DWS Group GmbH & Co. KGaA

Ladies and gentlemen, welcome to the Q1 2025 Results Investor and Analyst Conference Call and Live Webcast. I'm Vicky, the Chorus Call Operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and zero. 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, sir.

Yeah, Vicky, thank you very much, and a good morning to everybody from Frankfurt. This is Oliver from Investor Relations, and I would like to welcome everybody to our earnings call for the first quarter of 2025. Before we start, I would like to remind everybody that the upcoming Deutsche Bank Analyst Call will outline the asset management segments results, as usual, which have a different parameter basis to the DWS results that we are presenting here. I'm joined by Stefan Hobsauer, CEO, and Markus Kobler, our CFO. Stefan will start, as usual, with some openings and also 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 two 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'm handing over to Stefan.

Thank you, Oliver. Good morning, ladies and gentlemen, and welcome to our Q1 2025 earnings call. There's a lot to cover today. In addition to our results and a more in-depth outlook, Markus will take the opportunity to provide a deep dive and shed some light on our alternatives platform, which has more than 100 billion euros in assets under management. This is part of our ongoing commitment to provide in-depth insights into one specific aspect of our franchise with each quarterly update. It may feel somewhat unusual to be discussing quarterly results at a time when market volatility is at nearly unprecedented levels, given the ongoing uncertainty around US tariffs, the future of global trade, and the implications for companies and capital markets worldwide. While our Q1 results reflect a period largely before this turbulence, they underline the strength of our platform and our ability to create shareholder value. The asset management industry is now entering a phase many would describe as a more challenging beta environment. This operating landscape is marked by margin erosion, rising cost pressures, higher volatility, and muted flows for asset managers. This makes the ability to generate alpha for our shareholders, therefore performance above the market, even more important. And we believe we are well positioned to deliver it. I'll return to this in my closing remarks, but for now, let me start by briefly recapping the first quarter of the year. We started the year with strong momentum. Our Q1 results reflect the continued progress towards our strategic goals and highlight the strength of our diversified business model. We delivered 11.7 billion euros in long-term net inflows, 19.9 billion euros, including cash and advisory services. These flows were again driven by a strong demand for our extractors products, where we saw the second highest net inflows in DWSS history. Our active SQI and fixed income platforms also supported net inflows, demonstrating the breadth of our offering. And while we saw outflows in active equities and multi-asset, as well as in alternatives, the latter were mainly due to technical reasons, which we will explain in due course. In a tough environment with continued inflationary pressure, we once again managed our cost base tightly. Going forward, we will communicate our cost income ratio on a reported basis, which improved by 5.7 percentage points year on year and 2.3 percentage points quarter on quarter to 62.2%. Our disciplined approach to cost management coupled with rising revenues of 753 million euros, resulted in a 13% increase of net income quarter on quarter. This demonstrates the strength of our operating leverage. Finally, despite the turbulence in markets over recent weeks, the defensive positioning of our retail equity funds has enabled us to deliver alpha for our clients, a reflection of the hard work across our investment teams and, typically, an indicator of future flows. Beyond our results, our share price continued to perform well, both in absolute terms and relative to our peers. This strong and consistent performance led to our promotion to the MDAX in March, further increasing our visibility among investors. We also delivered on a strategic goal we set out at our Capital Markets Day in 2022, launching a partnership with Deutsche Bank to offer unique, private credit investment opportunities for clients. While this did take some time, the partnership provides us with privileged access to Deutsche Bank's asset-based finance and direct lending books, enabling us to accelerate growth in our private credit unit, an area with increasing client demand. And in April, we concluded the ESG-related investigation in Germany. The settlement had no financial impact on Q1, and draws a line under historical shortcomings that we've previously acknowledged. As we highlighted in the past, we had already taken steps to strengthen our controls and governance and continue to raise the bar on transparency and accountability. Collectively, these achievements underscore the resilience of our business model, the strength of our investment platform, and our ability to perform through continuously evolving market conditions. With that, I'll hand over to the MDAX CFO, Markus Kobler, for a closer look at the financials. Thank you, Stefan, and great to meet you from my end. Let me guide you through our financial snapshot in the first quarter of 2025, from now on focusing on reported figures. This does not mean that we leave out our 2025 adjusted cost income ratio target of below 59%, but would rather focus on the reported one. For your reference, we have included a slide on page 17 in the analyst presentation where we show what the equivalent reported 2025 cost-income ratio would be, namely below 61.5%. Starting at the top left, long-term assets under management totaled to €891 billion, being down 1% quarter-on-quarter mainly driven by unfavorable Forex movements and market depreciation, which have more than offset our strong net flows. Our total assets under management remained flat quarter on quarter and stood at 1 trillion and 10 billion euros. On the top right, Revenues increased to €753 million, which is a 3% increase quarter-on-quarter and 15% year-on-year. On the bottom left, costs amounted to €469 million, being down 1% quarter-on-quarter. The positive top-line development and our strict cost management resulted in a further improvement of our cost-income ratio to 62.2%. Our net income increased by 13% quarter on quarter and 37% year on year, reaching 199 million euros as a result of our operating leverage. Now let's have a closer look at the business environment, more specifically the client dynamics, which we experienced in the first quarter. While we saw a strong flow momentum in Q1, the client dynamics were characterized by risk aversion due to current market uncertainties. The client sentiment can be outlined by the following dynamics. Demand has shifted more towards liquid and short-term products. Flow concentration continuing to be skewed towards high performing offerings where we could even observe a lower price sensitivity in the investment behavior as the margin spread between inflows and outflows has narrowed compared to the last quarter. Our client interaction has further increased as clients were seeking advice to gain clarity and confidence to make informed investment decisions in an uncertain and complex market environment. Furthermore, We have noticed a higher interest in European and German investment opportunities, mainly driven by the anticipated strategic reforms from governments. As a result, and building on our strong positioning as a global asset manager with a leading presence in Europe, we launched dedicated focus campaigns to offer clients targeted solutions aligned with current growth opportunities in Europe and Germany. We continue to prioritize our digital distribution channels where the market is expected to grow at around 25% CAGR in the medium term. Our growth remained above market level supported by strong partnerships and ongoing marketing campaigns across global platforms. Institutional clients largely adopted the wait-and-see approach, keeping their portfolio allocations unchanged while continuing to monitor market developments. a trend particularly evident among corporate clients. Additionally, U.S. insurance clients withdrew money due to expected higher claims arising from the California wildfires. As a result, institutional net flows totaled 4.9 billion euros in the first quarter. For wholesale clients, the flow dynamic was different, as it is more characterized by sticky ETF net flows. Overall, wholesale net flows amounted to 15 billion euros. Despite being cautious, retail clients were more eager to leverage on the opportunity to buy the dip and adjusted their portfolios with active strategies which could deliver alpha in a volatile market. Moving to the quarterly highlights within our active business. In the first quarter, our active assets under management stood at €447 billion, being down quarter on quarter, impacted by the negative forex movement, especially in fixed income products and the overall market depreciation. The flow picture in active remained challenging as overall market net flows continued to be skewed towards passive strategies. In the first quarter, we reported net outflows in our active strategies of around 200 million euros, which were mainly driven by active equity and multi-asset outflows. This was almost balanced by the strong inflows in fixed income and SQI due to the increased demand in short-term and systematic solutions. Despite the ongoing low-risk appetite and structural trend among retail and institutional clients, especially in active equity, we do see a positive development once we are able to create alpha. We are experiencing positive flows into selected thematic funds like DWS Invest Artificial Intelligence by targeting high-growth sectors which are able to outperform traditional markets and align with long-term structural trends. Our flagship funds showed a good investment performance versus peers despite turbulent market conditions over the 12 months and particularly since the start of 2025. DWS top dividend and DWS invest top dividend both significantly outperformed their benchmark. Key driver of the outperformance was their underweight in U.S. equities and strong selection in Europe. Furthermore, our multi-asset flagship fund concept, Calde Morgan, delivered net flows as well as a positive performance. Active fixed income reported strong inflows of €1.1 billion, which were driven by mandate wins and net flows into DWS floating rate notes. The fund benefited from the current portfolio of rebalancing and recently passed the €10 billion AUM threshold driven by both alpha, returns generated through active management and beta gains from market conditions. The positive flow momentum of 1.4 billion euros in active SQI was driven by rule-based inflows from our pension products and successful product launches. A key flow contributor was the newly launched DB step in global equities, which allows investors to gradually enter into equities, mitigating the timing risk by investing into fixed income. These investments are then gradually shifted into equities. The European active ETF market is steadily picking up, with a major flow share being based on systematic active strategies. Active ETFs remain a growth area within our active capabilities. We are not only building up our own product pipeline, but we are also leveraging our ETF expertise on the partnership side to co-launch active strategies. This was successfully demonstrated with the launch of X-Tracker's DJE US equity research. We continue to believe in our active value proposition, which is and remains core to our business. especially in volatile and complex markets. These conditions allow us to demonstrate our expertise, deliver alpha, and manage downside risk for our clients. To reinforce this, we launched our proactive campaign highlighting the benefits of active fund management. The campaign has been well received with positive initial feedback from our distribution partners following its launch. Moving to our Xtrackers business. Our Xtrackers business remains a key growth engine, delivering its ninth consecutive quarter of net flows, which totaled 12.7 billion euros in Q1 and around 76 billion euros since 2023. The positive flow development was offset by forex movements and market depreciation, which led to assets under management of €338 billion. The main flow contributor was our usage business, which recorded net flows of €8.9 billion, marking its best first quarter ever. Driven by the change in sentiment and success of our dedicated focus campaign, we saw a shift towards European and German equity flows. This captured market share well above our overall positioning, with particularly strong demand for our Eurostoxx 50 and DAX ETFs. On the fixed income side, our best-seller product, the Euro Overnight Rate Swap ETF alone captured almost €3 billion of net inflows in the first quarter. To better align with ongoing portfolio rebalancing, we have repositioned our targeted maturity ETF range towards high yield and Southern Europe in response to broader market demand. Our US 1940 Act business captured positive net flows of 0.9 billion euros thanks to our niche thematic offering, which had good flow momentum around China and Forex hedged products. This positive development made our US platform grow to above 24 billion euros for the first time. Our mandate business reported net flows of 2.9 billion euros driven by institutional equity mandates. In addition, the X-Trackers business benefited from the solution partnership launches that we initiated last quarter and the strong visibility generated through recent publicity. We maintained our strong positioning in the European ETF market with a market share of 10.8%. Despite the competitive environment, our margin was not impacted by major price adjustments in the first quarter. Now, before discussing our Q1 highlights of our alternatives business, let me give you an overview of our alternatives platforms. Our alternative business is a core pillar of our growth strategy and is managing over 100 billion euros assets under management. Stefan even referred to it as our best kept secret during the capital markets day, as about 20 years ago, we were the largest alternatives manager globally. The platform spans across three key capabilities, real estate, infrastructure and liquid real assets . Furthermore, we have recently added another core capability, private credit, where we aim to accelerate our ambitions on the back of a strategic partnership with Deutsche Bank. Let me give you a quick overview on each of the capabilities. Real estate. Our real estate business is managing around €60 billion of assets under management across Europe the Americas and Asia Pacific. With over 300 million euros of revenues, it is the key contributor within our alternatives platform. Leveraging deep expertise, we have the ability to invest up and down the capital stack across the risk and return spectrum and across equity and debt. Over the years, we have delivered consistent outperformance against relevant benchmarks. Our flagship products are focused around the Grundbesitz and Reef Fund families. Infrastructure. Our infrastructure platform is managing around 20 billion euros in assets under management and is offering debt and equity strategies with an emphasis on core European middle market private equity. A key differentiator is our track record of innovation, including the launch of the first US infrastructure CLO offering and Germany's first open-ended private retail solution, our Infrastruktur Sondervermögen Fund. Furthermore, we offer an edge over competitors via unique and exclusive investment opportunities in mid-sized companies, with a significant portion of our deal flow being sourced phylacterally. Our LRA platform is among the largest globally with around 26 billion euros in assets under management. As of 2024, it achieved the highest margin across all our alternative subcategories, generating 124 million euros in revenues. We generate strong returns through active stock selection underpinned by in-depth fundamental research. Let me now turn to our Q1 highlights of our alternatives platform. In the first quarter, our assets under management amounted to €106 billion, slightly down versus the previous quarter as the positive market impact was more than offset by forex movements and outflows. The outflows of around €800 million were driven by a technicality within our infrastructure capabilities. the real estate business continued to see signs of relief as incoming redemptions were further decreasing. You will remember that we started during our Q3 results call that we expect to see a positive flow momentum in infrastructure going forward. The reported outflows of hundred million euros in the first quarter is rather driven by a technicality from unutilized capital in our P3 fund, which is booked as an outflow according to our internal definition. The inflows in our infrastructure debt fund were not able to fully offset this impact. The positive momentum in infrastructure continued as our marketing phase for our pan-European infrastructure and sustainable growth infrastructure strategy is ongoing. Our LRA business saw a momentum shift in client sentiment with increasing levels of renewed interest in listed infrastructure while being awarded multiple separate managed accounts amounting to 1 billion euros. With the announcement regarding the strategic partnership with Deutsche Bank, we are aiming to leverage respective strengths in origination and investment management to accelerate growth in our newly established private credit business. In Q1, We advanced our strategic initiatives in real estate by intensifying marketing efforts towards institutional clients and further diversifying our European platform through the expansion of value-add and debt offering. Now let me turn to the outlook. Our diversified alternatives platform is well positioned to capture future growth. Let me go through each asset class and our corresponding growth expectation. The outlook for our real estate business is strongly correlated with the interest rate environment. As of now, the market is rather muted. To ensure we are well positioned when sentiment improves, we are building out and broaden our debt and value added product offering and have in response to client demand launched the DWS European Real Estate Partners Fund in Q4 2024 already. We also see significant growth potential in Asia and plan to expand our fundraising into this region, not only to manage more assets locally, but also to channel capital into European and US markets. As of now, we have built up over 2 billion euros of dry powder ready to be deployed into new investment opportunities. The outlook for infrastructure is poised for growth, particularly in Europe and Germany, where strategic government initiatives are creating favorable conditions. As a European asset manager with deep roots in Germany, we are well positioned to act as a gateway to Europe for international and institutional investors with a focus on APEC and the Middle East. We are confident that our P4 fund will become our largest ever closed-end fund with a target size of around 4 billion euros. We have already raised 1.6 billion euros in the first close, supported by strong reinvestment from existing clients. To attract additional flows, we are expanding our distribution channels retail investors by growing our open-ended private retail solution in Germany. Furthermore, we are scaling our global debt platform and continuing to build our US infrastructure CLO business as we see a strong demand for mezzanine capital solutions. We expect to benefit from continued positive momentum also in liquid real assets. Liquid real assets are increasingly being used as a complement to private allocations, especially among institutional clients and investors. Furthermore, in uncertain markets, liquid real assets give investors the opportunity to diversify into liquid exposures with asset classes that are typically characterized by illiquidity. Leveraging our strong track record as an early mover, we see significant potential to penetrate underrepresented opportunities within the natural resource and supply chain verticals. Moreover, we aim to enhance the partnership with our X-Trackers team to offer additional active ETF products after the successful launch of our active natural resource ETF last year. We anticipate the pickup in demand initially from our institutional clients with retail investors expected to follow as market conditions stabilize. Among all segments, our strongest relative growth case lies in the private credit segment. The asset class is projected to be the fastest growing subcategory in alternatives, with double-digit compound annual growth expected over the next year. Our recently announced strategic collaboration with Deutsche Bank will play a key role in accelerating our expansion. The privileged access to certain asset-based finance, direct lending and other private credit segments will further strengthen our ability to serve a global client base. We expect to launch the first products by the end of this year and beginning of next year by focusing on European asset-backed finance and Asia private credit products. Let me make a remark regarding our European CLO business. As part of the strategic alignment or realignment of our private credit offering in the past month, we decided to focus our activities and capital on differentiating businesses. Due to the latest changes in the market environment, we feel that building European CLO business would not fall into this category. We will therefore not follow through with it. Let me elaborate how the business performance impacted our P&L. Our revenues increased to 753 million euros reflecting a 3% growth quarter-on-quarter and 15% year-on-year, supported by management fees and a favorable development of other revenues. Management fees were slightly down by 1% and stood at €639 million. This development was mainly impacted by fewer calendar days in the quarter. Performance fees amounted to €37 million, supported by the recognition of PEAF II fees. The decrease compared to Q4 2024 is attributed to the sizeable contribution from our multi-asset flagship fund, Concept Calde Morgan, which is usually booked in the fourth quarter of each year. Other revenues developed fairly, quarter on quarter, totaling 78 million euros. While net interest, income, and harvest remain stable contributors with €25 million and €13 million respectively, fair value of guarantees and miscellaneous items reported a positive contribution, mainly driven by the share price hedge. In this context, I would like to remind you that the impact of the share price hedge is EPS neutral. We book the costs in the compensation and benefits line items. Moving now to cost development, which is always a highlight of our disclosure presentation, which I'm very proud to emphasize. In Q1, our cost to that 469 million euros representing a 1% decrease quarter on quarter. The decline was driven by efficiencies in our discipline-based cost structure, which more than offset the rise in volume-based cost. This development reflects our consistent focus on cost management. Compensation and benefits rose by 11% and amounted to €243 million, mainly due to the strong DWS share price development during the first quarter. On the other hand, general administrative expenses declined by 11% quarter-on-quarter to €226 million, while higher AUM led to increased volume-based costs they were more than offset by lower transformation expenses and seasonal effects from the previous quarter. As a result of continued operating leverage, our cost-income ratio improved to 62.2%, down 2.3 percentage points quarter on quarter, and 5.7 percentage points versus the first quarter in 2024. Let me now hand over to Stefan for his closing remarks. Thank you, Markus. It is important to reflect on the broader market environment we are operating in and how DWS can best seize the opportunities it presents. In that context, there are four key questions we believe are worth discussing. First, what assumptions are we making about how the current operating environment will evolve? Second, What does it take for an asset manager to be successful in this environment? Third, does DWS have the right capabilities to lead through the period ahead? And fourth, are our financial targets still valid in light of everything we have discussed? Geopolitical uncertainty and the recent announcements of tariffs, counter-tariffs, pauses and exemptions have added further pressure and insecurity to already volatile markets Investor sentiment remains cautious and the industry is clearly entering a more complex and challenging phase. In this environment, focusing too closely on specific index levels or yield forecasts adds little value. Markets are being driven by fast-moving conflicting forces, making any base case just one possibility within a broad spectrum of outcomes. So what does it take for an asset manager to succeed in this kind of market? Diversification, discipline, and a strong footprint in Europe matter more than ever. And in what is admittedly a somewhat biased assessment, we believe DWDS is well positioned in this challenging beta environment for asset managers. When we look at diversification at DWDS, it goes beyond asset classes. But let's start there. We are one of only a few global asset managers with more than 100 billion euros in each of active equity, active fixed income, active multi-asset and SQI, ETFs, and alternatives. That scale across a broad spectrum of asset classes sets us apart. It means we are not reliant on any one asset class and can remain resilient, even when markets shift or clients' needs evolve. Our diversification also extends to our client base. We are well balanced across the wholesale and institutional segments, and we are not dependent on captive distribution. In an environment where partnerships can shift quickly, that independence removes event risk and gives us greater control and agility. In addition, our global footprint adds further strength to this model. We are growing in regions with rising wealth, and our partnerships, such as Harvest Fund Management in China help to deepen our presence on the ground. This local expertise ensures we adapt to regional client needs and regulations while staying globally connected. When it comes to discipline, we have managed our costs thoroughly, resulting in a solid reported cost-income ratio that is stronger than most of our peers. This gives us a meaningful margin of safety, a valuable cushion in a market where revenue growth is becoming more exposed to volatility and investor caution. With this foundation, any additional revenue growth can significantly contribute to the bottom line, demonstrating our operating leverage. Moreover, having successfully completed our restructuring program over the past two years, we now stand out as one of the few global players in the industry with no ongoing restructuring or post-merger integration. This allows us to focus entirely on execution and growth without any distractions. Together, our diversified business model, disciplined approach and global footprint make DWS a true one-stop partner for our clients, able to support them across investment strategies, asset classes, regions and market cycles. Shifting from our operational strength to strategic positioning, This is where our identity as a European asset manager with deep roots in Germany gives us a unique advantage in today's evolving macro and geopolitical landscape. You may remember me talking about our goal to be a gateway to Europe for a while. For some time, Europe was viewed with caution by global investors amid concerns around growth, stability, and fiscal unity. But that perception is changing. Long-term secular tailwinds are gaining strength across the region, creating new and sustained investment opportunities. For this reason, we expect a structural shift in capital flows into Europe, driven by both improved sentiment and compelling opportunities in sectors such as defense and infrastructure. Germany, with its industrial strength and announced changes to fiscal policy, is emerging as a key beneficiary, In fact, conversations with clients in recent weeks suggest that this reallocation is already underway. And we, as the leading German asset manager, are in a strong position to capture this momentum. While our focus remains firmly on executing our organic growth strategy, we also believe that the volatility ahead could present attractive inorganic opportunities. Periods of market stress often expose structural weaknesses, As well as a well capitalized and focused firm, we are in a strong position to act where others may struggle. This is why it's important for us to continue operating with financial flexibility. Despite paying out an extraordinary dividend last year, we retain a substantial excess capital buffer. This positions us to pursue emerging opportunities while staying laser focused on those that create real value. So what does all of this mean for our financial targets? We continue to target an EPS of €4.50 for the year. This remains both realistic and achievable, even if the recent market volatility has widened the range of possible outcomes. If we recall the original bridge to our target, it was based on three key assumptions. A reduction in one-off costs, performance fee delivery, and growth in assets under management. We've already started to deliver on the first two. Our large and well-known transformation project is fully behind us, and we are starting to generate meaningful performance fees driven by PEEF 2. While assets under management levels decreased in recent weeks, they remain comfortably above the 2024 average that underpinned our target bridge assumptions. With our strong investment performance and ongoing client engagement, we are confident in our ability to attract further net inflows and support AUM growth in the second half of the year. To close, we believe that DWS is well positioned. We are highly diversified across regions, asset classes, and client segments, and we have the scale, financial flexibility, discipline, and strong track record needed to navigate market volatility and a difficult operating environment for asset managers. As asset managers, We are not only focused on creating alpha for our clients, but also for those who invest in our shares. This underpins our ability to deliver sustainable long-term value for all our stakeholders. Thank you, and over to the MDAC's Head of Investor Relations, Oliver Vlade, for Q&A.