DWS (Deutsche Asset Management) Stock

Ladies and gentlemen, welcome to the DWS Q2 2026 Results with Investor and Analyst Conference Call and Live Webcast. I am Sandra, the Chorus Call operator.

[Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Oliver Flade. Please go ahead, sir.

Operator, thank you very much, and good morning to everybody from Frankfurt. This is Oliver Flade from Investor Relations, and I would like to welcome everybody to our earnings call for the second quarter of 2026.

Before we start, I would like to remind you that the upcoming Deutsche Bank analyst call will outline the Asset Management segment's results, which has a different perimeter basis to the DWS results we're presenting today.

I'm joined as usual by Stefan Hoops, our CEO; and Markus Kobler, our CFO. And Stefan will start with some opening as well as closing remarks, and Markus 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.

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 with that, I will now pass on to Stefan.

Thank you, Oliver. Good morning, ladies and gentlemen, and welcome to our Q2 2026 earnings call. Let me start with the overall picture, and I'm going to borrow one from Formula 1 for this quarter. After the pit stop early in the year, we have reaccelerated and are showing very strong client momentum across the business. Assets under management reached a new record high. Our flows improved significantly, and we delivered our best ever first half. As we discussed on the last quarterly earnings call, we like to take pain early. As such, we made fundamental changes to our front office at the start of our new 3-year strategic plan.

What we've completed since the beginning of the year is significant. Let's start with clients. We reorganized our coverage around our clients. 2 global segments: private wealth, which serves individual investors and institutional, each spanning all asset classes and regions. And under Dirk Goergen, our new Chief Commercial Officer, we've tied client insight, solutions, and revenue accountability together in one place. On the investment side, we brought our liquid and illiquid businesses under the single leadership of Vincenzo Vedda, our Chief Investment Officer, completing a transition we began last year. The result is clearer accountability, faster decisions, and a sharper investment focus.

We've set up the product division to differentiate between asset class expertise and a factory-like wrapping and product delivery function. And we combined various teams into one strategy and M&A function that encompasses strategy design, organic implementation and inorganic growth. As you saw in our Q1 flow numbers, you cannot retool the car and set a personal best on the same lap, which we knew going in. However, significant front office reorganizations can paralyze the company for long periods of time, and our deliberate decision to do everything swiftly at once meant that we could fully focus on clients, markets and investing for most of Q2. You can see that momentum most clearly in our flows and AUM development.

In Q2, we gained almost EUR 100 billion of AUM, taking us to a record of EUR 1.19 trillion. This was not just a market story alone. Long-term net flows were significantly higher quarter-on-quarter, comparing favorably with our peers. We are particularly pleased with our momentum in active equity, the heart of DWS, where we had our strongest active equity flows in 6 years. Our flagship funds, Top Dividende and Akkumula, led the way with strong investment performance leading to net inflows of more than EUR 1 billion across the franchise.

Active SQI also continued to deliver, generating net flows of more than EUR 1 billion this quarter. It also bears out what we said in Q1: volatile markets are fertile ground for active asset management, and that is exactly when clients value it most. After a tough Q1, Xtrackers has regained momentum as our focused actions on client engagement, product innovation, and pricing take effect. We have sharpened our competitiveness in core exposures, stepped up client and sales activity and continue to expand into higher-value products and partnerships. This is now translating into stronger flows and an improved competitive position across key segments, particularly in UCITS.

On alternatives, infrastructure remains our strongest growth engine. Capital raising remains positive across the franchise in both equity and debt, and our flagship European private infrastructure fundraise is developing nicely. In private credit, several strategies are approaching first close. While alternatives reported net outflows during the quarter, these were influenced by capital distributions to clients, which are recorded as outflows despite reflecting value realization for investors.

While we do not disclose our net new revenues earned through client inflows, I'm pleased to say that this has been the best quarter since we started recording this number. Financials in Q2 were solid. Earnings per share came in at EUR 1.19, which brings us to EUR 2.51 for the first half of the year. Revenues were EUR 773 million, up 4% year-on-year, the net result of 2 counterbalancing effects. Management fees grew strongly, up 13% year-on-year on the back of higher average assets under management. This was offset by much lower performance and transaction fees, which simply follow a different timing pattern in 2026 than in 2025 as we flagged last quarter with a large infrastructure performance fee recorded in Q1.

Total costs were EUR 468 million, up 6% year-on-year, and our cost/income ratio was 60.5% for the quarter, which is an increase of 1.3 percentage points year-on-year. Let me address costs head on as I want to be precise about how we think about it. Our controllable costs, which are the vast majority of our costs, were flat year-on-year, and we frankly do not see a reason for them to go up. However, the significant increase in AUM led to higher volume-driven costs, while our positive stock development increased share price-linked compensation. Combined, these 2 items amount to almost EUR 30 million of costs, implying that our total cost in Q2 would have been lower than Q1, excluding these 2 items.

I hope you will agree that these are good costs. They come with growth, and they leave us on a good path towards our medium-term goal of a cost/income ratio below 55%. Step back from the quarter and the picture of the first half is one to be proud of. Revenues up, costs stable year-on-year, profit before tax up 16%, EPS up 21%, and record net flows. That is the best half in our history.

With that, let me hand over to Markus to take you through the financials.

Thank you, Stefan, and good morning, ladies and gentlemen. Before I take you through our financial performance, let me start by saying that I am very pleased and proud of the fundamental changes, which Stefan just outlined. They will help us to focus on clients and organic growth more than ever before. What has been accomplished across the organization over the first half of the year has been significant. We undertook a comprehensive transformation of our front office, simplified structures, clarified accountability, adjusted financial steering and aligned the organization more closely around our clients and investment capabilities. With that, let me turn to our financial snapshot for the second quarter.

Total assets under management increased by 18% year-on-year and 9% quarter-on-quarter to EUR 1.19 trillion. Total revenues stood at EUR 773 million, representing a 4% increase year-on-year and a 6% decrease quarter-on-quarter. Our total costs increased 6% year-on-year and 5% quarter-on-quarter and totaled EUR 468 million. This resulted in a reported cost/income ratio of 60.5% for the second quarter of 2026. Our net income increased by 11% year-on-year and decreased 10% quarter-on-quarter, reaching EUR 237 million. That includes a positive tax effect of EUR 25 million.

Moving to our client dynamics during Q2. Looking at client activity in the second quarter, we saw a clear improvement in momentum compared to the previous quarter. As market conditions stabilized and risk appetite gradually returned, clients became increasingly willing to deploy capital across a broader range of investment strategies. This resulted in total net flows of EUR 24.8 billion and long-term net flows of EUR 11.6 billion, representing a significant acceleration versus Q1.

Looking at our client segments. Our private wealth business, formerly reported as retail, delivered net flows of EUR 18.9 billion, marking the strongest quarterly result since our IPO. Private wealth flows were supported by continued demand for ETFs as well as a recovery in active investment strategies. Institutional flows amounted to EUR 5.9 billion. The result was driven by selected mandate wins, particularly in APAC alternatives as well as positive U.S. flows into cash products. These inflows were partly offset by capital repayments from infrastructure products, reflecting value realization for fund investors.

To reiterate what Stefan outlined in his opening remarks, going forward, we will refer to the following 2 global client segments: Private Wealth on the one hand side and Institutional on the other.

Turning to the regional picture. We generated positive net flows across all regions, reflecting the reacceleration in client activity we observed during the quarter. In the Americas, net flows amounted to EUR 10.8 billion, reflecting strong institutional activity and positive flows into cash products. Our home market, Germany, delivered net flows of EUR 10.5 billion, supported by continued client demand for our Xtrackers business. EMEA, excluding Germany, generated EUR 3.2 billion of net flows, continuing the positive momentum we have seen across the region. APAC reported net flows of EUR 0.3 billion. While overall flows were modest, client activity was supported by selected institutional mandate wins, particularly in alternatives. Overall, the second quarter was characterized by strong client activity, resulting in positive net flows across both client segments and all regions.

Moving to the quarterly highlights within our active business. The second quarter marked an important improvement for our active franchise with positive contributions from both active equity and SQI. Active assets under management increased to EUR 489 billion, up 7% quarter-on-quarter, supported by positive market performance and net inflows across key parts of the platform. Active equity returned to positive net flows of EUR 1.1 billion. Improved fund performance and rising client risk appetite supported a meaningful turnaround in flows, particularly across our flagship global equity products. Within SQI, momentum remains strong, generating net flows of EUR 1.1 billion. This was mainly driven by successful product launches and continued demand from key distribution partners. Multi-asset reported broadly flat flows during the quarter.

Continued demand for DWS Concept Kaldemorgen and selected mandate wins were offset by 2 mandate losses. Fixed income reported net outflows of EUR 1.6 billion, primarily driven by planned client redemptions. At the same time, we continue to see positive demand for selected strategies, including DWS Floating Rate Notes. Product innovation remained an important contributor to our active franchise. Recent launches included our DWS Invest StepIn Global Equity High Conviction and DWS Invest Special Situations, further enhancing our product offering.

Moving to our Xtrackers business. The second quarter marked a clear improvement in flow momentum following the challenging environment, which we experienced towards the end of the first quarter. We implemented a range of measures aimed at improving competitiveness and strengthening client engagement. These measures are now translating into stronger business activity across the platform. As a result, Passive, including Xtrackers, delivered net inflows of EUR 11.7 billion during the quarter, further reinforcing its role as one of DWS key growth drivers.

Assets under management increased to EUR 455 billion, up 15% quarter-on-quarter, reflecting both positive markets and strong net inflows during the quarter. Looking first at UCITS, net inflows amounted to EUR 12.6 billion and were the key driver behind the improved flow picture. Flows were primarily directed towards core exposures, particularly S&P 500 and MSCI World strategies. Our U.S. domiciled ETF business generated net inflows of EUR 0.9 billion, supported by continued demand for fixed income ETF strategies. Mandates & Solutions reported net outflows of EUR 1.7 billion, primarily reflecting a large redemption of a German corporate client.

Digital distribution remains an increasingly important growth channel for our Xtrackers platform. During the quarter, we have further expanded our access to retail investors and strengthened our positioning in selected European markets. These partnerships are becoming an increasingly recurring source of flows and help to diversify our distribution channels. The increase in our European ETP market share to 10.2% demonstrates that the measures implemented early this year are gaining traction.

Let me turn to our Q2 highlights for our alternatives platform. In Q2, assets under management stood at EUR 105 billion, down 6% versus the previous quarter. Our alternatives business reported overall net outflows of EUR 0.7 billion. This flow picture was largely shaped by capital returns of EUR 1.3 billion following successful asset realizations within PEIF I and PEIF II, without which alternative net flows would have been positive. Starting with liquid real assets, quarterly flows were broadly flat, reflecting continued reallocation by investors from listed real assets into private market strategies. Importantly, this was less of a question for product-specific demand and more a reflection of broader asset allocation decisions by clients. Real estate reported net outflows of EUR 0.3 billion as market conditions remain challenging, although we see a more constructive sentiment than in the previous quarter. In particular, transaction activity has started to recover gradually while investor engagement and fundraising discussions show first positive signs.

Infrastructure saw net outflows of EUR 0.4 billion, which was primarily driven by EUR 1.3 billion of capital returns, EUR 1.3 billion of capital returns associated with PEIF I and PEIF II asset realizations. As outlined in the previous quarter, capital repayments to fund holders are a normal part of our infrastructure business. In this case, they resulted from successful asset sales in Q1, which created value for our clients and performance fees for our shareholders. Excluding these capital returns, infrastructure would also have generated positive net flows. Within private credit, the focus remains firmly on fundraising and platform execution. Several products continue to progress towards first closing milestones in the next 6 months, moving then to the next phase of capital deployment for this important strategic initiative. Recent product highlights included the launch of DWS Invest Essential Materials Producers Fund as well as the successful final close of our second vintage U.S. infrastructure debt fund.

Let me now move on to our Q2 revenue development. Total revenues reached EUR 773 million, up 4% year-on-year and down 6% compared to the first quarter. Management fees increased to EUR 709 million, representing a 5% increase quarter-on-quarter and a 13% increase year-on-year. The increase was primarily driven by higher average assets under management, supported by strong net inflows and positive market development during the quarter. Performance and transaction fees totaled EUR 11 million. As expected, performance fees were significantly lower than in the previous quarter, following the infrastructure-related performance fee contribution of EUR 104 million recorded in Q1.

The quarterly development is, therefore, fully in line with the timing of the performance fee recognition we have communicated throughout the year. Despite the low performance fees this quarter, we still expect our performance and transaction fees to be at the upper end of the guidance range of 4% to 8% of total revenues in 2026. In 2027, we expect performance and transaction fees to be in the lower half of that respective guidance range.

Let me move on to our cost development. In Q2, total costs stood at EUR 468 million, up 5% quarter-on-quarter and 6% year-on-year. Compensation & benefits decreased to EUR 232 million, down 3% versus the previous quarter, mainly reflecting lower performance-related costs. General & administrative expenses totaled EUR 236 million, a 15% increase quarter-on-quarter. The increase can partially be explained by positive one-off effects in Q1, which did not reoccur in Q2. In addition, approximately EUR 30 million of so-called good or volume-based costs can be attributed to our share price appreciation and volume-driven banking services costs.

Share price-related compensation costs amounted to EUR 16 million, which are hedged and reflected in other revenues. Whereas there is no impact on our pretax profit, movement in our share price do affect our cost/income ratio and also our cost base. For additional transparency, the cost and revenue sensitivity for each EUR 1 of share price movement stands at roughly EUR 1 million to EUR 1.5 million.

Our cost/income ratio stood at 60.5%, which is an increase of 1.3 percentage points year-on-year. Despite a higher cost base in the second quarter, we remain confident and firmly on track for flat costs and a cost/income ratio between 55% and 57% in 2026. With that, let me hand over back to Stefan.

Thank you, Markus. I would like to spend a few minutes on something we believe will be one of the most significant structural growth opportunities for DWS in the coming years, the reform of the German pension system. Let me briefly set out the starting point. The German state pension is pay-as-you-go. Today's workers directly finance retirees and nothing is invested along the way. That model works while the workforce is growing, and it breaks down when it isn't. With an aging population and even fewer workers supporting ever more retirees, the numbers simply no longer hold.

The government's answer is the most far-reaching pension reform in a generation, the introduction towards funded capital markets-based retirement provision across all 3 pillars of the system. In plain terms, more of Germany's retirement savings will be invested in capital markets. We believe no asset manager is better positioned to provide the expertise this reform will require than DWS. We are Germany's #1 asset manager with deep local expertise and long-standing client relationships. And our connection with Deutsche Bank gives us distribution reach into precisely the clients this reform will activate.

Let me take the 3 pillars in turn. Pillar 1 is the state pension, the mandatory scheme covering almost all employees with approximately EUR 400 billion flowing through it every year. Here, the government's pension commission has recommended adding a mandatory funded component for the first time. Under this model, additional contributions of income may be invested in capital markets with a state fund as a default and an opt-out into certified private funds. The government aims to complete the legislative process by the end of 2026. For DWS, this is about positioning ourselves for the additional capital that will need to be managed. That could mean asset management mandates or offering certified private alternatives to those who opt out. And the potential is significant. Assuming an increase of 2 percentage points of contributions, it would mean around EUR 34 billion of recurring annual inflows into capital markets. The final volume will, of course, depend on how the legislation is designed, but the direction of travel is clear.

Pillar 2 is occupational pensions, the voluntary workplace schemes. This is a substantial market. We estimate more than EUR 770 billion of assets and a revenue pool of around EUR 1.1 billion for asset managers in Germany today with further growth to come from the reforms. The reform aims for near universal participation in the longer term with key measures expected by the end of 2026, focused on SMEs and lower-income employees where coverage today is thin. Within Pillar 2, DWS starts from a position of strength. We already manage close to EUR 100 billion of assets across the German institutional pension market.

One structural point worth understanding. German occupational pensions have historically been defined benefit where the employer promises the pension and carries the risk. Much of that obligation remains unfunded as it sits on employers' balance sheets rather than being invested. At the same time, schemes are now shifting to defined contribution where outcomes depend on invested contributions as is already common in the U.S. and the U.K. On the defined benefit side, we are already serving existing commitments, including our pension joint venture with Zurich. And while pension risk transfer is still at an early stage in Germany, it is a trend we are closely monitoring and are building capabilities for.

For the future of defined contribution, we see 2 distinct opportunities. With multinationals and large corporates, we intend to build on our existing relationships and expand our offering of tailored advice and individualized investment solutions. For German mid-sized companies, the opportunity is different. We are building a scalable defined contribution solution, combining Deutsche Bank's distribution with our lifecycle-based investment expertise. In this pillar, our relationship with Deutsche Bank is especially valuable because it gives us access to corporate clients across every segment.

And finally, Pillar 3, private retirement savings. This is where the reform is furthest advanced. The centerpiece is the Altersvorsorgedepot, or retirement savings account. Think of it as Germany's answer to the ISA or the IRA. It has already been adopted and goes live on January 1, 2027. It comes with significantly increased government subsidies and extends eligibility to around 4 million self-employed citizens. Importantly, it also opens the door to products without a capital guarantee, so savers are no longer confined to expensive, low-returning products. And this is the part I would emphasize. With the subsidies and tax benefits on offer, the government is creating a compelling incentive to participate. So this is not a narrow product aimed at a narrow segment. It should appeal to approximately 50 million private individuals who are eligible, more than half of Germany's population.

We will launch our own retirement savings solution with a DWS product offering, including a standard product and differentiated propositions beyond it. Deutsche Bank will be a key distribution partner, giving us reach into private clients, the self-employed and SMEs. A dedicated project team is driving all of this towards the January 2027 start. Alongside it, the government has also set out plans for the Frühstart-Rente or early start pension, which will see capital market savings for children from age 6. This has the potential to foster a new generation of investors from the beginning of their savings journey, and we will monitor developments closely. The long-term potential is enormous. Millions of Germans have not yet made any meaningful retirement provisions. And as that changes, we see a substantial opportunity over the years ahead.

So step back and the strategic fit is obvious. This is bullish Germany in action. A once-in-a-generation shift of German retirement plans are being channeled into capital markets at scale. As Germany's #1 asset manager, it plays to every strength we have. We bring a large German client base, trusted relationships, access to Deutsche Bank's distribution reach and the product breadth to serve all 3 pillars.

So let me close where I began. We took pain early. We have reaccelerated, and we intend to keep that momentum. The pension reform is one of several opportunities ahead of us alongside our growth in alternatives, our strength in Xtrackers and the momentum in active, and we intend to make the most of every one of them. That is what gives us confidence in our targets of 10% to 15% annual EPS growth for this year and on our path to 2028. Thank you, and back to Oliver for Q&A.

Thank you very much, Stefan. Operator, we're ready for Q&A now. If I just remind everybody to limit yourself to the 2 most important questions that would be very kind. Thank you very much.

[Operator Instructions] Our first question comes from Hubert Lam from Bank of America.

I got 2 of them. Firstly, Stefan, thank you very much for the overview of the German pension reform. Can you talk a bit more about Pillar 3? What flows would you expect from this, size of opportunity? And how long do you think it will take for clients -- for individuals to kind of ramp up on this? That's the first question.

The second question is about your EPS target. I know you reconfirmed the 10% to 15% EPS growth. For 2026, it seems like consensus have bought into this. But for 2027, it feels like consensus is below this. Maybe if you can talk a bit about what the building blocks to get there for 2027 and how much of that is dependent on performance fees again?

Thank you, Hubert. I suspect that many of your colleagues will now need to think of different questions to ask because I suspect that those 2 would have been on probably everyone's list. So let's start with pension reform. And you asked about Pillar 3, although I would emphasize that I think that for us over the long term, Pillar 2 will actually be even more exciting, but maybe that's a follow-up question from somebody else.

So Pillar 3, this will go live on Jan 1, '27. That is done. That's announced. You will see lots of discussions in Germany, lots of distribution partners are preparing themselves. I think it's going to be a combination of some distribution partners where the products are based on advisory and essentially sold. I think those clients, in many cases, will be the ones being advised by branches or IFAs and so on. I think in that case, there will be inflows into a combination of some ETF, lots of active, some alternatives. In terms of size, it's somewhat difficult to say, and I really don't want to be the one putting gigantic numbers out there.

But when you think about the reasonably unattractive current Riester product that has somewhere between EUR 200 billion and EUR 300 billion of invested capital across multiple providers. With the pension reform, that should go up a lot. So I think most Germans that you would know, Hubert, so your colleagues wouldn't have Riester-Rente because it just wasn't appealing because it had to be capital guaranteed, so I wouldn't have invested in it. I think going forward, it will be illogical to not participate because there's going to be subsidies and tax benefits. So I would imagine every logically thinking German will participate. So I think there should be lots more inflows than into Riester. Now on the other side, you will see very low-margin ETF-based products being provided through neobrokers, platforms and so on. I don't know what will be greater over time. I think the beginning would likely be balanced in terms of flows.

Obviously, the first component I spoke about is going to be higher margin than the second. Now that applies to the industry. When you think about DWS, we are the only German asset manager with an ETF platform. So we will be the go-to partner for some of those neobrokers and platforms. So we definitely intend to benefit from inflows in pETF. But at the same time, through Deutsche Bank, through DVAG and other partners, we also want to be front and center of those German investors that will require advice as they invest for long-term pension.

Some of the numbers you see in the market are gigantic. I don't want to quote them. I just would want to remind people, it's not all going to be into actively managed funds. It will be a combination of actively managed and ETF. But again, all of that, and I will now, like, switch over to the second part, all of that will come on top of our current growth rate. So when we spoke about 10% a while ago, this was before any of those reforms materialized. And when we upgraded to 10% to 15%, they were saying, well, there are a bunch of things that we now have going for us, the German pension reform being the most significant one, and that should lead to additional growth above the 10% that we had anticipated so far.

Now more specifically, and our wonderful Head of Investor Relations, Oliver Flade, told me to never refer to consensus. But given that you brought up the term, I'm just now sort of responding to your questions and sort of violating the advice that Oliver has given me. Having grown up on the trading floor, let me first emphasize that the market is always right. Our stock price depends on consensus. Some of you didn't like our numbers in Q2 because it came in below consensus in profit before tax. However, I think when you look at the composition, I think we've hopefully made it clear that on the cost side, our cost in Q2 would have been below Q1 if it hadn't been for higher AUM and a higher stock price, right? Needless to say, I sort of like people to buy our stock. I like our salespeople to get in more flows. I like markets going up. So those are good costs. They're also PBT neutral, essentially pass-through items. So the miss in PBT is entirely due to performance fees, right?

AUM is higher, management fees are higher. It's entirely performance fees. And I would just emphasize what we said in Q1 that if you look at the monetizations of PEIF II assets for the first half, we're looking strong. We simply monetized much more in Q1 than we had anticipated, which is why performance fees were EUR 100 million in Q1 and almost nil in Q2, but that was simply because of more monetization in Q1, not because of any deviation from plan.

When you look at consensus for 2026, it's sort of in line with what we are expecting. Now when it comes to 2027, I think it's slightly more interesting. I'm in no position to agree or disagree with the consensus. I mean, again, the market is always right. But I think on cost, you believe what Markus and I are saying. You do think that costs will go up a little bit in '27. I think we will be more disciplined, but I think there, we are broadly in line. I think the biggest deviation is the composition of revenues in 2027. I think that, frankly, the market so far has been underestimating our AUM growth. And when you look at consensus at EUR 1,180 billion for 2026 at end of the year, given that we're now at EUR 1,190 billion, I would imagine that we'll try not to lose AUM between now and end of the year. So it should be higher at the end of the year, which also should translate to higher average AUM in 2027.

When you look at our average margin, that is keeping a lot more stable than in prior years. That's because of inflows in active equity, SQI doing well and a bunch of other things. But therefore, when you then simply do the math, I think that I see management fees, frankly, higher than what's currently reflected. But at the same time, I would caution a bit on performance fees. So the way we look at the performance fees is that, for this year, we continue to believe that it's going to be at the upper end of our range of 4% to 8%. However, for next year, we would expect it to be at the lower to mid part of the range of 4% to 8%. If you break down performance fee expectations for next year, then the one remaining asset in PEIF II, I would expect to be monetized in '27.

So that's a nice chunk of performance fees coming in next year. We have some performance fees in private credit, some performance fees in real estate. We have Concept Kaldemorgen and so on. So I'm confident that we'll be at the low to mid part of the range in 2027. But therefore, again, I don't want to criticize challenge or anything the consensus, but I think it's on the conservative end of what Markus and I want to get to with a composition where I think it's going to be more geared towards a skew towards management fees and a bit lower on the performance fee side.

Next question comes from Jacques-Henri Gaulard from Kepler Cheuvreux.

Stefan, you talked about the pension. You could have talked about the investment super cycle, the fact that obviously, we need to have much more investment coming to get to this defense-to-GDP ratio to 3.5%, not to mention the grid, not to mention Ukraine, not to mention all things like that. It looks on the back of what we're having on the stock price that financials shares are going to go up. That means that your cost base is probably going to go up as well on the back of growth. That's the good cost. Wouldn't you be better off to be able to actually do this 10% to 15% or confirm than to just drop the cost/income ratio target? And if Markus could very kindly give the sensitivity again, I would be very grateful because I didn't put it down very well.

Jacques-Henri, sorry, we're just debating for 3 seconds of how to best answer it. So I think for the record, and I look into Markus' very serious face, we will not drop the cost/income ratio target. We're not advocating for it. But we continue to think that you need to be disciplined. And I also continue to believe that very interesting inorganic opportunities will arise for DWS if markets ever wobble simply because we have so much more cushion on profitability than some peers operating at a much higher cost/income ratio.

Now at the same time, custody cost and higher share price, they are passed through. And they are essentially slightly dilutive for cost/income ratio, right, because for example, those 2 items that are almost EUR 30 million in Q2, they were also obviously higher revenues, so PBT neutral, but increasing our cost-income ratio. So that's sort of bad, but all of you are obviously smart enough to see through that. Now what I also want to say is that we do see plenty of interesting investment opportunities, right? So please, nobody should think that we are just saying no to every investment. We are investing a lot, for example, in the Pillar 3.

So the way that you need to think about our solution for pension reform is that we will have a full product offering where we will have service staff, we'll have call centers. So this is a real investment that we are making, investing in alternatives, investing growing Middle East and a bunch of other things. So within a flat controllable cost base, we're making significant growth investments, right? And then again, those good costs, hopefully, we'll have more of that. But I think that all of you will be able to like isolate that. We stand by our cost/income ratio target of below 55% by next year, and we feel that we are on a good path there.

The next question comes from Arnaud Giblat from BNP Paribas.

Thanks for talking more about base fee growth. I think that's a really important KPI, and looking to having a bit more disclosure in the future around the base fee growth. My 2 questions are first on pensions and second, on the potential mandate that's been announced, I think, mandate win. So on pensions, if I could just take Hubert's question and apply it to Pillar 2 there. I'm just wondering what the addressable market looks like and over what time frame does it grow to? How do you think of the distribution fragmented, I suppose a lot of the distribution will be tied to Deutsche Bank. So what sort of market share do they have or potentially can they get? That's sort of, like, just trying to frame the flow opportunity over a certain time frame.

And secondly, there was, I think, a piece of news flow that the federal government and the state of Hesse and Baden-Württemberg would have potentially be allocating you a EUR 3 billion to EUR 6 billion mandate for pension reserves. Could you comment on that?

Thank you, Arnaud. I will take them in reverse order. So the second one is pretty straightforward to answer. There are some state-level pension funds, and in those specific cases, those assets are managed by Bundesbank. So in Germany, you don't really have a sovereign wealth fund or any like specific sovereign fund, except for Bundesbank managing assets and then the fund for the nuclear fund, what we call the nuclear fund that is also managing essentially German assets. And in that case, those state pension assets are managed by Bundesbank. They are outsourcing some mandates. We won a very large one. We're proud of that large mandate. It is reasonably low margin. So don't think that this is EUR 6 billion of active equity. It's reasonably low margin.

What we like about it is when you think about Pillar 1, we think that those assets will likely be managed either by some newly established fund or Bundesbank or the nuclear fund. And by us being a primary partner to them and being allowed to advise them here and there, that should position us nicely.

Now Pillar 2, and this is a topic that has kept me busy for the last probably 12 years in various roles I had at DB Group. So I'm quite passionate about it. You need to basically look at it -- I'm simplifying a little bit -- think, firstly, about promises made in the past and secondly, about future promises. When you think about promises made in the past, a lot of promises to German pensioners were defined benefit but unfunded. This is completely different to, I think, any major country in the world. It means that mid-caps 40 years ago told people work hard. And then when you're 65, you'll get a nice pension of x because it was defined benefit. However, that money was never set aside. It's essentially an obligation, a provision on the balance sheet on the passive side. But it obviously becomes cash flow relevant once those people actually want to have their pension.

And that is now when you think about when those big cohorts born in the '50s and '60s when they are retiring, that's sort of now. That's a big problem for Germany that's now being addressed, and there will be significant pension risk transfer solutions to be provided and so on and so forth. That's essentially unfunded defined benefits from the past. Again, that market is just sort of getting real because now people see the cash flow necessity. The government is actively weighing in. And I think there's going to be reforms, in many cases, making it mandatory to fund those.

Secondly, when you look at future promises, which mostly will be defined contribution, I would differentiate between large corporates and the many, many sort of hundreds of thousands, millions of small-cap companies. I think for the large ones, you will have specific solution advice, tailor-made and so on. For the mid-caps, you will -- and that's what I refer to as scalable defined contribution. You will need to have certain products which are simple to administer, simple for companies to sign up for. And again, something not tailor-made or scalable. For the very small, let's say, 10-employees companies, I would imagine them to actually lean heavily into the third pillar and use that.

Now all of it is quite complicated. And when you ask the question about which financial institution is best positioned for it, I would say that this is Deutsche Bank, given the access to all of those corporates, plus having an asset management company. So when you think about the competitors to Deutsche Bank in the corporate space, those are German banks that actually don't have their own asset managers. So we feel that Deutsche Bank is pretty well positioned.

At the Deutsche Bank Board, I'm the one tasked to coordinate Deutsche Bank's like response to the pension reform across all pillars. I'm quite involved. But I think that for DWS, that presents a unique opportunity in many cases, for alternatives because those long-dated liabilities should be invested into illiquid, higher-yielding asset classes similar to what you see in the U.S. and U.K. But that will take years to play out. But as we said, we're starting from a good base, already managing more than EUR 100 billion of money for Pillar 2 pension funds.

The next question comes from Oliver Carruthers from Goldman Sachs.

It's Oliver Carruthers from Goldman Sachs. I've just got one. I guess, Stefan, would you be able to share your perspective on how you're thinking about the durability of the improvement in flows that you've seen in your active equities business? I think I basically counted 3, I guess, positive tailwinds. I think you're talking to the recent improvement in risk appetite, calling out this improvement in fund performance that we've seen. And then I guess, this more long-dated tailwind of the German pension reform, I guess, offset against the long-term active to passive shift the industry is facing. But a little bit of a crystal ball question, but just we're obviously watching this nice improvement in the inflows in 2Q, but just how are you thinking about the durability of that?

Thank you, Oliver. So firstly, and absolutely most importantly, flows follow performance. So if you recall, and most of you have been our partners for quite some time, 2 years ago, one of you challenged us on this call on the declining outperformance in active equity. And you were right. Like at that time, we had significantly below 50% of our funds beating the benchmark. And that makes it very difficult to say now. At that time, we are also not very strong relative to some competitors. And when you look at the flows in '23 when we had EUR 5 billion of outflows, '24, '25 getting better. But to some extent, the poor flow performance during those times was because of, well, not very appealing performance. That has changed significantly.

So when you look at the fact that now 82% of our equity AUM that has a benchmark beats its benchmark, then you can see that the changes we've made more than 12 months ago where we brought in a new Head of Equities, who is an exceptional people leader, but equally importantly, had our prior 2 cohorts of equities do what they enjoy most, meaning managed funds because they are managing our 2 largest funds, then it just worked out perfectly. When you look at André Köttner's performance in Akkumula and VBI, he's more than 10 percentage points above benchmark over the last 12 months, right? So that's significant, and that has led to nice inflows in his funds.

And Top Dividende has had one of the best flow pictures over the last 12 months, more than -- actually not more, EUR 400 million of inflows just in Q2 in Top Dividende. So those inflows in active equity came into our largest flagship funds that had really, really strong performance. I think risk appetite has obviously looked better in Q2 than in March. There's no question about it. But when you look at our relative benefiting from increasing risk appetite, it's really due to performance. I think longer term, yes, the pension reform will be additional tailwind for sure. But most importantly, we need to keep performance up.

I mean if I add, Oliver, it is about, again, what we have communicated in terms of guidance over the next 3 years that we have about EUR 160 billion of total long-term flows -- if you break that down, it's about EUR 50 billion and EUR 12 billion to EUR 13 billion per quarter. The robustness of DWS goes back to our diversified business model, but also on the other hand, that over the years, we're working on focus topics, which we internally call our growth agenda. And we spoke about that at the beginning of the year.

And I just would like to highlight in addition to what Stefan said with regard to Gateway to Europe and being bullish on Germany. I mean, passive, where we expand now into Europe and beyond is on digital platforms, it's on active ETF, and it's on the white labeling and building of solutions. We're going to see next year -- from next year onwards on the alternative side, flows, which we're then going to report hopefully on a continuous base on the private credit side, if that strategy now moves, as we said, from fundraising into capital deployment.

And again, if you take that all together, having -- I mean, like last quarter, we have been positive on all asset classes. I mean, that's the main pillars. We have also been positive with regards to the client segments and the regions, but certain regions and certain strategies have performed better. But over the quarters, we're confident that we're going to see us delivering according to whatever, around EUR 50 billion to EUR 55 billion of long-term flows, especially towards the end of the year and then '27, '28.

Actually, one last thing, Oliver, on active equities. So you would have seen that our AUM in active equities went up almost EUR 20 billion in Q2, right, so significant. Now EUR 1 billion, a little bit more than EUR 1 billion is flows. The vast majority we count as markets. Now what the equity PMs have been saying, I'm sort of looking at Markus as I speak because the CFO would need to sign off on it. They're saying, well, not all of it is markets, it's not beta. There was actually a large alpha component. Again, if you just look at the 2 funds managed by André Köttner, he created by 10 percentage points outperformance that created EUR 3 billion of additional managed AUM just because of the outperformance of EUR 20 million in management fees. So the equity folks are asking that we sort of reflect that in their compensation, probably something for us to discuss at some point.

But not openly here.

But EUR 20 billion of extra AUM in equities, probably the strongest part of the Q2 numbers.

The next question comes from Nicholas Herman from Citi.

Two for me, please. On Xtrackers, Markus, you referenced some measures that were implemented to improve the performance. Could you just go into that? And I guess, does that include pricing? And I guess just more broadly, I think in the past, you said that you were going for more higher-margin business in passive. Are you now pushing more into lower-margin business, too? That's the first one.

And then on -- secondly, on alternatives, I don't disagree with you on the pension opportunities, particularly in Pillar 2 and 3. On Pillar 1 specifically and winning in private markets, clearly, DWS is strong in real estate, but it seems to me at least that there is increasing preference from European investors for value-add and core plus relative to core, where I think that's where my understanding is where you have traditionally been strong. And also in infrastructure, where, I guess, do you have that capacity as a middle-market manager? I'm just wondering about your right to win versus larger and more diversified peers.

Thank you, Nicholas. I'm going to start. So on Xtrackers, look, it will always be a combination of things that are planned and properly implemented, but you also need luck here and there. Just if we start with the numbers. So Q1 quite poor. While we have a market share of 10.2%, our flow share was around 5% in Q1. It was sort of 11 point -- probably 4%, 5% in Q2, and it looks like we are at about 14% flow share in July so far, right? So significant improvement in flow share.

Pricing measures had a small impact. But we kind of improved or whatever, cut pricing on about 5% of our Xtrackers AUM. So not significant. But here and there, we obviously saw increased competition had to address it. I think mostly, it's simply a combination of campaigns that maybe were somewhat unfortunate in Q1. It worked out much better in Q2, staying very close to our digital distribution partners and things like that. But again, you also need luck here and there. But I think it's the pricing part or the cutting margins part was only a small component, and we are not particularly focused on lower margin parts of that world, which you can see because our average margin in Xtrackers remained reasonably stable over the last couple of quarters.

Now your question on real estate and infrastructure. Infrastructure is pretty easy to answer. So infrastructure, the market is hot. It's specifically hot in mid-cap, and that is where we compete. So I think the right to win, I think it's easily or easiest answered by saying you simply have a large-cap market where we do not compete and the mid-cap market where we compete very, very well. Now the interesting part of it is most of our former competitors in mid-cap at some point, wanted to have larger funds because average fund size in mid-cap is EUR 4 billion to EUR 5 billion for us. That's what we're targeting now. Large cap is EUR 10 billion plus. So obviously, that looks a lot more attractive. But therefore, a lot of our former competitors are now the ones buying assets from us.

So as we develop something from mid-cap to being larger, one of the outlets, one of the exits is into large-cap funds. So we feel that we have less competition in mid-cap and at the same time, more buyers for our assets. So we feel very well positioned and do not intend to move into large cap. We feel very comfortable with the mid-cap space. Real estate, more complicated to answer because you're exactly right, Nicholas, that there is much less demand for core than for core plus or value-add. And that is, frankly, capability that we have, but at the margin. So we have some competent people in core plus. We are currently actively fundraising in core plus, but we are better known for core, for European real estate.

That is probably an area in which we would seek to inorganically expand because if I have the option to hire people, but then have to build a track record or being able to compete for the playoffs from day 1 because we buy somebody with an existing track record, then the latter is certainly favored. So you're completely right. This is where there's a lot of demand and also an area in which we have to simply acquire capabilities.

That's really interesting. If I could just have 2 quick follow-ups, and I'm sure Oliver will school me afterwards on that. But how -- so you said you're looking to inorganically expand. Is that something then that's kind of actively -- that's a clear sounds a clear focus area in terms of M&A on value-add real estate. And the second one I had was just within alternatives. I appreciate there was a EUR 1.3 billion outflow from capital return, but there was still a EUR 6 billion drawdown in alternatives AUM. How much of that was LRA? And just could you provide some of the moving parts there, please?

Very happy. So I will answer 1.5 and then maybe Markus is going to give more content on that big reduction in AUM in alternatives. So yes, specifically for real estate value-add, that is something which we don't possess at scale, need to acquire. It's very difficult to retrain people. You can hire people, but you don't have a track record. So it's easiest to simply inorganically acquire. Now that would be for core European -- sorry, when I say core, what I mean by Continental European, right? I don't think that the world needs another U.S. value-add or core plus real estate manager. We're actually quite good in core plus in the U.S. But we would only inorganically grow with its capabilities where you would frankly say this is something DWS should have already built in the past, right? So things that you wouldn't find random and especially German or Continental European real estate value-add capabilities, something we should have built in the past, didn't is what it is. But therefore, that's where we would inorganically add that.

On your second question, this is not LRA. It's simply repaying funding in infrastructure, but Markus can give more color if you like.

Yes. So happy to quickly answer that one. And again, the driver behind was triggered by a sale of an asset, the property sale in the first quarter, which is related to infrastructure. And it's a EUR 5.7 billion leverage paydown, which we made in the first quarter. That is not reported as flows, but under other assets.

The last question for today comes from Pierre Chedeville from CIC.

Most of them have been asked, to be honest. Maybe a question regarding -- it's a marginal point, but I think it's interesting for the future. Regarding Asia, we have the impression that your participation, your partnership with Harvest is something a little bit sleepy. And I was interested to know if you have really a strategy so far in Asia or if it's just a result of the past, your presence there and you stay there because you have a foot in the door, but no particular ambition in the short to medium term there.

My second question is linked to the fact that you said that flows follow performance, of course. But more generally speaking, we see, of course, a consolidation in the business. We see also a lot of players watching carefully and focusing on Germany, French, Italy competitors. And I was wondering if you were, I would say, a new CEO and you look at coldly DWS today, would you say that the most important thing to improve if it's the case, would be distribution or innovation in order to keep your rank in this competition? And maybe as it seems that I have the last question there, could you say a word regarding where you stand regarding ESG products and ESG strategy because it's been a long time since you didn't talk about that.

Thank you, Pierre. If I'm not mistaken, I think you asked 3 questions, but it's okay.

I think it would be odd if I drop.

No, no, I am just joking. It would be odd if I didn't answer the ESG question because I said there was like the one excess question that I choose not to answer. So Asia, sort of distribution versus innovation, specifically in Germany and then ESG. So we do have an Asia strategy. It's part of our top 5 and top 5, so being amongst the top 5 foreign asset managers in the top 5 economies of the world. And obviously, Asia is home to India, China and Japan, so 3 of those 5 countries. Now I think you will find that very few people have an Asia or even APAC strategy in the sense of one strategy for the region, given that the markets are so incredibly different. I mean, Australia and Japan are obviously very different to ASEAN, very different to Korea, other markets that really depend on large sovereign players. So in Asia Pacific, you need to have maybe with the exception of ASEAN, where you can be more a little bit treating like a region that in many cases, in our case, we cover from Singapore. But for the rest, you need to have country-specific targets.

Now in China, that is through Harvest. When you look at the performance of Harvest, actually, since I handed over the Board mandate to Markus, he is now our Board representative on the Harvest Board. The Harvest performance improved massively. I think their net income is up, what, 40% in the first half.

Good second quarter, yes.

Yes. Thank you for pointing that out. So the first quarter when I was on the Board was okay. Second quarter when Markus was on the Board much better. So CFO adding Alpha. That is China and India. We obviously have our alternatives joint venture with Nippon India, where we are progressing nicely. This will close imminently. So therefore, that is something where I would expect inflows starting in 2027. As our India strategy and the partnership with Nippon India goes much further, where we also have distribution agreements for global products into India will be our products. Indian products distributed globally will be their products that we distribute. So that is sort of India.

For the other markets, we have country-specific plans, but that's more distribution. Even in Japan, where we'd like to be bigger, that is where as interest in Europe goes up, where people rotate from just dollar assets into European assets, that will be benefiting. But that is just a recent story. We call it Gateway to Europe, and that is going to lead to us being better positioned in other markets in Asia. You're right, plenty of competition. Germany, and as a German, I'm sort of biased in saying that this is a great country. But it is a great country and a country that many competitors also like to play a larger role in. The pension reform isn't a secret. Everyone thinks that this is going to be interesting opportunity. It is also complicated. So it will take some time for some of the competitors to have the same comprehension that, frankly, we feel we have.

But I think that distribution will continue to be the most important aspect other than performance, having standard products for an asset manager. Now the distribution itself, and you may accuse me of being cute with words, but the distribution itself will need to be quite innovative. So when you think about our focus on digital distribution channels, that is sort of an innovation, but a new means of distributing. And none of you have asked an AI question, I'm not going to just wobble about it for the next 10 minutes. But when you think about an increase in transparency, a reduction in friction, a reduction in barriers to entry, all of that is going to have a massive impact on distribution channels. So you need to be quite innovative.

So therefore, I think my answer would be you need to be innovative in distribution. I don't think that you need to innovate completely new products. I don't think that that's as relevant. Now ESG remains absolutely core to us. As many of you know, as an Executive Board, one of our KPIs is to offer a certain percentage of new products as ESG products. So therefore, we are launching a certain minimum percentage, just about half of our new product launches are ESG products. And then we simply let our clients choose what they want to have. Now what you could see is that there is interest in ESG, but maybe less than in the past. As a fiduciary asset manager, this is not our choice. We can only offer compelling products and then with that clients decide.

Can I add to the ESG question? And again, what is really important is that we are only 1 of only 2 asset managers. I'm not talking about ESG as an investment theme, but it's also DWS as a company, and we take the topic extremely seriously. I mean, we are 1 of 2 asset managers that is issuing a sustainability statement, which is quite comprehensive, which is part of our annual report. And that gives probably more transparency than any other asset manager is providing.

And secondly, internally, we also track ESG flows. And it's an important -- even if it's not en vogue apparently on a global level, but there's a part of investors who are interested in ESG as a topic, and we continue to report strong flows there.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Oliver Flade for any closing remarks.

Thank you very much, everybody, for listening in and your great questions as usual. The IR team stands ready in case there are any open questions left that you might have. And otherwise, we wish you all a fantastic summer day and talk to you very soon. Thank you, and bye-bye.

Thank you. Thank you very much. Bye-bye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

Ladies and gentlemen, welcome to the DWS Q1 2026 Results with Investor and Analyst Conference Call. I am Shari, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Oliver Flade. Please go ahead.

Yes. Thank you very much, operator, and good morning from sunny Frankfurt. This is Oliver Flade from Investor Relations, and I would like to welcome everybody to our earnings call for the first quarter of 2026. Now before we start, I would like to remind you, as usual, that the upcoming Deutsche Bank analyst call will outline the Asset Management segment results, which have a different perimeter basis to the DWS results that we are presenting now.

I'm joined also as usual, by Stefan Hoops, our CEO; and Markus Kobler, our CFO. And Stefan will start with some opening remarks as well as some closing remarks, and Markus will take you through the main part of the presentation. And 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. 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 with that, I will now pass on to Stefan.

Thank you, Oliver. So for the second time in a row, our Head of Investor Relations muted me just after my thank you, Oliver. So thank you, Oliver. Good morning, ladies and gentlemen, and welcome to our Q1 2026 earnings call. It is not easy to describe the environment we are in right now. It is clearly a difficult environment for the world and an unpredictable one. I mean, who would have thought a couple of months ago that the U.S. would block the Strait of Hormuz. The best description I've heard was this. It feels like we are currently living through what will be the toughest part of the history exam for the class of 2085.

Now for asset managers, this environment is highly relevant for 2 reasons. First, it is fertile ground for active asset management. The more volatile and dispersed markets become, the stronger and more opposing views tend to be. And honestly, if you cannot create alpha in this environment, then when. That is why I'm pleased with our investment performance over the last few months, particularly across our large retail funds. Our Top Dividende fund, for example, was up 8.46% as of 31st of March, which is ahead of major indices. That has supported nice inflows and higher management fees through above-market growth in assets under management in this fund. Other flagship funds like Akkumula and Vermogensbildungsfonds I have also performed well, while Concept Kaldemorgen has managed volatility effectively and has moved into performance fee territory in Q2.

Second, in an environment like this, it is critical to operate at a low cost/income ratio. This is exactly the kind of environment we have prepared for and work towards. As I said when I walked you through the logic 2 years ago, the cost/income ratio for an asset manager is similar to the leverage ratio for banks. It is a measure of how well you are prepared for a weaker environment. A high earnings per share with a high cost/income ratio is dangerous because volatility can impact the bottom line very quickly. That is why we focus on maximizing earnings with a binding constraint of a low cost/income ratio. Operating at a comparatively low cost/income ratio leads to more earnings stability and allows us to keep investing in growth organically and potentially inorganically.

Markus will come back to that in more detail. Against that backdrop, we delivered a solid first quarter. Earnings per share came in at EUR 1.32 and above consensus, although this was largely driven by the timing of our PIF II performance fees. Revenues were EUR 821 million, up 9% year-on-year, while net income increased to EUR 265 million, up 33% year-on-year. Our reported cost/income ratio improved to 54.1%, down 8.1 percentage points year-on-year, and our cost base of EUR 444 million was encouraging, underlining that cost discipline remains firmly in place.

To summarize, costs were a bit better, flows were a bit weaker given the tough March and performance fees came in earlier than expected. Markus will go through that in more detail. For the full year, we reconfirm our target. Markets have shown a V-shaped recovery over the course of April. This means that our assets under management are now back at broadly the same level we were at the end of February. At the same time, there's still a revenue impact from the interim volatility. The AUM dent in March and April amounted to around EUR 40 billion, which translates into a revenue gap of about EUR 20 million. And of course, we need to remain mindful of the current environment.

The level of uncertainty remains elevated, warranting a degree of caution. Fortunately, if you recall our last quarterly earnings call, we had full focus on additional cost levers, and that has now paid off very nicely. We are ahead of plan following the actions we took early in the year, allowing us to tighten our cost guidance to around EUR 1.80 billion for the year, helping to offset the revenue gap. At the same time, performance fees have already been delivered on a large part of PIF II, giving us confidence that we will be at the upper end of our 4% to 8% of revenues guidance range. So taken together, we reconfirm our target of 10% to 15% EPS growth for the full year, assuming markets remain constructive.

Now before I hand over to Markus, I'm pleased to tell you that Markus has just extended his contract at DWS and will be my partner for at least another 3 years. Now with that, over to Markus.

Thank you, Stefan. It's a privilege. It's one of the most exciting CFO positions in the industry. And I think we have a duty also as a European-based asset manager to succeed. More to come. Thank you, and good morning, ladies and gentlemen. Before I take you through our financial performance, let me start by saying that I hope you are all navigating this period well. As Stefan already mentioned, the environment we are in right now is clearly not an easy one. It is complex, volatile and to a certain extent, unpredictable.

With that, let me turn to our financial snapshot for the first quarter. Total assets under management increased by 8% year-on-year and flat quarter-on-quarter to EUR 1,093 billion. Total revenues stood at EUR 821 million, representing a 9% increase year-on-year and 9% decrease quarter-on-quarter. Our total costs decreased 5% year-on-year and 9% quarter-on-quarter and totaled EUR 444 million. This resulted in a reported cost/income ratio of 54.1% for the first quarter of 2026. As a consequence of our strong operating leverage, our net income increased by 33% year-on-year and decreased 10% quarter-on-quarter, reaching EUR 265 million.

Moving to our client dynamics during Q1. Whereas we saw a solid start into Q1 with a healthy flow momentum during January and February, overall activity slowed down in March following the geopolitical developments and the resulting market uncertainty. Clients remain cautious with a focus on liquidity and defensive positioning. Overall, we reported net flows of EUR 11 billion and long-term net flows of EUR 6.6 billion. Total retail flows stood out with EUR 12.9 billion of net flows, marking the 13th consecutive quarter of positive flows, demonstrating the resilience of our franchise despite elevated volatility.

Client demand remains supported by our digital distribution channels. On the institutional side, we reported net outflows of EUR 1.9 billion. Client activity in the institutional space was more restrained in March amid heightened market uncertainty. This was less a question of underlying demand and more one of timing with clients taking a more cautious and selective approach to new commitments while prioritizing capital preservation.

Looking at the regions. In the Americas, we saw net outflows of EUR 5.1 billion, mainly impacted by institutional cash outflows at the end of March. These were driven by seasonal tax payment effects. However, we already see a reversal of these flows in April. Total net flows into our home market, Germany, amounted to EUR 7.9 billion, driven by an ongoing demand for passive, including Xtrackers. EMEA, excluding Germany, saw EUR 7.7 billion of net flows, demonstrating strong client engagement across the region as clients are increasingly receptive to European investment opportunities as well as for our high-margin retail products. APAC reported EUR 0.5 billion of net flows in the first quarter and saw continued asset rotation to higher-margin alternative products.

Moving to the quarterly highlights within our active business. The first quarter reflects a more volatile market backdrop, which impacted overall active flows, while underlying client demand remains strong across selected areas of our active platform. Active assets under management stood at EUR 458 billion, broadly stable quarter-on-quarter. Active equity reported net outflows of EUR 1.2 billion, primarily reflecting client derisking in response to heightened market volatility. Multi Asset reported positive net flows of EUR 0.3 billion across both retail and institutional channels, including continued demand for our flagship fund Concept Kaldemorgen.

SQI was a clear beneficiary of the current market environment with continued positive momentum, reporting EUR 1.6 billion of net flows. This was mainly driven by white label partnerships as well as inflows into quantitative strategies, including a significant mandate in the Middle East region. Fixed income flows were impacted by specific institutional mandate losses in the U.S. and APAC. At the same time, retail demand remained positive, particularly for DWS floating rate notes. Product innovation remains supportive for our active franchise. Recent launches include our DWS Invest Focus Europe and 2 new active Xtrackers UCITS ETFs.

Moving to our Xtrackers business. Passive, including Xtrackers, faced a demanding quarter and delivered net flows of EUR 6.5 billion, marking the 13th consecutive quarter of positive flows. Assets under management increased to EUR 396 billion, stable quarter-on-quarter. Overall, our Xtrackers flow momentum was considerably weakened in March after a solid start to the first quarter. The main flow contributor was our UCITS business, which delivered net flows of EUR 3.8 billion. We saw clients rotating away from traditional benchmarks, which are heavily skewed towards the so-called Magnificent 7 stocks, resulting in positive flows into strategies with benchmarks such as Equal Weight and World ex U.S.

Our Mandates & Solutions business recorded sizable net flows of EUR 2.9 billion into existing mandates and new fundings alongside continued momentum in our partnership products, including via digital channels. Our U.S. Domiciled ETFs saw outflows of EUR 0.2 billion in the first quarter, mainly driven by outflows in high-yield ETFs. However, we successfully launched the Xtrackers Europe Defense Technologies ETF, further broadening our thematic offering. We also continued to expand our strategic footprint through 2 new digital distribution partnerships in EMEA, driving further expansion across key European markets. As mentioned in the previous quarter, the contribution of these digital partnerships to our overall Xtrackers flows continues to increase.

Let me turn to our Q1 highlights for our alternatives platform. In Q1, assets under management totaled EUR 112 billion, up 4% quarter-on-quarter. Our alternatives business delivered overall net flows of EUR 0.2 billion in the quarter, supported primarily by demand for liquid real assets. Infrastructure contributed EUR 0.1 billion of net flows and saw sustained investor interest in our flagship infrastructure strategies. Infrastructure flows in Q1 were impacted by a significant capital repayment to the fund investors related to 2 PIF II asset sales. Capital repayments to fund holders are a usual part within our infrastructure business.

They result from investments and realizations, which generate corresponding performance fees at the end of a fund's life cycle and therefore, are in the best interest of our clients and shareholders. In Q2, we expect another capital return to PIF investors of around EUR 1 billion, which will be accounted as outflows but are beneficial for our clients as just outlined. We further continue to benefit from strong investor appetite for Europe's structural transformation.

In Liquid Real Assets, flows remained positive in the quarter, recording EUR 0.6 billion. We saw a momentum shift in client sentiment with increasing levels of renewed interest in core tailored strategies, particularly in listed real estate and infrastructure. The sentiment for real estate remains mixed, reporting EUR 0.6 billion of net outflows. European retail appetite continues to be subdued, while institutional client interest in both Europe and the U.S. stayed resilient. Private credit remains a strategic growth priority for DWS with several marketing initiatives progressing during the quarter. And product innovation continued with the launch of 3 new LRA mandates across infrastructure securities. We also expanded our LRA offering in the growing U.S. retail market.

Let me move now on to our Q1 revenue development. Total revenues reached EUR 821 million, up 9% year-on-year and down 9% quarter-on-quarter. Management fees were stable quarter-on-quarter, marking EUR 673 million. Performance and transaction fees totaled EUR 109 million and include a substantial performance fee contribution from our PIF II fund as a result of further asset sales in Q1. We do not anticipate further asset sales before the fourth quarter of 2026. And as Stefan mentioned, we reiterate that we will be at the upper end of our 4% to 8% of revenue guidance range. However, we anticipate that the vast majority of remaining performance fees to be booked in Q4 2026. Other revenues amounted to EUR 39 million, which reflects an EUR 18 million net interest income contribution as well as a EUR 15 million contribution from Harvest.

Let me move on to our cost development. We are particularly proud that our total costs have continued to decrease, which is a result of decisive action and a clear testament to the strength of our sustained and proactive cost management approach. We identified early on that managing our resources and cost base, especially our discipline-based costs would be essential to our long-term success. Particularly in times like these, the benefits of this approach become even more crucial.

In Q1, total costs stood at EUR 444 million, down 9% quarter-on-quarter and down 5% year-on-year. Compensation and benefits decreased to EUR 239 million, down 4% versus the previous quarter, mainly driven by lower severance costs and despite one-off carry costs linked to PIF II performance fees of EUR 16 million. General and administrative expenses totaled EUR 205 million, a 14% reduction quarter-on-quarter, reflecting seasonal adjustments, which typically occur in the fourth quarter. This translates into a reported cost/income ratio of 54.1%, reflecting higher revenues and continued efficiency gains resulting from our disciplined cost management approach.

Before handing back to Stefan, let me provide an update on the focused measures which we outlined in the previous quarter to support our financial targets. As Stefan outlined earlier, our strategic direction remains unchanged, and we continue to execute our strategy with discipline in order to reach our medium-term financial targets. Let me briefly recap our achievements as well as current progress on the cost side.

As discussed in previous quarters, we continue to distinguish between 2 categories of costs, volume-based costs, which naturally rise alongside organic growth and discipline-based costs, which we are constantly optimizing as they remain in our control. While a flat cost base may look similar across companies, the substance can be fundamentally different. A company can deliver flat cost by simply doing nothing, particularly by not investing into growth. That is not our approach. Our approach focuses on targeted investments through active reallocation of resources in the context of rising volume-based costs, which reflect the ongoing growth of our business.

By counterbalancing these good costs with reductions in disciplined cost categories, we maintain strict cost discipline while continuing to invest into growth. We thereby focus on 3 core levers to further reduce our disciplined cost base. First, human capital management. People remain our key differentiator. We are further enhancing our human capital management through limited external hires, promoting internal mobility, which has already realized financial and nonfinancial efficiency gains. Second, target operating model adjustments. Following a comprehensive review of structures and processes, we have moved decisively from assessment into execution.

We continue to simplify organizational setups, streamline selected teams and sharpen accountability across functions. This supports a leaner and more effective operating model fully aligned with our strategic priorities. And third, IT and operations optimization. We are progressing a range of initiatives focused on automation, artificial intelligence and process simplification. In parallel, we continue to leverage offshoring and near-shoring capabilities, helping us to improve efficiency, resilience and service quality across our operations.

Overall, these measures continue to strengthen our operating platform and provide us with further efficiency gains. Those create even more capacity for continued investment into growth initiatives, which is particularly important in a volatile and uncertain market environment as we currently have.

Let me hand over to Stefan to elaborate on our growth initiatives.

Thank you, Markus. As Markus outlined, we feel comfortable with our updated cost guidance and importantly, with our ability to continue investing in our growth initiatives. Let me therefore briefly come back to what we said at our full year results and give you a quick update on our 5 growth priorities. Overall, we are fully focused on executing our growth plan. Starting with our ambition to be top 5 in the top 5. In the first quarter, we reached an important milestone in our strategic partnership with Nippon Life India Asset Management. We signed the agreement to invest in the alternatives platform, taking a 40% stake in formalizing our role as a strategic partner in building out India-focused alternatives capabilities.

At the same time, we remain interested in increasing our stake in Harvest Fund Management as part of our long-term growth strategy in China. Second, on gateway to Europe. We continue to see strong and sustained interest from international investors. Importantly, the geopolitical volatility we saw in the first quarter has not slowed that momentum. If anything, we continue to see interest deepen alongside a growing recognition that Europe is coming together in a more coordinated way. Third, on the future of finance. We continue to make progress in building out our digital capabilities. During the quarter, our joint venture or Unity issued a Swiss franc stablecoin with further initiatives already in the pipeline.

Fourth, on Bullish Germany. Here, we saw important regulatory clarity in the first quarter with the German Bundestag approving the private pension reform and expected publication of the new law in May. Our dedicated project team is set up to ensure we're well prepared and positioned to capture the opportunity as this develops, particularly as we move towards implementation in January next year. And finally, on our Global Hausbank approach. Following our last earnings call, we announced the intention to expand our strategic collaboration with Deutsche Bank's Private Bank into the area of discretionary portfolio management.

The aim is very clear, to combine the client reach and experience of Deutsche Bank's Private Bank with DWS' institutional-grade investment capabilities. We believe this is a natural extension of our partnership and an important step in strengthening our role in serving private wealth clients. So across all 5 priorities, we are making tangible progress while continuing to build for the long term. Stepping back, we feel that we are operating from a position of strength. In a more volatile environment, our investment performance is improving. Our cost discipline is paying off, and we're continuing to invest in our long-term growth priorities.

As we said at our full year results, managing costs requires discipline and consistency. Growing revenues sustainably is harder. It takes clarity on where we truly have an edge, disciplined resource allocation and patience as platforms scale. We've laid that groundwork over the past few years, which is why even in a more volatile environment, we remain optimistic about the future, but uncompromising in execution. Taken together, alpha generation, cost control and focused delivery is what differentiates us as an active asset manager and gives us the confidence to reconfirm our full year target of 10% to 15% EPS growth.

Thank you, and back to Oliver for Q&A.

Thank you very much, Stefan. And operator, we're ready for Q&A now. If I just might remind everybody to limit yourself to the 2 most important questions that would be very kind. Thank you very much.

[Operator Instructions] The first question comes from the line of Jacques-Henri Gaulard, Kepler Cheuvreux.

Two quite quickly from me. In active equity, you talked, Stefan, last quarter, if I remember well, of a turnaround here. Could we interpret the minus 1.2% as a blip, which is really risk adverse? And do you have the feeling that it was just something that is due to the circumstances really and not something that should impede, I would say, the turnaround trend that you identified then?

And then the second point, could you spend just 10 seconds on it, which is more the Bullish Germany pitch, which I would like to hear in a little bit more detail from you because it's important for your investors in light of the fact that it's been a little bit of a slow start and to which extent you still have a high degree of confidence considering that the impact when you look sector by sector is far from being completely harmonized yet?

Great. Thank you, Jacques-Henri. And I guess both questions are sort of related because the sort of significant revenue upside we see from Bullish Germany is active equity related, and I'll come to that in a second. Now on your first one on active equity, we remain optimistic that the momentum has materially shifted into the positive territory. Now Q4 versus Q1, I understand if you just look at the numbers, it looks like you sort of took a step back. But I think you know that there's some seasonality in that behavior. So Q4 has some advantages because of essentially the ability of people to reinvest performance in -- or either upside in the funds, essentially dividends in the funds that otherwise, they would be able to take out and they kept them into a slightly easier pitch than finding new clients.

And if you compare Q1 '26 to '25, I think you see the positive momentum. And then underlyingly, and we don't disclose it, but I can try to give you some guidance. If we differentiate between essentially retail end buyers and fund buyers, so DPM or, let's say, more professional investors, then we look very strong with the end clients, with the retail clients and across Europe with the exception of one country that interestingly houses a couple of very, very large asset managers, and it's like French speaking. But with the exception of this one country, we are positive in every country in Europe in active equity, so in wealth in retail flows. If you look at some of the big flagship funds like Top Dividende, that had positive inflows.

So overall, we feel good about active equity. And look, I think in the past, some of you have very fairly criticized our investment performance, which obviously is a leading indicator for future inflows. You see that over the last sort of 24 months, we made a bunch of changes, takes some time, right? It's the pumping heart of DWS, so you cannot really make -- do changes over time -- sorry, instantaneously, but it needs to be over time. But with a new setup and with people like Andre Koettner and Thomas Schuessler, fully focused on managing their funds as opposed to also managing the platform, I think the performance shows, right? So that's why we're also not just optimistic in what we see, but also the leading indicator of strong performance.

Now Bullish Germany, if you recall, our definition was that we have always been optimistic about Germany, but we're now turning even more bullish because of a bunch of -- to be -- give credit where credit is due to a bunch of changes that politicians in Berlin have really been driving. Now the big infrastructure, big spending and so on, that's more something which you will see translate into flows in alternatives. But the pension reform is something which will offer significant upside to active funds, active equity, active multi-asset, I think also active alternative funds. I think given that there's like a tight schedule today with Amundi's call starting 11 -- I'm probably not going to do a full teach-in on the private pension reform in Germany.

But now that it's clear what you can do, now it's clear what the fees could be now that the structure is clear, I think the key punchline is that going forward, you can actually generate yield. So in the past, it was always capital protected, meaning also very low yield-generating funds that were part of the Riester-Rente. Going forward, there's going to be much more focused on allowing pensioners to also with long-term investments generate long-term yield and therefore, wealth accumulation. And obviously, that's quite conducive to our strong performing equity funds.

The next question comes from Nicholas Herman from Citi.

Two for me as well, please. Firstly, on your Hausbank ambition. So Deutsche Bank's Private Bank has said that they want to double DPM volumes in the next 3 years. I guess with that partnership, what proportion of those volumes would you expect to get? And how should we be thinking about the incremental revenues and/or margins associated with that volume? That's the first one.

And then on your infrastructure funds and carried interest. Could you please -- I guess a 2-part question here. But could you remind us what the total expected carried interest from PIF II is and how much has been booked to date? And I guess somewhat related, what is the expected carried interest from PIF III if you were to hit your target returns? And any kind of indication on timing or recognition of that carried interest?

Perfect. Thank you, Nicholas. The -- so I think I'm looking at Markus probably taking both questions. So on Hausbank, so when you look at the essential workflow between Deutsche Bank's Private Bank and us, so far, they do the majority of steps. So obviously, we're closely aligned and our CIOs aligned and so on. But right now, I'm simplifying a little bit, but they're essentially running their own asset management operation in the sense of having portfolio managers, trading execution, they're covered. I mean, they do all the things that we would also be doing.

Now they're doing it very well, but Claudia and the team have had the perspective that with the ambition to significantly grow in DPM that their clients who are very well covered by Deutsche Bank's Private Bank sort of deserve institutional grade asset management execution, right? So far, so good. However, going forward, given that they want to grow, they want to move steps in that value chain over to DWS.

Now we haven't -- some of that is going to be sort of country-specific because in some countries, you require client consent and some others it's mostly a communication. Again, I think it's in the best interest of clients because they will continue to get the service from the Deutsche Bank's Private Bank plus have the upside of our much larger trading investment platform. But therefore, it's sort of difficult to break down how quickly that will move. However, I think the intention is that for the vast majority, wherever it's possible, for us to team up and partner.

Now how those revenues will be split, even though we are great partners, and Claudia and I are quite close. I suspect that he wants to have slightly more than 50% of those revenues given that arguably, the value creation is more on their side. So you shouldn't expect us to get a lion's share of it. But it's definitely upside because right now, we do not have any of those steps with the exception of when they buy ETF, they sometimes buy Xtrackers. But I think going forward, we will have some of the value chain and therefore, also some of the fees associated. We will be more clear on that going forward. So we announced the partnership after the last earnings call. A lot of things are currently being worked through. I think that we will be quite soon giving you more guidance, clarity, but also specific KPIs that you can track essentially for Deutsche Bank, but also for DWS.

Now on Infra, that's more straightforward and specific to answer. So for PIF II, everything but one asset is sold. So therefore, the performance fees you've seen in 2025. And the portion of PIF II performance fees as a percentage of total performance fees booked in Q1 was huge. So just assume the vast majority of the EUR 107 million was PIF II related. And there's only one asset remaining that should generate another, let's call it, EUR 30 million to EUR 40 million of performance fees, obviously, depends on price that asset still needs to be sold. That will likely come in Q4 this year. But that's it, right?

So then PIF II is fully sold to the point Markus made earlier, we returned EUR 0.5 billion of capital to the investors to the LPs in Q1. Another EUR 900 million will be returned in Q2. And then PIF II is basically done. Now PIF III is doing really well. So the investments are doing really well. But I would not expect PIF III-related performance fees in '26 or '27, maybe at the tail end of '27, but I think this is more likely to be '28 business simply because of timing and how long it takes to really optimize or generate value for the investments. And then PIF IV is obviously currently we're finalizing the fundraising with final close either Q2 or Q3, but definitely in 2026. And that will then take a few years before that generates performance fees.

Really helpful. Just one quick question, just one quick follow-up on PIF III, but sounding very clear. Can you remind us, please, what the target returns are either in terms of IRR or MOIC, that would be helpful.

I'm just looking at my colleagues because we're put in fundraising for PIF IV. So I just want to be careful in what I say, not say. So when you look at historical performance, our PIF funds are sort of a top decile, potentially even top percentile performer in mid-market infrastructure. So really strong performance. Now the headline return, what we essentially promised is low teens, 12%, 13%, I think, is what we promised. But then we aim to outperform. And so far, they have done a very good job in outperforming.

The next question comes from the line of Hubert Lam, Bank of America.

I've got 2 questions. Firstly, again, on PIF, but on PIF IV, did you book any inflows on PIF IV this quarter in Q1? And any update on the size and timing of the closing? I think you mentioned maybe it could go into Q3, particularly given the events in the Middle East, like any change because of this?

Second question is on passive flows or Xtrackers. Good inflows of EUR 6.5 billion in the quarter, but it seems like you're lagging some of your competitors now. Any reason you think for this? And how would you assess your passive growth here?

Thank you, Hubert. So on PIF IV, the target size is still EUR 4 billion plus, and we feel very good about that. If you recall, we were EUR 2.5 billion end of '25. We had some small inflows, a couple of hundred million in Q1 and then the lion's share is expected in Q2, potentially Q3. Now don't tell our sales folks. So we're still telling the sales folks, it's end of Q2 to make sure everyone remains focused. But yes, you're right, with the events in the Middle East, there's a chance that it slips a little bit. I have to say there's actually admirable -- if I can say that with respect, admirable focus from all of the big investors in the Middle East.

So they seem to manage sort of living through this and being very focused on the business. So I wouldn't expect a massive change. But typically, what you do is if there are a couple of investors which are very close and advanced stage, then you inform the other investors that you may remain open for a few very specific names for a couple of weeks, and that may be the case. However, essentially the difference between the EUR 2.5 billion we had end of '25 and the target of at least EUR 4 billion that will be booked in the calendar year 2026.

Now on Xtrackers, and let me actually address flow momentum slightly broader. And I will be specific on challenges in a second. But look, I may -- loving, caring father of 3 wonderful daughters and I love all my daughters the same. Now for us, as a fiduciary with EUR 1.1 trillion of assets, we care about all every single euro, dollar, sterling of those assets with the same care. Now I suspect that you guys, so analysts and shareholders, you don't love all of our AUM quite the same because they come with very different margins, very different cost-income ratios, profitability and so on.

Now when you look at and dissect our Q1 flows and look at Xtrackers, then I suspect you're actually quite happy about the strong inflows in S&P, Equal Weight, MSCI ex U.S., some of those more bespoke thematic ETFs, where we had very nice inflows, and they are close to 20 basis points in fee. Now if we had an extra EUR 12 billion, EUR 15 billion of 2.5, 3 basis points pure index replication, the headlines in Bloomberg and Reuters would have been more favorable, but I don't think that you would have cared too much, right? So therefore, I want our folks to fight for every single inflow. However, fight slightly more for the high-margin inflows. I'm quite happy with what I've seen in Q1.

When you look at -- and we just commented on the active equity, I'm actually quite satisfied with the flow picture with positive inflows in Top Dividende Concept Kaldemorgen, our big flagship funds. And again, I think the strong performance is a leading indicator for future flows. So I think when you dissect it, I think we've done fine, not amazingly, but fine in the higher-margin parts of the various asset classes. Now where we have a real issue, a real challenge is in institutional. And that is something which I've been saying for a while. Now I appreciate that by just me saying it, it doesn't make it better, and you are probably tired of me saying it. But we will make some changes around the whole value chain for institutional and value chain, I really mean brand, marketing, sales, how structuring is set up, how products are set up because we're just losing market share in institutional to really well-run strong competitors.

Next question comes from the line of Mike Werner, UBS.

Just a follow-up on your Bullish Germany pitch. Just when talking about the pension opportunities in particular, and how that's going to translate into active equity, what in the regulations is going to, I guess, favor active equity versus passive equity? We have seen other pension reforms in the past ultimately drive flows, but they tend to skew somewhat passive. So I was just wondering what you see different here.

Thank you, Mike. Just like we are listening and reading the transcripts of the call reports of our competitors, I suspect they will be doing the same. So therefore, I don't want to give like a recipe to global competitors. But just a couple of highlights to me. So historically, the subsidy, so both the contribution by the government, but also any tax benefits went to products which were capital guaranteed. So therefore, Germans like subsidies, Germans like tax benefits, and those came for the Riester products, which were capital guaranteed. Now going forward, the same advantages go to not capital guaranteed products.

So the government essentially said we want young folks to invest in the stock market and products have long-term wealth accumulation, and we provide the same subsidies and tax breaks to that versus capital guaranteed products. Now when you look at our -- and by the way, one more thing to add. When you look at the overall fees that the politicians deemed appropriate, that is sort of 1% for standard, but can be more for more tailor-made, so more -- maybe more interesting, more yield-generating products. So therefore, that also suggests that it's not just ETF focused, but really alpha-generating products.

Now when you look at our close competitors in Germany, so the Union and Deka, 2 very well-run strong asset management companies, they are active only. They do not have ETFs. So I wouldn't imagine or expect their products to contain ETFs because they are active only. So therefore, when you think about the picture in Germany, the regulator, the government wants alpha generation that is offered by active. Our competitors are active only. So there's nothing that really leads me to believe that this is going to be mostly ETF. Now obviously, we'll do whatever is in the best interest of the retail client and if they are strong ETF products by all means. But I think over a long period of time, we aim to beat markets and therefore, are bullish on those containing active equity, active multi-asset, active alternatives and these types of long-term alpha-generating products.

The next question comes from the line of Arnaud Giblat, BNP Paribas.

Two questions, please. First, on the stake, the 40% stake you've taken on Nippon Life India. I'm just wondering if you can quantify the amounts there and what growth or profitability could look like over the coming years? Second question is on private credit. I think that remains a strategic focus for you. I'm just wondering if you could flesh out a bit the progress you're making there.

Thank you, Arnaud. So NAM-India, so when you look at the AIF, which is owned by the publicly listed Nippon Asset Management India, that is roughly EUR 1 billion of AUM, it's like a proper company that's money making has been around for 10 years. So we are buying a 40% stake in a well-run living profitable company. We didn't disclose how much we paid. They didn't disclose it. But think about it as a reasonably high double-digit million amount. That's probably the best way to think about it. So it's not one of those we set up a JV and in 50 years, it makes money.

It's we actually bought a stake in a well-run company, which historically in India was more focused on essentially unconstrained fixed income and equity, which was already considered alternatives. And going forward, the focus is going to be much more on infrastructure. So India requires gigantic logistics investments, real estate, private credit and so on. And that will be, frankly, our contribution, meaning as Deutsche Bank Group, Deutsche is very strong in India. So our partnership will also extend to that alternatives business. I will be over for 3 days, middle of May.

So this is now -- I mean, we're currently waiting for regulatory approval. But this is something where we're quite bullish. There's nothing to believe that it shouldn't be one of the top 3 providers of alternatives in the medium to long run. And therefore, also a decent contributor to revenues, albeit probably starting in '27, not in '26. Private credit, this could be like a 1-hour conversation, but I will keep it brief. So I think what you currently see in terms of environment is sort of making the case for our approach, right? Our approach is European real economy lending as opposed to U.S. lending to financial sponsors.

Now momentum probably isn't great because private credit is in the press and many questions are being asked, but we feel that the thesis for our product has sort of been confirmed by the current discussions in the market. Progress a strong team is now complete. We brought in 2 more MDs in the course of Q1. So all of the senior folks are now complete across asset-based finance, direct lending solutions, but again, mostly focused on Europe so far. We are active fundraising. You know that in private credit, it only constitutes AUM and essentially fee paying once capital is deployed, which is why you don't see it yet. But I'm pleased with the progress in private credit.

The next question comes from the line of Pierre Chedeville, CIC.

Yes. I'll stick to one question because I have to move to the Amundi conference call. I read recently a report from the Boston Consulting Group saying that [ AI ] could reduce asset managers' cost globally from 25% to 35% within the next 5 years. And not only in terms of improvement in middle office or reporting tasks, but also in terms of better segmentation of customers, better distribution, et cetera. I don't know if you have read this report, but I wanted to know what do you think about this kind of improvement in the coming years?

Thank you, Pierre. Look, what's funny is whatever I say now in 6 months, we'll all look back and smile, right? Think about what we thought about -- how excited everyone was about ChatGPT 12 months ago, now this sort of outdated. So who knows? Now we are probably as excited as anyone else. I think overall, there's a significant difference between communicated progress and reality. So there's nothing that leads me to believe that we are ahead or behind any competitor, right? So everyone is looking at efficiency use cases. Everyone is looking essentially at the whole value chain and taking out or creating scale.

Just like everyone, we're experimenting on what it means for investment management in terms of like challenging PMs, not just summarizing what the Fed said yesterday. So I think we're probably as excited as anyone, but we're also really, really focused to making sure that it's scalable, that there's something proper to be done. We spent a couple of years in getting our data in order. We spent a couple of years in getting our processes in order because you don't want to automate or AI anything that's actually improperly set up. And now we see we are sort of ripe to properly leverage it. But I think it's too early to give you, unfortunately, to give you any specific indication of efficiency created by it in all honesty.

[Operator Instructions] The next question is from Jochen Schmitt from Metzler.

I have one follow-up question on the politically backed Deutschlandfonds. Do you see any concrete opportunities arising from this in the alternative asset space, say, with potential inflows over the next 12 to 18 months? That's my question.

Jochen, yes, I do, which I think would be the good answer. But to be more specific on one, and I'm just describing what we're currently actively fundraising without giving the specific update. There is one part which is called a first-of-a-kind fund, which is providing growth capital to German corporates that are essentially industry leader, right? So they are not start-ups, but more advanced and require growth capital. And we announced a few months ago that we are 1 of 3 asset managers selected to manage one of those KfW co-sponsored first-of-a-kind funds.

In that case, KfW is providing, I think it was also disclosed EUR 100 million of equity and debt. We aim to raise another EUR 400 million of equity and debt, and that is progressing very nicely. So that's one very specific aspect, which I think will translate into fees actually this year for this one specific component of the Deutschlandfonds, but there are a variety of other parts. So we are quite -- honestly, quite thankful for what the politicians have done and now it's on private capital to be raised. Last week, the CEO of KfW, Stefan Wintels, myself, we jointly ran a session for CIOs of major German or German-speaking insurance company CIOs. And there was a lot of interest in providing private capital to what KfW is sort of initiating.

There are no more questions at this time. I would now like to turn the conference back over to the moderator for the closing remarks.

Yes. Thank you very much, everybody, for listening in and for your good questions as usual. So please reach out to the IR team in case of any open questions that you might have. And otherwise, we wish you all a fantastic day and talk to you very soon. Bye-bye.

Thank you very much. Bye-bye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

Ladies and gentlemen, welcome to DWS Q4 and Full Year 2025 Preliminary Results Investor and Analyst Conference Call and live webcast. I'm Lorenzo, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Oliver Flade. Please go ahead.

Yes. Thank you very much, Lorenzo, and good morning to everybody from Snowy Frankfurt. This is Oliver Flade from Investor Relations, and I would like to welcome everybody to our earnings call for the fourth quarter and full year of 2025.

Before we start, my usual reminder that the upcoming Deutsche Bank analyst call will outline the asset management segment results, which have a different parameter basis to the DWS results that we are presenting now. So I'm joined also as usual, Stefan Hoops, our CEO; and Markus Kobler, CFO. I'm pretty sure you have seen our notification yesterday evening and the material that we published this morning. So Stefan will start with some opening and some closing remarks, and Markus will take you through the main part of the presentation as usual. [Operator Instructions].

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 with that, I will now pass over to Stefan.

Good morning. So this happens when you have a live TV. My Head of Investor Relations just put me on mute. So let's start over. Good morning, ladies and gentlemen, and welcome to our Q4 and full year 2025 earnings call. Even though today marks not only the end of our 2025 financial year, but also of our 3-year strategic plan, we would like to spend most of our time looking forward at where we see DWS heading over the next 3 years.

But let me begin with a brief recap of our financial plan before handing over to Markus to walk you through the numbers in more detail. This is not intended as a victory lap. That is not our style. Rather, it is a fact-based assessment of what we delivered, what we learned and how that shapes our priorities for the next phase. When we announced our last 3-year plan in late 2022, the chips were not exactly stacked in our favor. We faced a difficult environment for asset managers alongside DWS-specific challenges requiring us to reduce costs, drive organic growth and address structural issues. As you've seen in our release, we exceeded our EPS target, reaching EUR 4.64, which represents an increase of 56% over the 3-year plan.

We also delivered well below our cost/income ratio target of 59%, even on a reported basis, increased the share of funds with more than EUR 1 billion in AUM and made tangible progress in building and scaling our digital business with the launch of our stablecoin joint venture and crypto ETPs. We closed the year with a strong Q4 with positive inflows across Active, Xtrackers and Alternatives as well as being positive across all regions and client types.

Since our Capital Markets Day in 2022, management actions across both costs and revenues have played a material role in our performance. We focused on structural measures that we took early, combined with disciplined planning and consistent execution. That approach allowed us to deliver through different market phases. As with every multiyear plan, some things turned out better than expected and others less so.

Clearly, the market provided helpful tailwind to the industry, while margin compression and inflationary pressures were tougher than we anticipated at our Capital Markets Day in 2022. While our organic growth has been solid, client demand skewed primarily towards Xtrackers with less momentum in active and alternatives developing below our original expectations. In terms of client progress, we feel good about our wholesale partnerships while recognizing there's still room to grow with institutional clients.

On costs, discipline has been strong overall. At the same time, we continue to see opportunities for further simplification, automation and efficiency gains across the organization. Compared to 3 years ago, DWS is now recognized for the right reasons, our market views, innovation and business relevance. But we continue to see strong upside potential in our brand awareness outside of Continental Europe. Look, I could go on with areas for improvement, but rest assured, we grade ourselves tougher than any of you would. The past 3 years have been hard work, but they have strengthened our execution credibility and give us the confidence to be bolder in our targets, which brings me to how we have designed our game plan for the next couple of years.

In Q4, also informed by feedback from you, analysts and shareholders, the Executive Board stepped back to reassess whether the financial targets we communicated 1 year ago still fully reflect the opportunity set for DWS today. This led to a comprehensive internal strategic review supported by a rigorous planning process focused on reassessing our priorities, challenging assumptions and allocating capital and resources to the areas with the highest return potential.

The outcome is a refined and more ambitious set of financial targets compared to what we communicated a year ago, reflecting both the progress we've made and confidence in what we can achieve going forward. Our new targets include an EPS growth of 10% to 15% per annum until 2028, a cost/income ratio below 55% by year 2027, performance fees in the range of 4% to 8% per annum and net flows of more than EUR 160 billion over 2026 to 2028. I will walk you through the thinking behind these targets in a moment.

But before that, I will hand over to my partner, Markus, for a closer look at the 2025 numbers.

Thank you, Stefan, and good morning, ladies and gentlemen. As Stefan already highlighted we clearly outperformed the financial targets we set for the full year 2025.

Let me briefly walk you through our key financial highlights. Our EPS increased to EUR 4.64, representing a year-on-year improvement of more than 40%. This reflects a combination of operating leverage from higher revenues and continued cost discipline across the organization. Total revenues increased to EUR 3,155 million, representing top line growth of 14% year-on-year. Driven by our disciplined cost management, our reported cost/income ratio improved to 58%.

Turning to flows. Our long-term net flows reached EUR 33.7 billion with total net flows of EUR 51 billion. This demonstrates our diversified product offering and our strong access to clients and distribution partners. Based on these strong results, we are proposing an ordinary dividend of EUR 3 per share, consistent with our dividend policy and reflecting our confidence in the sustainability of our earnings profile. Together, these results demonstrate that DWS can grow, improve efficiency and deliver attractive returns for both shareholders and clients.

Let's look at the financial performance snapshot for the full year. Total assets under management increased by 7% year-on-year to EUR 1.085 billion, mainly driven by long-term net flows as well as favorable markets. On the top right, revenues totaled EUR 3,155 million, representing a 14% increase versus 2024 and the highest level since IPO. The main drivers were higher performance fees and increased management fees as a result of higher average assets under management. Total costs remained flat year-over-year and totaled EUR 1,831 million, resulting in an improved reported cost/income ratio of 58% for the full year 2025. And as a consequence of operating leverage, we reported a 42% net income increase versus 2024, reaching EUR 928 million.

Moving to the financial performance snapshot for the fourth quarter of 2025. Starting at the top left, both total and long-term assets under management increased by 3% quarter-over-quarter, predominantly driven by net flows and market depreciation. Moving to the top right. Revenues increased to EUR 902 million, marking a 20% rise compared to Q3 2025. On the bottom left, costs amounted to EUR 486 million, up 12% quarter-on-quarter, resulting in an improved cost/income ratio of 53.9%. This marks an improvement of 3.8 percentage points quarter-over-quarter and 10.7 percentage points year-on-year. As a result, our net income reached EUR 296 million representing a 35% increase versus Q3 2025.

Let me now share some insights into the client dynamics during Q4. In Q4, the overall picture remained constructive, but client behavior remained cautious in the light of macroeconomic and political uncertainties. We were able to retain positive flow momentum across all client segments and regions, capturing client demand for risk management and diversified strategies. Overall, we reported net flows of EUR 10.5 billion and long-term net flows of EUR 8 billion, underscoring the enduring strength and resilience of our diversified product suite. Long-term retail flows stood out with EUR 6.9 billion of net flows marking the 12th consecutive quarter of positive flows. Germany was a key driver of retail success with flows skewed towards SQI as well as active equity. Long-term institutional flows were positive at EUR 1.1 billion, mainly focused on high-margin strategies, including infrastructure and LRA. As we move into the start of 2026, we continue to see clients reassessing allocations in the institutional space.

Looking at regions. Long-term net flows into our home market Germany amounted to EUR 4.2 billion, driven by an ongoing demand for Passive including Xtrackers. EMEA, excluding Germany, saw EUR 2 billion of long-term flows, demonstrating strong client engagement across the region as clients are increasingly receptive to European investment opportunities. The U.S. region recorded EUR 1.1 billion in long-term net flows. Client demand further shifted towards highly liquid, short-duration products especially in the U.S. fixed income. In APAC, the flow picture turned positive with EUR 0.8 billion in the fourth quarter.

Moving to the quarterly highlights within our Active business. The fourth quarter marks a positive turnaround in Active supported by SQI, where client demand remains structurally strong as well as a positive contribution from Active equity. Active assets under management stood at EUR 460 billion, up 1.5% quarter-on-quarter. We continue to report positive flows into SQI, our bright spot reporting EUR 0.9 billion in the fourth quarter with new product launches as well as retirement products being a key contributor. Active equity reported positive net flows of EUR 0.2 billion, mainly driven by retail.

Fixed income maintained its positive momentum and saw net inflows of EUR 0.2 billion, mainly driven by net flows into credit strategies as well as our top-selling DWS floating rate funds, which continue to attract strong inflows, partially offset by institutional outflows. Multi-asset also minor outflows, which were largely driven by a change in sales focus in certain distribution channels. However, the segment remains overall well positioned to deliver performance and support client demand. Product innovation continues to support the Active franchise. Recent launches include our Xtrackers floating rate notes Active usage ETF based on a proven and successful strategy.

Moving to our Xtrackers business. Passive, including Xtrackers a solid quarter and delivered net flows of EUR 6.6 billion, marking 12 consecutive quarter of positive flows. Assets under management increased to EUR 395 billion, up 5% quarter-on-quarter. The main flow contribute was our usage business which delivered net flows of EUR 6.1 billion. This was mainly driven by equity usage ETFs with good momentum in MSCI Emerging Markets, MSCI Japan and Euro Stocks 50. Our mandates and solutions business delivered EUR 1 billion in net flows driven by major mandate wins in Germany and Switzerland. These wins support the continued expansion of our Xtrackers institutional footprint and our core equity exposure.

Our U.S. domiciled ETFs saw outflows of EUR 0.6 billion in the fourth quarter, mainly driven by outflows in ForEx hedged ETFs. Xtrackers remains one of our core strategic growth pillars. As mentioned in previous quarters, our Xtrackers multiyear growth plan is focused on accelerating digital distribution, expanding our regional footprint and scaling our active ETF offerings. To support this, we have now 42 digital partnerships. While our initial focus was Germany, we are progressing -- we are progressively expanding across EMEA driving further expansion across key European markets. The contribution of these digital partnerships to our overall Xtrackers flows continues to increase.

Q4 concluded a year of innovation and significant activity for the Xtrackers platform with more than 100 product events across the UCITS and U.S. 1940 Act business. We further launched a partnership product in the Middle East region to address growing demand for Sharia-compliant investment solutions in the GCC region and Southeast Asia.

Let me turn to our Q4 highlights for our Alternatives platform. In Q4, our assets under management totaled EUR 108 billion remaining stable versus the previous quarter. Our Alternative business delivered overall net flows of EUR 0.3 billion in the quarter with infrastructure remaining the growth contributor within our Alternative platform, followed by liquid real assets. Infrastructure contributed EUR 0.8 billion of net flows largely supported by fundraising efforts across various strategies such as PEIF IV fund and our infrastructure debt strategies. They continue to generate positive momentum and position us for future growth.

We further continue to benefit from strong investor appetite for the European transformation. In liquid real assets, flows remained positive in the quarter, recording EUR 0.1 billion. We saw a momentum shift in client sentiment with increasing levels of renewed interest in core tailored strategies, particularly in listed real estate and infrastructure. The sentiment for real estate remains challenging. We reported outflows of EUR 0.9 billion in Q4 as traditional real estate strategies faced continued pressure this quarter. However, overall momentum continues to build slowly.

On the private credit side, our platform build-out is progressing steadily, benefiting from strong origination capacities with our Deutsche Bank partnership. DWS and Deutsche Bank recently signed a memorandum of understanding with Al Mirqab Capital, a Doha-based family office to launch a German opportunities mandate, underscoring continued interest in transformational investment themes.

Let me now move on to our Q4 revenue development. Total revenues reached EUR 902 million, marking a 20% increase quarter-on-quarter. Management fees increased by 3% quarter-on-quarter to EUR 673 million. This was largely due to higher average assets under management mainly driven by rising markets and net flows. Performance and transaction fees totaled EUR 173 million and include a substantial contribution from our flagship multi-asset fund concept Kaldemorgen, with EUR 93 million as well as the fee recognition from PEIF II with EUR 60 million. Other revenues amounted to EUR 56 million which reflect the EUR 24 million contribution from Harvest, EUR 22 million for net interest income and EUR 12 million from fair value of guarantees.

Let me move on to the contribution from our joint venture, Harvest Fund Management in China. For over 2 decades, we have owned a 30% stake in Harvest Fund Management, providing us with access to one of the world's fastest-growing asset management markets. Harvest strength at the -- as the sixth largest mutual fund company in China in 2025. In full year 2025, our stake in Harvest generated EUR 67 million of revenues, including EUR 24 million in Q4, which is a strong increase compared to prior quarters. This resulted mainly from a one-off tax item in the fourth quarter. At the end of 2025, Harvest assets under management stood at EUR 219 billion, up 2% year-on-year driven by positive flows into Passive equity funds and fixed income retail products. This was coupled with currency appreciation and partly offset by negative market performance.

Moving to our cost development in the fourth quarter. In Q4 2024, our cost/income ratio declined remarkably. This outcome once again underlines the disciplined way of managing our resources and our cost base at DWS, something which we are extremely proud of. In Q4, total cost stood at EUR 486 million being 12% up quarter-on-quarter, but almost unchanged year-over-year despite higher volume-based costs and ongoing investments. Compensation and benefits increased to EUR 248 million. It is important to stress that this figure should not be taken as the future run rate. It contains several nonrecurring items, including performance fee-related carry costs, share price-related effects and some severance expenses.

Excluding the Q4 specific items, our compensation and benefit costs are below both the previous quarter as well as Q4 2024. General and administrative expenses totaled EUR 238 million, up 9% quarter-on-quarter, but down 6% year-over-year. This reflects some seasonal adjustments, which typically occur in the fourth quarter. Active cost management means that in the light of positive revenue development in Q4, we took some measures, which triggered these additional costs.

As a result of these concerted efforts, our reported cost/income ratio improved by 10.7 percentage points versus Q4 2024, standing at 53.9%. Once again, this result demonstrates disciplined cost management alongside strong revenue growth. It gives us substantial capacity to invest in future growth initiatives while maintaining our profitability.

Let me now elaborate on our financial targets before handing back to Stefan. Let me briefly build on what Stefan already said regarding our refined financial targets and provide some context. After thoroughly reassessing our strategic priorities and challenging the key assumptions, we agreed to set ourselves even more ambitious financial targets in order to reflect the progress we have made over the past year and emphasize great confidence in our strategic direction, particularly in the areas where we see sustainable competitive advantages and attractive growth prospects.

Our intentionally ambitious targets until 2028 include an uplift in our EPS growth to 10% to 15% for the next 3 years, which is driven by 3 elements: disciplined cost management, improved operating leverage and a more dynamic revenue profile. Correspondingly, our cost/income ratio will improve over the next years. More precisely, we expect it to be below 55% by 2027.

For performance and transaction fees, we guided towards the upper end of 4% and 7% of total revenues in 2025. Going forward, we expect contribution to be between 4% and 8%. We maintained our target of at least EUR 160 billion cumulative long-term net flows over '26 to '28. As already communicated at Deutsche Bank's Investor Day in November 2025.

And finally, we will continue to manage capital in a shareholder-friendly manner, consistent with our disciplined approach to capital allocation and a payout ratio of around 65% for our ordinary dividend. As per our disclosure, we also updated you that our excess capital stands at around EUR 1 billion at the end of 2025. You might remember that you consistently reiterated that organic growth and M&A are an important part of our strategic agenda.

In addition, since the IPO, we said that we will give capital back to shareholders if we don't find adequate options to deploy our excess capital in a shareholder value-accretive way. Recognizing the excess capital position, we are committed to propose to use a substantial part of our excess capital for the payment of an extraordinary dividend in 2027, subject to capital commitment for organic and inorganic growth initiatives.

With that, let me hand over to Stefan to address the specific cost and growth priorities supporting our increased ambition.

Thank you, Markus. You've now seen our new financial targets. While our strategic direction remains unchanged, let me walk you through the logic behind these targets and the specific cost and growth priorities that underpin our increased ambition. Starting with costs. As discussed in previous quarters, we continue to distinguish between volume-based costs that grow with the business and discipline-based expenses. The measures I will outline are all designed to further reduce the disciplined cost base.

First, human capital management. While the term may sound technical, it reflects a simple reality in asset management. People are the key differentiator. Over the past few years, we have invested heavily in training and talent development, quadrupled our graduate intake, strengthened performance management and clarified functional roles. Internal mobility remains a core focus, and we will continue to invest to ensure that DWS is a place where the best people want to build their careers.

Going forward, the focus is on deploying talent more effectively, thereby rebalancing workload and aligning skills where they create the most value. This includes targeted senior restructurings and a disciplined approach to external hiring with limited replacement of levers. Together, these measures are designed to improve workforce cost efficiency while maintaining talent quality.

Second, target operating model adjustments. This sounds straightforward, but in practice, it really is. Every few years, organizations need to reassess whether structures remain fit for purpose. Regulatory requirements, client needs and technologies evolve, yet there's often inertia when it comes to updating org charts and value chains.

As part of our strategic review, we identified areas where simplification and consolidation are warranted. As in previous transformation phases, we intend to take the pain early with the bulk of these restructuring measures implemented by the end of Q1.

Third, IT and operations optimization. You may recall around 18 months ago, we updated you on our transformation program focused on areas that differentiate DWS as an asset manager. Since then, we've exited our own cloud migrated applications into Deutsche Bank's environment. And by doing so, freedom resources for automation and AI. In parallel, this work is accelerating further through operating initiatives, including the development of a nearshore hub in Spain, aimed at strengthening resilience and efficiency as teams refocus on higher-value automation-led work.

Turning to growth. What has worked well will continue. We will further invest in Xtrackers, build up our private credit capabilities and continue to scale infrastructure, why we'll deploy the capital already raised. In Active equities, we are encouraged by recent improvement in flows and we'll continue to prioritize this pumping heart of our company. There are a number of growth initiatives that cut across our franchise, asset classes and client types. Several are already embedded in our strategy, well advanced. And as these early investments are now bearing fruit, we are confident in raising our ambitions.

Gateway to Europe is one. We've invested here for some time and market sentiment towards Europe has clearly improved. Recent examples include the opening of our Abu Dhabi office in December, and a EUR 1 billion mandate from a Middle Eastern investor illustrating growing client engagement. With expanded alternatives capabilities and increasing engagement from sovereign wealth funds, we see tangible upside and will track progress transparently. Future of finance is another. We provided an update at the last quarterly call and the focus is now firmly on revenue generation, particularly across embedded investment solutions and digital assets. We will continue to provide updates and are assessing whether this should evolve into a dedicated business line.

Our ambition to be one of the top 5 foreign asset managers in the world's top 5 economies is gaining traction, both organically and through selective partnerships. The intended joint venture with Nippon Life India Asset Management that we announced at the end of last year is a platform in one of the fastest-growing asset management markets globally and supports growth across Active, Passive and Alternatives. This collaboration will build on a well-established franchise with strong local capabilities and will allow us to combine on-the-ground expertise with DWS' global reach. We remain constructive on China, and we are exploring selective partnerships in the U.S.

Germany remains our home market and a core pillar of the DWS franchise. Attracting strong interest from shareholders and analysts. As Germany's #1 asset manager by assets under management, we are well positioned to benefit from the current momentum and structural developments in our home market, driven by the ambitious reform packages of the German government. Even in our largest market, we see further growth opportunities across pension reform, infrastructure investments, subsidized scheme, collaboration with Deutsche Bank. We identified the partnership as a source of additional value creation at our 2022 Capital Markets Day, and the opportunity is now being addressed more clearly from both sides.

Being part of Deutsche Bank Group represents a significant competitive advantage for DWS, giving us access to origination and distribution capabilities that few asset managers can replicate at scale. The private bank is already our #1 distribution partner globally with further upside across joint product development and discretionary portfolio management. Beyond that, through collaboration with the Investment Bank and the Corporate Bank, we see significant additional opportunities to expand our offering to institutional and corporate clients, including comprehensive pension solutions across all pillars. Hopefully, this gives you a sense of what we've been working on for quite some time and why we felt encouraged to improve our financial targets.

Managing costs requires discipline and consistency. It is not always easy, but it typically delivers results relatively quickly. Sustainably growing revenues is more complex. It requires a rigorous assessment of opportunities, honesty about where we truly have an edge, disciplined resource allocation and then patience. Sales capabilities need to be built, investment platform scale and track records established over time. We have laid much of that groundwork over the past 3 years. This gives us increased confidence in our growth trajectory, translating into EPS growth of 10% to 15% per annum until 2028. Performance fees are expected to play a more prominent role with updated guidance of 4% to 8% and while operating leverage will drive the cost income ratio below 55% by 2027.

e will continue to manage capital in a shareholder-friendly manner, consistent with our disciplined approach to capital allocation. At DWS, we believe in being paranoid-optimist. Optimistic about the future, but uncompromising in execution. That means continuously challenging assumptions, learning from experience and staying focused on delivery. This is what you can expect from us, and it is the approach we will continue to take as we move into our next chapter.

With that, I will hand back to Oliver, and we look forward to your questions.

Thank you very much, Stefan. And operator, we're ready for Q&A now. If I just might remind everybody to limit yourself to the 2 most important questions that would be very kind. Thank you very much.

[Operator Instructions] The first question comes from the line of Hubert Lam from Bank of America.

Thanks for the new ambitious targets for the next few years. I guess the first question is on that. Can you maybe just discuss a little bit more on the EPS bridge from 2025 to get to your 10-plus percent EPS growth. '25 has obviously benefited a lot from performance fees and other revenues, which almost doubled year-on-year. Just wondering how sustainable this is? Or you probably need that to grow even further.

At the same time, you're seeing headwinds from fee margin pressure, but you've obviously done a very good job around the cost. So just wondering how we also should think about cost growth over the next few years. That's the first question.

Second question is on your Alternatives, particularly on the credit side. I just wanted an update in terms of your initiatives around there. And just to the product launches over the next year.

Hubert, thank you very much. So let me start on the EPS bridge. A couple of comments. So firstly, the jump-off point is the EUR 4.64. So I just want to clarify is the EPS achieved in 2025 that we suggest you use at least we use it as a jump-off point. .

Now then when it comes to the bridge the way we think about it, to get to at least 10%, and obviously, we want to get higher than 10%. I mean, otherwise, we wouldn't have increased the guidance. But at the baseline, look at 10% that would get you to at least EUR 5.10, which would be EUR 1,020 million of net income, which would translate roughly to EUR 1.46 billion of profit before tax.

I'm sure Markus -- and I'm sure you sensed his passion for capital discipline and cost discipline, we'll say something about cost. But honestly, we don't see costs going up from here, meaning the [ 18, 30 ] we had this year wouldn't expect this to be higher in '26. If you then assume that our other revenues are typically EUR 50 million a quarter, so 2025 was a bit higher than usual and you accept our guidance on performance fees of 4% to 8% and 2026 should be at the upper end, which would add EUR 260 million. It sort of requires us to generate EUR 2.83 billion of management fees, right?

So the bridge is sort of EUR 2.83 billion of management fees, EUR 2.60 billion performance fees, EUR 200 million of other revenues and then it's like flattish costs, that would get you to 10%. And again, obviously, we want to get higher and can speak about upside.

Now in order to get to that level of management fees, at 25 basis points would require roughly EUR 1.13 trillion of AUM. And then just for reference, the average AUM in 2025, was EUR 1,038 million, so EUR 1.38 trillion. So it need to be roughly EUR 100 billion higher in the average of 2026. Now we're currently at EUR 1.1 billion and whatever market you assume probably doesn't look too difficult to get to EUR 1,130 million on average. So your question will be around average margin, I would imagine. One thing to keep in mind is that PEIF IV which obviously is well known to all of you, will have essentially catch-up fees for those coming into the final close, which will be end of Q2. We currently stand at roughly EUR 2.5 billion when active fundraising, which is why I can go into any deeper, but want to get to EUR 4 billion to EUR 5 billion, so you can sort of kind of do the math of how much should come in, in Q1, Q2 and how much catch-up fees will help us keep the average margin stable in 2026.

But that's sort of what you have to believe, if you believe 10%. Now we see we have given with those growth priorities, a bunch of levers that we feel could lead to even more upside on AUM, therefore, management fees. But I would just leave it at that -- happy to take more questions on that Hubert or your colleagues, but that's how we look at the EPS bridge.

Markus looks eager to add something on cost.

I'm happy to do so. As a side remark, it's Stefan's birthday today. And besides famous Swiss soft drink, which I brought to him this morning, I also told him that he's allowed to answer all questions, but happy to step in. On the cost side, we expect to remain essentially flat in 2026. And there are a few reasons behind and Stefan has alluded to them all. We have added on a net base, about 260 FTEs in terms of our workforce, we expect to remain stable in the current year. We're also benefiting from investments which we have been taking in the past, which should help us on the productivity side. We have pretty much completed most of the remediation work, which is also freeing up resources and makes our processes more productive and robust. And lastly, we are also much better in terms of managing projects to stay within budget, within time and deliver the scope.

And so you have 2 counterbalancing effects. We have volume driven costs, which we see as good costs. We have also investments, which we increased in '26 compared to '25. But on the other hand, we also benefit from efficiency improvements. So costs remain flat or expect to remain essentially flat in 2026. So back to you, Stefan.

Hubert, coming back to your question on private credit, I would differentiate between capabilities, essentially the team and then fundraising. Team is now mostly complete. We'll have a senior person or Managing Director join us to run asset-based finance in mid-February. So that person is currently guarding leave. But then the team is complete. We are currently actively fundraising for direct lending fund, which is why I can't go into detail. We'll then raise money for an asset-based finance fund where we see good interest. In the last earnings call, I basically implied that there are a couple of specific large mandates we're working on.

You've seen one being announced, both Markus and I spoke about it from a Qatari investor. There are more such projects or larger mandates in the works. So we are quite optimistic on the capabilities of the team, but also on fundraising capabilities and fundraising progress to have like a meaningful impact in 2026 revenues.

Next question comes from the line of Nicholas Herman from Citi.

Can I just come back to the guide, please? I think 2026 is pretty clear. And as you said, given the strong markets that we saw last year, given catch-up fees, I think that's all pretty clear. I'm just trying to understand, I'd like to clarify the drivers for the growth outlook beyond '26 and kind of what is driving the uptick in growth outlook versus what you previously guided and whether it's revenues or costs. as part of that, can you clarify whether you're assuming similar levels of fee margin compression?

And I guess the reason I'm asking that is my interpretation is that the stronger growth outlook is maybe not due to management fees because the guided annual flows are relatively similar to the previous targets? And I guess, finally, does the guide include anything for your digital and crypto initiatives? And in which case, if it does, could you please quantify those?

Thank you, Nicholas. So the way I understood your question is what changed from when we communicated 10% EPS growth 12 months ago. So a couple of reasons why we felt ambitious. I mean, 12 months ago, the German government was not yet -- I mean, it was pre-election. And when you look at the progress, most of the things that happened in 2025 gives like a nice fiscal boost, which is nice for DAX, nice for corporates, but wasn't specific to asset managers.

Most of the things which they are now deciding or have already decided will directly translate into opportunities for us. I think the biggest one being the [indiscernible] reform that I think most of you have probably seen, which will come into effect in 2027. You will have the early start pensions. I mean, a variety of things on the pension side. You will have seen the announcement on the Deutschland fund.

So I guess the point I'm trying to make, Nicholas, much more bullish Germany and much more bullish the opportunity set. Most of that will be in 2027 and beyond. So many things happening this year. But for example, the pension reform will really kick in, in '27.

When it comes to DB partnership, again, a lot more optimistic now than 12 months ago. When you listen to my partners, Fabrizio and Claudio speak at the Deutsche Bank Investor Day back in November, all of them essentially gave themselves specific targets for collaboration with DWS which previously we simply didn't have, right? So before that, we were all friends, but it was essentially friendly engagement. And now there's much more accountability on both sides to deliver. So that's why we're more optimistic. I think the gateway to Europe, again, 12 months ago, it was like a neat idea. There was before Liberation Day, before euro strength and all of that.

So the gateway to Europe, which maybe 12 months ago was like nice idea into something nobody wanted to invest in, now seems to be much more investable. So we are more optimistic on that. I could continue, right? But you see that most of those growth levers, growth priorities we've spoken about before, had invested in before are now much more optimistic simply based on market circumstances, development, mandates won and so on. When it comes to the market outlook, we sort of remain constructive, but there are no heroic assumptions in our updated guidance, right? So this is if you will, alpha over beta. So we assume sort of constructive markets, but nothing compared to '25 or '24, right? We're obviously market appreciated significantly.

When it comes to margin, we do think that margin compression at DWS will be less than 1 basis point going forward, given the outlook on alternatives, right? I mean I think as all of us know and like we probably speak about more than any of you would, we feel that we've underperformed in alternatives capital raise over the last 3 years, which is something where we're more optimistic for the next couple of years, which is why we think margin compression will be less than that.

On your final point, like future of finance, that is something which I do think will contribute probably '27, '28 less so from digital assets and more in what we call embedded investment solutions, right? So that's essentially a fancy term for engaging with platforms in an embedded way or any other type of digital distribution channel.

One of the stats I had mentioned in the past is the percentage of Xtrackers sold through digital platforms, which, if you recall, was like 30% when I started talking about then was 1/3. It was almost 40% in Q4. So we feel that we're doing pretty well with those new brokers and platforms. And embedded investment solutions is essentially our technical build in order to be even more relevant to those important distribution partners. So that will start to contribute, but probably more '27, '28 than before.

That's very helpful, Stefan. If I could just follow up with that, please, just quickly. But I think everything that you said makes total sense to me. I guess, though, I look at that and say, on the growth outlook, but your guide for long-term flows is still about it's EUR 53 billion per annum. It was EUR 50 billion per annum.

So I don't really see that being translated in terms of the financial targets. And then the other thing I kind of noticed is that your guidance -- your assumptions on fee margin compression seem kind of fairly similar to before. But since you set the prior targets a couple of years back, One thing that has changed is we have seen an acceleration in active ETF growth.

And you've talked a couple of times about how active ETF fees are notably below your active fee margins. So why is it reasonable to assume a similar level of fee margin compression compared to the past?

Thank you. So flows first and then margin. So in flow, look, we have given the guidance of 10% to 15% I think if we want to get to 15%, flows need to be more than the EUR 160 million cumulatively over 3 years. That's the simple answer. I think there are plenty of reasons to be more optimistic. I mean, right now, pension reform in Germany could -- should be a significant driver of highly profitable inflows starting in '27.

So there are a bunch of levers of why we aim to outperform the target. But again, I think the EUR 160 million translates into the 10%, and then we would want to get higher in order to get to, well, the upper end of that range. When it comes to margin compression, I think a couple of things which make us optimistic. If you look in our presentation, the trajectory of equity of active equity flows, you will see that essentially every quarter, we improved over the last 6 quarters or so and finally had positive inflows in Q4.

Now Q4 has some seasonality. So I'm not saying that every quarter will now be positive, but you definitely see the trajectory which is why when you think about the sort of destructive contribution from active equity outflow on margin over the last couple of years, we feel that this is going to be less going forward.

We really like our inflows in SQI, which is above our average margin. So that's something that you see like drove EUR 4 billion of inflows last year. And then again, Alternatives didn't really contribute over the last couple of years and should contribute going forward. So our hope is that Xtrackers is going to continue outgrowing a growing market as they've done over the last 3 years. So that's obviously our aim and there's essentially some margin dilution because of that. But going forward, we think that the active high-margin products plus alternatives is going to counterbalance that.

Now as you rightly said, active ETF will have an average margin below active, but a margin higher than Xtrackers, so probably more -- or the typical Passive business. So therefore, that I would imagine having sort of a neutral impact on average margin overall.

Hopefully, Nicholas had clarified your question. But I suspect that your peers will have similar questions. So therefore, if any of that is unclear, please.

The next question comes from the line of Oliver Carruthers from Goldman Sachs.

Oliver Carruthers for Goldman Sachs. So Stefan, I know this was not intended as victory lap, but I think you're probably well within your rights to do so. You've grown revenues EUR 500 million over the last 2 years and held costs flat. So could you perhaps zoom out -- and this is really a backward-looking question, but can you give us a sense of over the last 2 or 3 years, where the key net cost savings have come from? Because you've -- as you've highlighted, you've been fighting asset-linked or volume-linked costs and inflation and investing for growth? So that's the first question.

And the second question really interesting to hear your remarks on the German pension reform. Can you really frame what the opportunity is here for DWS. Is it just that the average effective exposure of the German [ Sabre ] to equity is likely to rise given this reform and then you should be well placed to capture this? Or are there other components to this that we should be thinking about?

Oliver, I'm happy to start with the cost question first. And looking back over the last few years where we have been pretty stable at around EUR 1.8 billion. We have been disclosing the way we manage costs a few quarters ago, and then we see basically 3 different types of costs, which is about -- I mean, the 3 items are external costs, then volume-based costs and then the discipline based cost. The external costs have been pretty stable.

On the volume-based cost, they keep increasing with increasing assets under management, but also then the share price is going up. So that has, again, probably increased by a few percentage points. And that has been balanced by the discipline-based cost base.

And what has helped us over the last 3 years is in particular, what you quite often call below the line cost items. We have concluded with [ Proteus ] as a transformation project. So the transformation charges went to 0. We concluded with bigger investigations and have no further litigation costs at the moment. And we also hardly have any larger restructuring program. So severance costs remain very much in the low double digit. And so these items have been going down.

And then at the same time, we have also reduced quite significantly our external workforce, which have been -- which is one of the big driver in addition to banking services cost on the noncomp cost item. because we believe, again, the philosophy, it's not just cost driven, but given our workforce being the most important resources and appreciating asset for us, we prefer to have the know-how in-house.

So we have been replacing external workforce, and we keep doing that and have our own workforce, in particular, in near-shoring and smart shoring centers in India and the Philippines. And that's where you also bring them down cost because you no longer have the profit markup, you don't have VAT, but you can immediately compensate your own people properly. So that's basically behind it.

And the last one, again, even if we have been increasing our workforce, the workforce cost remains stable again for the same reason because we have not been hiring in hubs. We have brought in graduates and we're upgrading our own workforce.

And Oliver, just one thing to add on cost before I come to your question on pension reform. I think what you saw over the last couple of years was discipline and quite a few like tactical measures where we simply stopped doing certain things, optimize some things which could be done short term. I think the big levers that we have long term, those we invested in over the last couple of years, and you will only see going forward. Allow me to make one more comment on the human capital management also because just in a recent news article, it was basically summarized as hiring freeze.

Now what we had to do over the last couple of years was, first, quadruple graduate intake to make sure that we have enough smart young folks coming in. Secondly, we had to significantly expand our training curriculum and then announce that we have unlimited training budget for everyone at DWS. And thirdly, we had to map everyone from a functional role framework.

So everyone at DWS essentially has a corporate title, plus a description functionally of what they do, which you need if you really want to push internal mobility. So you need to understand why that person can do ABC, which is why they can also do DEF if you want to have internal mobility. Now these things took time, right? You cannot expand the graded program 4 times overnight. You have to essentially write the curriculum, hire more interns next year more graduates and so on, but that's -- we now have. So the reason why we're now saying, I don't think we need external folks. I mean, a lot of external folks, but we probably like our own talent more is because of all of those investments.

So when Markus and I look at our cost base, I want to stay flat at EUR 1,830 million . Markus always said he likes EUR 1,800 million more. But overall, it will be like flattish going forward. And that's why I think there's still a lot more room to essentially be disciplined on those discipline-based costs.

Now on pension reform, and I will keep it somewhat high level because just like I'm listening to all of our peers, they also listen to us. And I think we probably are slightly closer to the decision-makers in Berlin than some of our foreign competitors, which is why I probably wouldn't want to reveal everything we're working on. But when you look at the third pillar, what you previously had in Germany was called the Restart products, but I'm simplifying slightly, but it was essentially fully capital-guaranteed products which, therefore, were essentially pretty low risk, but also low yield. What has not changed is that you can have yield-oriented products without a capital guarantee which are yet still subsidized by the government, right?

So a big significant distinction to what we previously said, which was just announced a couple of weeks ago by the government. So higher risk yield-oriented, no guarantee, but still subsidized. So it's essentially a savings plan into attractive products for the retail investor, right?

I mean, folks in Germany similar to folks in the U.S. should be long-term investors in the equity market, and the government has clearly seen that. The consumer protection groups have pushed for that, and that is something which is going to be implemented by early 2027, which I think is going to be a significant opportunity for us to help our many distribution partners in Germany create such products, right? And if you look at research in the market, that should be like millions of new accounts.

Similar or additionally in the third pillar, you also have what's called the early start-up pension, where there's essentially a subsidized scheme for kids, right? And this basically rolls up out go into detail, but it's high level for kids below the age of 18 to start investing early, again, subsidized, there will be contributions possible from grandparents and so on. So also something which will essentially lead to a lot more savings plan like products in Germany.

Now when it comes to the second pillar, and that is something that they are currently working on, as you probably know, most of the German corporate pension funds are essentially pay as you go. So they're not funded like pension funds in the U.K. or in the U.S., but they're pay-as-you-go, which is not great for some pensioners, actually many pensioners. So there will also be changes, which I think will set incentives, but also potentially make it mandatory to fund some or all of your pension obligations.

And again, that should also lead to a lot of opportunities for somebody like DWS to assist those corporates in collaboration with Deutsche Bank's corporate bank that obviously have been covering those corporates forever. I mean I could go on, Oliver, but I think that sort of covers Pillar 2 and 3, where we see significant opportunities in the coming years. Thank you.

Our last question for today comes from the line of Pierre Chedeville from CIC Market Solutions.

One question regarding the development of net inflows. Maybe could you give us a little bit more color in terms of geography out of the EUR 160 million net inflows. What do you see in Asia, for instance, what is the amount in Asia or in U.S. How do you see things there?

And regarding retail versus institutional, I wanted to know what is your appraisal regarding risk aversion in the retail networks for individuals? Because, of course, you mentioned the plant in Germany in terms of defense, et cetera. But at the end of the day, we could see that the economic situation is not so fantastic. You have geopolitical risk, of course, things like that. And it seems that you're maybe a little bit optimistic regarding, in particular, the development in active equity. So I wanted you to elaborate a little bit more on that.

Thank you, Pierre. I probably would have hoped for easier questions on my birthday, but thank you. So look, the distribution across asset classes, client types and regions of the EUR 160 million, which again, I see as a minimum over the next 3 years. I probably wouldn't want to share, like I wouldn't want to specifically say how much we want to grow with insurance companies in Asia in 2028 in fixed income, but we have plans for that.

Big picture, the way I would look at it is that between 2/3 and 3 quarters will likely come from Xtrackers from Passive, which also implies that we will have significant contributions from Active and Alternatives over the next 3 years, right, if you look at the last couple of years, in some years, the total flows in Xtrackers were larger than overall flows, meaning the rest was sort of negative. We think that that's going to be between 1/4 and 1/3 of flows from other asset class and Xtrackers going forward. .

Regional distribution, I mean, Germany has been strong. Germany will stay strong. It was interesting to see contribution from U.S. equities, for example, in the fourth quarter, right? That was nice to see retail demand for active equity in the U.S. So the team there is doing a great job. Asia has been growing. And when you look at our various regions, then Asia percentage-wise has outgrown the other regions, albeit from a lower starting position. So I think overall, I would bet that Germany continues to be by far the largest contributor, but with growing contribution from Asia and EMEA. And then in the U.S., we're working really, really hard. So I would like that to also contribute.

Now I think your second question, can you just clarify, was it essentially whether I'm too optimistic on Germany or Active equity and equity outlook? Can you just clarify, Pierre?

No. Generally speaking, in terms of risk aversion for individuals, you mentioned in the last year -- in the past years that we could see a kind of risk aversion from individuals in retail networks. And when we listen to you, we have the feeling that your view is a little bit changing regarding this risk aversion sentiment. So I wanted to clarify that with you.

I got it. Okay. Well, I mean, I think DAX going up like 20% in '25 and looking really, really strong, especially for foreign investors, who also then benefited from the euro appreciation that probably helped sentiment in what we know very well, which is managing equities, but then specifically European or German equities. When you look at the performance of our funds, I mean, our flagship funds top dividend had a phenomenal 2025, right? It's like 14.7% return beating its key benchmark by like 7.5%. So therefore, I think that strong performance has helped. I think overall, the -- I think inflows going forward from equities for the pension products will really be long term in nature. So even if people are maybe short-term risk averse, if you contribute monthly for something that you will get in 30 years, then you probably don't care about timing as much.

So I guess what I would say, we are probably more constructive on the sentiment of retail investors than we were 3, 6 months ago based simply on market performance and the performance of our funds. Look, I think everyone is watching what's happening geopolitically. But so far, markets are holding up. I think our outlook probably in line with most competitors is for global growth to continue in 2026.

But again, I just want to be clear, when you look at our increased growth targets, this is really much more alpha driven than beta. So we do assume sort of constructive markets, but no heroic assumptions in our underlying plan.

We have a follow-up question from Hubert Lam from Bank of America.

Sorry, just one last question, given that we have time and nobody else has asked about it. I think you talked about possibly having a special dividend in 2027 with your surplus capital. I'm just wondering what does it mean for M&A? Is it less likely that M&A is going to happen, do you think, over the next year? And we've seen like recently seen deals within the space, particularly on the Alternative side. I'm just wondering what your thoughts are on M&A, at least in the near term?

Thank you, Hubert. So our incredibly gifted Investor Relations team is always prepping us and they had bet that M&A would be one of the first questions. So I'm glad it is being asked. So look, I think the way we thought about the potential for an extraordinary dividend is similar to 3 years ago in a sort of nonchalant way, we just wanted to communicate that, of course, we want to be as shareholder-friendly as we can with excess capital.

And similar to a couple of years ago, we just wanted to be clear, crisp, transparent in how we are thinking about it. So essentially, that is probably in line with what we -- how we've done 3 years ago. Now I think the possibility of us doing something organically -- sorry, inorganically is probably slightly higher than 3 years ago. So 3 years ago, I almost ruled out M&A because I said, look, there's so much we have to do, and I always felt that we just have to grow organically before you even deserve to think about doing something inorganically plus obviously, some of the overhang we had, some of the IT challenges we had. So therefore, it's probably slightly higher than then.

However, the way we think about M&A is sort of -- there's a pretty high threshold for us to even contemplate it simply because we feel that there's plenty of organic growth levers we have, when I could continue talking about our institutional business and so on, where I feel we can grow much more. So we want to be disciplined essentially with your money. But at the same time, management attention is something that we also need to be disciplined on.

Now the way we think about M&A is sort of 3 types: consolidation, product capabilities and access. I think when it comes to consolidation, we -- like all of our competitors, we now trade in line with the market, but we have a higher organic growth rate than most of our competitors. So just mathematically, it's not easy to consolidate without diluting the organic growth rate, right? So simply, if we are growing faster, but we trade in line, then unless we can buy somebody at a discount, it's going to be destructive for shareholders. That could change if markets become slightly wobbly with all the respect to all of you listening.

But right now, when you look at price earnings, you do not differentiate for cost/income ratio. right? So when you look at banks, banks with similar net income, but one being much less levered, that would trade higher. In Asset Management, there is no distinction between us having nice EPS growth at a cost/income ratio of sub-60% and competitors having a cost/income ratio in the 80s, right, which, again, I'm not an expert, but I don't comprehend because I think when it comes to the downside if markets became bubbly, we would benefit.

Others may struggle a bit more. But I think unless you have that kind of market environment, I do not see scope for big consolidation, which brings me to product capabilities. I think most things in alternatives, we would probably want to grow organically. Some are difficult to grow. I think value-add and real estate difficult to grow. So that's something we look at. And then something which I think is more and more differentiating is sort of client access in the institutional space being called OCIO in retail model capabilities. So essentially, that's something that clients more and more expect essentially as the interface of what they see and then all of the asset management is behind that. That's probably something difficult to build and something we would potentially look at inorganically. But in both cases, there's not a lot in the market.

And then finally, when it comes to access, we look at potentially increasing access to client types and potentially getting access to captive liabilities. I think captive liabilities, it's not that easy to buy an insurance company because of the accounting implications. But there, we look at a variety or a couple of things.

When it comes to access to clients, that's really just in Asia, what we're interested in. I mean you saw our joint venture in India, which is going to be a real acquisition, but with a purchase price in the double-digit million continues to be. We are incredibly mindful and disciplined on only doing things which would increase the earnings growth or be accretive to growth to shareholders, otherwise, we just return the capital. That's how we look at it.

We have a follow-up question from Nicholas Herman from Citi.

Like Hubert, I thought given the call was relatively short, I couldn't miss an opportunity for a follow-up. Just a question, just, I guess, conceptually, access to captive liabilities, is that -- would that -- could that occur and actually also be accretive to growth? Just curious there. And then the other one I wanted to ask was on flows. It looks like you have lost a bit of market share in passive versus your larger European competitor. Just curious if you could explain what drove that and if you have any visibility of that reverting at all anytime soon.

Thank you, Nicholas. Let me start with Xtrackers and then come back to the Captive liabilities. So we love the Xtrackers business, and the team is really good. What is true is that they had a strong Q1 and Q3 last year and mediocre Q4 and the weak Q2 right? The weak Q2 we spoke about when we spoke about Q2 results and explained what happened. But overall, that combination led to us growing slightly below our market share in 2025. I think most of that if you differentiate between low fee core products and higher fee value-add products, most of that market growth that we did not participate in, in '25 was the low fee core equity.

Now to be clear, this is not meant in a defensive way. We want to grow everywhere. But it wasn't really, let's say, revenue relevant to have lost that market share because, again, that was in very low fee core products. I think when it comes to value-add, we quite like what the team has done in ETF as a Service, launching 6 Active ETFs in '25. So we're now at 11, signing up new partnerships. We signed up -- signed off on a Xtracker expansion case. So that team is growing in Central Eastern Europe, in Italy, in Asia, in the U.K. So again, really trust in the team and that team will continue to outgrow a growing market.

When it comes to access to Captive liabilities, I probably almost violated my rule of M&A should be done and not talked about by kind of conceptually walking you through our thought process on consolidation, product capabilities and access. So I think I will probably leave it at that. But I mean, we're not going to buy a life insurance company for a variety of reasons. But there are potentially other things one can look at in -- so like the captive liability space.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Oliver Flade. Please go ahead.

Yes. Thank you very much, everybody, for listening in and with the good questions as usual, and please reach out to the IR team in case there are any open questions left. Otherwise, we wish you all a fantastic day, and talk to you soon. Bye-bye.

Thank you.

Bye, everybody.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your line. Goodbye.

Ladies and gentlemen, welcome to the DWS Group Q3 2025 Results with Investor and Analyst Conference Call. I'm Sergen, the Chorus Call operator. [Operator Instructions] And the conference being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Oliver Flade. Please go ahead.

Yes, operator, thank you very much, and good morning to everybody from Frankfurt. This is Oliver Flade from Investor Relations, and I would like to welcome everybody to our earnings call for the third quarter of 2025. So before we start, I would like to remind you as usual that the upcoming Deutsche Bank analyst call will outline the Asset Management segment's results, which have a different parameter basis to the DWS results that we're presenting now.

I'm joined, as usual, by Stefan Hoops, our CEO; and Markus Kobler, our CFO. Stefan will start with some opening remarks as well as the deep dive on digital developments, and Markus 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.

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 forward-looking statements at the end of our materials. And with that, I will now pass on to Stefan.

Thank you, Oliver. Good morning, ladies and gentlemen, and welcome to our Q3 2025 earnings call. As this is the last quarterly update before concluding our 3-year plan, I hope you can see the progress we've made over the past quarters, not only in our strategic initiatives, but also clearly demonstrated in our numbers.

We said we would deliver on our long-term financial targets, and we are now on the final sprint to the finish. At the same time, we continue to invest for the long term, something you will see reflected in today's digital deep dive. But before we get to that, let me start with the numbers.

Our earnings per share came in at EUR 1.10 this quarter. Assuming a similar EPS in Q4, we will get to an EPS in the EUR 4.20s by year-end, exactly in line with our bridge from last quarter. On top of that, the seasonal performance fees from our flagship fund, Concept Kaldemorgen are expected to contribute meaningfully in Q4. With this seasonal uplift still to come, we have a clear path towards our EUR 4.50 EPS target.

Turning to the highlights from the quarter. Long-term net flows were EUR 10.3 billion, reflecting a solid quarter and continued investor confidence. Reported revenues came in at EUR 754 million, up 10% year-on-year and 1% quarter-on-quarter. Net income rose to EUR 219 million, an increase of 30% year-on-year and 2% quarter-on-quarter. Our cost/income ratio improved to 57.7%, a reduction of 6.6 percentage points year-on-year and 1.5 percentage points quarter-on-quarter.

We also marked an important milestone with receiving the necessary licenses to open our new office in Abu Dhabi. Strengthening our regional presence and client engagement in the Middle East reinforces our position as the preferred gateway to Europe for global investors.

With that, I will hand over to Markus, who will take you through the details of our financial performance.

Thank you, Stefan, and good morning, ladies and gentlemen. Let me start by saying that we delivered an improvement across all, and I would like to reiterate all key financials in the third quarter, which is something we are very proud of. Starting at the top left, long-term assets under management totaled EUR 935 billion, up 5% quarter-on-quarter, predominantly driven by net flows and market appreciation. Total assets under management stood at EUR 1.54 trillion, which is a 4% increase quarter-on-quarter.

Moving to the top right, revenues increased to EUR 754 million, a slight increase from Q2 and 10% higher compared to the third quarter of 2024. On the bottom left, costs amounted to EUR 435 million, down 2% quarter-on-quarter. Thanks to our active cost management approach, the cost/income ratio improved to 57.7%, down 1.5 percentage points quarter-on-quarter and 6.6 percentage points year-on-year. As a consequence of operating leverage, we report a 30% net income increase versus Q3 2024, reaching EUR 219 million. This was achieved despite a higher tax rate this quarter, reflecting the remeasurement of deferred tax assets following Germany's corporate tax reform starting in 2028.

Let me now share some insights into the client dynamics during Q3. In Q3, we saw strong business momentum with clients increasing their market exposure to more liquid offerings, while remaining cautious overall. This shift reflects confidence in our product range and adaptability to market conditions. Overall, we reported net flows of EUR 12.1 billion and long-term net flows of EUR 10.3 billion, underscoring the enduring strength and resilience of our diversified product suite. We were able to retain positive flow momentum across all client segments, capturing our clients' demand for risk management and diversified strategies. Long-term retail flows stood out with EUR 9.3 billion of net flows, marking the 11th consecutive quarter of positive flows.

We also saw growing demand for discretionary portfolio mandate solutions and ongoing industry transformation and high market volatility. Long-term institutional flows were positive at EUR 1 billion, mainly focused on high-margin strategies, including infrastructure and LRA. These were partially offset by 2 large one-off redemptions. Key themes for investors are cost efficiency, customization and capturing illiquidity premiums in times of decreasing rates.

Furthermore, we achieved positive long-term net flows across all regions, except APAC, reflecting the strength of our global franchise. In APAC, the flow picture was impacted by one client's corporate decision to in-source their investment capabilities. EMEA, including Germany, accounted for more than EUR 10 billion of long-term flows, demonstrating strong client engagement across the region as clients are increasingly receptive to European investment opportunities. The U.S. region recorded EUR 0.3 billion in long-term net flows. Client demand further shifted towards highly liquid, short-duration products, especially in U.S. fixed income.

Moving to the quarterly highlights within our active business. In the third quarter, our active assets under management stood at EUR 453 billion, a 2% increase quarter-on-quarter, primarily driven by positive market impact, particularly within active equity and fixed income. While the flow picture in active remains challenging, it has been a quarter of gradual improvement with EUR 0.3 billion in net outflows, which outlines encouraging underlying momentum, particularly in fixed income.

We continue to record positive flows into SQI, our bright spot with EUR 1.5 billion in the third quarter and almost doubling net flows year-to-date to EUR 3 billion with retirement products being a key contributor. Fixed income returned to positive net flows of EUR 0.2 billion, mainly driven by significant mandate top-ups as well as our top-selling DWS floating rate funds, which continue to attract strong inflows. We further see increasing positive momentum into credit funds.

Although our equity business reported outflows of EUR 0.6 billion, momentum for active equity is improving, especially in Germany. Style and thematic equity funds such as DWS Invest Artificial Intelligence and DWS Invest Critical Technologies continue to see steady inflows. Multi-asset saw outflows, which were largely driven by 2 large low-margin redemptions. Excluding these effects, the flow picture for the broader multi-asset platform remains stable.

We grew our newly launched active ETF offering, which continues to gain traction with clients, reflecting the clients' confidence in our approach. This demonstrates our ability to innovate and bridge our active and passive capabilities, an area where we see significant long-term growth potential. We further plan to launch the Xtrackers floating rate notes active Usage ETF in Q4 2025.

Moving now to our Xtrackers business. After a challenging second quarter, our Xtrackers business has regained strong flow momentum, reaffirming its position as our key flow contributor. Our Xtrackers business delivered net flows of EUR 10.3 billion, marking the 11th consecutive quarter of positive flows. Assets under management increased to EUR 376 billion, up 9% quarter-on-quarter. The main flow contributor was our UCITS business, which delivered net flows of EUR 9.4 billion. This was mainly driven by equity ETFs, especially by our top seller Xtrackers MSCI World Financials.

Our mandates and solutions business delivered EUR 0.8 billion in net flows, driven by a mandate win in Germany as well as continued flows into our scalable MSCI AC World Xtrackers usage ETF. Our U.S. retail funds, also known as U.S. 1940 Act saw net flows of EUR 0.2 billion in the third quarter, maintaining its positive trajectory. Our focus campaign, think outside the U.S. box concluded successfully, and our U.S. platform surpassed USD 29 billion in AUM for the first time ever.

Overall, we are confident in our strategic development and our flow momentum has returned after a challenging Q2. As Stefan mentioned in previous quarters, our multiyear growth plan is focused on accelerating digital distribution, expanding our regional footprint and scaling our active offering marks a key milestone in Xtrackers growth journey. As an example, in Q3, we expanded our strategic footprint through 2 new digital distribution partnerships in Switzerland and Sweden, driving further expansion across key European markets.

Let me turn to our Q3 highlights for our alternatives platform. In Q3, our assets under management totaled EUR 107 billion, remaining stable versus the previous quarter. Our alternative business delivered overall net flows of EUR 0.3 billion in the quarter, with infrastructure remaining the growth contributor within our alternative platform, followed by liquid real assets. Infrastructure contributed EUR 0.4 billion of net flows, largely supported by fundraising efforts across various strategies such as our P4 fund and our infrastructure debt strategies.

They continue to generate positive momentum and position us for future growth. We further continue to benefit from strong investor appetite for the European transformation. In liquid real assets, flows remained positive in the quarter, recording EUR 0.3 billion. We saw a momentum shift in client sentiment with increasing levels of renewed interest in core tailored strategies, particularly in listed real estate and infrastructure.

The sentiment for real estate remains challenging. We report outflows of EUR 0.6 billion in Q3 as traditional real estate strategies faced continued pressure this quarter. Throughout the third quarter, we built on strategic initiatives, focusing on expansion in real estate debt and launched our second vintage property debt strategy in Europe.

Our private credit platform build-out is progressing steadily. During the third quarter, we finalized a number of key hires that strengthen our capabilities, ensuring we have the right expertise in place. In parallel, we have kicked off a series of roadshow activities to engage directly with investors and showcase our differentiated approach.

Let me now move to our revenue development. Total revenues increased slightly quarter-on-quarter at EUR 754 million and marked a 10% increase year-on-year. Management fees increased by 4% quarter-on-quarter to EUR 655 million. This was largely due to higher average assets under management, mainly coming from active and passive businesses. Performance and transaction fees totaled EUR 50 million, down 14% versus Q2, mainly due to lower contributions from real estate performance fees, partly offset by increased transaction fees in EMEA real estate.

As Stefan already mentioned, performance fees from our -- from one of our flagship multi-asset funds, Concept Kaldemorgen are expected to contribute substantially during the fourth quarter, currently standing at the high double-digit euro number. Other revenues amounted to EUR 48 million, which reflects a decrease in our fair value of guarantees and include EUR 21 million from net interest income and a EUR 16 million contribution from Harvest.

Moving to our cost development. I am very proud of the proactive and disciplined way of managing our resources and our cost base at DWS. And the Q3 outcome is another testament to that. In this quarter, total costs declined by 2% quarter-on-quarter to EUR 435 million despite higher volume-based costs and ongoing investments. It keeps us on track for essentially flat costs in full year 2025. Compensation and benefit expenses were managed prudently, reflecting a 2% decrease from the previous quarter, primarily due to lower retention-related expenses.

General and administrative expenses also went down slightly and stood at EUR 218 million despite rising AUM in Q3. As a result of these concerted efforts, our reported cost/income ratio improved by 1.5 percentage points versus the prior quarter, now standing at 57.7%, being significantly below our full year 2025 guidance of less than 61.5%. Again, this outcome reflects disciplined cost management, while driving revenue growth. It provides us with meaningful capacity to invest into future growth initiatives without compromising our profitability. Handing now over to Stefan for a deep dive on our digital strategy.

Thank you, Markus. Now let's take a step back from the quarterly numbers and talk about how we are positioning DWS for the decades ahead by building the digital foundations for the future of finance. When you do a deep dive on digital, you always run the risk of sounding too abstract or heavy on buzzwords. So let me start by underlining that our build category is not about hype, it is about disciplined execution like everything else we do.

At our Capital Markets Day in 2022, we introduced our digital priorities and set specific milestones. We brought in the right caliber of talent to drive this transformation, most notably Rafael Otero, who joined us to oversee technology and operations. Rafael is deep experience in payments and fintech has been instrumental in building our digital foundation. 3 years later, we have been delivering on our plan as promised.

I will touch on a few of the specific initiatives that we are currently working on in just a moment. Our focus now lies on scaling 3 key areas: embedded investment solutions, digital assets and artificial intelligence. We believe these are the digital developments with the greatest potential to redefine asset management and drive shareholder returns.

Allow me to share an analogy that captures how we think about the future of finance. Think about your house or your apartment. You have electrical installations to ensure your lights turn on. There's a good chance that the main electric wiring was built long before you moved in and will stay in place for many years to come. We like to think of embedded investment solutions as the electric wiring of your home. The connections that keep everything running. At DWS, these are the digital links that let our partners connect directly into our products and integrate them seamlessly into their own platforms.

You simply expect those wires to work and you wouldn't replace them unless you absolutely had to. Now every once in a while, a new material or standard is invented like smart grids or renewable energy systems, transforming how the infrastructure works. That is how we see digital assets, a new way of representing asset ownership with currencies, stocks, bonds and funds moving on to blockchain. And like any new standard, success depends on trust and scale, scale to produce at volume and trust, bid on credibility, regulation and the confidence that investors assets are secure.

And finally, you have what flows through those wires, the energy or signals that make everything function. This is how we see artificial intelligence. As the intelligence shaping and optimizing what flows through the system. AI can transform how we operate, enhancing alpha generation, improving efficiency and reducing the cost to produce. This layer evolves quickly, and AI is attracting substantial excitement right now.

Nevertheless, at DWS, we are focused on generating sticky recurring revenues and annuities represented by the wiring underneath the infrastructure and trust layers, which stay the same. And that is why we are focused on building those foundations through embedded investment solutions and digital assets, while using AI to enhance and transform the products flowing through them.

Let's take a closer look at each. Let's start with embedded Investment Solutions. Digital channels are becoming the dominant gateway for investors. We see the shift clearly at DWS with around 1/3 of Xtrackers AUM coming from digital platforms. This brings both opportunity and challenge as products become more embedded. Product providers risk turning into a commodity, while platforms on the client interface.

You first heard us talk about this concept during our Q2 call last year, using the example of how Amazon or PayPal use embedded payment services of Deutsche Bank without the end clients noticing. We described this as operating in a little B2B2C environment with the first B being the little or less relevant B. The same shift is happening in asset management.

Investors will still want exposure to U.S. stocks to German mid-caps, but how they get that exposure may soon become the commodity. At the same time, customers expect hyperpersonalized investment solutions that need to be integrated into their daily lives whenever they need it. That is where embedded investment solutions come in. They are the invisible infrastructure that powers investment platforms and digital channels behind the scenes. Our goal is for DWS to provide the trusted, indispensable IT infrastructure that connects investors seamlessly to products and capabilities wherever they invest.

We've already made strong progress in building an IT platform that integrates our investment intelligence directly into client systems. Our first APIs are live, and we have onboarded our inaugural client, who is leveraging the platform to deliver individualized asset management solutions. Additional clients are already in the pipeline.

Looking ahead, our focus for the next years is on scaling quickly and building a true platform business. For that, we are currently focusing on further developing our IT platform to deploy additional DWS capabilities as a service. Moreover, we aim to establish a partner ecosystem that allows us to offer investment solutions in the modular and flexible way, adapting to client needs across different channels. All of this contributes to our long-term vision to embed our investment expertise seamlessly into both individual and institutional investor portfolios.

Let's move to digital assets, where we have already translated a challenging vision into tangible progress. Over the past 3 years, DWS has established a Swiss-domiciled ETC platform offering physically backed Bitcoin and Ethereum ETCs that give investors secure and convenient access to crypto markets. And when it comes to stable coins, I guess, when we first spoke about this at the Capital Markets Day in 2022, it must have sounded like a pretty bold vision to you. As we are quite early with this topic. Today, we are proud to say we delivered on it. All Unity, our joint venture with Galaxy Digital and Flow Traders launched EURAU, the first fully regulated euro-denominated stable coin out of Germany.

The joint venture stands for expertise in blockchain technology and asset management credibility. And these achievements position DWS at the forefront of digital finance in Europe, combining blockchain innovation with the trust and governance of global asset manager. Looking ahead, our focus is on scaling and diversification. Within the next 18 months, we plan to broaden our crypto offering with a diversified crypto basket of leading digital currencies.

In parallel, we will develop complementary products and services around AllUnity's Euro stablecoin. Once Agentic payments and machine-to-machine transactions become the norm. We want to be the backbone and enabler of that ecosystem, connecting traditional finance with the unchained economy.

Finally, we are preparing to tokenize our first fund with discussions already well advanced with potential partners. Ultimately, our goal at DWS remains to become the trusted tokenizer, the party aiming to ensure each token truly represents what it claims to. When people talk about democratizing alternatives through tokenization, they rarely think about how to ensure the token they buy actually represents what they think they are buying. Tokenization of real-world assets is not easy. While several companies can handle the technology, a few can actually bring real assets on chain in a way that unites technology with legal, compliance and regulatory expertise, while ensuring investor protection.

That is where DWS has an edge. As a fiduciary asset manager, we combine precisely those capabilities, positioning us as the credibility layer of digital finance and the bridge between real-world assets and the digital economy.

Finally, let's turn to artificial intelligence, which optimizes the way the system functions. For us, AI provides the potential to enhance the way we work to deepen investment intelligence, make our products more efficient and effective and ultimately improve client experience. Like many peers, we are testing and experimenting broadly. Our teams are using AI productivity tools, and we're engaging with our Chinese joint venture, Harvest Fund Management, where the use of AI in asset management is already well advanced.

We are in close touch with leading players across the field. And so far, most of what we see at DWS and across the industry has been in efficiency gains rather than alpha generation. But we believe this to be the necessary first step in building long-term capabilities.

Over the next 2 to 3 years, we will focus on creating a data platform with integrated AI capabilities and launching an AI companion that supports and challenges portfolio managers in their daily decision-making based on trained and observed behaviors. When it comes to our long-term ambition around AI, we are distinct from many others in the market. We are less focused on a probability driven what is the most likely answer. Instead, we're doing the exact opposite, not most likely answer, but rather what is the question or perspective that no one has thought of before.

As such, we are not competing with the tech industry to build AI models. That is the domain of tech giants. We are focused on tapping into that new technology to elevate what DWS does best. Disciplined, inside-driven asset management. Our REIT advantage comes from decades of proprietary investment data, the cumulative decisions of nearly 1,000 portfolio managers across asset classes, market cycles and regions.

By combining that knowledge with machine learning and generative AI, we hope to scale human insights and connect the dots others may miss. Our best portfolio managers are the ones who asked the questions that have not yet been asked. Imagine a proprietary AI model that challenges conventional thinking in markets, as sort of digital and Klaus Kaldemorgen on steroids. We see this as a true opportunity of AI and asset management, human plus machine collaboration, not replacing judgment, but sharpening it.

In the long run, we believe AI will be a key enabler of alpha, asset growth and cost efficiency, helping DWS stay at the forefront of intelligent investing. Hopefully, this gives you a clear picture of our overall vision for digital channels, digital assets and AI. Together, these initiatives are differentiating DWS and embedding us more deeply into the digital architecture of our clients and the overall financial systems. They are building lasting value that will sustain DWS well beyond this strategic cycle.

So to wrap-up. In the big scheme of things, the 2025 earnings per share target may appear to be just a milestone. However, for us, as a management team, it is paramount to deliver the EUR 4.50 that we promised you. We are confident we will reach our full year targets and are well positioned to deliver 10% EPS growth in both 2026 and 2027.

Hopefully, today's update has provided confidence not only in our ability to meet our short-term goals, but also in the investments we are making to secure our long-term growth. We're now concluding our sprint to the finish executing with the same discipline and consistency that you expect from us. And now handing over to Oliver for Q&A. Thank you.

Thank you very much, Stefan. And operator, we're ready for Q&A now. And if I may, just remind everybody to limit yourself to the 2 most important questions, that would be very kind. Thank you very much.

[Operator Instructions] And we have the first question coming from Hubert Lam from Bank of America.

I've got 2 of them. Firstly, Stefan, thank you very much for the overview on digital and AI. Can you tell us how much investments are you putting into them across all 3 pillars? And also talk about the time line for these initiatives start paying off in terms of revenues, particularly around the digital assets and the business solutions side of things.

Second question is on P4. I was wondering if you can give us a further update on it, in terms of when you expect it to close? Should we expect that later on this year or Q4 or next year. It seems like also you had some inflows into it in the quarter. So just wondering where AUM is -- or commitments are in that fund today, and what your target is for the fund. I think the last time we checked it was between like $4 billion to $5 billion. I just wanted to confirm these numbers.

Hubert, thank you. I want to actually take both starting with P4 because that's probably the shorter and easier one. So firstly, we do not need any fundraising of P4 to reach our EUR 4.50 EPS. So that we'll get to just with run rate plus consequence of Concept Kaldemorgen. Now our ambition to get to EUR 4 billion to EUR 5 billion, that remains intact.

The question is simply how many investors will come in this year? And how many will wait for the final close, which is Q2 2026? What we currently see in these types of large private equity funds is that there's a very barbelled way of investors coming in. They come in very early to get discounts or at final close, and there's very little upside to coming in between. So what seems to be the case right now is that people observe how we're investing. We just signed a couple of other investments for P4.

Just seeing portfolio, seeing what we do and then potentially come in for the final close. So therefore, we're still fully committed, fully confident in reaching the EUR 4 billion to EUR 5 billion overall. How much of that comes in Q4 versus Q2 next year remains to be seen. And I think everyone remembers that there's going to be a big catch-up management fees, like dating back to August 2024 when that flow comes in.

Now the first question, which I think is a pretty broad question. And also for like all of you smart folks out there, we would love to get your feedback and see what questions you ask. So if you follow-up with Investor Relations on those 3 themes. So embedded investment solutions, digital assets and AI, I would actually personally try to join as many meetings as possible and bring some of the experts because, again, we'd love the challenge. And I want to see what questions you're asking, there's going to be some sort of price for the best smartest questions at dinner in Berlin, where many of the smart folks at.

Now a question on investments and time lines. So how we invest in those 3 is actually quite different. So embedded Investment Solutions is our own folks in sitting in IT mostly. So we have a team of like 2 dozen, a little bit more, it's like close to 30 really smart people mostly sitting in Berlin and London that are working on that. They are folks that have been working in API work for most of their lives, not that many actually have asset management experience, many of them is like fintech background.

But those are people coding, working on DWS payroll. The investment isn't that significant. I mean it's smart people coding, but it's not that we are buying massive licenses. It's really an API platform with intention to then deliver our own services, but I think that's relevant, also in-source services delivered by others, which we will then bundle and deliver to our clients.

For digital assets, the investments are mostly through AllUnity. So in that case, it's basically an equity investment, which, to some extent, translates into human labor and cost at the level of AllUnity. But therefore, that you wouldn't see currently in our cost base, but it would be an equity investment. Obviously, we have plenty of people at DWS sort of contributing to that, but the full-time employees sit with AllUnity.

AI is again different. So there, obviously, we have a few people in tech and data, when I say a few, it's actually like a mid- to high double-digit number of people that are fully dedicated to that. But then that's obviously tooling for everyone at DWS. So most of our folks have access to AI tools and there's obviously licensing costs and so on.

So therefore, for AI, I think we can maybe quantify it at the next earnings call. It's not gigantic, but it's a combination of license costs and then some dedicated folks, but then everyone sort of contributing a percentage of their time to AI. When it comes to time line, I mean, some of those milestones are quite specific. So for digital assets, we said what we do in the next 18 months. For embedded investment solutions, we are pretty much live. I mean it will continuously be improved. There will be more services being added, but we have our first client. So the first revenues will come in. AI like remains to be seen, right? There will be efficiency gains, but for that to be contributing to revenues, it may take some time.

Overall, I think it's difficult to see how -- difficult to anticipate, I don't want to start speculating, how meaningfully that will contribute to revenues and by 1 when? And I think the way that we think about it, and again, happy to take any and all questions on it, is what is the total addressable market for the respective area? What will the future market structure look like? So is it going to be an oligopoly? Will there be many players and so on?

And then third, what does it take to win? And therefore, can we win? I think for embedded investment solutions, the total addressable market is gigantic, but I mean, you can debate how big, but I think it's platforms source products through these APIs, it could be a lot of service like sticky fees, sticky revenues, service fees come in.

I think for payments for stable coin, I mean, who knows what the total addressable market could be, right? It could be in gigantic. For tokenization, which I think is a key feature that so much hasn't attracted a lot of attention really across the industry. What are the revenues generated by custodians, by clearing houses, by exchanges and so on, which I think could all be disrupted once ownership is represented on blockchain. So gigantic total addressable market.

I think we could continue, but I mean, I think that's what we would love to discuss with you how you see that. I think most of those will be oligopolistic market structures, where those that come in early have a better chance of success, and that's why we're so fully focused on it. I think, it should work.

The next question comes from Jacques-henri Gaulard from Kepler Cheuvreux.

Congrats for the results today. Well done. 2 questions, I guess, you replied to it, Stefan already. Your parent company is going to have an Investor Day on the 18th of November. Are you going to issue a press release or anything like that to renew and reiterate what you just reiterate or maybe add new target in that context or no need. And basically, we have the game plan, and it continues as it is.

And maybe the second question as well on your deep dive, which was indeed very interesting. You just mentioned that you had already some clients in the Embedded Investment Solutions. So what type of profile do you get in the type of clients? And are you actively pitching for partners in that area and maybe a little bit, if you can give us even a little bit more color of the tangibility of that?

Thank you, Jacques-Henri. I think, I will again take both. So the Deutsche Bank Investor Day is on November 17, and I will actually present the asset management segment. We will not have new targets. I mean Deutsche Bank is likely going to have potentially until 2028. And then we may have to like add the year '28, but our current financial targets of 10% EPS growth in each of '26 and '27 from the jump-off point of this year's EPS that remains intact and I don't see that changing or any additional targets being added.

Now on Embedded Investment Solutions, the inaugural client is a wealth retail bank, private bank that offers digital solutions and will simply in-source asset management capabilities through our individualized asset management API platform. I think most of the clients initially will be these platforms, neo brokers, private banks that all have digitally savvy consumer clients, end clients, retail clients and need to deliver as management services at scale. I think over time, I would expect institutional investors to also be much more interested.

Think about the pension plan, right? Think about a corporate that wants to provide like Pillar 2 solutions to their clients, you could see how they will just quite like seamlessly in-source those capabilities through an API platform in order to deliver to their employees. So I think over time, most of the, let's say, interaction between us and clients, I would expect to happen more and more digitally through this type of platform.

Now and again, happy to discuss in more detail as a follow-up. But the way you should think about it is there is a platform that integrates all of the capabilities that can be sourced internal. So obviously, a bunch of things we produce, but can also be insourced from other asset managers. That is then integrated into what we show to our -- to our end clients. So will then essentially be a -- well, a client-facing layer. And that could be scaling quite interestingly. But again, that's something that's going to play out over the next couple of years.

The next question comes from Angeliki Bairaktari from JPMorgan.

Just 2 from me as well, please, on alternatives, both of them. So first of all, there was an announcement a month or so ago that Deutsche Bank is partnering with Partners Group and DWS for the launch of Eltif. And I was just wondering, if you can give us a little bit more color with regards to DWS' role in these initiatives. And also why, in your opinion, Deutsche Bank is not just going directly to you, their in-house asset manager and requires a third-party and to launch these Eltif to their private banking clients.

And second question with regards to private credit, you mentioned in your presentation that you are hiring a few people there. Shall we expect to see some inflows already from private credit origination in cooperation with Deutsche Bank in 2026. And perhaps a comment more broadly, I mean, we've obviously seen private credit managers being put much more in the spotlight over the past couple of months with some defaults in the U.S. What is your view with regards to sort of the risk reward at the moment in the market, when it comes to direct lending and origination?

Thank you, Angeliki. I guess it's probably a good sign that there are not a lot of tough questions for our CFO, who's relaxing. So the next question should also be addressed. So on the Eltif, it's essentially teamwork between Deutsche's Private Bank Partners Group on us in which we are -- essentially, we are the one servicing the AFM. So we are the one setting it up, managing the Eltif, but then the capabilities on private markets Partners Group is providing.

Now we have to be honest, right? I mean, Partners Group is a formidable long-storied alternative asset management firm out of Europe with great knowledge in private equity, in private credit and so on. We simply do not have private equity or VC capabilities. So if you choose somebody who is then managing a sort of fund of fund of a variety of strategies, frankly, partners who simply has broader capabilities than DWS, right?

So it was a very amicable, well collaborative discussion between Partners Group, us and DB's private bank. I think over time, we want to develop those capabilities. And I think having that Eltif's true structure is something, which is going to come quite handy for us. I mean, overall, with our knowledge on retail distribution and our knowledge in alternatives, having those Eltif structures for retail distribution in Europe is going to provide upside for DWS.

Now on private credit. We are progressing nicely, again, focused on Europe. As you know, once we have active fundraising, I can't really give updates. But based on very specific opportunities, I see in private credit, I would expect this to start contributing pretty meaningfully in 2026. A team complete and everyone actively fundraising. So senior folks complete. We're still adding like VPs and associates, but senior folks complete and actively fundraising.

I think risk reward and direct lending I don't want to be sort of the person that's not involved in direct lending in the U.S., making smart statements. I think risk reward and direct lending seems to be somewhat exhausted, which is why everyone seems to be focused on asset-based finance. I think what we've recently seen is that understanding, who owns collateral and ensuring that it's not pledged to multiple parties seems to be a skill set, which is distinctly different from credit underwriting of corporates.

So I don't know, if asset-based finance is for everyone. But it seems that more and more focus goes towards that. But otherwise, not a lot to add to what very smart people in the U.S. have said over the last couple of weeks.

The next question comes from Nicholas Herman from Citi.

Just a quick follow-up firstly on P4. So I think I missed it. What volume of commitments have you now closed for P4? The questions that I had are on your '26, '27 targets. You've been very explicit on the building blocks there. But I guess looking at consensus, it seems like the market is struggling I guess, with the revenue part of that. And I guess that's also partly because 2025 is clearly also a high bar with strong contributions from performance fees and from other income.

So I guess, my question is what is the market missing? And I guess the subset of that is, does the current run rate of fair value guarantees make it harder to achieve those targets, but also do your target -- am I correct that your targets seem to imply again outsized performance fees in 2027? Is that correct?

And then finally, just a request, given the increasing importance of your closed-ended funds, it would be helpful, if you could provide private market funds, it would be helpful, if you could provide us with periodic updates on fund performance for each of those key private market funds.

Let me do these like 3 questions. So P4, just to sort of make sure that it gets across clearly. So firstly, we do not need any fundraise of P4 this year in order to reach the EUR 4.50. We are still confident that we get to EUR 4 billion to EUR 5 billion overall. We're currently sort of in the 2s (sic) [ EUR 2 billion ]. Now what we've seen is that investors come in, in a bathed fashion, either very early so in the beginning to get discounts, or at final close, just to see performance of those assets being bought. Final close is going to be in Q2 2026. So plenty of discussions, plenty of due diligence and sort of happening. We just need to see how many choose to come in, in December, which is sort of calendar year, but not too meaningful to those investors or come in at final close.

Now your second question on '26, '27, what is the market missing? I mean I would obviously phrase it more modestly. I mean whatever assumptions you have are your assumptions, I wouldn't -- would be condescending to say that you're missing something. But let me just tell you how we are thinking about it. So when you look at the revenue run rate, right now, we're getting like a little above EUR 750 million on average per quarter. So let's just call it EUR 3 billion to whatever plus whatever Kaldemorgen, Concept Kaldemorgen is going to contribute, right?

So I think it's not heroic to assume that we'll get to EUR 3.1 billion of revenues for this year. I think the [ 1.8% ] of cost, I think everyone sort of believes us. So it will get you to a PBT of 1.3% for this year. Now when we promise 5.5% -- promise, when we talk about 10% or target 10% EPS growth next year, what we previously said is that, that would be a 5.5% revenue growth and about 2% cost growth. That was the underlying assumption when we communicated it.

If you break it down into management fees, performance fees, other revenues and costs, the way that we think about it is as follows. Our AUM in Q1 and Q2 was roughly EUR 1,010 billion. Average in Q3 was sort of EUR 1,030 billion looking at markets EUR 1,034 million, EUR 1,035 million. Obviously, markets have been on fire so far. So our current AUM is more like EUR 1,070 billion, EUR 1,080 billion. So I think when you think about the average AUM for the calendar year 2025, it will probably be in the EUR 1,030 billion on average in 2025.

Now when you think about the incoming AUM going into 2026, it doesn't require any heroic market development to kind of get quite close to EUR 1.1 trillion. Now if you believe our NNA assumption or net new asset targets for next year, right? So the EUR 150 billion over 3 years, let's just call it EUR 50 million for next year. And if you believe that, you would see that our average AUM in the year 2026 would be around EUR 1.13 trillion, right, like EUR 1,130 trillion, just based on where we stand today plus NNA, just by with sideways moving market. So without any market growth assumption for 2026.

Now EUR 100 billion additional average AUM obviously would translate at the current margin into, let's call it, EUR 250 million of additional management fees. Now if you do the math, getting from 3.1% -- extra 5.5% is sort of EUR 165 million.

So now when you look at performance fees, I think this year, we will get above the 4% to 7% target. Even if you assume that next year, we will not quite get there, but be at the upper end of the 4% to 7%, which I think would be conservative, but based on the P2 sales of assets, but if you want to assume that, you have quite some cushion between the additional management fee and the EUR 165 million that we have to get to in order to have revenue growth of 5.5%.

When you look at other revenues, this year was not special. I mean Harvest is performing really nicely. The contribution from Harvest in Q3 was the highest since what, Q2 2023, so we can discuss Harvest. But I think that is going up with the markets going up in China. The NII is stable. You mentioned fair value of guarantees. There was nothing special. I mean, the swap spread is still significantly negative. So you can call it a reserve. So I think the other revenues, my assumption would be for it to be similar next year to this year.

That's how we look at it, right? Again, it would be arrogant to say that you're missing something, but this is how we think about the revenue growth next year. I think the cost, everyone seems to believe us, which is why I mean, let's see what happens over the next couple of days, but that's how we think about the 10% EPS growth in '26 over '25.

Last question on closed-end funds, happy to provide it. I mean what we can say is that our close-ended infrastructure private equity funds are all top quartile performance. But that's a good challenge. So we will add that next quarter. Thank you, Nicholas.

The next question comes from Pierre Chedeville from CIC.

2 questions on my side. You mentioned the new world regarding digital distribution, AI, et cetera. My question is on the old world. And particularly, how do you see the evolution regarding third-party distribution ex-digital partnership I mean, with wealth management companies, things like that. And also the development of your presence within retail regional banks in Germany or elsewhere. In EMEA, where currently we can see a kind of riskier version, but that could change in the future? And are you still ambitious regarding this kind of old partnership?

My second question is on passive management. We can see that despite your efforts and also your dynamism on this part, we see that market share are quite sticky in this area between the 3 major players? And my question was, when you talk about external growth, you always mentioned potential acquisition in Asia. But never, as far as I remember, in the passive management business where we still have some minor players. What is your view on gaining market shares in passive management with external growth. Thank you very much for your very interesting presentation.

Thank you, Pierre. So Mark and I were just smiling at each other because we have like an internal allocation of duties at work. And your questions are also like in my remit. So it seems that Markus had hit it easier. So please, a lot of questions for Markus next quarter. Let me do in like reverse order. So on passive, you're right, the market shares are sticky. In Q3, we sort of grew at our market share.

I mean, is that dynamic or not, probably not as we'd like because growing at your market share implies that you sort of growing with the market, meaning your average and to all of the smart Xtrackers folks listening into the earnings call, obviously, you don't want to be called average. So we want to see more dynamism going forward. And I think that's going to come from further digital distribution partners.

So that's now in the 40s, I think last time we spoke about, it was in the 30s. We just approved the next growth phase of the Xtrackers business. I think we mentioned last quarter. So we approved, what like 20 additional salespeople for new regions, so that will grow. And our ETF as a service, active ETF and so on, gives us hope that we will grow above market like we've done in '23 and '24.

We're not really looking at inorganic growth in the passive space, to be frank. I don't know, if you would need it. I mean, I think our brand is pretty good, and I would want to invest in our brand or further invest in our brand rather than integrate somebody else's brand unless BlackRock wants to sell iShares, which appears unlikely. So therefore, I wouldn't expect any inorganic measures in the passive space.

Now your first question, let us be clear. I mean the digital capabilities, and that's what we -- why we phrased it as such, are mostly for the next generation, right? I mean we benefit from great work done by our predecessors. We are very happy to work hard so that the CFO and CEO of DWS in 2035 are happy with what we've done. I mean, I think it will contribute earlier than 2035, but I think you understand the logic. The vast majorities of revenues from DWS -- for DWS stem from the traditional business. And obviously, the biggest piece of it is our amazing retail franchise, specifically in Europe.

So let's say, traditional third-party distribution is the beating heart of DWS, right? Just to be clear. I think we mentioned before that our disciplined CFO called it whatever it takes in his address to the franchise early in the year, meaning we basically approved unlimited resources, marketing folks, campaigns and so on for retail for 2025, which I think you see in the numbers.

I mean we talked about the positive momentum shift in active equity. In Germany, we are almost flat, right? We had EUR 1.8 billion inflows in Q3, unfortunately, EUR 1.84 billion outflow. So we are slightly negative. But I think this quarter could be the one in which we actually turned positive in retail distribution equities in Germany. So this is by far the biggest focus that we have at DWS and will continue to be a dominant part of our franchise. Thank you, Pierre.

[Operator Instructions] There are no more questions at this time. I would now like to turn the conference back over to Oliver Flade for any closing remarks.

Yes. Thank you, everybody, for joining today and for your continued interest in DWS. As you have seen also our third quarter results, I think, highlight the resilience of our business in a still challenging environment, but it also reaffirms the good progress that we're making towards our 2025 financial goals and beyond.

And with that, I would like to thank you again, looking forward to any incoming questions on digital and other topics. We are around and please let us know, if there was anything that we can help with. Have a good day and bye-bye.

Thank you very much.

Bye-bye.

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