DWS Group GmbH & Co. KGaA

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 segments results, which have a different parameter basis to the DWS results we're presenting now. So I'm joined also as usual. Stefan Hobbs, our CEO, and Markus Kobler, our 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. 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 will now pass on to Stefan.

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 three-year strategic plan, we would like to spend most of our time looking forward at where we see DWS heading over the next three 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 three-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 €4.64, which represents an increase of 56% over the three-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 €1 billion in AUM, and made tangible progress in building and scaling our digital business with launch of our stable coin joint venture and crypto ETPs. We closed the year with a strong Q4 with positive inflows across active, X trackers 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 has 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 multi-year 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. When our organic growth has been solid, client demands skewed primarily towards extractors with less momentum inactive 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 three 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 of improvement, but rest assured, we grade ourselves tougher than any of you would. The past three years have been hard work, but they have strengthened our execution credibility and given us the confidence to be bolder in our targets. Which brings me to how we've designed our game plan for the next couple of years. In Q4, also informed by feedback from you, analysts and shareholders, the Executive Board's step back to reassess whether the financial targets we communicated one year ago still fully reflect the opportunities 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 160 billion euros 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 €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 3,155 million euros, 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 €33.7 billion with total net flows of €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 €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 1 trillion and 85 billion euros, mainly driven by long-term net flows as well as favorable markets. On the top right, revenues totaled 3,155 million euros, 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 1,831 million euros, resulting in an improved reported cost income ratio of 58% for the full year 2025. And as a consequence of operating leverage, we report a 42% net income increase versus 2024, reaching 928 million euros. 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 percent quarter over quarter, predominantly driven by net flows and market depreciation. Moving to the top right, revenues increased to 902 million euros, marking a 20 percent rise compared to Q3 2025. On the bottom left, costs amounted to 486 million euros 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 €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 €10.5 billion and long-term net flows of €8 billion, underscoring the enduring strength and resilience of our diversified product suite. Long-term retail flows stood out with 6.9 billion euros 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 1.1 billion euros, 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 4.2 billion euros. driven by an ongoing demand for passives, including extractors. EMEA, excluding Germany, saw €2 billion of long-term flows, demonstrating strong client engagement across the region, as clients are increasingly receptive to European investment opportunities. The US region recorded 1.1 billion euros in long-term net flows. Client demand further shifted toward highly liquid short-duration products, especially in US fixed income. In APEC, the flow picture turned positive with 0.8 billion euros 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. Their client demand remains structurally strong as well as a positive contribution from active equity. Active assets under management stood at 460 billion euros up 1.5% quarter on quarter. We continue to report positive flows into SQI, our bright spot, reporting 0.9 billion euros in the fourth quarter, with new product launches as well as retirement products being a key contributor. Active equity reported positive net flows of 0.2 billion euros, mainly driven by retail. Fixed income maintained its positive momentum and saw net inflows of 0.2 billion euros, 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-assets 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 innovations continues to support the active franchise. Recent launches include our X-Trackers floating rate notes active usage ETF based on a proven and successful strategy. Moving to our X-Trackers business. Passive including Xtrackers, saw a solid quarter and delivered net flows of 6.6 billion euros, marking the 12th consecutive quarter of positive flows. Asset under management increased to 395 billion euros, up 5% quarter on quarter. The main flow contributor was our usage business, which delivered net flows of 6.1 billion euros. This was mainly driven by equity usage ETFs with good momentum in MSCI Emerging Markets, MSCI Japan, and Eurostoxx 50. Our mandates and solution business delivered €1 billion in net flows, driven by major mandate wins in Germany and Switzerland. These wins support the continued expansion of our X-Trackers institutional footprint and our core equity exposure. Our U.S. domiciled ETFs saw outflows of 0.6 billion euros in the fourth quarter, mainly driven by outflows in Forex-hedged ETFs. X-Trackers remains one of our core strategic growth pillars. As mentioned in previous quarters, Our Xtrackers multi-year 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 progressively expanding across EMEA driving further expansion across key European markets. The contribution of these digital partnerships to our overall X-Trackers flows continues to increase. Q4 concluded a year of innovation and significant activity for the X-Trackers platform with more than 100 product events across the US and U.S. 1940-act businesses. 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 108 billion euros remaining stable versus the previous quarter. Our alternative business delivered overall net flows of 0.3 billion euros in the quarter, with infrastructure remaining the growth contributor within our alternative platform, followed by liquid real assets. Infrastructure contributed 0.8 billion euros of net flows, largely supported by fundraising efforts across various strategies such as Peace4Fund 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 0.1 billion euros. 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 0.9 billion euros in Q4 as traditional real estate strategies face 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. EWS and Deutsche Bank recently signed a memorandum of understanding with Almir Cup 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 €902 million marking a 20 percent increase quarter-on-quarter. Management fees increased by three percentage or by three percent quarter-on-quarter to 673 million euros. This was largely due to higher average assets under management, mainly driven by rising markets and net flows. Performance and transaction fees totaled 173 million euros and include a substantial contribution from our flagship multi-asset fund concept, CaldeMorgan, with 93 million euros, as well as the fee recognition from PIEF II with 60 million euros. Other revenues amounted to 56 million euros, which reflected 24 million euro contribution from harvest, 22 million euros from net interest income, and 12 million euros from fair value of guarantees. Let me move on to the contribution from our joint venture, Harvest Fund Management in China. For over two 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 ranked as the sixth largest mutual fund company in China in 2025. In full year 2025, our stake in Harvest generated 67 million euros of revenues, including 24 million euros 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 219 billion euros. 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 486 million euros, being 12 percent up quarter-on-quarter, but almost unchanged year-over-year despite higher volume-based costs and ongoing investments. Compensation and benefits increased to 248 million euros. It is important to stress that this figure should not be taken as the future run rate. It contains several non-recurring items, including performance fee-related carry costs, share price-related defects, and some severance expenses. Excluding these Q4-specific items, our compensation and benefit costs are below both the previous quarter as well as Q4 2024. General and administrative expenses total 238 million euros, 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 as 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 greater 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 three years, which is driven by three 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 guide it 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 maintain our target of at least 160 billion euros cumulative long-term net flows over 26 to 28, as already communicated at Deutsche Bank's investor day in November 2020. 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 for our disclosure, we also updated you that our excess capital stands at around 1 billion euros 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, freed up resources for automation and AI. In parallel, this work is accelerating further through operating initiatives, including the development of a near-shore 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 extractors, build up our private credit capabilities, and continue to scale infrastructure while we 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 1 billion euro 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 five foreign asset managers in the world's top five 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's global reach. We remain constructive on China and we are exploring selective partnerships in the US. Germany remains our home market and a core pillar of the DWS franchise, attracting strong interest from shareholders and analysts. As Germany's number one 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 schemes such as the Deutschland Funds and insurance runoff platforms, reinforcing our constructive and increasingly bullish view on Germany. Finally, 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 number one 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 platforms scaled, and track records established over time. We've laid much of that groundwork over the past few 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%, while operating leverage will drive the cost-income ratio below 55% by 2027. We 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 optimists, 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 two most important questions, that would be very kind. Thank you very much.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tune to confirm that you have entered in the queue. If you wish to remove yourself from the question queue, you may press star and two. Questionnaires on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and one at this time. The first question comes from the line of Hubert Yam from Bank of America. Please go ahead.

Hi, good morning, and thanks for taking my questions, and 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. Twenty-five 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 know, you've obviously done a very good job around the cost, so just wondering how we all should think about cost growth over the next few years. I think previously you guided it to 2 percent. Could that be better? That's the first question. Second question is on your alternatives, particularly on the credit side. Just wanted an update in terms of your initiatives around there and just the product launches over the next year. Thank you.

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 4.64. So I just want to clarify, is the EPS achieved in 2025 that, you know, 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 €5.10, which would be €10.20 of net income, which would translate roughly to €1.46 billion of profit before tax. I'm sure Markus, and I'm sure you sense his passion for capital discipline, cost discipline, will say something about cost. But honestly, we don't see cost going up from here. meaning the 1830 we had this year, wouldn't expect this to be higher in 26. If you then assume that our other revenues are typically 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 260 million, it sort of requires us to generate 2.83 billion of management fees. So the bridge is sort of 283 of management fees, 260 performance fees, 200 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 1.13 trillion of AUM. And in just For reference, the average AUM in 2025 was $10.38, so $1.38 trillion. So it would need to be roughly $100 billion higher in the average of 2026. Now, we're currently at 1.1, and whatever market you assume probably doesn't look too difficult to get to $11.30 on average. So your question would be around average margin, I would imagine. One thing to keep in mind is that P4, which obviously is well known to all of you, will have essentially catch-up fees for those coming in to the final close, which will be end of Q2. We currently stand at roughly 2.5 billion when active fundraising, which is why I can't go any deeper, but want to get to 4 to 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 feel we've 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, you know, Hubert or your colleagues. But that's how we look at the EPS bridge. Markus looks eager to add something on cost. No, I'm happy to do so. As a side remark, it's Stefan's birthday today. And beside the 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 an ad 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 two counterbalancing effects. We have volume-driven costs, which we see as good costs. We have also investments, which we increase in 26 compared to 25. But on the other hand, we also benefit from efficiency improvement. 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, we differentiate between capabilities, essentially the team, and then fundraising. Team is now mostly complete. We'll have a senior person, so managing director, join us to run asset-based finance in mid-February, so that person is currently in 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 Marcus 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.

Great. Thank you. And happy birthday.

Thank you, Hubert.

Next question comes from the line of Nicholas Herman from Citi. Please go ahead.

Morning, gents. Thanks for the presentation and for taking my questions. Many have to return, Stefan. 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'd like to clarify that the driver's 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? 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.

Thank you, Nicholas. So, you know, the way I understood the question is, what changed from when we communicated 10% EPS growth 12 months ago So a couple of reasons why we felt more ambitious. I mean, 12 months ago, the German government was pre-election. And when you look at the progress, most of the things that happened in 2025 gave 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 Riester reform that I think most of you have probably seen, which will come into effect in 2027. You will have the early starter pensions. I mean, so a variety of things on the pension side. You will have seen the announcement on the Deutschlandfonds. I guess the point I'm trying to make, Niklas, 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 2027. 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. 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. That was before Liberation Day, before Euro strength and all of that. So the gateway to Europe, which maybe 12 months ago was like a 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, but you see that most of those growth levers, growth priorities we've spoken about before, had invested in before, and are much more optimistic simply based on market circumstances, development, mandates, and so on. When it comes to the market outlook, we sort of remain constructive, but there are no heroic assumptions in that. our updated guidance. So this is, if you will, alpha over beta. So we assume sort of constructive markets, but nothing compared to 25 or 24, where obviously market appreciated significantly. When it comes to margin, we do think that margin compression at DWS will be less than one basis point going forward, given the outlook on alternatives. 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 three years, which is something we'll be more optimistic for the next couple of years, which is why we think margin compression will be less than that. On your final point, so 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. 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 extractors sold through digital platforms, which, if you recall, was like 30% when I started talking about it, then was a third. 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. Thank you, Nicholas.

That's very helpful, Stefan. If I could just follow up with that, please, just quickly. 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 53 billion per annum. It was 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 notice is that 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? Thanks. 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 160 cumulatively over three 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 should be a significant driver of highly profitable inflows starting in 27. So a bunch of levers of why we aim to outperform the target. But again, I think the 160 translates into the 10, and then we would want to get higher in order to get to 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 six 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. So I drove $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 X-Trackers is going to continue outgrowing a growing market, as they've done over the last three 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 X trackers. So probably more of the typical passive business. So therefore, I would imagine having sort of a neutral impact on average margin overall. Hopefully, Nicholas has clarified.

That's really helpful.

Thank you very much. Thank you. But I suspect that your peers will have similar questions. So therefore, if any of that is unclear, please. I suspect so. Thanks. Thank you, Nicholas.

The next question comes from the line of Oliver Carretours from Goldman Sachs. Please go ahead.

Good morning. Oliver Carretours for Goldman Sachs. Thanks for the presentation, and thanks for taking my question. Stefan, I know this was not intended as a victory lap, but I think you're probably well within your rights to do so. You've grown revenues 500 million euros over the last two 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 two or three years where the key net cost savings have come from? Because 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 saver to equities 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? Thank you.

Hi, Oliver, and happy to start with the cost question first and looking back over the last few years where we have been pretty stable at around 1.8 billion. We have been disclosing the way we manage cost a few quarters ago, and then we see basically three different types of costs, which is about, I mean, the three items are cost, external costs, then volume-based costs, and then the discipline-based costs. The external costs have been pretty stable. On the volume-based costs, 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 few years is, in particular, what you quite often call below-the-line cost items. You know, we have concluded with Proteus as a transformation project, so the transformation charges went to zero. We concluded with bigger investigations and have no further litigation costs at the moment. And we also hardly have any larger restructuring programs. 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 is one of the big drivers in addition to banking services cost on the non-comp cost item. Because we believe, again, the philosophy is not just cost-driven, but given our workforce being the most important resources and appreciating assets 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 nearshoring and smartshoring centers in India and the Philippines. And that's where you also bring in down costs 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. Then 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 are upgrading our own workforce. 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 technical measures where we simply stopped doing certain things, optimized 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, 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. You cannot expand a graduate program four times overnight. You have to essentially write the curriculum, hire more interns next year, more graduates, and so on. But 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 Marcus and I look at our cost base, you know, I want to stay flat at $1,830. Marcus always says he likes $1,800 more. But overall, it will be like flattish going forward. And, you know, 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 my 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 restock products. And 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 now changed is that you can have yield-oriented products without a capital guarantee, which are yet still subsidized by the government. 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. 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. 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 startup pension, where there's essentially a subsidized scheme for kids. And this basically rolls up, without going 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're 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 two and three, where we see significant opportunities in the coming years. Thank you.

That's really helpful. Thanks for the detail. Very clear.

Our last question for today comes from the line of Pierre Chedevy from CIC Market Solutions. Please go ahead.

Yes, good morning. Thank you for taking my call. One question regarding the development of net inflows. Maybe could you give us a bit more color? In terms of geography, out of the 160 net inflows, what do you see in Asia, for instance? What is the amount in Asia or in US? 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 very much, and happy birthday. Thank you.

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 160, which, again, I see as a minimum over the next three 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 two-thirds and three-quarters will likely come from extractors from passive, which also implies that we will have significant contributions from active and alternatives over the next three years. If you look at the last couple of years, in some years, the total flows in extractors were larger than overall flows, meaning the rest was sort of negative. We think that that's going to be between a quarter and a third of flows from other ethical and extractors 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. It 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?

Now, 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. OK, thank you. Well, I mean, I think that's going up like 20 percent in 25 and looking really, really strong, especially for foreign investors who also then benefited from the euro appreciation. that probably had sentiment in what we know very well, which is managing equities, but in 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, but it's like 14.7% return beating its key benchmark by like seven and a half percent. So therefore I think that strong performance has helped. I think overall, 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 guess what I would say? We are probably more constructive on the sentiment of retail investors than we were three, six months ago based simply on market performance and in 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. Thank you, Pierre.

Thank you. Very clear.

We have a follow-up question from Uber Young from Bank of America. Please go ahead.

Hi. 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, 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.

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 three 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're thinking about it. So essentially that it's probably in line with how we've dealt three years ago. Now, I think the possibility of us doing something inorganically is probably slightly higher than three years ago. So three 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 they've been. However, the way we think about M&A, 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. 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 three 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. So simply, if we're growing faster but we trade in line, then unless we can buy somebody 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. 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's no distinction between us having nice EPS growth and a cost income ratio of sub 60 and competitors having a cost income ratio in the 80s, which, again, I'm not an expert, but I don't comprehend because I think when it comes to the downside of markets became bubbly, we would benefit. Others may, you know, 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 are 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 or 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, you know, not that easy to buy an insurance company because of the accounting implications, but you know, there we look at a variety or a couple of things when it comes to access to clients. Um, that's really just in Asia, what we're interested in. I mean, you saw our joint venture, uh, in India, which is going to be a real acquisition, uh, but with a purchase price in the double digit million. So not like breaking or really impacting excess capital. Like China, maybe there's something to be done. But overall, I think our communication continues to be we are incredibly mindful and disciplined on only doing things which would increase the earnings growth or be equative to growth to shareholders. Otherwise, we just return the capital. That's how we look at it.

Great. Very clear. Thank you, Stuart.

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

Yes, thank you. Like Hubert, I thought given the call was ready to be short, I couldn't miss an opportunity for a follow-up. Just a question, just I guess conceptually, access to captive liabilities, 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.

Thank you, Nicholas. Let me start with... with X-Trackers and then come back to the captive liabilities. So we love the X-Trackers business and the team is really good. What is true is that they had a strong Q1 and Q3 last year, a mediocre Q4 and a weak Q2. 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 2025 was the low-fee core equity. Now, to be clear, this is not meant in a defensive way. We want to go 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 that yet, we quite like what the team has done in ETF as a service, launching six active ETFs in 25. So we're now at 11, signing up new partnerships. You know, we signed up, signed off on a X records extension case. So that team is growing in central Eastern Europe, in Italy, in Asia, in the UK. So again, really trust in the team and the 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'll 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 the captive liability space.

Okay, thank you.

Thank you, Nicholas.

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

Thank you very much, everybody, for listening in and really 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.