a very, very constant number. And The 2% change is a little bit due to The market environment as we said, the very, very strong bull markets is Let us drop the outperformance ratio in the last 4 months. So that is the frame for equity. But overall and we have to say 5 year 3 year overall asset classes. We have 5 year 83% outperformance ratio 3 year 76% and overall 67% in 1 year.
Great. Thank you very
much.
There are no further questions at this time. And I would like to hand back to Oliver Flada for closing comments. Please go ahead.
Yes. Thank you very much and thanks for the great questions as always. And for any follow-up topics, please referred to the IR department as always. So have a good time and good day. Bye bye.
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