Ladies and gentlemen, thank you for standing by. My name is Emma, your Chorus Call operator. Welcome, and thank you for joining the Third Quarter twenty nineteen Analyst Conference Call of the DWS Group. Throughout today's recorded presentation, all participants will be in a listen only mode. The presentation will be followed by a question and answer session.
And I would now like to turn the conference over to Mr. Oliver Flade. Please go ahead, sir.
Yes. Thank you, operator, and good morning, everybody, from Frankfurt. This is Oliver Flade from Investor Relations and I would like to welcome everybody to our third quarter twenty nineteen earnings call. Please be reminded again that the upcoming Deutsche Bank analyst call will outline the Asset Management segment results, which have a different basis to the DWS results we are presenting today. I'm joined by Ahsoka Wohrmann, our CEO and Claire Peel, our CFO.
And Ahsoka will start as usual with some opening remarks and then Claire will take you through the presentation. For the Q and A afterwards, I would ask everybody to limit yourself to the two most important questions. And I would also like to remind you that the presentation may contain forward looking statements, which may not develop as we currently expect. 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, let me hand over to Alzoka.
Thank you, Oliver. Good morning and welcome everybody to the quarter three results call for DWS. Today, I'm pleased to report another strong quarter for our firm despite the fact that markets were challenging for us and for the entire asset management industry. Increased volatility and a further reduction interest rates across regions affected investor risk appetite. Heightened geopolitical tensions have contributed to this environment as have greater asset allocation shifts.
Regardless of these headwinds, we work hard to sustain our investment performance across our business. The success of our efforts is reflected in third quarter results. With a total of 6,200,000,000 of net inflows, we were able to post the third consecutive quarter of net new assets and the highest quarterly inflows so far this year. Over the nine months of 2019, we attracted nearly €13,000,000,000 of net inflows. This was made possible by our diversified business and especially our targeted growth areas of multi asset, passive and alternatives.
We also continuing to focus on executing our accelerated cost efficiency measures. And we are confident that we will achieve our medium term cost savings guidance fully by the end of twenty nineteen. We also are well on track to deliver our 2019 target of an adjusted cost income ratio of around 70%, assuming flat revenues compared to 2018. As we continue to observe the tough trends in the market for asset managers, including the ongoing fee compression, we are committed to reducing our cost base further next year to ensure we stay on track for the adjusted cost income target of below 65% by the end of twenty twenty one. Additionally, we continue to enhance our diversified business model to better meet our clients' future needs.
To this end, sustainability is top priority. ESG will be an essential part of the license to operate for every asset manager in the future. So I'm pleased to say we have made very good progress on this front during the third quarter. In addition to our ESG product innovations, we are setting up a group sustainability office to ensure we have a holistic and efficient framework to meet growing investor demand for ESG investments. The office will coordinate all the great work we are doing across our firm in this space, including our proprietary ESG engine and our sustainable investing team to name a few.
We also committed to a 50% carbon footprint reduction in our European real estate portfolio by 2030. And we became a member of the UN backed coalition for climate resilient investments initiative. Before Claire explains our financial results in detail, allow me to recap on the third quarter at DWS. We successfully achieved a turnaround in our fund flows as we posted the third consecutive quarter of net new assets. We are pleased with the execution of our accelerated cost efficiency measures, and our cost income ratio being stable and on the target of the full year.
And we have continued to make further progress in making sustainability the core of what we do. With that, I will pass to our CFO, Claire Peel. Claire?
Thank you, Asoka, and welcome, everyone. Today, I will present the recent activities and results for the third quarter of twenty nineteen, starting with the key financial highlights. Adjusted profit before tax was a €170,000,000, down 8% quarter on quarter as lower revenues more than offset lower costs. Adjusted cost income ratio was 69.6%, in line with our full year 2019 target of around 70%. Net inflows were €6,200,000,000 driven by multi asset, passive, and alternatives, and with positive flows reported across all main three regions.
Assets under management grew to €752,000,000,000, reflecting net inflows, favorable market performance, and positive FX movements. Let's move to our financial performance snapshot. Starting at the top left, AUM increased 5% from q two supported by quarterly net inflows. Moving to the top right, revenues were €560,000,000, down 8% quarter on quarter due to the absence of a nonrecurring alternative investment performance fee recognized in q two. On the bottom left, continued cost efficiencies and the absence of the q two carried interest expense helped reduce adjusted costs by 8% in the quarter to €389,000,000.
This supported a stable adjusted cost income ratio of 69.6% in q three. Adjusted profit before tax decreased to a €170,000,000, down 8% quarter on quarter due to the decrease in revenues. Let's refresh on the market environment in q three. In q three, the marked divide between equities and bond markets continued on from q two. Investor risk appetite weakened amid heightened volatility, a trend seen more broadly across Europe, including in our domestic retail markets in Germany.
Many major equity markets traded at increased levels in q three, though with elevated volatility. While sharply declining bond yields continued to deteriorate within the quarter, resulting in The US yield curve inverting in q three. Lower fixed income interest rates continued to negatively impact fair value of guarantees and affect our retail fixed income flows. And yet despite this, market performance remained positive overall, contributing to higher AUM at DWS in q three. Let's look at AUM development more closely.
Assets under management increased to €752,000,000,000 in q three nineteen, driven by favorable market performance and FX movements, each contributing 13,000,000,000 of AUM growth and further supported by net inflows. The positive market performance was driven by fixed income appreciation and equity markets in almost equal parts. Strong quarterly inflows also supported AUM growth, which I will explain now in more detail. Net inflows were €6,200,000,000 in q three, our highest quarterly inflows so far this year and confirming a positive turnaround in our flow performance this year. Excluding cash, net inflows were €5,800,000,000 in q three.
In the current market environment, our diversified business model has helped us deliver inflows from a range of active, passive, and alternative asset classes and across all regions, both in the quarter and year to date. Active multi asset was one of the key drivers of q three inflows contributing €3,400,000,000 due to a significant institutional mandate win, and this was further supported by Concepts Calder Morgan, where inflows almost doubled in q three due to increased flows in our core European markets outside of Germany, including Italy, France, and Spain. Passive remained strong this quarter, attracting €3,200,000,000 of inflows with Mondays mandates accounting for a significant proportion of this total. ETPs continue to see positive momentum both in Europe and in The US, where inflows have exceeded 1,000,000,000 year to date. Alternatives remain a key growth area for DWS with inflows totaling €1,600,000,000 in q reflecting sustained flows to real estate and infrastructure.
Together, these asset classes more than offset redemptions in active fixed income, equity, and SQI. Active fixed income outflows primarily reflect a couple of institutional clients withdrawing funds for corporate purposes as well as short duration retail redemptions driven by the declining interest rate environment. This activity more than offset positive flows from Nippon Life and our Asian bond fund, which continues to attract significant inflows. Equity redemptions primarily reflect the asset class falling out of favor amid heightened volatility, a trend seen more broadly in the European retail market, particularly in the German equity sector where DWS has a strong presence. We also saw indications of institutional investors shifting their allocations from active equity into passive.
However, we are encouraged by inflows to our ESG equity offerings, demonstrating the progress made to better protect our active business from ongoing industry pressures. Overall, we are very pleased with our positive flow performance this year, culminating in 12,900,000,000 of inflows year to date and €13,700,000,000 excluding cash. Let's move on to fund launches. This quarter, we have continued our focus on product innovation. ESG remains a prominent theme as reflected in most of our product launches this quarter.
We also introduced a new multi asset offering, the DWS Invest Conservative Opportunities Fund, in response to growing demand for such products in the low interest rate environment. Looking forward to q four, we have a pipeline of product launches across all three pillars of active, passive, and alternatives subject to demand assessments and approvals. Moving on to revenues. Total adjusted revenues were €560,000,000 in q three, down 8% quarter on quarter. Quarterly management fees and other recurring revenues remained stable due to the positive market conditions and net new inflows, while performance and transaction fees decreased by €45,000,000 in the quarter as q two benefited from a nonrecurring alternative performance fee.
Excluding this effect, performance and transaction fees would be broadly flat. Other revenues were also down in q reflecting the negative impact of the declining interest rate environment on the fair value of guarantees. And on a year to date basis, total adjusted revenues remain in line with 2018. Moving to management fees and margins. Overall, our management fees were stable in q three despite ongoing margin pressure and supported by the strong rise in AUM.
The quarterly margin decline can be attributed to a combination of product, flow, and market effects as follows. Strong inflows into lower margin products within multi asset, passive, and alternatives. Market growth resulting in lower margin asset classes appreciating more in value compared to higher margin products. And price reductions in guaranteed funds earmarked for termination together with a one off item in passive. Year to date, the management fee margin stands at 29.8 basis points.
Moving on to costs. Total adjusted costs decreased by 8% to €389,000,000 in the third quarter. This is primarily due to Q2 costs including a carried interest compensation expense relating to a nonrecurring alternative investment performance fee. Additional Q3 cost reductions were driven by efficiency measures. Total adjusted general and admin expenses were flat in Q3 with lower DB Group service charges, offsetting the slight increase in non compensation costs.
And this supported a stable adjusted cost income ratio of 69.6%. As a result, we remain on track to deliver our gross cost savings objective of a €150,000,000 and our targeted adjusted cost income ratio of approximately 70% by year end 2019. I will now pass to Asoka to conclude.
Thank you, Claire. Very clearly, the third quarter has been another positive quarter for DWS, and we are very pleased with our year to date results. We sustained net inflows in quarter three and year to date, reflecting the strength of our globally diversified business model to withstand market pressures. Improved fund performance, especially in our flagships, further supported net inflows and keeps us track on outperform fund, you know, industry fund flows in 02/2019. Given the current economic climate and the trends we have observed so far, we are already turning our attention to 2020.
In particular, we expect the revenue environment to continue to be challenging amid ongoing fee compression and the ultra low interest rate environment. These effects will slow organic revenue growth for the wider asset management industry. To compensate for this industry wide headwind, we have not only proactively ramped up our cost savings efforts in 02/2019, which we are delivering on. But we have also identified further cost measures for 2020 and beyond to ensure we remain squarely on our glide path towards an adjusted cost income ratio of below 65% at the end of twenty twenty one. We will provide more details of our strategic priorities and financial outlook at the upcoming investor day update on the December 10 to which you are all warmly invited.
I look forward to seeing you then. But for now, let me say thank you for your time and attention, and allow me to hand over to Oliver for the Q and A.
Thank you very much, Azuka. Operator, we're ready for Q and A now. And again, if I could remind everybody in the queue to limit themselves to two questions. Thank you.
Thank The The first question comes from the line of Arnaud Giebla with Exane. Please go ahead.
Good morning. I've got two questions, please. Firstly, in the product pipeline, you indicate the infrastructure fund. The press suggests that the final close could be at EUR 3,000,000,000 to 4,000,000,000 in Q4. Is this something you can confirm?
And also, you maybe give us a bit of color in terms of what the margin contribution from this one could be? And secondly, more generally, in terms of the alternatives, you've got good presence there with Infrastructure Real Estate. Can you talk through any progress you're making in other areas to get more exposure to RealAxe?
No. Can I please ask you to repeat the question? Because you didn't understand it.
Sorry, yes. Is this better?
That's much better. Thank you.
Yes. So my first question is the you talk about your the infrastructure fund in your pipeline. The press seems to indicate that that infrastructure fund could have a final close at SEK 3,000,000,000 or 4,000,000,000 in Q4. Is this something you can confirm? And also I'd like to know the margin contribution from this fund?
And my second question is on alternatives more generally. You're doing well in infrastructure and in real estate. Could you talk through any progress you might be making in trying to gain more exposure to real assets more broadly? Thank you.
Hi, thank you for the question. Apologies, we couldn't hear the first time. On your first question, around our Q4 pipeline, we indeed include an infrastructure equity fund in there and you've alluded to, the infrastructure fund P3 that's due to launch in that period. There'll be a number of closes for that fund. The first one will be in Q4, and there will be subsequent closes through 2020.
And there is a target size of that fund that you indicated. Not all of that is achieved in q four because of the subsequent closes that we see in 2020. We we can't disclose specifics on fee margin, of course, but, given the nature of the funds, you can anticipate what the average is. We have two other of those funds already in in existence. On your second question around the alternatives portfolio, we indeed have a strong portfolio in real estate, and that has contributed very strongly to inflows this year.
Also in infrastructure, in both of those areas, have been launching e funds. Also in private equity and your part of the business, we've had some launches this year and we anticipate more of those as we look forward into the future, and equally, some other products on that credit structure. So I think that's more that we anticipate as we move into 2020.
Okay. Thank you very much.
Your next question comes from the line of Jacques Henri Goulart with Kepler Cheuvreux. Please go ahead.
Yes, good morning everyone. Two questions. On the other revenue line at minus €1,000,000 you mentioned the impact of negative interest rates on the guaranteed product. Maybe it would be helpful to have a bit of a guidance there if possible. Is the fact that we're going to remain at lower interest rates indicate that that line is going to remain negative as well, potentially having a breakdown between contribution, for example, and the weight of those guaranteed products could be helpful?
And the second question on the cost efforts in 2020. If I look back even three, four years, your effort on cost has been quite spectacular, but you've been able to maintain the commercial meat throughout those years. And I was wondering if you have still quite a bit of fat to actually go through without penalizing either the performance or your commercial efforts towards the inflows. Thank you.
Hi. Thank you for the question. I'll take the first one on the other revenue category, and Soka will pick up on the second question around costs. In the other revenue category, we have a number of items in there, including the fair value on our guaranteed portfolio. We also have the income from our joint venture with Harvest, and we have some dividend returns on investments and co investments that we make.
The the movement that we see between q two and q three is not that significant. A small portion of that relates to fair value of guarantees. Another portion of it actually relates to movement in the dividend income quarter on quarter. More specifically, on your question around interest rates, we provided a guide around the sensitivity of interest rates to the fair value aspect of our guaranteed products. So roughly a 50 basis point decline results in an annualized 15,000,000 revenue impact.
Where we are at the moment, the interest rates between the Q2, Q3, we have seen some of that effect coming through, and we take that into account in our forward projections. I'll hand over to Ahsoka for the second question on costs.
Yeah. No, thank you. And I think thank you first of the for the compliment. I think we have really improved in our organization on cost. And I think cost discipline is one of the main drivers, will be main driver for the profitability of asset management industry in the future.
And I think as I said, we are expecting a slow organic revenue growth, for the next years for the whole industry, not only for DWS. So I do think to manage the costs will be super important And the cost income ratio, as we really highlighted in the last quarters, will be our main, you know, main KPI, that you can see our operational strength. And your question regarding, are we overdone and and took little bit gross, out of that, I do think you can see also in the flow numbers as well as in the gross areas like multi asset, like in all, also in a passive pockets that we are really, you know, doing in a healthy way, the cost management, and that have to stay in this way. And but one thing is very clear, the whole organization turned to a very cost discipline approach. And, as you have seen, and I think we are I love to discuss that also in December meeting, how we reduce non, non comp cost down, and how we took, for example, building a lease items, all that down.
And I do think this is in some way, taking the growth potentials, but introducing cost discipline to the organization.
Thanks a lot.
Next question comes from the line of Heidi Tam with Credit Suisse. Please go ahead.
Morning. So I guess for my two questions, could I ask you, first of all, I mean, you've had a very clear focus now on cost management to offset the slower organic revenue growth you're expecting for the whole industry, Can you give us any comment on your attitude to inorganic growth opportunities and perhaps remind us of your capital position at the same time? And then the second question is really, I suppose, a follow-up in terms of flows. Can I confirm, are we still expecting the wind up of the €2,500,000,000 flex pension funds in Q4? And then also given your comments on the Pan European Infrastructure Fund III launch, how you would encourage us to think about the interplay of that with the original fund maturity, which I think is €5,500,000,000 next year?
Thank you.
Thank you for the questions, and I will answer the inorganic one. I do think inorganic one, we answered quite the last six months in two way. I think, there is an inorganic growth, what we have to invest in some m and a activities like in small boutiques to enrich our capabilities, to become really, you know, use the strategic changes in the market and the industry to make us fit for the future. And I think as you have seen, the the SRAY investment, the small one, you know, participation was the one, you know, one in a clear action or last year what we've done in the Skyline AI, to introduce, you know, the AI capabilities to our platform, the neo, for example, in a in a distribution side. So we will do this kind of enrichment to our platform continuously on a steady process, you know, a a process.
But in the same time, what you're asking, and a very valid question, Yes. We are expecting further challenges for the asset management industry. As I started last year, came back, I said, we will see in a in a tough environment for asset management industry is, you know, proved to be right, unfortunately. And therefore, I do think cost management will be key, but also an organic options to look how that all these options going in a bigger and not beyond the bold on, you know, transaction, how that going to fit our to our model is key. That means either, location strengthen our location footprint or capability in some asset classes or, you know, to enrich, the client, you know, a base is one of the desires, also to counterbalance this kind of trends that has just kick in into the industry.
And I think I'm expecting, as I said, the consolidation requirements will be more and more increasing and getting more focus into the asset management industry. And I will hand over to Claire to answer the second question on flex pension.
Hi. Thank you for your question. Just to clarify on the flex pension product, which is a CPPI based guaranteed fund family, We will be liquidating that product in q four in November, and it has a total AUM size of 2,500,000,000.0. It is a liquidation effect, so it's not a flow effect. In our flows for q four, we have a number of other events in the pipeline, which we've referenced.
We've discussed in alternatives. We have, an infrastructure fund launch, which will be part in size of the full size expected over the life of that product. And, as usual, we anticipate a good pipeline in passive and in the growth areas that we've seen to date across the portfolio. So a number of effects going on in Q4 flows, if that addresses your question, Hayley.
Thank you. Is there any comment in terms of the redemption of the original fund in Q1? Is that still expected?
And redemption in q one, which fund is that?
Sorry. The original Pan European infrastructure fund, I think, is about 5 and a half billion euros, and I think it's maturing at the beginning of next year. Is is that incorrect?
Yes. Sorry. Understood. That's right. We have, the p one fund is coming to the end of its life, and we have p three obviously being launched in q four.
And they will be sequencing between those two flows, an effective staging effect that you'll see through the flow effect across Q4, Q1 and beyond.
Very clear. Thank you.
Next question comes from the line of Bruce Hamilton with Morgan Stanley. Please go ahead.
Hi, good morning. Thanks for taking my questions. Just I mean, clearly, overall net new money growth and asset growth is impressive. But I guess looking at Slide three, what's stark is that you've grown assets 9% over the last twelve months, yet revenues are down 2.5% and profits down 4%. So and clearly, that speaks to some of the margin pressures.
So just looking at Q3, you've given some color, but I guess I would have expected that the combination of solid inflows into multi asset and alternatives, which should be above the average margin would mean that margin revenue margin should be more stable. So is there any other area where pricing is under a lot of pressure or new products are coming in at lower prices? And then secondly, on multi asset, which obviously has been driving growth, the performance stats look obviously quite weak now. So what's your level of confidence that you can continue to see pipeline in that area? Or alternatively, is there risk to outflows given performance challenges in that space?
Thank you.
Hi. Thank you for your question. I'll take the first one around the effects of net new money and management fees. I think maybe if I first point to the the the nine month results, we see on the nine months, the adjusted profit before tax is up 9% over that period. And revenues are broadly flat overall.
But if you look at the management fee line, the management fees are are slightly up in the nine months, up 1%. But, quite right that, of course, we we are operating in an environment, where margin compression is a feature. And so having the the full pool of asset classes to respond to that is is very, important. And we have seen, as much as our management fees are growing slightly to reflect the movements that we've seen in the flows, there's there's margin compression and market factors that go against that as well that we have to respond to. But I I would draw your eye to the fact that the the revenue composition is a feature of management fees, performance fees, and the other revenue factors.
And when you look quarter on quarter, it's the performance fee that's driving the decline in revenues, not management fees.
I think regarding, the multi asset, question, yes, I do think, Calder Morgan, first of all, has a great performance, concept Kaldimorgans fund, and all the whole area that is managed by Kaldimorgans team is a great performance. But I want to give you a little bit, you know, color into the multi asset. Multi asset area has very less, really benchmarks. And sometimes to compare the performance in multi asset quite difficult, that weak or not weak. But I want to say there is another product series.
It's upcoming with stunning performance. It's a champion select world. What we are doing for one of the biggest IFA in Germany in a very, close collaboration with them, you know, and we are, this area, for example, is also great performance. But most of, the multi asset products, it's difficult to compare, as I said, a huge range in the industry, in the peer groups. And, but I want to say in total return perspective, all the multi asset products is greatly performing this year and, you know, many people are really enjoying.
And we can see also beside Calde Moungh area inflows into more than, you know, more than into Calde Moungh's area. So therefore, I think that is underpinning the great performance.
Thank you.
Next question comes from the line of Stuart Graham with Autonomous Research. Please go ahead.
Good morning. Thank you for taking my questions. I had two, please. First, on active equities. The outflow is deteriorating.
It was GBP 200,000,000.0 in Q1, 700,000,000.0 in Q2 and then 1,100,000,000.0 in Q3 and that's despite success on ESG funds. If I understood you correctly, it sounds like you just attribute that to the environment. But I wonder, is there anything more dramatic you can do to turn around the flows on the traditional non ESG active equity side? That's the first question. And then the second is on passive.
I think you said at the Q2 stage that you were not seeing the margin pressure you expected. But since then, we've seen some big competitors announcing yet more fee cuts. So I just wonder how you're thinking about the outlook for passive fee margin pressure now, please. Thank you.
Hi. Thank you for the questions. Just the first question on active equity. We have seen outflows in the third quarter and we do point, indeed to the equity environment, the volatility, which is driving some risk appetite away from that, in German equities in part. We have we do, of course, have a portfolio within equities.
So we have seen, some of our products performing strongly there, and some of those are attracting inflows on a gross basis. But overall, net outflows in equities, affecting the German market. On your question around passive, the margin there has been very resilient for us, over past quarters. We've always pointed to an anticipated margin decline of of one to two basis points per year. And if we look at what we're seeing in the nine months, where we stand at 22 basis points compared to 23 basis points at the end of last year, we see that play out.
The, margin decline in passive between the quarters has got a few technical factors going on there as we always see within the quarters. But, there certainly is margin pressure in that area, of course, that we can respond to across the portfolio of ETFs and mandates and products that we provide across passive and all taken into account in the overall diversified portfolio of asset classes that we manage to.
But then on the passive, it sounds like you just expect a continuation of a gradual one to two basis points a year. You're not anticipating any cliff effects in terms of dramatic repricing of that product silo?
I think that's right. We're not expecting any cliff effects based on what we see at the moment, but we do see continued margin compression in the passive asset class.
Okay. Thank you.
Next question comes from the line of Hubert Lam with Bank of America. Please go ahead.
Hi. Good morning. I've got two questions. Firstly, on fee margin, how should we think about fee margin going forward? Should we expect it to continue to drift downwards from the Q3 levels, which was probably a little bit worse than expected?
Or do you expect it to stabilize from this lower point onwards? That's the first question. The second question is on cost income. You're still targeting and maintaining your target of 65% cost income in 2021. What are your assumptions there?
Are you expecting revenues to rise by costs not growing as much or shrinking? Or put it another way, if revenues are unchanged from today in 2021, do you expect the target to still be met through a lower cost base? Or is revenue growth a main assumption your target for cost income in 2021? Thank you.
Hi. Thanks for the question. Maybe if I comment on your first question around fee margin. Just a reminder of the reduction that we saw in the third quarter. There was three effects taking place there.
There was a market effect, which, was quite interesting in that the fixed income interest rate movement that has an asset appreciation, which is below the average of DWS had an effect to bring the average margin of the group downwards. There's a flow effect and the mix that we see across the portfolio and the, individual product effects that we've had from the liquidation of the flex pension product, which has a decline in margin within the period. So a few factors that were taking place in q three. That said, we've we've pointed to the fact that we, do see margin compression in the industry, and we see that in our portfolio as well. So we do see that as a feature that we manage to, by managing our sales across our growth areas, alternatives included passive multi asset and so forth, to manage the revenue line going forward.
On the cost income ratio, we have a target of below 65% over the next two years. And the success that we've had in cost management this year has enabled us to continue to increase our profitability, and that's exactly, our target for this year and for beyond to continue to grow profitability despite having a more challenging revenue environment.
So if revenues are flattish from from here onwards in 02/2021 in a in a bear case situation, you can still you're still confident you can still meet the 65% cost income just by adjusting the cost base?
Yes. We do. Within our cost base, we do have opportunities to continue to drive efficiencies. We have almost completed our 150,000,000 gross cost saving program this year. We've we will we have year to date achieved a 70% cost income ratio year to date, and we're very much on track to get there by the end of twenty nineteen.
And we have a very solid glide path to take us to below 65% in 2021. So we're always, very constructive on the cost measures that we can take, ensure that we can execute and deliver against those to continue driving profitability across the organization.
I do think December 10, we have, I think, a little bit, more time go for the deep dive on the course. I think that is an important element in our equation on the 65, cost income ratio, and we'll love to give you the deep dive, I think, orientation. But again, as Claire said, we are not making us easy. We are taking a challenging market environment, and main assumption is more or less the flat revenues for the next up to 2021 after slight up in 2020.
Very helpful. Thank you.
Next question comes from the line of Mike Werner with UBS. Please go ahead.
Thank you very much. Just two questions from me. One, on if we take a look at the areas where you had very strong inflows, was multi asset, passive and alternatives, we saw quite sharp declines to the fee margins in all three of those asset classes by about two to three basis points on a quarter on quarter basis. I know you explained some of the drivers before, but I was wondering if you could just give a little bit of color as to why we saw that correlation this quarter. And then second, you mentioned the ESG products.
I was just wondering if you could provide a little bit more granularity as to what you have seen in terms of inflows into ESG products either on a Q3 basis or on a year to date basis? Thank you.
Hi. Thank you, for the questions. Coming back to the topic around the margin, I think in the case of passive in the first instance, we saw within q three compared to q two strong inflows in the product, but an inflow mix that was below the average of passive, that has an effect on the average margin within the period. And there's also some one off effects in passive quarter on quarter, which means that you had, a higher margin in q two compared to q three. If I look at alternatives, again, we had strong inflows in alternatives within the period.
We were successful in winning a large institutional mandate, but the average of those flows within alternatives were below the average of alternatives within the period. And the same applicable to multi assets, the mix of the product flows within the fee margin are driving the effects that we see in multi assets. So very much a theme that we see across the board, it's, flow mix, product mix, and market effect. And the the fixed income effect, I think, is quite notable in the third quarter where the sharply declining interest rates mean that the appreciation of the AUM and it's having an effect on the average margin given it's below the average of DWS.
Your question regarding ESG, I think, ESG flows is getting more momentum, also this year. We have year to date so far, 2,000,000,000 ESG, assets in in the in the ballpark of all the flows. So I think there is a variety of products is gathering these inflows, equity products, but also more and more also fixed income type products. And I think as I you know, and I think also in the December 10, we will go for deep dive of our ESG strategy, and we'll show you how we're going to not only in the new assets, how we want to grow, but also how we going to integrate the existing asset base into ESG compliant standard. I think this will be one of the focus points on the tenth, and then we can talk about the flows.
One thing also I want to bring under context, because I think the first question you asked, and what Claire now in detail answered was, if ESG prevents you in some way also on the margin erosion for us is again to this is a retention play. I think ESG is not creating a premier in the market. It is a retention play and keep the assets in the house, but we have to manage differently and this is the way how we are looking. And I think furthermore, as I said, ESG products is for us in the future license to operate. And so therefore, love to go into a detail also on the December 10.
Thank you. I I look forward to the Investor Day. Cheers.
There are no further questions at this time. I hand back to Oliver Flade for closing remarks.
Yes. Thank you, and thank you very much, everyone, for dialing in today. And for any follow-up questions, please feel free to contact the IR team. Otherwise, we wish you a good day. Bye bye.
Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.